really came after the inflation numbers. a little bit of a mixed risk picture. u.k. equitiesthe in the bond market are closed for the holiday. contracted 12.8% in the second quarter. that is one of the numbers that we got out of europe. joining me now is par a garvey -- para garvey. what is happening in the bond market? is it covid? is the inflation number? what stood out? the bond market is all over the place. what we are getting now is a sawinued echo of what we last week. we have the bond market with an attempt to price in the inflation theme. one of the biggest arguments theme. the reflation inflation butwant we know that the boj and the ecb have been falling all over themselves to manufacture inflation and haven't. the whole replacement story is that we have a massive output gap. are exceptionally weak. that is the big conundrum. do you pric ein inflation and reflation against a back trap -- backdrop where you know there isn't any inflation? alix: selling off yields in the long and is -- long end is weird. plus the lack of growth. is that positioning? do you take it seriously? are we seeing investors look for inflation down the road? >> italy is complex. when we look at italy, we are looking at the inflation story. will push uprates the italian long end rates. from ast things are growth perspective, the work -- the more concern there are about debt dynamics. italy is about 150 over germany. it is not too long ago that it was up to hundred over. -- 200 over. there is a lot of volatility out there. the: do you think that inflationary world in europe wi ll turn disinflationary if we keep propelling higher with the euro? >> we are bang on zero in germany. there is officially no inflation out there. if you look at the expectations they are benign. been a bigy hasn't mover in terms of inflation. euro won't firmer help. dollar breaks above 1.20 in a convincing manner and heads toward 1.25, we won't be surprised to see the ecb get concerned by that. alix: in the backup and yields, where is the backup in yields a good thing? >> is a good thing if we have dates.yields in long argument is if curves are steepening, and if long rates are rising, it means that markets are pricing in inflation. you want to see the bond market dire.ce itself that it is that can change on the back end. alix: when we are watching with the market is believing how much until it gets bad? point until the inflation markets tap out? >> this is where we have to bring in supplies. if the curve is steepening sufferingvestors are where youn, that's would have the yield curve , i think that's what we are looking at if the 10-year got to 1%. below those numbers it is good to see the curve steepen. alix: in europe that is not the case? higher yields don't give you that confidence? >> in europe there is some way to go. the bench curve is negative right now for 50 years. the 30-year might be higher. we want to see the curve shift higher and steeper. we don't want it to be a problem in terms of providing higher funding costs, but i would see that as a net positive as opposed to a negative thing. alix: are you still into rallies? does feel like players are set in the back end. i would expect the short duration right now and i would do that for another 10 or 20 basis points because we still have that macro to get around edges quite painful from a bond market perspective. head into the fed meeting in september, there are questions about what they can do. i the going to average out securities or ramp-up q. week? what is the easiest thing for them to do? >> the fed has got to be happy with how things have gone. there are two parts to the policy. the first was getting assistance to work again. it is fantastic that we have been able to wind down the balance sheet report, for money markets, cp, and pbonds. the other part which is monetary policy, there is not much more that they can do. those could be the next big steps that they can take. there is a lot of finger crossing going on. speakes,ar whenever he he wants people to help. it cannot be a pure monetary solution. alix: what happens if we see stimulus from d.c.? money distribution ramp-up in europe? and seeing us deal with the virus better. happens, howt quickly do you think that rates will re-rate and will the fed step in and how aggressively? >> the crucial part of that statement is the vaccine. case, we are assuming it would happen this year. it is perfectly natural for the bond market and for rates to rise. moment, when i look at the structure of the curve, what i see is a bond market that is not a bear market. year part of the curve -- because of all the macro angst. if you continue to way that -- have 2021t --and we where the vaccine gets applicated, what are the better circumstances? you have to extrapolate those positive scenarios. it will take us until 2023 to get us back to where we started before the crisis. vaccine, we can start to discount that return to where we started by 2023. will bel right, you sticking with me. this is bloomberg. ♪ alix: over the weekend the telegraph reported that treasury officials in the u.k. are pushing for significant tax rises to increase 20 billion pounds per year. all of it to pay the massive amount of stimulus. of ing is para garvey financial markets. higher taxes to pay for everything. is that going to happen? >> eventually. period where there has been a massive increase in debt. how to payooking at down the debt at the moment. is getting to the point where we can get to the end of the crisis. there are two ways to solve the debt crisis. we believe there will be an issue with regard to the uptrend of growth going forward. the second is tax hikes which are painful when the economy is weak. the third is inflation. the one lever that you can actually pull is taxes. that will have to be a serious discussion but not now. conversation the about modern monetary theory? eight months ago, we were talking about how the u.k. is to seeimed at an example if real coordination between fiscal and monetary policy can actually work. if we raise taxes does that mean it is not actually working? taxes, or if the u.k. raises taxes, all it means is that you are taking away two important levers, which is growth and inflation. you are reducing the prospect of them being attacking forces to reduce the debt. u.k. doesn't grow as fast as the u.s. but faster than europe. it is a middle ground. it has not succumbed to the inflationary tendency that europe has had over the past few years and tends to manufacture inflation. it has to get around brexit. that is the other short-term issue. time i try to spend the not talking about brexit on this program. does the u.k. go negative? does the boe negative? negative.ll trending do they eventually take rates into negative land? is fareems like the boe more open to negative rates. has it workeds, for the ecb? there are those who say it hasn't because the european economy is in deep trouble. there are those who say that it has because negative rates reduce costs for households and firms, and it has prevented the euro zone going into a deflationary spiral. the market is discounting it. dip byssible that they 25 and see how it goes. we are probably not there just yet. just in the toolbox. we are erring in that direction if things don't turn out as we like. alix: where is this priced in to markets? >> it is priced into the fund 10. it has been trading negative for some time now. it's also priced into the front end of the u.s. market. we have seen futures dipping into negative territory. the front end have had that bias. alix: where can more re-rating happen? is it going to be all the way in the back end? >> in terms of value trades, what we have seen in terms of the flow this year is there has been a lot of fiscal policy. since the crisis, there has been a bias toward buying long-end triple-a rated. it is the backend that guys were buying. it is difficult to get a positive yield in risk-free space in the euro zone. you have to go to the u.k. or the u.s. to get the yields. alix: it was great to catch up with you. para garvey. thank you a lot. alix: it's time for the bloomberg business flash. taken a leap toward delivering goods in the sky. it has become one of only a to operatecompanies as a drone airline. that allows them to begin commercial deliveries under a trial program. nasa's biggest acquisition yet in the health science field. forng immune therapeutic $2.4 billion, almost triple its market value. china throwing a wrench into president trump's plan for the tiktok sale. they have a plan to block the sale to microsoft. it does make getting a deal trickier. that is your bloomberg business flash. hathaway nowre buying stakes in five of japan ask about biggest trading companies. -- japan's biggest trading companies. joining us now is catherine zelinski. why now? how does it reflect the rest of the portfolio? catherine: buffett was making these stakes over the past 12 months. that really indicates he has been doing his research on these companies. he has been looking at them for a while and at their prospects. for berkshire it is a great way to put the cash piles into use. alix: is it as simple as these companies are in free cash flow and have cleaned up their management acts and are focused on shareholder returns and hitting targets? or is there something else more fundamental? >> that definitely plays into it. in some ways these companies are classic buffet. they have a lot of different range of ventures. that was something that buffett pointed out in the statement that he was interested of the joint ventures that they have. companieshat these offer a gateway into many different industries. that's great for berkshire. for differentnt companies that they can bet on in the future. a lot of portfolio managers come on and are quite bullish on japan. is this a start of something else? >> he is seeing that japan is undervalued in his opinion. he does that analysis and he is seeing that these companies are worth more than they are being priced for. he's taking a wider view. alix: where does this leave his overall portfolio? how much cash does he have? what do we know? >> it is typically a sliver of his cash pile. that still leaves him with plenty of funds. he's raking in cash at a record amount. he is always on a hunt for ways to deploy it. this is a good signal for investors. it shows that buffett is willing to step out of that a little bit and to choose geography that is in his home base. that is a good sign for investors wanting to see that cash pile is used fully. alix: do we have a sense of how much buffett drove this bus? >> it does sound like he is the main driver. any time he is in a statement announcing it, that signals that this investment has his full support. alix: what is next in terms of the areas where he sold out, for example banks. insurers will get hit very hard with the pandemic and the hurricanes. >> with banks it has been interesting. he cut wells fargo and jp morgan, but he's really buying more bank of america. i think he is fine-tuning that portfolio. taking the investments that he thinks are a better deal long-term and not having as much of a broad exposure. 225 ralliedkkei after that. thank you for that. let's dig deeper into what we were just talking about. thee is a great article on straightforward explanation for why berkshire bought these stakes in japanese houses. stocks.h, pull in the past, the firm has been traditionally low-margin, cash poor, debt heavy. leverage has fallen and management targeted much more concrete metrics like return on equity. all of that made it much more attractive. why wouldn't warren buffett want to buy them? the close is coming up in a few minutes. u.k. equities as well. it is a down day. italian stocks with that terrible gdp reading. the eurozone continues to plot its way higher and the selloff in the bond markets continues. this is bloomberg. ♪ alix: this is "the european ." guy johnson is off today. equities tried to make a run for it but they cannot hold on. it looks to be a good month for august for european equities. underperformer is going to be spain, it is also going to be italy. italy had terrible growth month numbers that came out, that is reverberating through the market. weak inflation, no inflation when it comes to europe. that did not help the market. switch of the board and you can see the euro-dollar taking it on the chin and up .4%, right around the highs of the session. the worry is the stronger the euro goes the more disinflationary factors europe could import. also the cable rate getting on strength, one point 33 as the dollar is mixed on the day. in italy, seeing a selloff across the board, buying only in the u.s. treasury market. yields five basis points higher when it comes to italy. you have mining shares, utilities, leading the gains today on the mixed date as u.k. equities in the bond market stay close. the you are pretty strong, becoming one of the most crowded trades in the fx market. let's take a look at the big movers in europe. here is scarlet fu. scarlet: the movers are all to the downside. i was looking at the group movers in the stoxx 600, there are six out of 19 groups higher. that has trickled down and there are only three groups gaining. m&a lifting the utilities. 1.4%had gained as much as but closing up with only gains of .2%. banks off more than 2%. insurance companies losing 1.5%. banks making up some of the worst individual performers in the stoxx 600. on the m&a deal in utility. i cannot speak french. alix: i am not one to judge. scarlet: my accent is bad. euros pertag is 15.5 share for an initial 30% stake. it is owned by engie. through, veolia would bid for the rest of suez. they tried to clear a deal in 2012. this time they will have a french investment fund buy s uez's water business. nestle also buying a u.s.-based biotech firm. the deal is valued at $2.6 billion. nestle makes butter fingers. butter fingers is a peanut paste candy bar and aimmune makes beta butter based -- makes peanut butter based allergy medicine. phillips cutting its 30 year outlook. its contract for 37 hundred covid ventilators was canceled by the u.s. government. bad news for the company. you mentioned the august boost in european stocks. gaining 3.3%. the best gain since april. , theompared to the s&p 500 s&p 500 has gained 7% for august. one reason why, i fear like we -- i feel like we are on loop, there not big tech players in europe. at one point wirecard was the star, but those days are gone. alix: totally long gone. speaking of wirecard was a darling but not so much. it is the subject of a two day hearing in germany. it is the blame game. lawmakers will be questioning a top adviser to angela merkel in berlin. joining us from berlin is benedikt kammel. walk us through the next 48 hours when it comes to what is happening in parliament in this investigation. : this is a two day investigation into why wirecard turned from darling to dog in such a short amount of time. where there warning signs and if there have been why weren't they heated. sessiona parliamentary where one of angela merkel's top advisors was quizzed on this but it was fairly critical all allowed -- all around. the opposition smelling blood and realizing they can make political gains. angela merkel's own party asking how can it be this company was not taken out sooner. why were there no safety nets installed and so on. tomorrow we will have day two of this. that is the financial regulator in germany, and the role this regulator plate or do not play. an interesting 40 hours. alix: are people going to get fired? what will be the penalty if the investigation says you did not do enough? benedikt: so far nobody has had to leave. the head of barfing is in hot in is -- the head of baf in hot water. he has made comments as the scandal unfolded. initially said they did everything right, and then he walk that back. the other person potentially in hot water is all actual, because he is ultimately responsible for -- olaf scholz, because he is ultimately responsible. aswill obviously try to put much distance between himself and the scandal, but this is more from a corporate scandal and a tech scandal and a finance scandal into a political scandal , and that is what is being debated in the next 48 hours, and what kind of lessons can we learn? does there need to be harder regulations or additional checks? those are the kind of things people will be discussing in the next 48 hours? alix: what are you hearing about possible regulations? what could be on the docket? benedikt: one of the issues with do with was it had to classification. it was classified as a tech company which should have been classified as a finance company. people start taking a harder look at that. do we have the companies in the right pigeonhole. on the other hand, regulators do not want to be too hard on their company, particular in the tech space. germany does not have a lot of tech companies. we have sap, and that is it in terms of global representation. that might be an explanation for why wirecard was touched lightly and there was not enough of a control mechanism. going forward, these are the kinds of questions that will be asked. do we need other checks, do these companies need to be reclassified, do we need to stock up on the number of people we have at bafin? alix: to be a fly on the wall in those negotiations. bloomberg's benedikt kammel joining us from berlin. we want to give you an update on what is making headlines outside the business world. here is ritika gupta. ritika: oregon state police are returning to portland following the death of a trump supporter. the man was shot in a clash with black lives matter protesters. president trump heads to kenosha, wisconsin tomorrow. protesters have stepped up since a police officer shot a man seven times in the back during an attempted arrest. president trump's intelligence chief is defending his decision to restrict congressional briefing on foreign interference in u.s. elections. he says he will primarily read through written materials, but he will -- all member briefings because of the threat of leaks. democrats say ratcliffe is only doing president trump's bidding. the hurricane that pummeled the gulf coast is expected to cost insurers $4 billion to $9 billion according to estimates from two risk modeling firms. the storm which came ashore as a category four hurricane left a trail of destruction throughout louisiana. insurers say the storm caused massive wind damage but the storm was not as severe as expected. early estimates put damage as high as $25 billion. the head of the u.s. food and drug administration promises transparency when it comes to reviewing potential coronavirus vaccines. willlls bloomberg data dictate what kind of decision is made. president trump has accused the fda of slowing vaccine and drug work to hurt him politically. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. . am ritika gupta this is bloomberg. alix: i want to check in where european stocks have settled on the last day of august. european stocks down 1.3%. day --ing below the 200 ftse sitting below the 200 day moving average. the cac 40 down 1%. and the med down 1% spanish equities underperforming over 2%. it was still a positive month for european equities. thou performer, the dax up 5%. did not compare when it comes to u.s. equities but a solid month in august for european stocks. coming up, how do you safely bring back sporting events? we will speak to an investor who ,uts money to work, george pine coming up next. this is bloomberg. ♪ alix: former fema administrator brought long is coming up later today. -- brock long. that is coming up at 12:30 eastern time. in new jersey, restaurants can reopen for indoor