Transcripts For BLOOMBERG Bloomberg Surveillance 20140804

Are you a michael kors fan . Im not up to speed on it. It seems like a lot of americans are like, michael kors, whats the big deal . Those watches are hot. [laughter] does lady gaga were michael kors . Does she . After the bell, earnings on aig, marathon oil, and avis budget. The 100th anniversary of britain entering world war i. Let me do a data check. Stocks, bonds, currencies, commodities. Up 6. Es up futures nymex crude turns churns as well. The vix was up 17. 03. Will see where that begins with trading. 104. 82. Ude is some stability to the market. What an interesting weekend. Here is scarlet fu with the front page. Movement topped our front page. Lets start with the middle east. Israel declares a seven hour long ceasefire in gaza. We are back in the middle. In other words, it is holding. A humanitarian window that covers all areas of gaza, except for where israels military is operating. State, it is a unilateral ceasefire. That is the case. Israel is declaring it. Hamas is not part of this discussion. Diplomats met in cairo yesterday. Israel do not send anyone there. It said that hamas had undermined previous efforts. Thatyptian president said the truce which he and john kerry put together with the you when from last week un still stands from last week. I tweeted out some great information maps on gaza. Taking it away from being a hunk of land to a nuanced territory. It doesnt even feel like a hunk of land, but a really small piece of land. A strip of land. 1. 8 Million People. Isil has taken control of two oilfields. This is overnight. This is not on the front pages this morning. This bears serious scrutiny through the day today. The distinction to me is that isil, this is the group asociated with caliphate, they move south and east, they get into kurdish territory. This is going after the Kurdish Forces. The Kurdish Forces have been the strongest resisters. The most organized. If they are showing weakness. It is a headline item something to be aware of. There is much more on this from bloomberg news. Speaking of another headline item, portugal bailed out what was once its biggest lender. Aboutst of the rescue is 6. 6 billion. It will be broken up into two. The good bank and the bad bank. The government will own the deposit taking operations. Sounds like a run city. Our own city. It is still dominated by a bad bank. The idea that this is going to cause nobody anything. Explain. That is what the articles say. The taxpayers will not be affected. Really . Somebody is holding the bag. Lets get to wear last front page story. General electric ceo jeffrey a immelt iseff hi warning the government about closing the exim bank. Congressntor leaving means it is more difficult to get the charter reissued. The u. S. Is the only major economy that trades less with africa than before 20072008. This is all happening as the u. S. Tries to improve trade with africa. China, japan, europe is doing what they can. Nationsou name ten looking at a blank map of africa . I could get kenya and nigeria. South africa would be easy. Egypt, libya. Maybe you get ivory coast. Maybe i dont. [laughter] i think it shows our ignorance. We have all day coverage of the u. S. Africa Leaders Summit. Than 40tomorrow as more African Leaders gather in washington to meet with titans of american business. This is an event sponsored by bloomberg philanthropy and the u. S. Department of commerce. Our twitter question of the day, what is the biggest opportunity for the u. S. In africa . Surveillance. Israel announced a unilateral stop to rocket attacks. They will respond to any attempt to exploit the window. David, good morning. What is different within this truce . Proclaims this unilateral truce did they do it from world pressure . Israel has not said that. I think it is a question you raise fairly if you look at recent headlines that can mount and what is happening last night. The shelling of the uns school and at least 10 people dead, that is the third time that such an incident happened. There is a bit more pressure on israel. The United States ambassadors. About a horrifying incident. So, yes. What happens when this truce ends . Your guess is as good as mine. As you have understood and pointed out, since the last alleged that hamas broke the truce as it try to capture one soldier and kill another. Israel is saying, look, we tried to give you a truce. We have agreed on truces with you guys before. But it did not lead to anything. We cannot trust thomas. We will do things unilaterally we cannot trust hamas. We will do things unilaterally from here on out. A cityhting continues in on the border with egypt. Israel continues to detonate tunnels. Prime minister Benjamin Netanyahu commented that there would be a pivot in strategy moving assets in or out of gaza. Ais that reflect some sort of does that reflect some sort of a pullout . Does that necessarily sit well with the israeli people . Nen yahoo has been under pressure to make some sort of decision. Has beenin netanyahu under pressure to make some sort of decision. He was under pressure from the thousands of those Ground Forces that were sitting near the border and were basically open targets and move them out and redeployed some others. Airstrikes continue. Whether this has back up from the people is hard to say right now. I will say that there is overwhelming support here in israel for this operation. Since the beginning, people want to see israel deal a blow to hamas. How they do it, those are things that are a bit more extreme. Thank you so much. From our news purulent tel aviv this morning. Our best host for the hour from bank of America Merrill lynch, the chief Investment Officer of portfolio strategies. We also have the chairman and utous andf devote associates. Geopolitics,nd the and the middle east or the ukraine or iraq, finally having an impact on asset prices . I would say yes. Without a correction would have in the fall. It seems to becoming a little bit sooner. We have been looking for a correction and we would have thought it would have happened in the fall. Is going toe it becoming a little bit sooner. We are looking on a technical basis over the next few weeks. When you look at fundamental backdrop, it is improving. When you look at earnings estimate revision, that ratio has been rising for three months and arrow. In a row. I think people are getting nervous of all the geopolitical events. Before their going on holiday, they are taking a little bit of profit. A lot of people are calling for a major correction, looking for a 20 downmarket. We dont see that. We think this is a temporary pause within the market. What is different is that the highyield market, the credit market, is reacting. We have not seen both of them go down since around the second half of 2012, when we had the periphery concerns on the debt. There has been such a good run for somebody markets. Howard, Consumer Spending accounts for a lot of gdp. How is the u. S. Consumer doing . I would say, lousy. Six years ago we had one out of 12 in poverty in america. We now have one out of six in poverty. We have doubled the amount of poverty. It is the fastestgrowing group of people in america. Twice as many people drop out of the labor force as are getting jobs. 65 of new jobs are parttime. 44 of americans have zero savings. People areamerican not in good shape. That is why when you look at walmart, they are down five straight quarters, that is why when you look at target. That is what toys r us is losing. When you look at the numbers, it is not surprising. Chocolate store on fifth avenue was absolutely packed. I have no doubt. Our expert on chocolate here. On this monday morning, lets get to company news. With earnings. Firsthalf profit at hsbc falling for the first time in five years. Investment banking weekend. A 12 drop in profit. The economist ranked as wall streets best is casting in cashing in on his research. Isi was founded by ed hyman. Burgers are coming back. Beef and chicken items were dropped when the packaging item was caught relabeling meet. Meat. That is the latest company news. I took hot dogs out of the that were expired. Werest cooked them, they that will kill the bacteria. Put a little back no bead on their. There. Veeta on why is Warren Buffett sitting on 50 billion in cash . We will discuss next on bloomberg surveillance. Good morning, everyone. Bloomberg surveillance. An important conversation with the violence in chicago. Unbelievable what is happening with the gang warfare in chicago. He is the mayor of chicago, rahm emanuel, in the loop with betty liu today. Im tom keene scarlet fu and adam johnson with me. Omaha. Warren buffett. He has never had this much money to spend. Cash topped 50 billion. About why to talk Warren Buffett has so much dry powder 50 billion sounds like a lot. Put it into context for us. It is really just about 10 of berkshires assets. Warren buffett has been buying railroads, electric utilities. That has expanded the size of the Balance Sheet. It has expanded the earnings power of berkshire. Every quarter, Berkshire Hathaway is generating a lot of money. Buffett waits for the fat pitch. He wants a really good investment. When he is going to buy a company or invest in a stock, he wants to make sure he is getting in at a good price. What we have seen recently is that cash number really just climbing at his company. 50 billion is an alltime high on an absolute basis. After the last financial crisis, he saw a lot of fat pitches. He invested in goldman sachs, bank of america. What is he saying in terms of the prospect for another correction . What does he say about stock market valuations . We got these numbers late on friday. Berkshire reported earnings. For berkshire, that is just a press release. We get a lot of data, but we dont have commentary from buffett. We are left to speculate about what he is thinking about right now. What is his skill set of saying no to a deal . No does Warren Buffett say to a potential transaction . I think he does it with the grace and humor he gets at the ukulele and start singing a song . Clearly, he has no problem saying no. Some of the people are trying to get him interested in investments. So many people are trying to get him interested in investments. The you see any fat pitches out there do you see any fat pitches out there . We are we are very bullish on the m a stock. Is the confidence there in retail, Mary Ann Bartels Howard Davidowitz . People cannot compete. Ofhave a tremendous number bankruptcies, closeddoor is, and everything else. Retail is not strong. Consumerism is strong. He hates retail. It is 2 of the business. He hates it. He says it is trouble. Quoteunquote. Think you very much. Adam . Coming up next hour, we are going to be talking about africa. , the onlying markets american on the debt , the debt of ivory coast and belize, he will be joining us to talk about opportunities in africa. The white house kicks off the africa conference today. This is bloomberg surveillance. Good morning, everyone. Bloomberg surveillance. Im tom keene. Scarlet fu and adam johnson. Its time for morning mustread. Scarlet fu has one for us. It is from the new yorker. It is about the language of money. The language we use for economics, everything we do here on bloomberg surveillance. Form ofehension is a consent. If we allow ourselves not to understand this language, we are signing off on the way the world works today, in which everything about your life is determined by the accident of who your parents are. This ever widening gap between the rich and everyone else. You are condoning the status quo. This is really, really important. To 1974 andoes back the mystery of Retirement Planning in the United States. People inexplain to plain english . There are some good commercials right now trying to tell you that. It is all about communication. At merrill lynch, we recently did a survey about retirement and really what we found out is that 47 of the preretirees that we interviewed said that they are not going to retire. This is what we really need to focus on. What is retirement . Is that the right word . Synergy . Tization or what is interesting is that in the survey, when we asked why are you not going to retire, it is because they want that mental stimulation, not necessarily because they did not have enough money. Interesting. That is toms recent. I have mental stimulation. Adam johnson will explain the big words for you. Coming up, is this the beginning of the end for bigbox retailers . Howard davidowitz gives us his take next on surveillance Bloomberg Bloomberg surveillance. Good morning, everyone. Bloomberg surveillance. The summer is so lovely in new york. It looks like seattle this morning. It is great. It is clouds. It is gorgeous. It is a gorgeous summer. It has not been 90 degrees and weeks. Cool evenings and you do not even feel like you are here, it is a different. Is gorgeous. We welcome you in on this august 4. This is bloomberg surveillance. Im tom keene. With me, scarlet fu and adam johnson. A quick data check. Futures up 7. Dell futures up 53. Nymex crude is up dow futures up 53. Nymex crude is up. The unrest has not moved oil. Tom, i want to talk retail. , saysx retailers are done goldman sachs. They cannot compete with amazons Free Shipping inconvenience. Didrd davidowitz, amazon post a loss last week. Amazon has its own problems. Who wins this race to the bottom of retail . I think amazon wins in the end. Not going away. It is 11 of u. S. Sales, bigbox retailers. You cannot get too excited. Walmart is not going away. It is not disappearing. It is still a growth vehicle. There was massive incompetence. How can walmart by Family Dollar . They have been screwing around with small stores for 15 years. They have done zilch. This is their chance to do something. They did nothing. Is that the problem . Walmart needs to shift to a smaller footprint . That is part of it. They are tennis shoes. You can do 500 billion. They have loads of issues, like any company that size. One of the issues is more convenient, smaller stores. You say more convenient, smaller stores. Do we want a smaller bigbox . Yes. The Consumers Want them. Because they are closer to where the consumer lives. That is a huge issue. Convenience is tremendous. Those big supercenters are far out. That is the only way you can get to them. The days are over when you use the dodge pickup truck every weekend. That is my thing. What about drugstores like cvs and walgreens . They now include things like groceries and accessories and clothing. That is one of the best segments of retail. Walgreens is doing beautifully. Rite aid, alive and well. If you look at the drug sector, they are doing extremely well. What distinguishes them . Convenience. They are one block away from your house. It is a big deal. They can put all of the other stuff in because it is right near your house. Amazon is even closer. Think the big winner, the person who was really going to win in the end is amazon. There is no question in my mind. In the end, theyre going to win. How do macys, nordstroms, kohls. What lessons did they learn . They have learned a lot. Do 60 10 of the people of the spending. Bye. And pennys, bye they are selling to people with no dough. Macys has upgraded over the years. You are selling to folks with lots of money. The middle is gone. The middle is gone. You have retailers serving wealthy and retailers serving people who need a break. Youve got it. If you look at everybody whos in the middle, they are getting killed. A lot of people in the middle are downgrading. Forever 21 is opening cheaper stores. J. Crew is opening cheaper stores. Everybody is getting cheaper. Howard davidowitz, forever 21. [laughter] , when youn bartels hear all of this and see all of this as a consumer in this country, how does this plan with share prices . What is important here is, who was spending most of the money . Our surveys have shown that it is the females in the household that are really spending. What is really important as we go out to the baby boomers, there was going to be a massive wealth transfer, where most of the wealth will be held in the hands of women and not men. I have a suggestion that this has already occurred. [laughter] i think this will have investment implications. We do find that women do outperform in there per folios. Portfolios. They tend to be more conservative in their investments as they outlive men. Does that mean walmart should have a new female ceo in charge of the u. S. Division . Targets key operating executive happens to be a female. She is the head of merchandising. There is no more important job. That is the job that has always become the next ceo of walmart of target. Is probably the most single soughtafter person in retail at this second. Everybody is calling her up because there are so many openings. What is her name . The name escapes me at the second. She is number one operating executive at target. She was in line to be the ceo. We talk about females, she is a female. She is the key to the company. Rget, that isk ta her. I know tj maxx has been your favorite in the past. Still my favorite. Apparele most powerful retailer in america. You see the way they operate. Everybody else can learn from them. What is the fall trend this season . What is the hot thing . Cheap. Value. Every customer. Everyone wants value. That is the message that is out there right now. I need to interrupt. Say they the word word disaster for us . Im not going to do it. [laughter] not until i get a bonus. Im holding out. Coming up on bloomberg august is a month to use valuable paid time off. Not for everyone. We will show you next. This is bloomberg surveillance. Good monday morning, everyone. It is bloomberg surveillance. Lets get right to our top headlines. More than four dozen federal workers will join the ebola fight in west africa. The centers for Disease Control is sending people to the infected countries. Toledos tapwater. The mayor says toxins showed up in the latest test. Nearly half a Million People in ohio are scrambling to find water. A new worry for Government Troops in eastern ukraine. Russias air force has started drilling in the region. More than 100 fighter jets and helicopters are deployed. Those are the latest oped lines. A lot of warfare this morning. There is no other way to put it. We will get to that later on. On a more fun topic, here is our single best chart. It is vacation time. Speed economy. Managers are enjoying paid time off and Service Workers are not. This is from the washington post. Managers are also two times as likely almost two times as likely to get paid vacation off a Service Industry workers. Get paid time off. 77 of American Workers get paid time off. Service workers have seen their paid time off decrease. It was 59 in 2010. Now it has dropped to 55 . Howard, that is what you were talking about earlier. A lot of the job creation has been at the lower end. Exactly. 65 of the new jobs are parttime jobs. Those are the numbers. Retail is Going Forward with being replaced by technology. Wont hiring start to slow down and people start to buy things on smartphones . You are exactly right. It is easier to stay at the warehouse. It is so much more efficient. It is one location. Robots are working their. There. It is a whole different world. That is why amazon is going to win in the long run. You have Department Stores where people cannot walk and talk at the same time. Moseying around. No. In the long run, it is not efficient. The little box with a few people , were customers are comfortable , right where you live, that is comfortable. , expert in bartels investment allocation, this with vacation is linked up retirement panic, isnt it . Im going to take a different spin. Please. Retirees do not want to really retire. They do want to take a sabbatical for two and a half years and then go back to work. As they are taking their sabbatical, we think they are going to travel. One of the industries that is going to and if it is leisure and hospitality. If you look at employment data, the employment for that segment is growing better than the national average. Industries like the Hotel Industry and cruise ships should actually benefit. Are those highquality jobs . Or is a lowwage, low quality . That i can i answer. Cannot answer. That is hard to do to Mary Ann Bartels. [laughter] it seems crazy. You are the airline expert. Think of all the training that has to go into getting a pilot into that seat. It is anywhere from 24 years. It seems crazy that they will pay 400,000. 40,000. We have some lovely photos. Yes we do. People lighting candles praying for victims of a blast at a Metal Production facility in china. 75 deaths. Isnt that amazing . You look at the images that come out of that. There was an earthquake in china where hundreds were affected. Thousands are displaced. In western china, there was a protest that turned violent. There are three different issues. All involve deaths in china. Quite a weekend, to say the least. Unfortunately. Two, president francois and the german making a joint tribute to soldiers killed during world war i, commemorating the 100th anniversary of germanys to wreck the ration declaration of war. We have no understanding of world war i. It is still carried across french culture. There was no american equivalent. This is a huge deal for these three nations. Today was the day that 100 years ago, the u. K. Entered world war i. That is still with us. The number one photo. A contestant competes during the traditional water buffalo races in india indonesia, rather. Waswater buffalo race originally designed as a fun game for people to spend their free time at the end of the harvest season. He is clearly having fun. Would you do that . No. Did you do the running of the bulls . No. I dont intend to run with the bulls. I do enough stupid things. I dont need to do with that do that. Run with the bulls with the market. That is a shameless plug for marilyn try to their. [laughter] for merrill lynch. [laughter] it is a great brand. Remember the one with the bull in the china shop . Back then, there were no computers. How did they do that . Coming up, we are going to run with the bulls with the market. We will take a look at the markets. After the Global Equity selloff. Equities in europe have recovered and futures are openating that we could higher. We will discuss when we return on bloomberg surveillance. Is bloomberg surveillance. Im scarlet fu with tom keene and adam johnson. Lets get you company news. New pressure on u. S. Tech companies in china. Government departments may not buy antivirus software. Microsoft offices in china were raided last week. Walmart is trying to make things personal. The retailer is changing its website to target customer preferences. Walmart plans a complete relaunch next year. Trying to catch up with amazon. The company that makes software to prevent car crashes raised 890 million for its ipo. It is based in jerusalem. That is the latest company news. Good morning, everyone. After the tumble last week, a correction is considered a 10 pullback. Were about 40 there. Math, wes too much will consider what to do with your stock portfolio after market decline. Chiefnn bartels is the Investment Officer of portfolio strategies, global wealth, and investment at merrill lynch. She suggests you be prepared with a plan of action. You do this better than anyone on the street. Youve got to have a plan as you go down, this what builds up. Ridhe sweat builds up to what is the builds up. What is the bartels plan . Team usa, team sanford technology, autos, manufacturing. I would say really look at energy. It is a sector that is not extended, still very cheap. I would look at technology. There is tremendous opportunity. Even in manufacturing. Another part of our economy that is really starting to improve is on the manufacturing side. The heart of the matter, a fundamental story for a given lets take danaher. How do you figure out the when of acquiring shares . If you like incense and crystals and pyramids . Goals based wealth management. That is the process we use to help our clients build a portfolio. Are yourlly about what assets today . Where do you need to get your assets to . Under that umbrella we call the wealth allocation framework, a she sounds like she is on a panel. [laughter] the bottom line is, when do i buy . You never time markets on any pullback. You could start buying today. You could start buying today, but you also see an autumn correction. Is that because of the low volume . Cfa 101. T, this is 4 is a correction. 4 is not a correction. Maybe more will come in september. I would argue that the correction is not over. 4 , 6 , 8 percent, nobody knows what the numbers going to be. Are you entering the bear market . The answer is no. There is one thing that has changed. Clearly. We are much closer to our inflation target. That therefore suggests that the fed pulls back. That is the change. That is where you are wrong, adam. If you listen to the fed, what they are saying is their target is 2 . But they will allow it to very. Just as they allow the rate to drop to 1 . They will allow the rate to drift higher above 2 for a period of time. They want to make sure that growth is solid and inflation is solid. The us is where the markets can really start getting a lot of volatility. This is where the markets can start really getting a lot of volatility. Back me, this debate goes to the idea of how markets go up and have growth occurs and earnings and revenues and all that. It is such a less volatile time. We are gaining a correction in a quote unquote bear market. This has been like a blip. Things have been so calm for so long. Everything has gone in one direction that a little bit of a pullback has become a correction. 3 is the new correction. Is it . It depends on how you want to define a correction. I color correction anywhere between here and 10 . At least five times year, you get a 5 correction. If you want to call it a correction, those are nuances. Same. Tion is actually the clients that are waiting for that correction, it always happens on bad news. They keep saying, the markets are going to down more and then they dont apply the cash and then the markets rally back again. They miss the opportunity. They missed the opportunity and that is a lot of the frustration that a lot of clients have. That is why we get out and say that this is the opportunity you have been looking to take some cash and add to the equity market. , if this pullback pulls back further, what are you buying . If this market buys back irther pulls back further, would always by best in class across the board. If you bought a drug chan, you buy walgreens. If you buy apparel, you buy tj maxx. Going down, always by best in class in that category. That is where you will rest easy. Howard, thank you so much. Howard davidowitz with us today. Mary ann bartels, thank you so much. That was a great conversation. I am in the camp of 10 . Maybe in this market, you have to look at it in a different prism. Ok, i will put it out on twitter. For ex. We will do a stronger yen. Forex report, we will do a stronger yen. The state of fall street is next on bloomberg surveillance. Portugal bails out its largest lender. Is it a signal of european things to come . There was a truce this morning in gaza. Majorq, isil makes infantas against overstretched Kurdish Forces. The president holds a summit on africa. This, as ebola grips liberia. Good morning, everyone. This is bloomberg surveillance. Were live from a World Headquarters in new york. Im tom keene. Joining me, scarlet fu and adam johnson. Our guest is the professor at columbia business school. Thrilled to have them here. Lets get to adam johnson. Overnight, Global Markets are studying. Msci globalthe index. European homebuilding expanded at the fastest rate in more than a decade. , manufacturing for the state of new york. Earnings. Michael kors is literally breaking as we speak. It is knocking it out of the park in terms of revenue. Gross margins, 62 in retail. Incredible. Comparable sales increased 24 . We were talking about this. Michael kors is incredibly popular with people overseas. Especially those who come to the u. S. I was in a michael kors. You were in a michael kors . Yesterday. A friend of mine wanted to buy a birthday present for her 13yearold daughter. She wanted to buy her one of those watches that look like rolexes but they cost 170. The woman said they cannot keep enough of them. They will be flying out of there. What do you think . I will go in. [laughter] michael kors shares a rallying in the premarket. Michael kors Just Announced earnings. After the bell, we have aig. Marathon oil, avis budget. Today is the 100th anniversary of britain entering world war i. Very good. Futures are up 7. Start withto portugals secondbiggest bank now in the hands of the countrys government. Theyre getting a bailout. 6. 6 billion. The good assets will be transferred to a new company. Firsthalf profit over at Hsbc Holdings falling for the first time in five years. Investment banking weekend. Hsbc posted a 12 drop in pretax profit, missing estimates. Back thise coming week too many mcdonalds menus in china. Beef and chicken items were dropped when a Packaging Company was cut relabeling expired meat. Mcdonalds is using other suppliers now. Very good. Good morning, everyone. Business leaders meet today in washington to discuss the future of investment in africa. The discussion has been pushed aside by the ebola virus. The republic of liberia is shut down. Theseols into our are international correspondent. He is in washington. This is front and center in the white house, isnt it . Absolutely want to have a legacy in africa. I see it as an opportunity to grow the economy domestically. Get companies here involved in africa. The problem is we have talked about before, china spends an awful lot of money. You look at their footprint in africa, close to 200 billion. China is not using the business protocols we do. Do we have one or both arms behind her back . We do. But we also have some wings. We sell airplanes to the africans. At where africa is having a lot of chinese investment. It is on roads, infrastructure. Some bigticket items. U. S. Company still have an advantage. If you are trying to seal a deal, trying to build a road, and you are worried about the protection act back here in the states, you have one hand behind your back. And donot go into africa deals and expect not to be prosecuted in this country. I need to bring in this idea of the exportimport bank. The ceo of General Electric said the u. S. Africa trade is in jeopardy if we closed on the importexport bank. Immleelt certainly wanted. World,eywells of the jeff immelt is close to the white house, there argument is that they need the funding and financing, otherwise it will dry up. It is true. African investment needs funding. The argument from the other side , the charter expires in september, a lot of republicans simply view this is corporate welfare. You cangument is that find financing and private markets, you do not need this. This will be a very big issue. A lot of concern will be is the dry up . Ng going to hans nichols, toughing it out at the Mandarin Hotel in washington. [laughter] we will have all the coverage that kicks off today in washington. Dont forget to tune in tomorrow as more than 40 African Leaders come to washington. This is sponsored by bloomberg philanthropies and the u. S. Department of commerce. It is time to ask her twitter question of the day. What is the biggest opportunity for the u. S. In africa . Tweet us. Were curious to hear. Is it just finance . Is a governmental . Is it business . Does it go beyond resources . Is it relatively cheap labor . What is the opportunity . The answer to me is a lot more sophisticated than we think. Lets start there. We admittedly are painfully ignorant. There was a quiet moment on friday with their jobs coverage. Bill gross dropped a bombshell in our conversation. He brought front and center the issue of discrete and separate events coalescing into a liquidity event. He did not equate what we are seeing, but makes clear that argentina, ukraine, and portugal deserve full attention. A professor at columbia , a professor of Financial Institutions. With us as well, hans humes, the ceo and founder of greylock capital. Professor, let me start with you. All of these little events. Orsnt speak again of 1998 1994 or 2006 . I dont think so. I think the portuguese banking problem is a slowmoving train wreck, not a big news event. And in a small country. There are lots of questions still to be answered in europes banking system. There has been some progress in the last few months. When the ecb does stress tests and that will be a test more for the ecb than the banks, that is the big story to focus on. Not this bank and portugal. Argentina is another slowmoving train wreck. The government had lots of opportunity to do with this and they did not. Investors diversified away from it. I dont see it as a big event or surprise. You changed your investments because of this set of events . Ukraine, israel, gaza, the bank of portugal, argentina . I think we have taken a bit of money off the table. To where wereduced have in the past few years when there has been real stress on the markets. It is interesting, what the professor is saying. It is absolutely right. Market is not reacting in such a stressed way as we have seen in 2008. Is that because we have implicit guarantees from the fed or the ecb . I think that is part of it. The europeans have been through a lot worse over the last few years and they have built in some pretty good safeguards. It is not finished. But were in a much better situation. Nothing is going to come apart at the seams. It is structural forms that are working. Truly an expert on good bankbad bank and what Central Banks do when the police messed up situations. Is the portugal bailout and original bailout for mr. Druggy question mr. Mario draghi . Im not sure what you mean by original. The basic idea is that you cut out the cancer, you isolate the problems, and then the good bank that remains is going to be more attractive to investors. That is a triedandtrue message going back to the 1990s. Is this a template for troubled banking within germany and other troubled banks in europe . It could be. But if you have the stay running german case you just described, you dont necessarily face the same market disciplines. It is a different story. Let me do a quick data check. Equities, bonds, currencies, commodities. Dow futures up. S p futures up. Up, we talked about the u. S. Africa summit that kicks off. We will discuss the basis Business Applications of the ebola crisis in africa. We will discuss on bloomberg surveillance. This is bloomberg surveillance. Im scarlet fu with tom keene and adam johnson. Futures are higher. Michael kors is up by almost 9 in premarket trading. Good morning, everyone. A bank has failed. This is the former largest lender and portugal. In portugal. It is going to cost taxpayers nothing. With us, Charles Calomiris and hans humes. It is free. It will cost taxpayers nothing. [laughter] no downside. Deal the problem is there might not be any upside. Thank you for putting this chart thank you for putting this chart up. Good bankbad bank. Now they are separate, except, are they really . Charles, that is my question. That is a pretty special case. Yes. I think one of the constructive things to say about it is to construct it with the cyprus bank. Catastrophic was because they went after the wrong parties. They went after the depositors. Here, it is going after the junior debtholders and the equity holders. That is what i think the formula is for the future. Showing that you are serious by recognizing problems, isolating them, imposing hits on the junior people. It sounds like a good formula to me. Does that sound fair to you, hans . Yes. I think the cyprus situation showed a dysfunctional decisionmaking can be in europe. They were reacting to impressions that it was the russians with the money and the politics. They were reacting to something political. They ended up ongoing the entire thing. The entire thing. I think what is going on now and portugal is showing that the europeans can react better and in a more thoughtful way. Let me ask the monday morning doug dumb question. Solvency and liquidity of the major European Banks versus the american banks . When april at cu when a pro like you look set deutsche bank, is a different than american banks . Tohow these banks are going fare if there is a broad market selloff. At the stern school has a website where your listeners can go and look at it. Is at risk model compares each European Bank and american bank. UsCharles Calomiris with from columbia university. Coming up, we look at inflation. Bloomberg surveillance. Good morning, everyone. Bloomberg surveillance. Im tom keene. Charles calomiris with us from columbia. Look ates as we international finance. Here is adam johnson with top headlines. Death toll is now nearly 400 and another 1800 people are injured. The quake hit and impoverished region in western china. 12,000 homes collapsed. Still unfitwater is for people to drink. The mayor said the toxins showed up in the latest test. Nearly half a Million People in ohio are scrambling to find water. The problem is algae in lake eerie. Has beenair force conducting drills. When hundred fighter jets and helicopters have been deployed near ukraine. Scarlet fu. President obama is hosting the first u. S. Africa leadership washington this week. Bloomberg philanthropy is one of the sponsors of the event. The aim is investment deals on the continent. , theuest is hans humes founder of greylock capital. He knows a thing or two about africa. Crisesll all of these affecting africa, lets talk about the returns the continent offers as well. Within our fund, if we look back, i guess we started in 1997, africa seems to be the best performer. A lot of that ended up being a result of the restructuring of every countrys debt. Africa posted not go through the same kind of site cycles is latin america. There were a lot of equity type returns and very simple investing. The continent is gathering serious momentum. Despite the headlines that we as americans seem to like to look at, there is a bigger middle class growing. You are getting all of the political noise tamping down. Even the rivalry between china and the United States is a good thing, because Neither China or the u. S. Would want hostility in the region. I have to bring in, here. In ghana here. It has gone from one of the most productive countries to the cusp of a bailout. Im concerned. I lived in nigeria as a kid and we used to go to ghana over the weekend. It has always been an attractive place for investment. They may have gotten a little too enthusiastic. Not to betrying nigerian and be more like norway. I think they got a little giddy. They borrowed too much money. The economy has gotten a little overheated. Now they are having to deal with it. It is going to have to require structural reforms. One of the worst performing currencies in africa. I want to mention my morning mustread which comes from Professor Joseph stiglitz of columbia university, writing in the financial times. The u. S. Should encourage foreign direct investment. Get this, nine of the worlds 20th Fastest Growing economies 20 Fastest Growing economies are in africa. The raging collegial battle. Lets take you in the middle ground. Who was right . Jeff sachs, bill easterly, or just a glitz . Joe stiglitz . Bill easterly is right. Joe is prescribing what Industries Need to be supported, as if he knows. Im sorry, it is a joke. Africa, where did progress come from . It came from places where economists have not figured it out. Equity banking dipped. Technologies, use it as a substitute to enforce banking and to transform micro finance. I get a lot of mail on this in support of jeffrey sachs, saying we have to find some form of publics prescription of the prescription through world bank and private enterprise. Im not sure i agree with that. I dont disagree with professor stiglitz that value added processing of Raw Materials and agriculture is a great idea. Ghana, they send the tomatoes to china or indonesia to process them. But prescribing and trying to centralize the decisionmaking, whether it be in washington or cairo, it does not make sense. Let it happen on the ground. The ghana story is further evidence on this. In myht a case on ghana class last year. , whatint of the case was a swiss cheese for the government to abuse. Which is exactly what happened. Hans, i need to get to a bola. Ebola. You have a friend in liberia who spoke about what is happening. You really have to Pay Attention to west africa. A foundation where she has put together an orphanage to take care of all of the children who are left as orphans after the civil war. Because of the ebola crisis, she has used up 15 for annual budget in dispersing kids, feeding, paying salaries, because they do not have access to disinfectants, gloves. This is a real tangible effect on the economy. Not just tourism. Go intoerns that it may one of the bigger economies. This will be discussed in washington as well. We will have allday coverage of the u. S. Africa leadership conference. Is bloomberg surveillance. Im scarlet fu with tom keene and adam johnson. We start with general motors. It is now expecting claims related to faulty ignitions. The carmaker admitted it to about the effects for more than a decade. Goldman sachs is hiring a former barclays merger and acquisitions expert. He left barclays three months ago. One of americas biggest newspapers is making news on wall street. Shares of the Chicago Tribune trading on the New York Stock Exchange tomorrow. It is also time for this matters now. Folks, this matters now to our guest host Charles Calomiris. Professor of Financial Institutions of columbia university. You have been an advisor and measured critic of the Federal Reserve in the summer 2014. Is this an institution that is simply trying to do too much . Is chair janet yellen out over her proverbial skis . Isforward guidance pretending you know things that you dont, making commitments you will not keep. That sums it up. Lets there was a wide body there is a wide body of left and right that says that these institutions act by reacting. When will the fed react . If history serves as a guide, too late. She is presiding over the most politicized fed in five decades. She is clearly the most dovish chairman we have had in six. The politics of janet yellen, many shot there were thought there were unfair shots. Can you do you think it sure can adapt with less slack in the economy . It is going to be politically difficult. It is going to be politically difficult. To be taking big capital losses that will make the fed insolvent. It will make the fed unable to keep paying dividends to the treasury. This is the inside baseball that you do well. Instead of taking the losses, cant they just let the paper hold the maturity so there are no losses . Use massiveey amounts to get even more inside baseball. You are killing me. They are not going to be able to do 1 trillion. It is vacation. We save that for november or october. Seriously though, professor, when we look at the fed, where is the invasion inflation . Are the correct that we need to get out in front of this . Or by definition do they have to wait to see the inflation . That is not correct. You use your brain to think through where the inflation is coming from. The fed is sitting on this for trillion dollar Balance Sheet dollar Balance Sheet. , it the economy normalizes is for castable and foreseeable. We need to react ahead of that happening where there is no hope you read what is the previous experiment that shows that we need to get out in front of inflation that we cannot see . Where do we get this right if Walter Heller and others got it late wrong . At was also a highly politicized environment. The problem is that it is often intentional. It is not as bad thinking. It is often intentional. Is janet yellen president obamas hack . Too soon to tell. Ising a press conference chair when she has unemployed individuals there and talking about how much her heart bleeds for them is not a good sign. That is not with central bankers do. Should Larry Summers have been fed chairman . No. I think larry is a very divisive person. Fed has tot the bring people together. I dont think that is his style. Do you have any hope that we get back to a nonpoliticized Federal Reserve . Not too quickly. It is part of life now. Given or the Balance Sheet is in the appointments we have had, i dont see it happening too quickly. Charles calomiris. Send your hate mail and love notes. Lets get to a data check to rid there is not a lot of Economic Data on the calendar. It has come to this. New york manufacturing. That we willdicate open higher. Michael kors beating analyst estimates. Futures are up 0. 5 . A littlethat there was green on the screen is certainly positive. A little bit of a bounce back after a brutal week last week. We will keep an eye on that one. This is bloomberg surveillance. Im scarlet fu. Here with tom keene and adam johnson. Adam has our top headlines. Investigators say metal dust caused the explosion that killed 75 chinese factory workers. It came from polishing steel hubcaps. Workers have long complained about it. It is chinas worst industrial disaster in more than a year. Toll is now 826 in the Ebola Outbreak in china. The center for Disease Control is sending workers to the affected countries. Congress is on the verge of a big mistake. He is urging lawmakers to renew the exportimport bank. House republicans want to close it. He said it would hurt u. S. Trade with africa. Those are the top headlines. Hans humes joining us. You have restructured debt for a number of african countries. Important bank to what you have seen in africa . I would say those institutions work well within the u. S. On balance. We have worked a little bit with the xm bank. I find that they are pretty good at creating some momentum toward investment. Im not sure i feel strongly one way or the other. I think if we got rid of it, we would not even notice. It is a very small institution. It is big only to people like who get a lot of small subsidies from them. You would probably note not even know in his companys bottom line. One of the issues we are certainly focused on. What is happening in iraq. Isisl advancing. Isil advancing. Ian bremmer joins us on the phone. What does it mean that the kurds have been overrun . It is clearly a surprise. They were the big winners here. I suspect that this caught them as a surprise. Clearly the Islamic State they are fighting as an has beeningly overwhelmingly focused on the south and tour the shia. Surprise. It was a the kurds withdrew very quickly when they saw a big offensive. They are very well trained, they have a lot of forces. I think they will make a counter offensive. I think they will probably retake those towns. Hysteriais modest about this large dam that has been taken and the idea that they would fracture the dam and water would come tumbling down. Is there any validity to that . There is a big difference between them destroying historic artifacts, which this terrorist organization and others believe to impugn their ideology. A dam that is needed for the wellbeing of the people of the territory. The folks running the Islamic State do understand that they have to govern the people at a base level. I would be surprised if we saw that. Give us an update on the strength of the impact of American Investment and support of baghdad. Is there any good news . Not much. The Big Companies have never gone into the south. Frankly, it has still been a very difficult and divisive economic climate. Security environment is very difficult. The Legal Environment is very uncertain. The biggest deals that were being made in the south were being made by the emergency dad emergingmarket emerging markets. In terms of direct political and military support, what you have been seeing is the russians rushing in and sending a bunch of planes. Increasing reports that the iranians have been sending elite forces on the ground. Makes extent that isis gains against baghdad, there is no question. Were out of time. I apologize. Thank you as always, ian bremmer. Bloomberg surveillance will be right back. Good monday morning. Im tom keene. Adam johnson and scarlet fu with me. Joining me now, betty liu. We have an exclusive interview with chicago mayor rahm emanuel. He has joined several other cities to offer refuge to the Migrant Children who have come over the u. S. Mexico border. He is joining us to talk about that process, but also, of course, the larger issue. We had the house pass those two bills on friday. Of whether the president is going to go ahead with executive action on immigration. Withof issues on the table mayor rahm emanuel. At the same time, we will talk tech. We love to talk about the valuations in the tech industry. What is going on with alibaba and yahoo . Michael wolff is joining us. He was on the yahoo board during the whole time that dan loeb was actively recruiting marissa mayer. He knows quite a bit about it. He just sat down in july. He will tell us his experience on the yahoo board. A morning mustread. This is an interesting one. Particularly after having Charles Calomiris with us from columbia university. From bloomberg view. If you are on global wall street, this is a must read this morning from bloomberg view. , he talks outris information moves when people are dealing with fact or creating a fiction or falsehoods being corrected. Is is is it harder to be smarter about wall street today because of the new media . I think it is harder and especially difficult to get reliable information. An exception is bloomberg. One of the things that is really strange is that Investigative Journalism about the economy or anything else is wouldve disappeared. To even theally go newspapers that used to do the lowfrequency reporting. We say that with respect to our lay colleague mark pittman back at the beginning of the crisis. Desolate colleague mark pittman late colleague mark pittman at the beginning of the crisis. Henry was a fundamentalist guy. He was not jumping around from one story to another. He was watching things slowly emerge. Have a commitment about what he was saying. The news cycle is so short term now. I go back to the twitter vigilantes. There are no editors on twitter. We wanting of twitter, to bring in our twitter question of the day today. This speaks to run next question. What is the biggest opportunity for the u. S. In africa . Tweet us. Good morning, everyone. Bloomberg surveillance. Tomorrow, my favorite guest will join us. Sir Martin Sorrell. Very thoughtful. So Martin Sorrell on that success which is the United Kingdom economy. K for that on television, television, tomorrow at 6 00 a. M. This is bloomberg surveillance. Our guest host for this hour, Charles Calomiris and hans humes. Lets get you company news. New pressure on u. S. Tech companies in china. May not buyanies antivirus software. China has ordered agencies not to buy Microsofts Windows eight. Microsoft is trying to make things personal. They are changing the website to target test him or preferences. A completens relaunch next year. A company that makes software to raised 890crashes million for its ipo. Itsale was a record for Israeli Company going public in the United States. That is the latest company news from the files of bloomberg west. Were going to rip up the script. He bowl a ebola is transferred by sweat, among other ways. It is a dawning reality in west africa. An expanding disease. Hans humes has lived within western africa. He is with greylock capital. Explain to us. You grew up in nigeria . My father got it in his head to move us all there when i was three. Yes. How interlinked are these nations . Are the nations directly to the west of nigeria separate and removed . The roads are not particularly good, but people do go backandforth. One person in liberia went to nigeria and died. These borders are fairly porous. There is a lot of going back and forth within a small distance. The traffic between the Capital Cities is not huge, other than planes. It is porous enough that if you start seeing the virus spread, you could have a much more serious epidemic. The biggest impact on the economy is on the fear. Monrovia and freetown are basically paralyzed. Nobody is going out in the streets. The economy is dropping right off. When it goes into nigeria and ivory coast, that is when you will have a bigger problem. Im struggling with my map here. Seriousness, lagos to rural my jury a. Nigeria. Two people from the rural parts, are they as removed do people from the rural parts, are they as removed . My friend Mcdowell Cooper is moving her kids out of the or to edge orphanage different villages to get the moist from the center. O, you can in tog get from one place to another because the roads function. From theof the traffic small towns to the big cities, it is not very fast. The roads are not that developed in general. How can the deceased travel so quickly and readily when infrastructure is so far back . Is obviouslyere the issue of lack of sanitation. That becomes a big problem. It is how the virus travels. It is through sweat. Linens. Ould share a bed they can pass that way. Any kind of contact. If you get a concentration in monrovia or freetown, it can pass there. To try to efforts is contain the populations. We were talking about the prospect of investing in africa. The Something Like this enough to change the momentum . No. Not where it is now. Unfortunate that you get the africa summit and you get the headlines. , now youthree days ago have this ebola crisis. Anything with africa, you do not want to associate with disease, famine, and pestilence. Theres a thriving economy and most of these countries. The fact that you have two president s who did not come over, does not distract from the building that can go on. The real story in africa is the evolution and the emergence of the middle class. , let mees calomiris address this to you. When we look at our wellmeaning, well spirited institutions helping africa with bacterial or viral issues or institutions helping like the world bank, are they still getting in the way of each other . Yes and largely failing. Abilities truly positive book tierney of experts documents this t yranny of experts documents and explains this very well. I think that the world banks leadership, the main accomplishment every four years is to restructure the world bank staff. , the world bank was instrumental in the debt problems in africa and result and resolving them. That was 10 years ago. Ok. [laughter] your best returns have come from africa. Could you not have done that without the world bank . It is complicated. They were instrumental in structuring the way that things worked out. Ultimately, we may have gotten more out of some of the restructurings. I think the world bank was helpful in resolving the issue. Summing up the world bank. Lets focus on the stories shaping the day. You heard ian bremmer talk about iraq. The headline here is that this statee isil, the islamic they want an Islamic State. Kurds are the headline. The kurds of northern iraq, all of the tensions and trauma there with turkey. Thehe kurds have been strongest resistance, the best organized. Absolutely. They have lost ground. We heard ian bremmer say he thinks the kurds will retake those oil fields. Very briefly, my agenda on the markets. The global index last week dropped to 0. 5 . Thursday was down 309 points. It rebounded. Were up a little bit today. Huge what her response. What is a correction . How do you score a correction . It is defined as a 10 move downward. As someone commented in the early hour and charles you are sneering no, you are agreeing. I think this is a blip. I have to also say, you missed a major news story. Shameless plug. Hit the gong. How to pack it in . I snuck it in. [laughter] i think it is a blip. I dont think it is a correction. Fair. Bloomberg televisions all day coverage of the u. S. Africa Leaders Summit kicks off in washington. We will have all day coverage. This is sponsored by bloomberg philanthropies and the u. S. Department of commerce. That brings us to the twitter question of the day. What is the biggest opportunity for the u. S. In africa . Displacing china. We have a long way to go to displace china. Yes, we do. As hans can attest. Climate change. Finally, telecoms. Mobile banking is quite advanced. The Technological Progress of mobile is definitive here. They are the pioneers in this. They are taking an unmet taking an unbacked population and getting them involved as borrowers, as Small Business borrowers. It is using Information Technology as a substitute to rid Charles Calomiris. Great to have you with us. Hans humes, thank you for your comments. Bloomberg surveillance on radio continues. In the loop is up next. Have a great rest of the morning. Good morning, it is august 4. From bloomberg World Headquarters, you are in the loop. Im betty liu. Be joining usill on his offer to house up to 1000 Migrant Children in the windy city. His stand on the political fight over immigration. Notah professional golfer begay iii joins us ahead of the pga champions tour, where he will talk about tiger woods. With no tiger, what is the future of golf . Bank of has bailed out the spirit of centeno. Bondholders will take a big hit. Once again be able to get beef burgers and chicken mcnuggets in mcdonalds in china. They pulled the items off the menu after suppliers were found to be using expired meat. T