regime? is everybody going to float? what a difference this summer makes. tom: it is august. we are going to give you what we can today. right now, we need wisdom on the top headlines. here is vonnie quinn. border,along the korean the most serious exchange of artillery fire in five years. north korea fired a rocket at a south korean border position and that prompted south korea to unleash an artillery barrage. earlier this month, two south korean soldiers were wounded by a landmine in the demilitarized zone. policy makers are getting closer to raising interest rates for the first time in nine years. participant said conditions were approaching the point where the economy could sustain a rate hike. moved to prop up the yuan. the chinese central bank has injected the most money. the yuan fell 3% in three days last week. kazakhstan is the latest emerging market to give up control of the exchange rate. tenge reached a 23% drop. hillary clinton might not have used the private server for e-mails while she was secretary of state if she had to do it all again. she did have her own e-mail account. others had done it before. it was more convenient. that is the thing. she did not really think it through. had had she, she says she would have done it differently. the question is whether classified material was mishandled. notaids have said she did read classified e-mails offer private server. ordered tom brady and nfl commissioner roger goodell to appear in court on august 30. the judge sounded skeptical of the nfl's position yesterday. the saga continues. tom: it was something yesterday. i read the judge's comments and he really went after the nfl. brendan: this is the spokesperson for hillary clinton. it is absolutely not more convenient, what she did. i can understand using your gmail account would be more convenient and tempting. but it was deeply inconvenient. she put a server in her house and maintained it separately. that a chunk of hardware you stick in your home, attached to the internet, manage with software. it is completely inconvenient to do it. it was a conscious decision, not just a thing she actually did -- accidentally did. tom: michael mckee and richard claritin are coming. to -13.ow back crude begins to test $39. on to the second screen. 15.25., west texas is on that $39 in the watch. ./ brent is what the world is watching. through 65, 66, 67. in march, we got 270 ruble per dollar -- to 70 ruble per dollar. of course, the glencore news, as well. as corporations are challenged. i want to get through this in to second's. two seconds. this is the real economy affect when we talk about mumbo-jumbo on the data screen. 15% inflation in russia. brendan: one of the most surprising things is the relative independence of the central bank of russia. stick or as a hockey right angle. we do that for mr. putin because he likes ice hockey. that is a submarine. because he likes submarines. tom: you are all wound up this morning. you wait your wheaties this morning. brendan: sorry. modest confusion ensued yesterday. dovish was the word i saw most often. that is a tinge of further new mediocre. rublenge, the peso, the -- the 30 leaves for janet yellen. michael mckee provides minute by minute wisdom. we are honored to bring in richard from pimco. on of the nation's experts the linkage of central banks. mike, what was the several and few yesterday? are putting markets something that happened three weeks ago in the context of what has happened since. the things they were worried about, the dollar, china, oil prices of all gotten worse over that time period. then you get this dovish interpretation. you have to go back and look at what they also said. close to getting ready to raise rates. it is all about growth. myers, he is not a subtle, quiet guy. larry is all fired up. let's get going. the kazakhstan tenge, will it tell larry to be quiet? michael: i don't think the tenge is going to do it. there were two things people are tired of. one is deflategate. brendan: amen. raise rates already. michael: you've talked about it already. we will get past the volatility. tom: richard, what an interesting soup this august. help us from the chair that janet yellen sits in. the choice that she has. the toolbox she has available. what is it? >> she has several tools in the toolbox. she emphasizes, don't pay attention to the first. look at the past for liftoff, which she says will be very gradual. in terms of what is in her inbox or on her bloomberg screen, she is probably thinking, the world is a messy place. every day, you wake up and see something in china or the middle east or kazakhstan and janet yellen, more so than any that i have studied, is willing to acknowledge that global development are a ". -- are a big input. wirp.an i look at it 10 times a day. thatan: market economists bloomberg surveys have a median call at moving. what is the difference between the way the market looks at a fed call and a market economist looks at a fed call? richard: because the federal funds rate is no longer going to be precisely nailed by the fed, in order to ensure the probability, you have to take a stand on where the funds rate is going to be. different assumptions about where the funds rate gives you different probabilities. vonnie: michael, you talked about the conditions that were around when the fed was meeting last. those conditions have only worsened in some ways. .he dollar, oil we got inflation data that was really tame yesterday. michael: the fed will not have time to assess the way things change between now and then. we don't know how far the chinese yuan is going to move. if it did have a significant effect, how is it going to affect growth? is it better that we see prices low so more people have money to his end -- so people have more money to spend or will it hamper job cutbacks? tom: it is john hicks august. we all know that. real economy effects of the soup we are talking about? what is it mean for europe gdp, china gdp? does it dampen u.s. gdp? richard: u.s. exports have been very weak. typically, we have u.s. export growth in the single -- triple digits. it is virtually flat right now. as you both pointed out, although we write down fears that's a lower energy prices .hould be an issue those all three are playing into the outlook. tom: kazakhstan enjoys four standard deviation moves today. are we going to see a tantrum in the united states? richard: i don't think so. i think kazakhstan is basically a rounding error. sorry. brendan: almost everything they export his energy. tom: there goes that speech he was going to give. [laughter] they don't trade much in the united states, as well. tom: we will be good but, as well. twitter question. let's get through this quickly. which country has the most to lose from china's gdp slowdown? stay with us with markets on the move. it is "bloomberg surveillance." ♪ tom: good morning, everyone. many markets are on the move. we will keep you abreast. our top headlines. vonnie: in washington state, three firefighters battling a wildfire were killed after their vehicle crashed. flames probably overtook the vehicle, authorities say. weather channel may put itself up for sale. the channel's owners of high honored -- have hired bankers. option, selling just the digital business, which has a higher value than the cable channel. you still have a chance to bid on the fabulous sun valley estate owned by the last ceo of lehman brothers. the auction has been delayed to let more bidders take part. you have to make a 500,000 deposit -- $500,000 deposit to make a bid. if there is a video tour of the house, you can't afford it. [laughter] hewlett-packard is releasing earnings. we will also hear from , chasing $10m billion in revenue and maybe a buyer. cory johnson is here. let's start with hp. big changes are coming. what will analysts look for. it is a disaster. it has seen quarter after quarter of declining sales. they are now just going to break the company in two and try to press the reset button. last quarter we saw a 7% sales decline. even as they go into this, things are getting worse for hewlett-packard. the restructuring is the most important thing to listen to. there have been hints that the never-ending restructuring of this company, the one-time charges associated that have gone on for more than a decade -- one-time charges for more than a decade -- is going to go even longer and the layoffs are going to continue and they are going to continue after they split the companies apart. if you equate that it is just a bad time to be in hardware sales, how badly is hewlett-packard doing? is it just the structural change or are they messing it up? cory: hewlett-packard is doing the worst among the big hardware slingers. i sound like i am in a bad mood this morning. let's call it negative growth. [laughter] cory: you have negative growth that ibm, you have negative growth in the hardware business that oracle. but the most negative of the negative growths is that hewlett-packard. tom: help me with that. cory: cisco is doing well and should be commended. tom: i want to switch topics. fiorina do poorly at hewlett-packard? my perception is that she did. clarify this. cory: this is ground that i have trod quite a bit eerie at -- quite a bit. tom: that is why i am asking. cory: the judgment is that the results were poor and they squandered very necessary corporate resources. tom: did she green light that merger? cory: oh my god, she pushed it through with tremendous force. vonnie: a quick word on salesforce.com. it is growing like wildfire. cory: it is growing like an expiring wildfire. [laughter] hewlett-packard -- sorry, salesforce -- the growth story looks fantastic. to low 20'slen off this year. is growth in billings growing more slowly than revenue. when a growth story starts growing at a much slower pace, it is the time that investors tend to worry. it is a profit-free company. sells. buys, 5 somebody loves this puppy. cory: they love it until they don't. tom: are you one east coast or west coast? cory: mountain time. tom: in our next hour, we will talk particularly about china with stephen roach. i will talk to him about labor arbitrage. mexico. an incredibly ugly 20 hours for the mexican peso. it is "bloomberg surveillance." good morning. ♪ tom: good morning, everyone. "bloomberg surveillance." new york city gazes out and gazes south to the financial district, where they are measuring the carnage. let's get to a morning must-read with brendan greeley. china wants great power, not great responsibility. superhero quotes are always welcome on "surveillance." beijing still believes it can by the trust and soft power it craves. as long as analysts don't feel the chinese government's pronouncements are genuinely reliable, skepticism about the yuan will grow. quotes the nixon era treasury chief. "it is our currency, but it is your problem." is that what china is saying to the world? richard: i think it is a little bit more of a subtle dynamic. china is a major factor in the global economy. in 10 years, they will be a major factor for good. right now, they are going through the awkward transition now from a controlled, rapidly growing economy to a much more open and much more slowly growing economy. they are really grappling with that challenge and that transition. brendan: it is my experience with children that all years contain an awkward transition. [laughter] youdan: we have talked with about whether our federal reserve should be paying attention to developments in other countries. is that conversation happening at all in beijing? richard: i believe it is. you have several power centers in beijing. you have the state council and the central bank. by all accounts, the central bank is less independent than is the fed. we need to understand the dynamic within their system is different. a right of passage for the mass crew on international -- math crew on international economics. his china unraveling? is this system around china unraveling? richard: i think they both probably say that there is a risk of unraveling. theconventional wisdom and imf is usually good at the conventional wisdom is that they have the will and the wallet to deal with the challenge. they have the will to address the problems. what is part of the conversation execute the game plan? is there a game plan or just a big wallet with a scattershot approach? tom: stephen roach later. coming up, we have a very special guest for you off the desk at jpmorgan. john morgan will join us. -- john normand will join us next. ♪ tom: here's what you need to know now. futures that -13. all sorts of emerging-market currencies weeaken. right now, our top headlines. vonnie: the fed is closing in on its first interest rate hike in nine years. minutes were released yesterday. they showed the fed is still concerned that inflation is below the 2% target. greece is getting the first chunk of its $97 billion bailout . most of it is already spent. the government is getting $14.5 billion, arriving just in time to pay $3.5 billion to the european central bank. they finance official says greece will spend it. the rest of the cash is also spoken for by suppliers who have not been paid. former president jimmy carter holds a press conference to talk about his cancer treatment this morning. last week, he said liver surgery revealed that cancer has spread to other parts of his body. he is 90 years old. you can watch the press conference live on bloomberg tv. valiant pharmaceuticals is close to a deal to buy the maker of the female sex drive pill that just won approval. the female libido drug will begin sale in october. july was a bad month for the bad -- time-honored swiss watch industry. it had the biggest decline in nearly six years. the swiss say the chinese customers are still buying the luxurious watches, but they are traveling to europe to do it. they are traveling to europe. that is interesting. tom: like they come to new york. vonnie: the euro has depreciated so much. brendan: people in border towns in switzerland traveling across the border in germany to buy things cheaper. always done that, but traffic has gone through the roof in the last year. here is how much things have changed this summer. in late june, we had they had of the central bank of kazakhstan on our air. we asked him about the value of his currency. will reachthe tenge equilibrium and we are in good position vis-à-vis dollar. it is fine. it is very likely he meant what he said at the time, but two months have passed. this morning kazakhstan floated the tenge and watched the value dropped 27%. that is the kind of summer it has been. now fromand joins us london. john, are we moving toward a currency regime in which everything has to load question -- has to float? john: i think you were going through a series of regime changes as commodity prices fall and things are laid bare by fed rate rises. i think anyone who is highly exposed to commodity prices and does not have large foreign-exchange reserves will see their foreign-exchange adjust. brendan: you put a finer point on that in your note which includes a "star wars" reference. you said neither commodities nor commodity currencies have escaped the tractor beam of china's industrial cycle. which is more important? the possibility of a fed move was a reality of the china move that already happened? john: they are both important, but to different degrees for different countries. turkey is a commodity exporter and you think the china slowdown would be a positive for that economy, but because the fed is still going to hike at some point, that is a negative for the lira. it is hard to identify and emerging-market currency that is not vulnerable. tom: you are commanding the most important desk in the world for jpmorgan, arguably. what is the sweat factor this morning? not 1998,know it is but what is the level of exposure this morning as we see things unravel? john: i think it is pretty low. what has happened this morning in kazakhstan is another domino in the chain. last not going to be the one. the fact that the currencies have been falling since the taper tantrum, as we prepare for rate normalization, even though there is a degree of stress in the marketplace, these events are somewhat familiar to people. vonnie: if we do see oil recovered to $50 per barrel, does it follow that these currencies appreciate again? john: no way. not more than 3% or 4%. if the oil price rebounds, that will put a base under inflation in important places like the u.s. that will give the fed confidence to move forward on rate normalization. these countries will just swap problems. i would not be buying commodity currencies if the oil price were to stabilize. you just a short because the fed story is going to take over. brendan: honest asia homero set amarosa said shea is less concerned about the foreign currency reserves these countries have. rand has a lowa level of currency reserves. which currency bothers you the most? john: i worry about them for different reasons. about the foreign reserve base being critical in your determination. this is more of a situation where a greater share of debt is issued and local currency is owned by foreign investors and it is about stressing the balance of payments per week. you can still get the currencies falling a lot. it may not be in the high ty fashion that it was in the late 1990's. tom: when you link your work with your economic team, what is the call on the dollar? john: we are going to get to those levels and we are at those levels on some measure. it is not a rubin dollar. that was backed by high interest rates in the states and by a equity markets. now you have a dollar supported by the weakness of non-us economies. that should make you question how much further this can go. as soon as the u.s. economy weakens in response to a stronger dollar, you would see the move reverse. i still have that is a risk scenario for next year, but that is not the central case. i think we will still make new highs on this. tom: thank you so much. normand from london. oil decidedly continues its decline off the inventory news yesterday. how low can it go? it is the subject of our single best chart. we will do that next. good morning. ♪ tom: good morning, everyone. "bloomberg surveillance." a most interesting morning. time for our single best chart. it has got to be oil. it is west texas intermediate. down we go. we test $40. the red line on the chart. there you are. the single worst commodity known to mankind. peter is aware that canada is flat on its back. we are beginning the rationalization process at $40. what happens when we go to $39? peter: there is no magic switch at $39 relative to $40. you are starting to see companies throttle back on capex. realizing -- seeing that they are realizing that they will face cash flow problems. it is the start of panic, but not panic yet. tom: are they forced to revalue reserves at some point? peter: if commodity prices move lower, you will he a revaluation of reserves. tom: two regulators push that? peter: i think it is a regulator, s.e.c. position. this is a very capital-intensive business. twice a year, their credit lines get reevaluated. the value of the reserves are going to dictate. tom: i want you to brief richard on the demand and supply elasticities you see right now. are you focused on the movement and supply or is this about demand? peter: it is really a function of both. you cannot look at one and isolation of the other. saudi arabia is pumping at record levels. iraq production is strong. resiliency in u.s. production continues. on the demand side, what we are seeing is china is weak. is really important. glencore is rationalizing that everybody is wrong because they keep producing. richard, you are saying that that is what people do. they produce until they die. richard: especially if they are up to their eyeballs in debt and they need to make a payment. vonnie: exactly. there is still strategists calling for oil to go back to $60. what are they basing that on? peter: honestly. i don't think you are missing anything. the prevailing view in the marketplace is that commodity prices will remain low for an extended period of time. lower for longer has been the mantra. the idea that oil will go to $70 or $80 anytime soon is wishful thinking. brendan: peter admitted that he is not a hockey fan. he probably eats tim hortons doughnuts. canada, in terms of its reliance on the oil industry, it is not venezuela or norway. how much of an effect will it have on that relatively diversified economy moving forward? richard: so far, it has had a pretty big impact. the back of canada has been easing -- the bank of canada has been easing monetary policy. a bigmmodity prices are headwind for canada. brendan: all the progress mexico had been making. are we learning that they are all just commodity-based economies? richard: that is the thing. when everything is growing, you talk about diversification. when the tide goes out, you see who is swimming naked, as warren buffett said. tom: when does the margin call start? , a lot ofe group blather about the singapore trading company, glencore. when to the commodity called -- margin calls start happening? , when for u.s. e&p's banks come back to these companies and say, we need to reevaluate these credit lines, oil has had a dramatic move, we need to read extend the amount of credit -- that happens in october of this year. , iyou don't see a pullback would expect production to remain resilient. tom: you have to leave the set. you are driving the price of oil down. [laughter] tom: thank you so much. west texas, $40.25. vonnie: does anyone care about keystone anymore? brendan: that is a really good point. vonnie: exactly. let us talk about our top photos. number three, in the netherlands on tuesday, dutch artists celebrated george orwell's birthday by putting birthday hats on surveillance cameras. he is best known for "1984." artists said they wanted to create awareness about how many cameras really watches nowadays. that is a lot of little hats. brendan: that is a lot of little hats. 404heir name because of the error message you get? vonnie: possibly. [laughter] spain has anr two, annual summer festival. human towers. thousands had to the town squares to watch the teams create the towers. tom: they are just standing on each other. they don't have like plywood boards? brendan: we have at least two people about six feet. that is definitely a metaphor for things working at "surveillance." vonnie: at the top of this one is a child. look at that. tom: this is in spain. vonnie: number one top photo. there is a gold rush in florida. 350 gold coins were discovered on a beach. the 300e found on spanish ships sinking off the coast. into richardegue clarida? gold, norway has gold. what do they do with their goal when their currencies are dropping? richard: for the most part, they do nothing. a lot of countries store their gold at the new york fed. we know this from the plot of "diehard three." [laughter] tom: have you been down there? richard: of course. i talked to someone who worked on the new york fed who said that on september 11, all sorts of security people she had never known existed appeared out of nowhere. [laughter] vonnie: they let you see a tiny tiny bit. little: the rooms of the lockers and they have the names of the countries. tom: it is like at a bar with the scott. -- scotch. richard finally said something i can relate to. [laughter] richard: a lot of companies don't mark their gold to market. gold. brendan: i'm going to do a shameless plug. that is the kind of conversation it can only do -- happen on " surveillance." which company desk country has the most to lose from china's slowdown -- which country has the most to lose from china's slowdown? good morning. ♪ tom: good morning, everyone. "bloomberg surveillance." futures at -16. we are going down a little bit in the last 20 minutes. vonnie: at least nine people have been arrested in st. louis after the fatal shooting of a sus act by police -- suspect by police. the protests started after an 18-year-old was killed in a confrontation with police. the police chief says the teen pointed a gun at officers. when glencore went public, six executives became billionaires. now, only three still have that status. two of them may not be billionaires much longer. shares are down 70% and the ipo. glencore fell almost 10% yesterday after reporting that first-half earnings plunged. tweets, peoplees listen. each of his twitter messages is worth $140,000. that is $1000 per character. we did the math. he has more than 23 million followers. no other sport star is even close. i wonder how they got to that figure. they are a media campaign company. brendan: yes. [laughter] brendan: i applaud your skepticism. vonnie: thank you. brendan: yesterday, the german bundestag voted to support a third greek bailout. the same day, nsa appeared dead titled "what if the troika came to berlin?" appeared . clarida understands the german economy. germany would be subjected to the same structural reforms, what would it have to do? richard: what is interesting to me if the imf and the troika went there, they would point out that germany has a huge current accounts surplus. they are relying on the rest of the world to supply aggregate demand. in the case of germany, they need to let out the belt and have more consumption and probably even more fiscal expansion. the germans are very proud of their surplus. in the global economic equilibrium, their surplus has to be matched by a deficit. brendan: this is something that germany's consul of economic advisers said about a year ago, which is that germany has to pay attention to the same thing it is asking from the rest of europe. their own labor market is very rigid. they just happen to be doing very well as an exporter. richard: exactly. the secret is as much as they complained about the eurozone, germany has benefited incredibly from the weakening of the euro. beneficiary number one is the german exports. brendan: let's look at the export sector. if you look at their trading partners, the netherlands, france, china is third. the united states comes forth. is germany paying more attention to china or the u.s.? richard: i think they are paying a lot of attention to china. they some more bmws in china -- sell more bmws in china than they do in the u.s. now. vonnie: berlin has accepted 800,000 asylum-seekers. is germany going to have to accept people from all over europe looking for work? richard: that is a great question. a lot of the asylum-seekers end up in places like greece and italy, given the geography. i'm sure there is a desire to spread the responsibility, but i don't see a lot of volunteers. tom: my basic take is that we don't understand germany as a general statement about americans. where is the zeitgeist of the country? have they moved on from the war? have they moved on from conrad? they moved on from helmut kohl? where is the nation? richard: i think they have in a lot of dimensions. i think angela merkel dimensions -- embodies the dynamic in germany. she is incredibly popular. she stakes out hawkish positions and then at the 11th hour, she parachutes in and is at the signing ceremony and is still popular. they have their views, but they want to be part of europe. the leaders who succeed reflect that. tom: the president went there, not to recapitulate jfk, but to give a fabulous speech. i have the honor of speaking with ted sorensen. if donald trump went to berlin to give a speech, how would he be greeted? richard: let me tell you, the ratings would be off the charts. they absolutely know who donald trump is in germany. on thishard clarida relationship between germany and the u.s. our forex report could be two hours long this morning. the ruble is getting your 68. ♪ . . . >> this is "bloomberg surveillance." tom: this morning, the carnage continues in commodities. west texas approaches $39. commodity signal supports deflation. can the fed act in september? reacts -- all react to china. with us is stephen roach from yale university. it is a failed out athens. good morning, everyone. this is "bloomberg surveillance." we are live from our world headquarters in new york. 20.sday, august i am tom keene, with me brendan greeley and vonnie quinn. i do not know where to begin with what is moving today. what are you most focused on? brendan: i am fascinated by the 10-year. i am wondering whether it is a bellwether of things to come. tom: some other adjacency there. brendan: yes, if others will be forced to float their currencies. obviously it is a small country, oil x boards. -- oil exports. tom: australia down as well. steve roach will join us in the hour. let's get to top headlines. open market committee meeting, the minutes released yesterday show many policymakers think the economy could stand a rate boost. they are wondering how long it will take inflation to reach the federal the target. china is propping up its currency again. china's central bank pumps funds -- the yuan was the. meanwhile, kazakhstan is the latest emerging market to give a quic control on exchange rate. government switched to a free flow. the two front runners in the republican presidential race are duking it out in new hampshire. sometimes minutes from each other. 2000d trump has about backers and a town hall style meeting in a gymnasium. bush'supped jeb appearance 20 miles away, fewer than 200 showed up for his. and hillary clinton probably would not have used that private e-mail server if she had to do it again. clinton's medication director talked about the controversy on bloomberg's "with all due respect." jennifer: it was just more convenient, and she kept it like that, and that is the thing. she did not really think it through, and she has said she would have done it differently. the fbi is investigating whether classified material was mishandled. the legal dispute between the nfl in tom brady is going down to the wire. a federal judge ordered tom brady and nfl commissioner roger goodell back to court 11 days from now. the judge was skeptical about the league's contention that the patriots quarterback was involved in the football-tampering scheme. those are the top headlines. that deflategate scandal getting messy. tom: the judge really pushed back against the nfl. brendan: i do not think anybody has seen the beginning of this, it was a fun joke dueling between boston and new york, and it now may change the nfl and labor laws. tom: can you really go after a guy on suspect evidence? we will see. i do not have a strong interest in it. as you say, it is a labor issue. we can do a one-our data check. futures negative 15. $40.21 was the intraday low. let's leave it there. it is the morning after. discrete responses from the market. the fed minutes all in all dovish. michael mckee is on "surveillance," and with us this morning, stephen roach, yes he will speak on china, he will speak on his phrase royalty arbitrage. labors -- his phrase arbitrage. he is a royalty check every time it is mentioned. thus even recognize the communications method of the fed? mike: i am sure stephen is smart enough to recognize the communications of the set, but they are not the ones he grew up with. it reflected something three weeks ago that traders are putting in the context of what happened in the meantime. they told us they were ready to raise rates, but they were worried about inflation at the time. since then, the inflation indicators, china, etc., have gotten worse. tom: 2.09% on the 10 year. is janet yellen gaining at 1.99? not at this point. what they are looking at the growth path of the united states. if we continue to grow faster than potential and add jobs, watch september 4, the august jobs report. they will say eventually this will raise inflation, therefore we have the justification to move. brendan: what mike is talking about is the consequence of communication from the fed and data dependent. it puts us all in the seat of trying to be in their heads as they look at last week's communication and this week's data. this from theis way we look at the fed 10, 15 years ago? brendan, it is strikingly reminiscent on when we used to fix on the weekly money supply and try to impute in the minds of the fed were thinking. i want to raise i think a more significant question. the fed's fixation on inflation targeting is ignoring the risks of financial instability. there is a trade-off between stability and inflation targeting. repeatedly, the fed has opted to target the and place. repeatedly we have had bubbles in equity and property, and in credit. i fear they are doing the same thing again. vonnie: some members have brought that up. mike: it was in the minutes yesterday. vonnie: it is a necessary evil for the economy to improve. michael, the fed will be looking at the quality of inflation, then. is food getting cheaper, our people benefiting -- mike: it was a really mixed report of the cpi. it was heavily influenced by airline fares. that was a one off. they will ignore that. domestic inflation starts to grow, and that was a mixed sincee, but as you said, the greenspan years, targeting inflation can be the orthodoxy for the central banks. greenspan says we are in a bond bubble theater stephen roach, are we in a bond bubble? stephen: as we learn from japan, tom, long rates can stay lower a lot longer than you think. tom: the money question this morning with mexican peso moving down, kazakhstan bid, even larger economies turning, central bankers out there in the commodity area -- what is the tantrum that you see coming if we finally get fed action? what level of tantrum will our viewers and listeners see? look, we have got the markets overextended. we have the currency markets in way. -- in play. vonnie used a provocative statements, well, it is a necessary evil. no, it is not. a necessary evil was the financial crisis, the life we have not seen since the 1930's? the fed needs to be mindful of the risk it is creating. vonnie: where are they overvalued? i am not arguing that you're incorrect just wondering -- where are assets overvalued? bonds, tryry equities, what else is left? currencies are overvalued. chinese is telling you that -- china is telling you that now with the renminbi. there is excess liquidity being injected by the fact, the ecb, and the bank of japan -- all of them. brendan: we are trying to think our way into the eccles building. to your point about inflation, what stanley fischer told tom last week as we are looking at our dual mandate, much to our surprise, we cannot get to where we need to get on inflation, so they seem to be very much fixated on getting inflation. stephen: that is the point, brendan, and stan fischer is a wonderful man, a first-rate academic with a wealth of experience, but again this sensation on inflation targeting i think is a recipe for disaster in an overvalued market. mike: it is not so much inflation targeting is they have set their goal and they are measuring their progress against that goal. until they see the inflation rate moving up for 2%, they say they are worried. stephen: you are right, they set their goal. is that the right goal? mike: a lot of people would say it is the right goal in the sense that if we raise rates, you will start to see inflation move up because you will get a dynamic reaction in the markets, and you will squeeze out some of the problem -- tom: we have got to go to break. we come back with china and labor arbitrage. is this that going to be overcome? stephen: it usually is. tends to be reactive, not proactive. that is why they are holding their powder dry right now and will continue to do so as long as they possibly can. they are looking for excuses to delay a rate hike. of: stephen roach with us yale university. are you teaching in school? stephen: you better believe it. tom: he is the toughest greater. talk about -- grader. deflation.grade we will continue the discussion on bloomberg radio for the morning. our twitter question of the day -- which country has the most to lose from china's slowdown? i wrote in and i said roachland. which country has the most to lose from china's slowdown? do that out @bsurveillance. good morning, everyone. ♪ tom: good morning, everyone. "bloomberg surveillance." greeley,, brendan vonnie quinn. mexico peso just blew out the record weakness. this is something, a 17 print peso. that would really be something. game changing for much of texas and over to california as well. let's get to our morning must-read. terry schilling writing up a storm. you know he wants to go to $20 on oil. "i am sticking with my forecast. the check it out price is the chicken-outthe price is the marginal cost of getting the oil out of the ground once the wells are drilled, the pipelines laid and the overhead covered. it is the price at which cash flow for additional barrel drops to zero." gary shilling from amherst college. stephen roach with us from yale university. i was touched by what gary said. for production to stop, like the leadership that glencore says -- will everybody stop mining? they are not, are they? supply is strong, especially with the new technology of fracking. but don't forget demand, and don't forget china, tom. over the last 10 years, china has accounted for 45% of the total growth in world oil demand. tom: does that go away? stephen: it does not go away, but as china slows gdp from 10 normal ofas the new the seven is less oil and energy intensive, that clearly has a major impact on the demand side of the global oil. tom: should the chinese government be more transparent about their stockpiles of commodities? we have no clue about what they have, do we? stephen: we want transparency from china, we want transparency from the fed, we want transparency from everyone. it would be helpful to have more permission on what the mix of these commodity stockpiles are, but we know on the basis of worldwide bp oil statistics, the role that china has played in driving a world oil demand, and it is a huge one. there is no country that has accounted for that much of the increase over a protracted period. brendan: is the quality of that demand going to change if china ever gets around to rebalancing? stephen: absolutely, brendan. energy, andfrom oil, commodity-intensive manufacturing to commodity-light services. that together with a slowdown in gdp growth will reduce the demand for commodities. that is private commodity prices in my opinion right now. tom: all right. on china onceview they work out. later this morning, lori harris ury harris, the optimist from ubs, will be with us. stay with us, "bloomberg surveillance." ♪ tom: good morning, everyone. "bloomberg surveillance." i am looking at bloomberg on my smart phone. markets are moving. let's get to top headlines. turns to fury. south korea fired dozens of artillery shells at the north. south korean officials say north korea is aiming at a loudspeaker. the south has been blaring propaganda broadcasts along the border recently. no casualties reported. the weather channel might go on the market. bloomberg news said it has hired bankers to explore a sale. the channel is owned by nbc universal, the blackstone group. and you can still bid on the idaho estate owned by the last ceo of the lehman brothers. the spread was up for auction yesterday, but it has been related to attract more bidders. it is expected to fetch $50 million. i assume that will going to profit, right? tom: i don't know. brendan: but are there enough bedrooms for all of my children? i have to put a dollar in the jar every time i mention my children. all right, moving to greece. greece agreed to repay 3.2 billion euros, i think, to the european central bank. that money came from the european stability mechanism. essentially, they are taking money from angela to pay mario. our correspondent is an athens. what is happening to the real economy in athens where you are? correspondent: things are not looking good at all. to the third greek bailout, and now we are in the midst of the summer, and we do not need much going on in the real economy, the banks are really hurting the stock market. we are also waiting for elections to be announced. all of that is a drag to the economy. brendan: is it possible to say there has been any kind of halt in greece, just unbelievable deterioration that we saw over the early summer, or have the trend continued? ilis: it depends on how the people reacts to the new measures and whether there will be a government that will be able to cast all of the reforms that are needed from the third bailout package. things are not looking bright. that is one thing we can say for sure. , let's talk alis little bit about alexis tsipras. is he in command of his coalition? will he remain prime minister and definitely? vassilis: that is why he is looking to call for fresh elections as media and greece report. favorable byeen as the majority of the greek population, and he wants to take advantage of that. within the same time, he has a few problems with the syriza party, and he is trying to get clear of all of the mp's that are not with him on this third bailout package or we do see a new government as early as next month. brendan: the argument over the bailout between the imf and germany is whether or not the debt load is sustainable that greece is carrying. what are the thoughts on that in your bureau? vassilis: well, we think that inevitably there will be a grexit at the end of october. refiling is in the cards. it is something european counterparts have accepted. the imf stands on this. we have seen the majority of the bonds, a greater grace period, maybe another 10 years before greece has to pay back. and we also see a lower interest rate. that will be addressed after the second form of measures are voted for by the greek parliament by the end of october. brendan: all right, vassilis karamanis from our bureau in athens, thank you very much. we turn to stephen roach at our desk. when you look at today, basically money is shuffling around through greece and then back out. basically money is going from acronym to acronym within europe. what will happen to help the actual economy of greece? no country isan, going to respond instantly to a bailout package. what this bailout means is that greece is just getting some time to absorb and cope with this, what you call debt sustainability issue. the reforms required for that will continue to be putting severe headwinds on the greek economy, which will be under significant pressure for the next couple of years. hopefully as you have seen in other austerity-inflicted economies, that there will be some light at the end of the tunnel. tom: i remember, steve roach, when you stood up at davos and said, "look, this is all of our fault." germany is looking for fault here. rate isan unemployment great. greece's unemployment rate has exploded. some say the euro will have a new configuration down the road. from your the idea colleagues that germany and the netherlands could make their own central core? know, that has an appealing bring to it, but i think the bottom line, tom, on ownce is by -- it needs its currency. tom: you agree with dr. el-erian that there has to be a workout of the drachma and a restructuring? stephen: inputs enormous pressure on the other levers. in this case, the european monetary union. to compensate. and europe is not going to do that. tom: exactly. he see nominal gdp in the netherlands come straight down. stephen: greece needs its own currency. that is the lever that say, asian economies used in the late 1990's. tom: we will come back here to roach of yale university. greece needs its own currency. what about china and its currency? which country has the most to lose from china's slowdown? stay with us. ♪ tom: good morning, everyone. "bloomberg surveillance." what a morning. if you are joining us, i could do a data check right now, but i'm told by karen i cannot. we have got to do top headlines. vonnie: our producer, karen. tom: we are doing headlines, not a data check! vonnie: [laughs] minutes from last month's fed meeting were released yesterday. policymakers are concerned that inflation is below the 2% target. they say the economy is nearly strong enough to stand a rate increase. greece is getting its first portion of its $95 billion bailout. the government will be spending about $14.5 billion today. it is arriving just in time to pay 3.5 billion dollars to the european central bank. and the finance officials say they will send it. the rest of the cash is spoken for by suppliers who have not been paid. jimmy carter is holding a news conference this morning to talk about his cancer treatment. he revealed last week that cancer in his liver spread to other parts of his body. the former president is 90 years old. we will bring you his news conference live here on bloomberg starting at 10:00 eastern. of the new female libido pill will reportedly be sold soon. "the wall street journal" reports that valeant will purchase route pharmaceuticals. and exports fell nearly 9%, the biggest decline in years. swiss say chinese customers are still buying the luxurious watches, but they are traveling to europe to do it. tom: i do not buy it. apple watch, right? what have you got on, steve roach? steve roach -- apple watch. brendan: and i does have a boring old hamilton -- tom: why do you always use the word "time-honored." stephen: "time-worn." tom: let's save this segment. we will not talk about china, we will not talk about australia, we will just talking about steve roach of yell university. here is the long-term strength of toyota, of the yen, the four-decade trend with a dramatic trend here on abenomics, yes stephen, it is not really done, is it? it is not the deflation for japan. stephen: absolutely, tom. abenomics was designed to end at 0.9% growth in gdp for japan. abe has now been in power for 10 quarters. the growth rate in real gdp over that 10-quarter period is -- guess. 0.9%. tom: what should donald trump worry about a lack of immigration in china? some of that immigration and nominal gdp is because of their dynamics with population, isn't it? stephen: look, i will not take the trump question. he is not good at absorbing or learning anything. aging society that is suffering from low productivity, the demographic headwinds for japan are severe and unwilling to open up to the foreign workers, unwilling to really forr up female labor force dissipation. the underlined growth rate of japan remains under severe long-term pressure. abenomics?e beef for growth followed by 10 quarters of 0.9% growth. vonnie, you had your top headlines on valeant and sprouts. i looked at some of the doctor did it yesterday over the medication. this is not a normal drug. this is not a normal debate. there were doctors heatedly against the therapeutical advance -- aspect of this. you're talkingd about this drug that is supposed to be the female libido drug. let me break the news first, valeant pharmaceuticals is buying sprout now. it will be $1 billion plus milestones. i love that. they are sending the future share of future milestones on this deal, if you like. osprout pharmaceutical drug addyi, is what it is called, did get approval, and it will be available in the united states in the fourth quarter. are cashing out some and then they pick up distribution for valeant. up 3.5%.aleant stephen: going back to japan, that could be helpful for japan. vonnie: well, they need more babies. stephen: there you go. [laughter] tom: steve roach on biotechnology. let me do a data check right now. equities, bonds, currencies, commodities. the euro $1.1173. per barrel. brendan: this is "bloomberg surveillance." i am brendan greeley with vonnie quinn and tom keene. there are two ways to look at china's approach to its renminbi. china has led as a currency -- china has let its currency line up with the imf basket. --way 2 stephen roach, which of those options do you choose? stephen: number two, brendan. freaking out is too strong, but i do not think it is a coincidence that they devalue literally two days after they get a report that exports declined precipitately 8%. in china, there are no coincidence's. these things happen for a reason. vonnie: policy is being made up as it goes on. stephen: there is definitely a grand plan. they have a strategy to rebalance, restructure, and reformed the economy, but they have to mark that plan for market, and what events collide with strategy, they balance the tactical versus the strategic considerations. brendan: rich clarida of pimco in the last hour call that into question. he asked a sort of a rhetorical question -- is there a grand plan? if there is a great plan, what is it to balance the economy? stephen: five-year plan is to move from exports into manufacturing. they are making progress, brendan. there are three levers. they are boosting the services sector. it is up 5% in the last four years, which is pretty staggering. they are urbanizing at a record rate, and urban workers get three times the income that rur al workers do. thirdly, and this is where they are moving more slowly, they are building out a social safety net to encourage consumers to spend their newfound income. they are making progress. look at the imf's latest article iv consultation report published a couple of days ago that echoes the same thing. tom: i noticed ambrose evans pritchard writing in the "telegraph" today, 27% sinceiation of the yuan that historic morning in 2005-year we come back ever so slightly. do you assume we will see a depreciationollard by china until they and asia find an equilibrium point? stephen: they're not going to unwind all of the appreciation, tom. they are pulling back from it because their export industries are obviously under pressure. as much as they want to rebalance from exports to internal private consumption, they cannot do that rapidly enough to shore up the downside of the economy. tom: what policy can the president do to allow them as an adversary and perhaps as a trade ally to do that in a controlled manner? stephen: i think the policy we are missing in the united states is to pry open those markets through a bilateral investment treaty. we need a new source of growth in the u.s. exports and pushing into foreign markets has got to be a key element. we posed the share about as far as we can get it right now, and we need to push into china. is exactly my question, which is that if you are in the vietnam right now, are you looking to what continues to be a growth engine to your north, or are you looking across the pacific to increase trade with the u.s.? stephen: i think you have to look at the real growth engines of the world, brendan, and the biggest growth story of the first half of this entry will be the emergence of the chinese consumer. the american consumer is barely growing! brendan: we have emerged. it is done. stephen: oh, really? i missed that. tom: dr. roach, with all of your experience, what surprised you the most of that morning with a devalued? stephen: they had been holding the renminbi study in two earlier crisis, tom. crisis of financial the 1990's, and the crisis of 2008 and 2009. i thought they would do this thing in this downturn, and i turned out to be wrong. i thought they would use the lever in the time of duress. tom: what does lagarde do with china right now? does she make a courtesy call? stephen: no. adehink the move they m on the currency confirms what the imf was looking for, but if it does trigger another round of currency wars, then she has got a real problem. tom: we should point out renminbi this morning with appreciation, even ever so slight. our twitter question along these lines -- which country has the most to lose from china's slowdown? thank you for your informed response. good morning. ♪ tom: good morning, everyone. "bloomberg surveillance." vonnie quinn, brendan greeley, and tom keene. in trading in currencies, but also any most interesting pharmaceutical transaction. well by sprout pharmaceuticals for one large, $1 billion. how you pronounce it? addyi. the first drug to treat female sexual disorder, desire. i have never, ever, ever seen a drug rollout so negatively viewed by the medical establishment. doctors hate this there a few. olivia: this is not the first time doctors have tried to roll out a drug to treat female sexual disorder or to try to come up with something to boost female libido. consistently, the fda has rejected everything else because of safety concerns. earlier this week, the fda fromved this drug sprout pharmaceuticals. it is because of the risk-safety profile. brendan: they approved it with the risk caveats, you have to be explicit about this list of side effects, and there is a long list of them. it will reallyid focus on the marketing, and that is a huge open question. how you market a drug where you have -- tv: -- ia every drug on olivia: every drug on tv have side effects. stephen: have you ever seen a commercial for cialis? i was interested at the beginning of the commercial, but at the end of the commercial -- no way! a small startup place called georgetown university, she calls the drug "a mediocre aphrodisiac with scary side effects." olivia: people call it the female viagra. they worked differently. viagra increases the blood flow. brendan: we looked at some comments from doctors earlier this week and they basically say it is a huge placebo effect. olivia: this is sort of taking something that works to treat depression and rehashing it for a different indication. should we talk a little more about the deal? there ares, because always two sides when it comes to drugs, and this drug have a lot of hot spots. not just on the drug side of things, but women's issues and equality and so forth. but $1 billion, olivia? olivia: $500 million cash upfront, $500 million later. michael pearson who runs valeant has been on an acquisition spree. this is just the latest. it is interesting because it takes them from their base of cancer drugs and brings them into the women's medicine. vonnie: and eye treatment has been especially. tom: i would just listen to doctors. i have never seen a drug so ill- received. brendan: the next question is whether it will be covered by insurance. tom: fair. agreed. olivia sterns, on "market makers" this morning on this transaction of valeant and sprout. look at black rock as well with peter hayes. stay with us worldwide. ♪ tom: good morning, everyone. "bloomberg surveillance." a lot going on. futures, -14. -17 was below. i'm watching the russian ruble. jaw-dropping. let's get to top headlines with vonnie quinn. vonnie: islamic state is for a caresponsibly bombing in egypt. 29 people were hurt in the explosion at a government building in cairo. islamic state's message said the attack was vengeance for the execution of six militants. commodities firms working hard after posting earnings. fell, the stock is down 17% since the company went public for years ago. when lebron james tweets, people listen, at least according to a company that handles media for athletes here he says each of the twitter messages is worth $140,000. do the math, that is $1000 per character. the nba superstar has more than 23 million followers. no other sport star is even close. with that said, you can tweak us. brendan: @bhgreeley! vonnie: we can boost those tweets. brendan: absolutely. i am like lebron james in many ways. vonnie: i am maybe $.95 per character. tom: steve roach is with us. we say don't panic. the route of emerging markets will lead to outright bankruptcy, forced combination of businesses, but out of massive currency adjustments will, a new labor regime. as the mexican peso plunges, the transpacific labor arbitrage will shift, or will it? stephen roach owns the phrase "labor arbitrage." china's labor advantage of the core. he is at yale university and notices the shifts. steve, ono have you, labor arbitrage. the mexican peso goes down. we have got to do labor there. is it enough to destabilize that labor calculus of china? stephen: well, china has done a for a veryob, tom, long time in competing on the basis of cheap labor costs, new technology, new infrastructure, new manufacturing capacity. that model is tired. he chinese know they have got to move away from the labor arbitrage play to boost exports to more of an increased labor income to boost domestic consumption. they are changing the rules on the basis of the models they use. they need consumption, not exports. brendan: stephen, is there still a labor income play? the concern in india is that they miss this bus. with increased automation, cheap labor is no longer the universal economic fixture and used to be. indian: well, brendan, has missed a lot of buses over the last 15 years to 20 years, and i think they are late in getting into the manufacturing, lead, exports-type recovery. they do not have the infrastructure, they do not have the aiding, and they do not have the rockets that a nation like china does. tom: within the day-to-day news we are reporting, with mexican out fronting, way with his persistence, forever chinese currency play, the game has changed. what do you propose we will see as we unravel commodity, as we unravel emerging markets. will we see the labor shift? stephen: tom, what this is all about is the export-lead emerging markets model, which china was really the poster child for for 20 years, that model has now run its course. export-led economies need external demand in this world to thrive and grow. tom: will we see a seismic shift like 1998? i am not saying we will see the similarities of 1990 eight, but will we see in the coming weeks a seismic shift to drive that change forward? stephen: the aftermath of the great financial crisis of 2008 and 2009 was a signal to export-led developing economies that they want to ignore. they are in denial. they think the developed world is going to come back. well, guess what? seven years or eight years later, it is not coming back, so they have got to move to stimulate their own internal private consumption here in china's only leading edge of trying to do that. we can debate whether or not they have been awful. -- successful. developing economies need to follow the approach and stimulate internal demands, not lean on external demand to squeeze more juice out of a limit. brendan: last week, brian belsky was here and he said since the crisis, we have an focusing on emerging economies. we have to recognize that the engine is north america. is it possible to draw attention to north america and the one economy that is really growing? the engine may be north america, but it is firing him one engine, to coin a name of a book that tom keene edited a long time ago. [laughter] tom: that was a self-inflicted shameless plug. that was a few years ago. stephen: the good book. brendan: [laughs] stephen: i think i wrote a piece in it, too. tom: you did, on labor arbitrage. stephen: how about that? china is making progress on the road to rebalancing. ising said that, vonnie, it facing a lot of short-term, cyclical issues that it is trying to address with monetary policy, fiscal policy, and the currency. this trade-off between the cyclical and the structural is china's biggest challenge. tom: very quickly, steve, one of the great things about your tenure at morgan stanley is you worked with investment bankers come in the trenches trying to make transactions and deals work. are we going to see a workout of commodity bankruptcies and companies' banks financial systems associated with them? stephen: i think it is reasonable, tom. we have seen the commodity play as a one-way place in the early china, and now rebalancing, china slowdown story, the commodity pendulum is swinging the other way. that has caught a lot of commodity producers the wrong way, thinking that china will come back and do what it has done for 10 years. china is not going to do that. tom: one more -- vladimir putin in russia -- does his central-bank have the integrity to attack the weaker ru bel? stephen: i doubt it because russia is a one-engine commodity story. they talk about diversification -- i'm waiting to see it. vonnie: our twitter question of the day, we asked -- which country has the most to lose from china's slowdown? here is the first answer we chose, and thanks to everybody for their answers. i would say kazakhstan, they produce and export copper, which china consumes. interesting. i was curious about that. i looked it up after seeing that tweet. kazakhstan, two biggest export partners are china and russia. oil wheels due to and communists, alliance russia is the clear winner. have both the economic and political traction to lose. brendan: the winner has the most to lose. vonnie: they're a good answer. needs china. china will not need the u.s. in the long term. yellen needs to pick up the red courtesy phone. the pboc awaits. brendan: is that going to happen in the future? stephen: only if emerging markets go to internal demand. they have not done it, brendan, so they remain tightly dependent on weak demand in the developed world. no decoupling for the foreseeable future. vonnie: i will be watching currencies all day long today. that is my agenda. euro just mentioned the because it is a smaller move, but it is seeking a much bigger move? $1.117. tom: well put. what the majors do will be interesting. brendan: the cover of "time" magazine -- front is here, deal with it. tom is giving his trump face. it is an amazing interview. he is now leading in several primary states, not just iowa, and he is changing the policy face of the republican policy. you can see him make pronouncements that are very popular, like repealing the 14th amendment. the rest of the candidates follow him. it is amazing. went -- 10:00ter this morning? when everybody thinks about him, i just read the carter malaise speech of 1979 -- he never uses the word "malaise." we will hear from him this morning. what a show. stay with us on radio and television as the markets move. it is "bloomberg surveillance." ♪ >> live from bloomberg headquarters in new york. this is "market makers," with erik schatzker and stephanie ruhle. olivia: good morning. it is thursday, august 20. you are watching "market makers ." i olivia sterns. corey: i am cory johnson. we are in all week. oil -- olivia: oil on the move, hovering just above $40 a barrel. we're going to ask john hofmeister where he sees the bottom and the real impact it will have on the industries. corey: also, winding down. not too late. a great piece of sun valley real estate and ice in the weather. lehman brothers put his pad up for auction. could be yours for the low price of $20 million. olivia: i heard you had to put down a 500,000 deposit. corey: but it is sun valley. olivia: i love sun valley. time for our top stories. along the korean border, the most serious exchange for artillery fire in five years.