The normal meetings, or they . Are they . Anna the meetings in vienna are getting a good deal of profile. Vienna is going to be the place to be. A lot still on the radar. We have opec tomorrow, the ecb, and the jobs report on friday. Tom now we have photos from japan. I believe video from japan as the Prime Minister, this is a retract, folks, he will a National Sales tax. Much of this was foreshadowed when he was with the president and leaders in g7 and hiroshima where he made very clear he was playing to a domestic audience. Some of this today is the delay of a National Sales tax and really a quite a blood abrupt blow to the fiscal side. To the bloomberg first word news. Vonnie in japan, Prime Minister shinzo avenue a is delaying Prime Minister shinzo abe is delaying the increase in sales tax until 2019. It would make it tougher for the japanese government to deal with the Worlds Largest debt burden. Another sign that chinas economy is stabilizing, for a third month the official factory gauge stayed above the dividing line for improving conditions. They are trying to keep growth above six and a half percent. More labor problems in france. Rail workers have gone on strike and up to 40 of highspeed Train Services may be interrupted. The president is trying to contain labor unrest before the start of the football tournament. Refineries have led to gas shortages. Executives of the airbus and siemens are coming out today against the u. K. Leaving the European Union, morning it will threaten manufacturing jobs. In lima, peru, thousands of protesters opposed to the president ial candidate took to the street. Is a former peruvian president who is in prison for corruption and authorizing death squads. Powered by our 2400 journalists and more than 150 news bureaus around the world. Tom range bound boring recently. You wonder if that will end with the anna, with the american jobs report. On this wednesday, futures are negative six, dow futures at 49. Oil churning. Vix, 14. 59, ae little bit of drama yesterday. U. S. Erman 10 year and the twoyear are in as well. There is brent under 50. Anna strength of the japanese currency i would note. More detail no doubt to follow as he continues to speak and i have seen a couple of ratings agencies talking about waiting for more detail before they decide how this is going to affect or revive the rating for japan. They see the credibility as being hit as what is being described as a uturn by the Prime Minister. Tom doing bloomberg surveillance in japanese, i jon harding tried to get me to learn japanese and i went down in flames. Lets go to the bloomberg terminal. This is our pmi. I do not know where these pmis came from. There is like 47 of them that come out at the first of the month. Here is precrisis where we are elevated above the 50 level, and the recent trend. Is not so much how high above the line it goes as the dividing line. Pmiitis. Anna edwards in london, tom keene in new york, and brian fowler is in japan. With the the headlines Prime Minister is clearly playing to the domestic audience. He will take bold economic steps and implement large scale economic stimulus. Please translate this for us. How will japan respond to the Prime Ministers announcement . Brian first of all, i would expect he will do pretty well in the elections next month. We think he is going to call a double election so that will be perfectly timed. Notice what he is saying, if you months he was saying he would not postpone the sales tax hike unless there were another lehman like event and now he is blaming the world economy. The external economies are at great risk so he has to do this. Tom i do not need you to give me your opinion as an economist, but when i look at the data i have trouble seeing that japan is doing fine. Which is it . Brian you are right to not see it. The Virtuous Cycle that he has been talking about where corporate profits rise and that leads to higher wages and that spurs more consumption, that is not happening. This is his attempt to kickstart that with a boost to consumer spending. A fiscal situation in japan is not going to be as tight as previously thought, so you could call that a fiscal booth boost. Are the ratings agencies liking to see ts . Some of them want a higher sales tax. Brian fitch is a bit skeptical. They have said they think this could be a risk to the commitment of fiscal consolidation. S p says they do not see this as a huge setback so a mixed picture from the ratings agencies. Vonnie im going to take over and recap some of the headlines because Prime Minister abe is speaking right now and says the Global Economy is facing large risks and that is why he is pushing the tax increase. Rod, boldey will take broad, bold economic steps in the autumn however he is not outlining with those steps are. He is talking about using the zero Interest Rate environment to the utmost possible and he will bring forward the construction of the linear bullet train, so this is the fiscal stimulus. I would suggest that there is no replacement for a sales tax increase. He has not said what that might be. Brian i think he is hinting about this autumn stimulus, will be a package. We know it is coming, we do not know how big it will be. Economists say it has to be around 9 trillion to ¥10 trillion. I think we will get the details ahead of the election and try to use that to win some more votes. Tom how alone is the Prime Minister . It was remarkable at the g7 meeting as he staked out his concern for the Global Economy and i believe was met with a thundering silence. Then we saw the drama of the visit to hiroshima by the Prime Minister and president of the united states. How alone is he among World Leaders that the economy is on the verge of a large rest . Risk . Brian we could see this coming and we kind of thought that he was going to use his chance with the g7 leaders to offer this and get their approval and support, and it sounds like they were not really willing to go along with the storyline. He is going to push ahead anyway and that he is that is why he is blaming the risk of the Global Economy for forcing him to make this move. I think he is alone. G7re is some believe in the i do not believe he is entirely alone but he has not got the whole g7 with his version of how history is being written. Anna he is blaming the global external environment but is talking about the biggest challenge as being labor reform. How is he doing on that one . Brian that was the third arrow he was he has been talking about for three years and nothing really happened, so he is right to be talking about it. If he does get the mandate that we expect then he will take that up once we get into september. That could be coming and that would be big. Tom thank you for immediate perspective, brian fowler in tokyo. The Prime Minister continues in japanese and we will have the english headlines across the bloomberg terminal. , i promise toou create environment for sales tax hike. I will take economic measures to support domestic demand. I would say it is a very domestic statement. Vonnie Japanese Equities falling. He is also saying he is going to push investment into childcare and elderly care, equal pay for equal work. Tom the state of the union. 9. 10, the yen, 109. 10. Stronger this morning going nomics. Abe we will turn to the american economy, jobs day, and the opec meeting in vienna. Bob doll will join us. Anna welcome back, this is surveillance. I am anna edwards in london with tom keene in new york. May be new report signaling a slowdown in the euro area economy. According to the foreign market economics, it has expanded in the slowest in a year and companies are hsbc cutting a number of Senior Investment banking jobs. Firstquarter profits fell 15 at the investment bank. The ceo has outlined a threeyear plan to cut thousands of jobs. Will sellftbank almost 8 billion of its stake in alibaba and use the money to pay down debt, and boost its cash position. They are the largest investor in alibaba. Anna thank you. Lets bring into the conversation Gemma Godfrey, founder and ceo of. Abe is giving a big statement as a result of backtracking on his sales tax increase. He is saying the risks being faced are different to that of man shop. At the time of the g7 crisis meeting he was trying to get the other leaders on board to say this was like the lehman crisis so that would give him cover on the sales tax. Do you see the parallels or has he had to back down because the parallels do not exist . Gemma the big risk of him backing down is that he is very popular and if he is not able to push this forward, will we ever see the sales tax hike . Will they be able to push it forward later on . Maybe or maybe not. Japan is struggling with one of the biggest debt burdens and it does push they can further down the road. That is why investors are starting to be a little bit more skeptical and concerned about japan. Saying the also biggest concern is developing economies including china. Moderation seems to be one of the words i heard, muddle through, bumpy landing, all of these phrases i have heard in describing china. How much of a worry is china at the moment . Gemma this is always inevitable. The speed at which china was growing, we were not going to do that so theres always going to be a moderation. It is about managing expectations, and what we should watch for is greater efficiency and productivity in china. We have seen a lot of talk about easing and they are active, aggressive, and accommodative and their Monetary Policy that will they let Zombie Companies fail . Tom when i find interesting is how he manages the message and if you look at the different backandforth on the domestic front. What does it mean for the International Outlook on japan, particularly as seen through japanese yen . But can you frame a dash to 100 . Gemma it is probably their only effective tool to get inflation back into the economy because they are not seeing any Wage Inflation or a resumption of consumption. Therefore, they are likely to allow a falling currency as a tool. Agree, and it is not your fault or my fault. The bottom line is he is managing the message. There is no other way to put it. I do not understand this omics. Where aben is the success . Gemma he is also not convincing the community. It is like the story of the little engine that could. Japan has a massive uphill struggle and there is a lot of skeptic is him skepticism. Andle are still underweight there are valuations on where they should be, but that does present an opportunity that there may be pockets of profit within the corporate sector because they have been focused on using their Balance Sheet more efficiently. Tom i just want to point out, you are singlehandedly strengthening the yen as we speak. We are going to be at 104 by the time she leaves. 109. 70, she is dazzling. We are going to continue our discussion. The Prime Minister speaking in japan, very much a domestic speech. We are seeing the ramifications of a 109. 64 yen. David bloom of hsbc, on the United Kingdom. David bloom on switzerland. This is bloomberg surveillance. Tom good morning, everyone. Surveillance in new york and london. The Prime Minister speaking in japan. Ministerthe prime talking to his nation. Anna edwards is going to talk to us about a morning mustread. Anna all of the focus on japan and we are talking about a two percentage point increase. Lets talk about the morning mustread, larry fink speaking at the Deutsche Bank Global Financial conference yesterday. Here is what he had to say about the Asset Management industry. Agree thereslly going to be a massive shift more into passive so we believe it is going to create a huge consolidation in the Asset Management industry. Gemma godfrey joins us. This is something you have been talking about for quite some time, regulatory costs driving consolidation would not be a surprise. Gemma the greater use of passive is interesting. Onlyood thing is that not do people and up getting diversification and broad exposure, but even high net worth, it is not just for the retail market, it gives them access to the market in a lowcost way. Anna is this good for clients also . If you are passively involved in equities you are maybe having to construct your own portfolio. You are having to make those decisions for yourself. Gemma Warren Buffett said to look at, track the s p and he believed it would outperform the hedge funds. 60 tracker has delivered return in the basket etf about 20 . The second question about advice and guidance being able to help people allocate the assets, this is where consolidation comes in. It is all about delivering a Service Versus pushing a product. Technology and different platforms using this to solve their problems. Tom where are fixed income asset and it meant fees going to be . When you have the low nominal yield, where do they go . Gemma the fixed income market will be under intense pressure as they are working on low market margins and we are talking about a low rate environment so that becomes a volume game. It means that you really have to deliver these types of products and the kinds of solutions that customers really want, and you can capture the market because there is a massive market of people who are looking to protect and grow their money. Tom Gemma Godfrey with us this morning. Coming up, a conversation with the german deputy economy minister, Matthias Machnig. Tom good morning from london and new york, anna edwards with us this morning. Right now to our bloomberg first word news. Vonnie the United Nations is asking for iraqi troops and Islamic State fighters to spare children in the battle for falluja. Estimates 20,000 children are still trapped in the city. Prime minister is offering rare praise for a peace plan from saudi arabia. The plan is 14 years old and would require israel to withdraw from most of the west bank and other territory captured in 1967. More pressure on venezuelas embattled president. Have come out in favor of a recall referendum. Venezuela is suffering through its worst recession in decades. Is blasting reporters for questioning him about donations to veterans groups. Than 100 checks to veterans last week as he was being asked what happened to money taken in, in january. California governor jerry brown has sent a message to democrats quit fighting. He is backing Hillary Clinton and says her lead is insurmountable. She has the best chance of stopping donald trump. News 24 hours a day powered by our 2400 journalists and where than 150 news bureaus around the world. Tom the oecd meetings are happening right now. Not opec. This is the consortium out of paris. It is on among other things, the european economy and that means led by the german machine. Matthias machnig has had a political and industrial career in germany and he joins us. He is a deputy economy minister. What is your number one to do list at the oecd meetings . What does germany want to get out of these meetings to sustain Economic Growth . Matthias the most important question is how can we stimulate more investments . That is the most important thing. Germany is on a growth path for a couple of years but the most important thing is our investment folder is too low. Average and that is also true for a couple of countries in europe, so we have to look at what we can do to stimulate investments in the next years. There are a couple of fields that are very important and decisive. Digitization, energy, and other thing. The second thing is, we will have a big debate on digitization. Use thewe have to do to push of digitization for restructuring our economy to leverage productivity . Wealso have to look, what do have to do to build a level Playing Field between new Business Models and existing Business Models . These are my two key questions on the oecd meeting. Tom i think what people want to know, where is the Silicon Valley in germany . Do you need to regulate and monitor and chastise google and facebook, or just as importantly, do you need to join america in a digital whichreneurial tone, would be a Silicon Valley within your germany . Matthias we have made huge progress if you look at berlin. Berlin today is the city in europe with the most entrepreneurship, especially in digital. That is not as big as of course Silicon Valley but what we have to think of is, digitization is more than the Silicon Valley. It is more than platform econ. That is why we started the process within the German Economy with german countries, what we call industry 4. 0. How can we use the potential of digitization for services, for projection that is more than platform economy . Irc iic with the with the u. S. Consortium, how can we Work Together to bring these different approaches together . Tom one of the great mysteries is where germany needs the euro. Brief us on this. Do you want a weaker euro . Is that critical to the success of germany and particularly around your adjacent nations . No, we do not want a weaker euro. Euro, meaningng that the eurozone is sticking together. That we can show we can solve the problems and we are able to bring the eurozone and the European Union on the growth path again. That is our main thing. It is not about weakening, it is about strengthening the eurozone. That is what we are trying to achieve. Tom Matthias Machnig at the oecd meeting. Thank you so much. I thought it was fascinating to see germany as they adapt to the digital world, clearly the focus of the minister. Much of the anglosaxon model does Continental Europe really want to have . Maybe it is not as immediate as brexit but it is certainly a continuing debate over how United Kingdom like they would like to be. Looming thatne 23 question is being hotly debated. Europe wrestling with how you remain at the forefront of the growth story with the digital economy, how you regulate that an inshore a level Playing Field when youre dealing with such big businesses from the united states. Hsbc, davidegy at bloom. We have the ecb meeting tomorrow, a limited expectation. David the germans are saying the rates are too low and everyone is saying the germans are saving too much. They are complaining about the ecb, the ecb is complaining about the germans. There was a little bit of a stalemate and it got pretty nasty but they seem to have toned it down. I think the euro is reacting. Meeting, the gay wire sticking out of the wall that you do not want to touch in case it gives you a shock. It is not about the ecb, it is about the fed. Anna that wire is particularly live. On the ecb, we are in a holding pattern. That is why i was trying to move the conversation off but you just were not have it. Anna i am determined to stick with something european. Lets go to the pound. I have a chart showing what it has done over the past two days. The icm poll coming out, just today at the top of the hour we got a new report talking about how brexit chance has risen to 27 but did not move the pound. David know, as we know what it is going to do. Markets are reasonably rational even if i am not. Remaina big swing for about 10 days ago, and suddenly we get this poll which comes as a shock to the market. That is exactly sterling behaving rationally. With two forces in cable at the moment, one is the fed, the livewire, and the other is the debate about the eu referendum, and those are the forces moving sterling. If you want ap are play on the fed, use the eurodollar. David bloom, i want to introduce this chart. I guess we are going to use it to stagger to the 23rd and you just showed anna cable and the european dollar. This is eurosterling, i find it remarkable how well behaved it is as a polling meter. Is there a heavy play on eurosterling now . Is there a bet either way by the fx community . David the thing is when we show the chart and table yesterday, you have two forces with the star early sterling versus the mighty dollar, the fed and the eu referendum. You can take the fed out of it, take the live wire out of it. Some people are using that as a hedge and think about the issues. Sterling his actually appreciated against the euro but against the dollar has done nothing. Tom help me with steve majors housecall on a low rate. What is that going to do to german yields . I have noticed german yields have not gone lower but they certainly cannot find a higher yield, lower bund price. You just assume german yields grind down with u. S. Yields . David it has been a brilliant call. We are looking for yields to stay low and keep low, and that is part of the german problem. They have a massive savings ratio in savings rate, and they put money in and there are no returns. Some of the Smaller Banks are closing and that is causing issues in germany, social and political issues. It is trying to put pressure on the ecb, so an interesting dynamic, but the low yields are here to stay. They are going to sock emerging markets yields lower as well. Us, withd bloom with age sbc with hsbc. 0. 136 ,an 10 year, grinding lower this morning. We need a wednesday data board. Anna has got to be dazzled by our new york data board. Abe moving theg, yen. Yen amid the shift in sales tax. This morning, it is an International Bloomberg surveillance. Vonnie Prime Minister abbe in japan speaking to Parliament Saying he is delaying the sales tax that was to go from 8 to 10 . He is delaying not to october 2019 and stocks are dropping in japan, but the yen is strengthening especially versus the u. S. Pound the u. S. Dollar and british pound. Fiscal measures that will bring forward construction of the bullet train and bringing equal pay for equal work. To ichael mckee with us monetary economics and japan is a original. Michael they have an original situation. Tom they have such high debt they could not have rates go up. Michael they could have rates go up. The next question is how do they stimulate the economy. Tom is this a failure of one of his arrows . Vonnie we are going to have to wait for another generation of japanese to be born. Michael potential growth is very low. Are inna, from where you london, as you observed the Prime Minister, what are you thinking . Anna i am reminded what happening the last time the japanese put up sales could sales tax. It caught people by surprise. Was it the right move . David nobody on earth thought they were going to put up the sales tax. Basedoubled the monetary and added another 10 trillion to qe and it did not work. They are not going to be raising the sales tax which will slow the economy down into that environment, it is just not possible. The question is, where does that go now . Are we talking the whirring sounds of helicopters . Tom Michael Mckee with us and that means fed policy or draghi or vienna and opec. No it doesnt. China on Michael Mckee on china. Michael whether to include china a shares in their index. A shares are those traded on the shanghai composite and the shenzhen market and were previously unavailable for foreigners to buy. Difficult, that you can get them for hong kong. The white line, msci a shares index and you can see the run up into the decision. The vertical line is when they decided to postpone the decision , and when you look at what happened to the markets after estimated 1. 6 an trillion benchmark for that index. Included the a shares, Fund Managers wouldve had to buy the stocks. The problem for them was that they did not do that, they postponed it. A major disruption for a market that was a major disruption so they are going to decide this year whether to do it this time. But the air is out of the bubble. The msci has yet to announce a decision and they say if they include them, they will only include live percent of the a shares. Vonnie that is more than the 3 they had originally been talking about. The other point is that Goldman Sachs has raised the point the possibility of this happening. There was a 70 chance they would include the a shares and there was some front running yesterday. The biggest jump in three months on the hope they would do that, and last night and including some adrs. Tom this is a very simple chart. The jump up basically because people doing front running. Go back to the earlier chart and take a look at the far right. You can see how they have diverged this year. The best thing that happens is the things that do not happen. Chinese stocks have not gone up. They have been there has been quite a diversion. Anna is this a oneway story . Once in, is this something you never leave, sort of a Hotel California . Is it hard to kick countries out of this kind of index . Concern that is a because if china does not continue to liberalize its markets, artfully or managers are concerned about having to buy this. Managers are concerned about having to buy this. It is a difficult situation. Vonnie there was a major change that may allow this to happen, the idea that China Companies could suspend trading in their shares. That has gone away. Michael they are not supposed to do that, but still about 10 of chinese a shares are subject to halt and that is why people are concerned the msci might be rushing this decision. Tom a great briefing. We need to pause and notice that anna edwards is quoting the eagles. Did you see how she got that in there . Otel california i would break into song. Anna that will be the last of my musical references. Tom coming up on bloomberg his, Jeffrey Currie on longer thesis on commodities. Tom good morning, everyone. Tom keene in new york, anna edwards in london. David, you have been focused on the swiss franc. It is managed to say the least. How will it react to the dynamics of sterling in the european economy . David i think if we were to remain, and the choice of the people is to remain, nothing, boring, go back to sleep. If we decide to leave, what is the fallout . Is there political fallout . What happens in europe . Is it possible there could be some contagion . About get very worried the whole political dynamic of the eu project. We will be looking for a european safe haven. The yen has many issues of its own. The dollar i think well start focusing on the euro selection and people will look for a european safe haven until this is done. Tom are you looking at the drama of january, two januarys ago . Switzerland is spending its treasure to support their economy. What Tipping Point are they at right now . Are they near a Tipping Point where the snb has to decide and make a choice . David no, i think they have taken it out of play. When we talk about safe haven currencies, we talk about the yen. Now we talk about qe changes and fiscal policy. Since that big drop you. 2, it has died. Everyone wants to leave it alone. Everyone that killed it as a safe haven currency. If the u. K. Decides to leave, a could engender it back and spark it back into life as a safe haven currency matter what the snb thanks. Hsbc. Avid bloom of on june 1, we continue to focus on this important june 23 vote. Anna edwards and i will continue. The final headline by the Prime Minister in japan, he is not considering a general election at the moment. To see yen strength and of two 109. 61, a lower number indicating yen strength. Ina moving more than 1 dollaryen. Om a little bit of movement coming up, im really looking forward to speaking with bob doll. He is the one who invented the phrase christ to perfection priced to perfection. Tom call it tmi wednesday. This morning, many purchasing managers index. We consider the u. S. Tmi at 10 00 a. M. Abe with comments in delaying of the National Sales tax. On thursday, american drugs on friday, and of course opec meeting in vienna. And Lessons Learned from han solo and the death star. There is vonnie going to work. I am tom keene in new york. Edwards is in london. I do not even know where to begin other than the question of the Prime Minister of japan moving the end this morning. Strengthening by more than 1 . A delayed reaction perhaps to what he had to say about perhaps delaying the sales tax increase. As a very domestic speech well. He is not calling for a general election. We will have some of that within our bloomberg first word news. Vonnie a new Economic Outlook warns that the world is slipping into a low growth trap. A think tank says the government bears the brunt of the blame. Airbus and siemens are coming out today against england leaving the European Union. A referendum will be held june 23. More labor problems in france. Some rail workers have gone on strike, and up to 40 of highspeed Train Services may be disrupted. Hollande strikes by oil finery rivers by Oil Refinery Workers israels Prime Minister, benjamin then yahoo , is offering rare pay for is offeringanyahu rare praise for the saudi arabia peace plan. President obama returns today to the site of his first president ial trip. He will travel to elkhart, indiana, a city that has been rejuvenated by a surging recreational industry. Argue thatnt will voters should put another democrat in the white house. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world, i am vonnie quinn. Tom thanks so much. We need to dash to tokyo. Jodi schneider is there. What is it a surprise that he did not call for a general election . I not really. We have been hearing he was not going to do that, but he was going to try to make this more a policy speech rather than a political speech. He did not it was many details on the policy side either, but gived try to he did not us many details on the policy side either. Tom is anybody saying outright that abenomics is a failure . Everyone is indicating or a lot of people are indicating that it has failed in certain ways. The economy has been going between contraction and very slight growth, wage gain is nil, and the Consumer Prices are not rising. So the promise of those gains , althoughe would see it is rising, it has not taken effect. Abe himself made the case tonight that he will live in another push in the next 2. 5 years before he raises the sales tax in 2019. We will see. We did not get many details, but we did get tantalizing statements about what might come and also in the fall. Any clues about what hes talking about there . About investing in childcare and elderly care facilities. Childcare here has not had as many as much investment as many people would like. Rapidly aging population, elder care is going to be needed. That was an interesting, kind of tantalizing item. He did not talk about the fiscal stimulus everyone was waiting for. We were waiting to see a number. We did not see a number on that. He just said bold economic steps in the fall. Much, jodiyou so schneider, late evening in tokyo. A data check let me get through this quickly. Six, maybe lowe for the morning. Oil a little soggy. Currencies churning. I would note the german 10year, 0. 13 as well. Anna as we were talking with jodi schneider, we are down 110 mark, dollaryen. Gdp out of australia better than estimated in the early hours of our morning. Tom i have been waiting weeks to speak to one robert doll. He joins us right now. I do not think you and i have ever seen a wall of worry, of selected, measured gloom like we have got right now. I have got to think bob doll is loading the boat. People arek uncertain. They are cautious. They do not know what to do because there are a lot of crosscurrents, and the market has backed it up. It has gone nowhere for 18 months. Tom how do you know which way you go . Bob we do not know. The key is corporate earnings, and my guess is in the second half it will get a little bit better. Tom within that is wiggle room on an income statement. That is what you do best, you look at revenue dynamics, maybe tda. Maybe ebi bob in this environment, anywhere and everywhere. The key is topline growth. We need some revenue. Tom which leads right into nominal gdp. Bob in the second quarter, we may get 5 gdp, almost 4 guaranteed. Tom does that filter into the profits with cash flow underpin . Bob even those of us who think we will we are not singing a song that says earnings will be double digits. If we can get 5 Earnings Growth in the second half, that is good news. If you take out the banks, they have their own stories going on. Take energy, maybe, because that is a different dynamic as well. You look out at the rest of the investment universe. This has been about costcutting, and how much of it is the topline you have been searching for . Bob certainly not enough has been topline, and that is why we need better nominal gdp. Areas break out the two you mentioned, even last year we saw Earnings Growth in the midsingle digit area. It was obfuscated because of the dollar going up and oil going down, but under the surface we are where we should be at this point in the cycle. Mediocre growth. Anna where is investment for this point of the cycle . Many people are asking why businesses Interest Rates are so low and they are not investing more. Are you surprised . Bob i am not surprised. We do not know what the rules are. Transaction, and the government turns around and breaks it up later, or you do not know what the Regulatory Environment is going to be or the tax environment. Like investors with uncertain the, corporate managements are facing the same thing, so they are reluctant to step forward, and investment has stayed well below what we would like to see. Vonnie clarify your position. Does that mean you should be happy with the amount of equities you own, or should you be buying more . ,ob it takes a leap of faith and that is what it is in the second half, with earnings. I am not going to go to the mat. This backandforth trading range is a plausible strategy. I do not think we will get the big collapse some people are talking about. Everybody istever doing with the 401k, the doubledigit nirvana we all got addicted to it and now we are three yards and a cloud of dust, to use a football metaphor. What kind of stocks are best, and given the single digit world we are living in . Bob too any people are saying, where is my doubledigit return . My guess for next year, seven. It is only a 5 compound return. Where do you get that . You have to look for free cash flow, revenue growth, places where companies have the flexibility. If you do not have free cash flow, you have one hand tied behind your lack you have one hand tied behind your back. We have a real treat for you. Coming up in the hour, it is a nod new book. I say ought with great respect. Walter isaacson says a gem of a book. The world according to star wars. Things to talk with cass son steen about on bloomberg surveillance. Anna welcome back, everybody. We are in london and new york. M on a edwards in new yor i am anna edwards in london. Tom keene is in new york. Xiaomi has bought almost 1500 Technology Patents from microsoft. It is part of a bigger deal between microsoft and skype being sold on cheramie phones. Xiaomi phones. Viacom shareholders want new management. Sumner redstone removed opec ministers say the oil market is moving in the right direction. The cartel is holding its biannual meeting this week in the and a. Oil ministers from nigeria and from the United Arab Emirates signal that our prices that lower prices are working. Tom lets look at opec right now. Our guest joins us from london this morning, from barclays. What i am focused on is the idea that it is not 1986. It is actually worse. How grim will this meeting be for all of opec . Saudi us it is all about sense, given that the market has changed quite a bit since their last meeting. We do not expect them in particular to make any sort of decision, but the market is very favorable. 4 million a day has been off the market because of unplanned outages, and there is no sense of urgency as much was a few months ago. For them to take action. As much as opec has become defunct, it is a case where the market has done its job. They are lucky, because prices are going in the right direction. Tom i am fascinated how saudi arabia will be greeted at these meetings. Thatohn micklethwait with very important meeting and interview with the new leadership of the royal family. Will the royal family attend . Will their new leadership attend . And what will they sell in vienna . A saudi signal that is very important. In terms of how we see the oil minister, his language in particular, with regards to how he deals with the media, he had a great poker face when it came to telling the media what exactly saudi policy is. He seems to be different. As you mentioned as well, the saudi royal family is having an saudi oil policy. Policy trumps economics. You can see more of that from the statements in general. Tom thank you so much. We greatly appreciate it, in london. I love the idea there of opec almost a side drama, all of the noise that is within the market. How do you filter out the noise, whether it is vienna or draghi howrrow, the jobs report do you filter out the noise and do securities or sector selection . Bob the world has gotten so dominated with all the macro goodies. Take the company apart, just ignore it, and get into what is the top line growth, where are the margin changes . The macro stuff will affect the market, but not necessarily a company. Tom can you own exxon mobil here . Bob you can own exxon mobil for that part of your portfolio that you do not want to change much up or down. Tom i am not getting much enthusiasm here. Bob if you think the market is going up, i dont think so. Opec isust mentioned, essentially defunct. The u. S. Has become the swing anyucer, not saudi arabia longer. That changes the dynamic, so the meeting is political and less economic. Anna when you are looking at the oil sector, and looking at your models around the oil sector, how far out into the future do you go . Some suggest that as the world is changing, as even the saudis are preparing for a postoil environment, we should all be pricing these things differently , using a different discounted cash flow that puts more value on the sustainability of the environment because that is what policymakers are doing globally. Does that filter into your model . Bob yes, it does. The big swing in oil prices are thenrintable, and predicting stability in a model makes sense. When you do that, you need oil a lot higher than where it is to make it interesting. Twos, as theyof say. Vonnie you brought a calculator with you. Bob oldfashioned. Tom this is embarrassing. Munros like bill grosss trader. Are you getting meac go bob it gives me good answers, tom are you kidding me go there are down and out is that i think are worth paying attention to. Walmart, target. You have to hold your nose ibid. Bit the buy some of these banks. I think the elegy, which is finally done better, has more to go. Onesn more to the cheaper apple, cisco, qualcomm but i am willing to buy mastercard, discoveres me to financial, another one. Health care is redo for health care is due for a recovery. There are 6, 8, 10 names that make some sense. Is with us. L i want to quiz him on the price perfection of the market. Stocks 5, multiple how many 25, 27 multiple stocks are out there . Has identified lower for longer more than anyone. He has gotten that right over the last 18 months. Good morning. Tom if you are just joining us, bloomberg surveillance. How about the morning mustread . The backdrop to Prime Minister abes speech today. Two ways to encourage the japanese to have kids within this wonderful essay, the Abe Administration is already trying to get japanese people to work less, but these efforts are going to be met with a great l of resistance depends japans culture values long , long billable hours, and companies inefficient Management Practices means that Many Companies need long hours to stay competitive for long hours. It is the way, isnt it . Bob it does not encourage them to have kids, and that is their problem. They do not have enough people with the population shrinking. You cannot grow your economy. Tom this decades chronic sense of it is huge. It has been decades of malaise. Bob japan has been fighting this for years. It has been decades. No question. Europe is going in that direction as well. Tom this is a chart we have shown a bunch of times, the boj meeting. Here is the abenomics like this morning. What a defeat if we get strong yen. Vonnie it must be absolutely disheartening. Obviously abenomics is part of the plan. What about immigration. What about immigration . Why cant they just change their stance on immigration . Determinants as thegrowth of a culture entire focus of abenomics is on productivity, and that is great, but immigration is a problem. It is negative population growth. They are not having babies. They are going to continue to decline. Anna the reasons we are also interested in japan it warns us where other countries could go if rates are low and populations age. Bob we all know aging populations in the developed world the death rates are about the same. Birth rates in japan or a little lower, in the u. S. They are a little higher, but not much. The whole difference is immigration. Positive, theig source of a lot of u. S. Growth. It is part of the politics in an election year, which is interesting. Tom can i read from the bible, can i read from the bible, please . Side. To use the dark tom good morning, everyone. Anna edwards in london. I am tom keene in new york. 109. 53 right on the yen. Here is vonnie quinn. Vonnie the United Nations is fight for troops in the for fallujah to spare children. 20,000 children are trapped in this city. Been a year since eu began an antimigrant smuggling operation in the mediterranean. The German Government says 103 boats have been intercepted during that time. Almost 70 smugglers have been arrested and charged. In japan, Prime Minister shinzo abe will delay a sales tax increase until 2019. The move may help consumer spending. It will also make it tougher for the japanese government to deal with the largest debt burden. Chinas economy is stabilizing. For a third month, the dividing line signals improving conditions. Keeprities tried to chinas growth above 6 . Donald trump is pitching himself as an insurgent. At the same time he is privately telling donors he will not try to oust Republican Leaders in congress. Trump has committed to keep House Speaker paul ryan and Senate Majority leader Mitch Mcconnell in their positions, and that is seeing as that that is seen as a signal that he would that is seen as a signal that he would cooperate with Republican Leaders if he becomes president. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world, i am vonnie quinn. Tom were celebrating summer books. We had Fareed Zakaria in yesterday with his book on education. And Cass Sunstein with his wonderful jewel on star wars. First we have to massively rip up the script. Here is the liberal on the conservative. Was superb. Cass. His was a jewel, please explain to us your wonderful relationship with antonin scalia. Cass nino scalia was one of the faculty. He had humor and kindness and there was no sense that across political differences there should be any tension or anything like that. He encouraged me to develop my own ideas. When he disagreed with them, as he was on the supreme court, he was pretty candid about that. But he really tried to make your arguments better. He thought if he could convert you to a different point of view, that was great. But what was really important was human beings and also the power of the arguments. Tom in the time of our politics, how do we get back to that discourse in america . Cass i think you should see people not as part of a different tribe but as part of your country trying to do the best they can. And if it turns out that you disagree with them, that is how families are, that is how friendships are, and the idea that i am on one side and you are on another side, i might win you, you might win i think that is antiamerican. Tom that is not consistent with star wars. Essay hereout the after the show. This book will make up on you the world according to star wars, by Cass Sunstein. I was dazzled how i fell into the book. What was the Biggest Surprise you immersing yourself in the mythology of george lucas . Cass the extent to which the george lucas,ted the director and the maker of star wars, improvised. There is a view out there that he figured it out all in advance, that he knew darth vader was the father, that luke and leia were the siblings. That kind of arc of the plot. He knew, that he was the advance creator. That is not at all true. There were flashes of insight. And leia kind of kissed romantically. Probably they were not supposed brother and sister. Darth vader had exactly nine of screen time in a new hope. Vonnie he was building an empire there with star wars. Cass when he started the moving copy when he started the movie, he wanted to buy flash gordon. That is not greek and roman history. He also wanted to remake a japanese movie, which the first script looks like. It is a great movie, but it is silly, without any of the depth and imagination of star wars. Keeping the drafts, which some people thought were really bad coming he obsessed it and worked it and produced it over the course of i would say six, some would say 3 a saga that outran his original expectations. Anna i like the conclusion that you had, that star wars does not tell you what to think, and that is one of the reasons why it is so popular. Differentrn so many stories and say that is what star wars is about. What are the lessons of this book . Who takes the big lessons from this . Is it policymakers, screenwriters . Reading therom various stories about what star wars is about . Cass number one, each of us in our individual lives. Obsession was,n after doing the whole set, is freedom of choice. That each of us has two different paths, even today. We can choose one or another, and sometimes with the large choice, one is about kindness and helping people, the other is about selfishness and potentially cruelty. Or you can choose to move your life into a different direction with a relationship or a career. If there is one theme that isolate if there is one theme that star wars isolates, even respects freedom of choice. The focus on it is an american greek andch draws on roman myths, on christianity, on freud, and a whole lot more. Ask you,as going to how much of a parable for europe is there . Which story do you prefer . Cass for me it is about three things freedom of choice both as individuals and in the political domain, about redemption the idea that the worst person in the world and this is a christian theme darth vader. He can be saved by an act of great bravery at the last stage. And the third theme is dads. The movies are all about dads. Vonnie you have done a huge amount of work around behavioral economics. When you apply that to what we see in star wars, wings like hubris and the fatal flaw things like hubris, the fatal flaw, the downfall of the empire how could things have been done differently . Cass it at a key stage democracy had reared its beautiful head, then the empire would not have taken over. If at an early stage anakin he was notad decided going to follow the path toward the emperor, the hitler figure, then things would have been completely different. If luke had decided i am not going to go with Obiwan Kenobi lderaanthe run two a apologies to the geeks out there it would have been the emperor. Tom bob doll. There are so many models to the death star. Anna . Talking about star wars was not one of the things i would be thinking i would talk about on this wednesday. 10950 6 109. 56, chinese currency. Gdp data out of australia. The pound a little calmer today. We will be back. Anna welcome back. Bloomberg surveillance. I am on ad i am anna edwards in london. Tom keene is a new is in new york. First quarter profits fell 15 at hsbcs investment bank. Ceo Stuart Gulliver has outlined a plan to cut thousands of jobs. Southbank is the largest investor in alibaba and has more than 170 softbank is the largest investor in alibaba and has more than 170 billion in debt. 170 million in debt. That is the Bloomberg Business flash. I am distracted because we are still talking star wars. Are still talking star wars, the world according to star wars. Cass sunstein, with a jewel. It is a short, sharp, and very deceptive look, on the many themes of the death star and the rebel alliance. Here is a quote of the moment. sbounces off robert kagan oped in the washington post. Steen essor sun i do not sunstein, know if mr. Trump or senator sanders read you, but these are times. Is it becoming a certitude in our discourse, as robert kagan said in the post the other day . Cass i would not say yes, but it it might be even a set i would not say yes, but it might even be an essential question. Star wars, which is in some ways a cartoon, is on to a deep historical theme which is true, which is in a time of polarization and division when nations are struggling, with lets say the Free Movement of persons, often a tough guy or a strong leader who may not be as respectful of constitutional ppeal, even on a the democratic side. Tom within our checks and balances, you have Justice Kennedy quoted in your book. But far more, the legislative branch is it so broken that balancet be a check and either for president clinton or President Trump . Cass i think it can be a check and balance. There is a story written to the extent that president obama and president bush have been criticized for imperial authority. I do not think it is fair criticism, but it is out there. Both of them have been checked by congress. The things that they wanted to do, they did not get to do. With a polarized and divided congress, they are not doing things. They are not doing essential things. Infrastructure is an example, where democrats and republicans know in their hearts that we need infrastructure. They are stuck. In the worst case, that is dangerous. In the best case, it is harmful. Anna how under threat do you think is global trade right now . This links into the conversation around donald trump, and we have been hearing this from various populist politicians in europe and other parts of the world as well. Global trade and the benefit of global trade has been hailed by such a success, by those at the top of the political spectrum over recent years, and not everybody sees those benefits. Cass my view on the merits is that the consensus that global trade is a good idea is correct, and if it is under threat that is a big problem. 010, it isf probably around 3 or 4, which is higher than the threat level to global trade in the last 20 years. The reason is that there are populist movements that are suspicious. They have not been able to succeed yet, but you can see an intention to get them to succeed. Tom bob doll was in the trench as those things came across the snowy tundra in the Empire Strikes back. Jump in with a question for the professor. I thought the Empire Strikes back was the best of them all. Bob i am fascinated by this absence of leadership. It comes out in the films, but where does that take us politically, the absence of political leadership, the failure of corporate ceos, the failure of the clergy, sports heroes . Vonnie in other words, who is Luke Skywalker . Cass lets have the good version of it. If there is a failure of leadership causing damage, there is a big appetite for it. That can in certain circumstances lead to big progress. So a company that is stymied by lack of leaders, you might see someone like steve jobs, who, whether he is a delightful person or not, people dispute your it but he certainly was a world historical figure as a leader. There are other examples. A vacuum at the top can lead to the emergence of excellence in the corporate sphere. In government, the same thing. There are people doing fantastic work. You have never heard of them often. They are often civil servants. They do not lead a cabinet department, but they might be driving excellent results. That can be helpful. There are two bad stories of an absence of leadership. For a longis stasis time, and you are seeing that in congress. Actor,er is a bad leaderly but untrustworthy. Tom Cass Sunstein, thank you for coming by today. The world according to star wars. A surprising book for summer reading. I picked it up and said great, star wars, but it is rich and thick with things to think about. Cass sunstein will continue with us on Bloomberg Radio this morning. On the politics of the nation, with all due respect. Futures, negative seven. Dow futures, 59. This is bloomberg surveillance. Tom good morning, everyone. Bloomberg surveillance. Lets do a forex report. 109. 56, a strong yen off the disappointment of the sales tax delay announced by the Prime Minister. We saw that in the 5 00 hour. David bloom of hsbc i thought was very smart on watching the core european pair as well. Anna he said that strips out the live wire with the fed, doesnt it . Coming up shortly is bloomberg westin, meganvid murphy, and jon ferro. David, what do you have for us . In vienna,s meeting we are going to be joined by jeff currie. We will talk about oil and some other commodities with jeff. Credit markets are something we talk about every day. We have the head of 5th street Asset Management. He will talk to us about his section of the credit market, and also why Companies Like his are struggling a bit. Finally, 1. 6 5 billion of us are on facebook every much. We will be joined by the Senior Leader of facebook to talk about facebook and also what is happening with traditional media , and how they have to change to respond to digital media. Tom carolyn is great. They have a lot going on right now. David westin, thank you so much. Right now, our single best chart with bob doll. Bob doll is our guest today. It is a long chart that goes back to when bob doll was a young whippersnapper in 1900 you can see the depression, the huge move across the 1930s. We go up to what is called the carter malaise, which is not accurate, but that is what everybody calls it or it that is the despair but that is what everybody calls it. That is the despair. Are we going to have another malaise . Bob we have had a malaise. The market is flirting with alltime highs. When you have an economy growing 2 and you are used to 3 , that is a big change. Maybe we could get some tax reform and some regulatory reform, half a point for each of those and we could be back to three. Am i dreaming or is that possible . I do not think it is out of the question. Anna are you also dreaming about productivity gains . Bob the half and a half would lead to better productivity. That has been so disappointing. We know the reasons why, and unless we turn that around, we are going to be stuck at this two level for quite some time. Tom we have a center tendency of consumer stocks third bob doll has led with the idea with all these boring stocks and money will be minted. But there is a thought where even bob doll has to blink. Are we there . Bob i think it is time to do some rotation. Those names have gone on farther than i thought. The reason is people do not have any confidence in our innings in earnings on the other side, the cyclical side. If the economy gets better, we will get cyclicals taking some away. Tom what kind of cyclicals . Technology, these are cyclicals. Much cheaper valuations. It does not take a whole lot of improvement in fundamentals. Bonde are you watching yields at all . If something happens there , at the bond yield 180something on the 10 year treasury, is telling you do not give up on your staples. If the switch i am talking about is going to happen, we will not see by guilds as low as 180something anymore. Tom what is the biggest mistake you have made in the last 12 months . Expecting growth to improve. Like so many people, i thought we would get better nominal growth. On the real side and the inflation side. It has been so slow, and it is a function of all the things we talked about and the lethargy that comes from it. Tom thank you so much. Vonnie you can close your Wikipedia Page now. Doll, thank you so much. Anna edwards, thank you so much in london. Thank you so much for today. Bloomberg. Jonathan Prime Minister shinzo all be will delay a increase in japans salestax until 2019. David the oecd blasts governments for letting the economy slide into a selffulfilling drop. Jonathan to our viewers worldwide, a warm welcome to bloomberg. I am Jonathan Ferro alongside david westin and megan murphy. Going to include technology. Were very excited to have carolyn e person even worse in joining us. We will discuss Digital Mobile and how they are changing the globe the Business Models of companies. Megan jeff curry joins us on the set. From oil to iron