Transcripts For BLOOMBERG Bloomberg Surveillance 20150115

Present move. That is clear. Whether or not it will suffice to get inflation which would be satisfactory is another story. Markets are betting that mario draghi will announce a Bond Buying Program next week at the ecb meeting. Another rally in oil and a did not last long. It rose on a 6 after relative strengthening. It was oils biggest increase in 2. 5 years. Today, prices have fallen almost 2 . West texas intermediate is trading under 48 a barrel. While bright for blackberry investors. Shares fell as much as 17 in extended trading after simpson denied report that samsung was in talks with to buy the canadian smartphone maker. Meanwhile, struggling Electronics Chain ready of shaq may file for bankruptcy protection as early as next month. That according to the wall street journal. Radioshack has lost money for 11 quarters in a row. This is beyond cool. After 19 days that is what amazes me most 19 days, two athletes consider what many considered the most challenging what many consider the most challenging. They reached the summit of a cap a 10 el capitan wall, dawn wall. Inclimbing 3000 feet without using ropes. Ropes were only used as safety devices. I dont have missed much interest in this stuff, but this is amazing. I could not stop reading about this. They have been up there since middecember. They take rests sometimes and one of them fell he made seven attempts of the same stretch of the wall in 10 days. He kept on falling. He kept on going. Just unbelievable. When you read about what they have to do, yet the hold on just tight enough to hold your body weight but not so much that acid lactic acid builds up in your arms. This is beyond i am glad use the word athletes. They trained for five years to do this. I did not notice. Without question, i woke up today and i thought it was a quiet morning. Heres the data check. Were going to dive into this. Futures reverse. Were up a lot, now down some. 10 year yield comes in. Eurodollar goes way back under 1. 17. These are all bad things for people that talk too much about the crisis and dont do. The swiss bank did this morning. Oil, as brendan mentioned south. Vix, look for that higher. Here is the swiss. Euro swiss is what the pros use. It is going from 1. 20 to 1. 03. Dollar swiss, which we in america care about, was parody down 0. 88. Just to give you one litmus paper, a lot of mortgages are underwritten somehow and swiss, which i dont understand. The people of hungary got crushed. And poland as well. 90 move against the smaller hungry versus those lesser percent move. Over to the monitor, back to the beginning of the financial crisis, this is when i lived large in davos. Explain the sweat. Swiss elite saying, we have had it. This is the internal monologue of the governing board of the Swiss National bank. Keep it together, europe. Keep it together, europe. Keep it together, europe. Oh, forgot sex, if you want to do something right, yet the doityourself. Oh, for gods sake, if you want to do something right, you have to do it your self. Right here they said, oh, we give up. What were they going to do . Anticipation of qe next week. Im looking at this press release from the Swiss National bank. No longer justified. I would change that to no longer tenable. Accumulating the foreign currency. The repo rate go even further into negative territory. Lets go to a Foreign Exchange pro on this. There are many we thank her james foley. I want to know the ramifications right now for the swiss people. What does this mean for the people of zurich, geneva, and the rest . It is very worrying. You have a very overvalued Exchange Rate in a makes it much worse. I think the problems are more than just the people of zurich and switzerland. This is a big problem for policymakers. In europe now, we have to flechette. Switzerland deflation for quite a long time. If you like, this was National Bank were ahead of the curve. In many countries, were at the point when Interest Rates are already at the floor. What do they do . Perhaps you look at the currency. Perhaps, this is what the ecb is trying to do. Theyre just exporting the problems, making it worse for the other european countries. They were ahead of the curve. They use this floor over three years ago, tried to protect the currency and now theyve given up. What do they use now . Weve had negative Interest Rates for a few weeks. Is this going to work or send deflation . Probably not. Jane, you tell me whether this passes the possibility test. While the swiss franc is still high the overvaluation has decreased as a whole since the introduction of the minimum Exchange Rate. And he says, the economy was able to take advantage of the space to adjust to new situation. Does the swiss economy adjust . No am a a theyre making excuses. No, they are just making excuses. What we had ahead of 2011 in september when they put in that floor, we did have a really strong move in that its effective Exchange Rate. Get a bit of a peak in the fall. Did the trend carryon going higher. It is higher today than the start of 2013. Higher than theyre going to blow through the recent strength of the last four or five years. Jane, where is the safe haven trade in the currency markets . It looks like is this just dollarpositive . Not necessarily. The yen is still a safe haven currency. In many terms, the swiss franc is a better safe haven. If you want to check boxes look at current positions, what switzerland does well as a currency, and the sister the other problem, theyve always seemed safe haven flow. Two things are finding difficult to control. Jane foley, greatly appreciate that from london. Michael leavy joins us. Kamal, this is your will house. What i would suggest for the american viewers and listeners we have, this is a textbook exogenous shock. Everybody has their beliefs and rationalizations on out of the blue, you get hit hard and that is the moment were in right now. Absolutely. We have been talking on your program as to how the u. S. Is not an island. What you see in terms of the futures turning around earlier this morning, the impact on u. S. Interest rates also just it is not emanating from the United States but from europe and theres going to be more. Making headlines looking for the 10 year yield to go from 2 . You go one step further and say the 30 year bond, which has come down down, down, record low yesterday, could be under 2 . How to we get there . Because deflation spreads and now you have it in eurozone. There are problems elsewhere in the world. It switches over to the United States as well, tom. With oil prices declining or the headline inflation is suddenly negative, i see the inflation rate also going down in the shortterm. And that is where you get the lower Interest Rates. That is a major reason why went against a lonely group. Cooks we havent yet had a chance to talk about mario draghi. Are they anticipating massive inflation in the euro . I think the swiss move is in anticipation of what is going to happen january 22. I dont think it will do the eurozone any good because i think all the cash that is going to be generated, even assuming they find the securities to purchase, there are not enough abs to buy. Even if they do, i think the cash is going to sit in the banks or in consumers wallets. Michael leavy with us with his expertise on the geopolitics of oil. Jeff curry on the program yesterday making clear we can go south of the golden sachs 39 call. Steve short looking at 30. Everett morris will be on surveillance from citigroup. Do you have a place oil is going . Do you have a sense of where it settles out, where we finally get a bid . In the short run, which is what these guys are looking at now, geopolitics is mostly secondary. He saw goldman announced earlier looking how Capital Markets adjust, looking at the same thing, all pointing lower. I think as we look at over the longer run, youre going to have geopolitics come back in and a variety of ways but for right now it is really about the markets, physical markets commodity markets, in particular, how did the u. S. Capital markets is saudi the producer and the king abdullah, is or Something Different about saudi arabia from 90 days ago . I dont think theres much different about saudi arabia and the short run from 90 days ago. In the longer run, saudi arabia can always decide to expand its capacity, contract its capacity. Right now it is not using its shortterm flexibility in order to balance the markets. Thank you, michael levi and Komal Srikumar with us. A massive reversal from where we were yesterday the bombshell from zurich. Or twitter question of the day tweet us bsurveillance. Good morning, bloomberg surveillance. Our team in europe. Thank you for this wonderful comment. This is the major hotel on the promenade in davos. At this point is difficult to evaluate what the actions by this was central bank will meet for our hotel and our guests next week. I wouldnt expect our guests to spend less money because of this. This is true. These guys are so rich, no one cares. But this will have profound ramifications. The nine year swiss peace is a negative yield. [indiscernible] yet to pay switzerland to take your money for nine years right now. I money is in a coffee can. The president is home, the house is passing bill, and Phil Mattingly has woken up from his buckeye hangover. He joins us from washington. Can i find, ground on trade . Swimmingly. No disagreement between republicans and a president about the need for trade deals two in particular one, dealing with about 12 asiapacific countries encompassing about 40 of the world economy. Another one dealing with europe. The problem is democrats. The president will be meeting with Senate Democrats and baltimore. This will be a major, major issue. It is not republicans, for once for the president , but democrats. They have major problems with these tradeins. It is these deals specifically. Theyre not going to give the president free clearance to make this work. It is also go ahead. What im looking at right now, business week wrote about this yesterday, a picture of a very angry robert reich on their story about this. The main complaint his chief complaint, too much secrecy in the trade deal. Is it possible to close the trade ill without keeping secrets . This is what the administration has a problem with with the complaints. This is a powerful coalition working against them on this. It is labor, environment of groups of civil Rights Groups as well. The issue is, Michael Froman they are saying he has not kept them in the loop on the specifics of this deal. Inc. About what his job is. He is to go shooting with 12 different trade representatives, 11 other trade representatives, on a number of issues. Terrorists, automotive agriculture going back and forth. Everything is very sensitive. Kind of subject to any move one way or the other. He is been the best he can according to his top aides and trying to keep people in the loop. Theres only so much he thinks he can do. On the democratic side, members of congress are saying look, we have to vote on this. You need to keep us in the loop. If you dont, we will vote it down. Theres major tension right now and one of the president s major priorities is in danger if democrats stay in the way of this. Not just the democrats standing in the wake him also some of those trade groups. How does the president sell this to the American People . What he is doing is working behind the scenes. I think it is more important according to officials i am talking to, to sell these groups then they will work on him back and people. He is mike froman on this, who is very talented when it comes to persuading people. His problem with the most liberal numbers of congresses he worked for citigroup. You know by listing to senator warren the past couple of months, that is maybe a negative. The biggest one you will see Going Forward is time her as the labor secretary tom pere z, the labor secretary. He has become the main guy behind the scenes working with these groups about the trade ill. He is somebody they trust. He is kind of the primary liaison. On the flight home from detroit i was on secretary perez four members of the uaw. He is working hard on this. Thank you, Phil Mattingly. Were focused on the u. S. Side of this, but will be a huge stimulus to the european economy. Talk about protectionist trade groups, theres a lot of work to be done. I will be honest, i dont read about it because i think it is so unlikely they would get it through, particularly with the french, it is done even worth the time. I think it is a massive deadend. Adam parker with us in the next hour on the equity markets and we will speak with mr. Parker about the bombshell from zurich. Stay with us for complete coverage of the ramifications of this mornings historic action by the Swiss National bank. This is bloomberg surveillance. Good morning, bloomberg surveillance. Futures reversed. 16. We were very green earlier. The Swiss National bank. Lets go they will use a massive negative libor great. Negative seven and negative nine year. Lets digress. Morning mustread on china. Here is Brendan Greeley. This morning, wrote this is a question that is as old as royalty, which is what you do with your empire when all of your children are idiots. There it is. He also has the overly of a changing china. This guy is associated with hong kong, right . The richest man in asia. This is universal problem, one Rupert Murdoch has an media. He spent his entire life pulling together newspapers and television and now he is actually wanting them down industry by industry one, for shareholder value, but also to give them to his sons. The change coming through is not only in terms of passing on to your sons which takes place in a lot of countries, but also the opening up of the markets. Take the case of the United States in the 1870s and 1880s. You could have John Rockefeller dominating the whole market. It is not just the passing generations. But you open up the market to global trade, you can no longer have your family hold on to its powers. Were not going to see these family conglomerates like we did. We looking at the slow dissolution of the family conglomerates we have, like in south korea, for example . You need isolationism for that to continue. That is fascinating. Were going through a historical shift. This is what they did to this tremendous wealth of these universities we have now that are endowed a liver the United States are based on this wealth that had nowhere to go but charity. That is going to change because you have the families, which are not going to be controlling the same percentage of the total wealth as they did before. Is that what were going to see in india . The Tata University but not the conglomerate . God knows family has enough cash to be able to fund it, but what you see is the people whose last name is not tata are also going to become the ceos of indian companies, and that is a change that is taking place. Very good. Coming up, we will continue on the Swiss National banks historic move. Stay with us. Markets on the move with the news of the Swiss National bank him a futures have deteriorated in the last 10 minutes, 13 to 18. We need some top headlines this morning. Carlos slim is the largest investor in the new york times. After exercising options to acquire 15. 9 million shares of the company, the billionaire bought the shares promised six dollars 30 six since each, about half of the companys 12. 28 closing price. And secondlargest richest person to help it through the financial crisis. Casino operators Caesars Entertainment is gambling on chapter 11. They have put its largest unit into bankruptcy protection. That sets up a showdown with creditors who oppose the companys restructuring strategy. It has to do with billions in debt caesars assumed in a buyout. Some junior bondholders have accused caesars of brazen corporate looting and abuse. What a difference a few months has made for elon musk. Shares of his electric Car Company Tesla motors hit a high last september. The stock has been falling ever since. The company said sales in china are not looking good. The stock fell another 6 under 193 a share. That represents a loss of 2. 8 billion. Those are your top headlines. The Worlds Largest asset manager blackrock looks a little better than expected coming in at 4. 82. There also boosting the dividends. That is good news, up by about 13 . They say assets under management in the Fourth Quarter group 8 . Why . A lot of money followed bill gross out the door and a lot went to black rock. We forget how big black rock is. There is jpmorgan. Keep in mind, it is the passively managed money, not the actively managed money. Were going to move to moscow. The ruble traded at 66 yesterday. Today, 55. Yesterday, the man with the worst worlds job the worlds worst job right now, the economy minister. How is our friend holding up . He is ok. Look, this guy has been through crises before. He is a poet. He started a press conference yesterday that he was at saying, hey lets look at the bright side. Lets forget about those barrels. The reality is, things are tough. The ruble is under pressure, oil is falling. Looking at a potential s p downgrade tomorrow. He said that wont he said that wont really be material because after all, russian borrowers are pretty much locked out of western markets. In any case you said the russian government isnt going to borrow to cover its budget gap. There is a bit of an issue in the sense it could trigger covenants where they may have to fork out a whole lot of cash real quickly if we get that downgrade to jump tomorrow. I asked him how much. Here is his answer. It is difficult to estimate. It will be quite small amount of money in bonds. Probably it will be have some influence in loan agreements. They are not public, so we cannot see it. Were expecting that announcement tomorrow from s p after the close stateside. Ryan, did he attempt to tell you that russia has any options right now . Look, one of the options they have is to make full use of their flexible currency Exchange Rate. Theyre pretty much done that havent they . They let the ruble go to as low as 80. That covers the budget problem to some extent, because they sell oil, get out to the oil. If the Exchange Rate is weak they can cover the budget. It is not that simple because, obviously, there is inflation. I think the take away is, these guys are kind of praying the oil price is going to rebound. All right, thank you so much. Michael levi is here with us. You have been watching this for the last year. The thing i keep wondering about russia is, we keep talking about them like they have a monetary problem. What they really have is an aggression problem, right . They have a problem stemming from their aggression and economic woes they would be singing any case are being intensified by their isolation. But right now, what theyve started with was a currency problem. They have shifted that essentially to the broader economy with a really high Interest Rates. Youll see the impact of that unfold over the next year or two. That is in all showing up yet. Russia than faces political challenges. Does that make sense, that were actually looking at potential political problems in russia, if i understood that correctly . I think the problem is still very much economic. I was in moscow last march when you had the ruble at 32, 33 to the u. S. Dollar and headed there again at the beginning of next month. My expectation is they were still in bad shape as a result of the sanctions, and now you have the initial impact of the sharp fall in oil prices. If you look at what the issue is, this is not august of 1990 eight. This is not a default situation. This is done a situation where you talk about deposits. Youre talking about a very tough year in terms of debt payments. By my calculations, they should go through 2015 and coming to 2016 still hurts, but still doing ok. Very good. Breaking news, thrilled to have michael levi with us. Opec speaks. It is simple. This is on the responsiveness or elasticity of demand and of supply. They see less demand for their crude. That is a key statement. The surprising is the new pricing regime will slow u. S. Supply again. Goldman sachs touching on this in the jeff green note earlier. Michael, quickly, this is about demand elasticity. Are we shifting in the coming months for discussion of supply here supply there to about a greater global lesser demand . We certainly need to be talking more about demand. The amount of analysis that has been applied to the supply side of the equation in the last three or four months is enormous, looking down every possible dynamic. On the demand side . Barely anything. Theres a lot more to figure out about consumers and government responses which will shape the environment. Consumer responses, and brent coming in much like west texas intermediate, a guy like you in geopolitics, do we simply drive more because of cheaper oil . Im not there. I dont think people wake up in the morning and go yipee it is 1. 91, i think i will drive 10 miles more. I think the rebound has been a bit of a myth. The reality is, there is some rebound. If you cut the price of oil in half, people might drive to percent more. 10 more. Not only do you not start driving more because the gas prices come down, doesnt mean you start take a look at yesterdays retail sales and how did much worse than expected. That suggests to you the will press declined michael levi just spoke microeconomics. That is a first. We are talking micro here. We are. Coming up, we will tell you what that has got to do with the price of steel in china. We will look at the steel profit index and what it has to do with chinas economy. It is todays single best chart. That is on bloomberg surveillance. That is us, right now on bloomberg television. Good morning, bloomberg surveillance. Futures 15. Lets go to the single best chart. Taking look at chinas steel industry. It is not doing well. Steel mills in china are less profitable. A good deal less profitable. Bolivia, you got this chart yesterday from ken hoffman. He said the real problem is now chinas is exporting a lot of steel. He knows what is going on. We saw this huge move the commodities market. This was the smartest thing he could come up with. He says hes really concerned about what is coming out of china. I throw this to you, michael, your expertise on china, what do you make of this . Do you think the pressure on the commodity market is coming from a lack of demand or perhaps oversupply out of china . It varies from commodity to commodity, but we can demand is a part of it. You point to exports, which is critical. I think it means one thing to watch for in the coming months is does china allow its currency to depreciate after letting it rise along with u. S. Dollar, weakening export position doesnt say enough is enough and try to break out of that. A couple of mining i said theres nothing wrong with china. I think theyre just talking keep in mind, the price of oil has collapsed. That means it is less expensive to mine copper. I agree. The minimum, it is a mystery. I thought that was a very cool chart. Im so glad we got a look at this because i feel like every time have someone come on the show, never different indicator for what to look at in china. Do you have an indicator of china . I think indicator you want to watch for and im watching most closely is the shadow banking and what is happening on that site. That is variable number one. Defaults have started to take place in the property sector that are going to be a lot more in 2015. That is what you want to watch. Not whether the growth rate is 7. 1 or 7. 2 , that is irrelevant. What do we need to know about u. S. Exposure to chinese shadow banking . What you want to know is they have put out high income products olivia, and a large extent, they seem to be owned by people who are there in exposure is to banks which are located in the region as well. To the extent there any u. S. Banks that have an involvement, that is what you want to watch for. I think that is not significant. The impact is going to be in direct in terms of what it does to the chinese economy and the stock market. Lets get to top photos. Number three, italian president attending a farewell ceremony after his resignation in rome. He quit before the end of his second term. At the age of 89, he said he was to longer fit enough to serve as head of state. The pope recently said a similar thing. The Prime Minister will be left with finding a successor. Mario draghi wouldve been a very obvious candidate, but it looks like he has his hands tied. Is this a figurehead position . Yes. Very much so. But it has been turbulent times. That guys actually 42. That is what the president of italy being the president of italy dust you. Two rock, its completed their 19 day scale of el capitan in your 70 national park. They reached the peak of 3 25 p. M. Yesterday. There were the first ever to free climb the 3000 foot rock using only their hands and feet. You had a cool explanation of just how tricky it is. They have to hold with justin up our to hold themselves up but not so much they start to release lactic acid and their forearms. What amazes me, it is the most photographed and Painted Mountain in america. This challenge has always been there. It took this long for somebody to do it. One of the guys tried nine times two scale the same face. Unbelievable. Is there a railing at the top . They chopper didnt some champagne they choppered in some champagne. You can now follow prince william, harry, and the duchess of cambridge on twitter. And instagram. The accounts were created yesterday. So far the tweets are pretty dull. There you see harry on his tip toes tried to catch up. I guess this is from twitter. You wonder, will they and hurt the twitter handle as well as . I want to know how much tax dollars went into the debate over should they be on twitter. My understanding is they run a pretty small stuff by kensington palace. They are very lowprofile. Oh yeah. Im serious. Im sure Kate Middleton is cooking dinner with the baby on her hip. Coming up, Derek Halpenny will join us. The swiss. Stay with us, it is bloomberg surveillance. Good morning, bloomberg surveillance. Futures retreat off and unpacking of the u. S. Frank swiss franc. Whats behind man accused of plotting to blow up u. S. Capitol and kill government officials. Twitter posts that sympathize with islamic terrorists led to an undercover fbi operation ands arrest. He allegedly said they should wait jihad and showed his plans for bombing the capital and shooting people. Josh mcnary is facing a rape charge. He 26 euro graduate of the was military academy of west point is also accused of criminal confinement and battery resulting in bodily injury. It allegedly occurred december 1. A group of 19 attorneys general is pressing j. P. Morgan chase for evidence. They want to know more about the data breach that jeopardized millions of customer accounts last year. They want to know if any of the copper must information has been connected with fraud. Theyre sticking it by january 23rd, including they are seeking the information by january 23. Those are your top headlines. The swiss announcement olivia, 14 plus appreciation of the swiss franc. I want to get back to our top stories. The Swiss National bank unexpectedly gave up its minimum Exchange Rate. It lowered the deposit rate. I want to bring and Derek Halpenny. He joins us now on the phone. Thank you for joining us. What do you make of this move . Is this the Swiss National bank waving the white flag . The markets were completely stunned by this. In the middle of december, s p president was still emphasizing imports of maintaining the flow. It is a real shocker. The statement from the s p comes up with two he reasons. Number one is the valuation of the swiss franc is no longer the extreme levels it was that in september 2011 when it was implement it. There has been a notable drop back in the overvaluation before todays surge. The second, more importantly the anticipation of the monetary divergence that is evident in the markets. The s p thinking is with the Ecb Qe Program about to be announced next week, theyre expecting a more pronounced period of policy divergence and that will push the dollar lower and help push dollarswiss higher. I want to bring in Komal Srikumar. First, olivia, you have a killer quote on the real world. What do you got . Swatch is clobbered right now. He says how badly does this hurt for swiss manufacturers . Sure, it is going to be a major hit in a major deflationary shock to switzerland and even spreading into europe. I go back to what i suppose the s p has said, and theyre taking a gamble and hoping the dollar continues to surge Going Forward. If that is the case the dollarswiss should move higher or at least on a trade weighted basis, and take out some of the pain in regard to the appreciation of the currency. It is also important to mention, effectively, the policy was feeling anyway. If you average inflation over the last six years in switzerland am a it was. 1 . I think, really, they needed to look at some other methods. I think that is the road theyre going down. Derek halpenny, with bank of tokyo mitsubishi. Komal srikumar i look at the bloomberg money market terminal for switzerland and i know that is not in my textbooks. The 10year swiss is trading at three basis points. 03. They dont want our money, do they . You are absolutely right. You dont find it anywhere in the text box. Textbooks. The 10 year yield has come down from earlier this morning from 9 to 3 basis points deflation is going to switzerland. I think this is a very difficult situation for Monetary Policy. Monetary policy cannot get you out of this global deflation. This is delusional to think janet yellen can ignore this. Switzerland is always like to hold itself apart as better christopher from the rest of the euro zone but it is not. It is intimately tied into the economy. It has no choice. I was trained my academic training with Robert Mundell to the fixed exchange straight cannot be sustained with very different monetary policies. January 22, you will have such massive kiwi that is planned qe that this was had to do something about it. Michael levi this all links back to oil traded in dollars that has massive ramifications doesnt it . That is absolutely right. I think it also links to credibility. If the Swiss Central Bank knew it was going to have to do something at some point because of european using better to do it now where there is at least a bit of a gloss agendas independently than looking forced were under immediate pressure. Were talking about credibility. You have this note today, saying the economy was able to take advantage of this to adjust the situation. Olivia, your quote from swatch says, no, we were not able to adjust. Absolutely. What you make of that . It is not a good situation for the alternative is not one that just goes bumping along forever. The question is not if it is bad for a company likes watch for the broader us economy, but is it better than what the alternative would be . What does it say about our faith and in the swiss banks and they capitulated. Komal srikumar, thank you so much. Michael levi thank you so much. Let me do a forex report. This will take one hour. No, the yen advancing stronger. There is the ruble back near 65. Stay with us for more. It is bloomberg surveillance. Good morning. This is bloomberg surveillance. Zurich blanks. Blinks. Will russia blank . Blink . Good morning, everyone. This is bloomberg surveillance. We are live from new york. It is thursday, january 15. Im tom keene. Joining me, Brendan Greeley. And, she gazes on the headlines, Olivia Sterns. The lower end of the bracket was . 29. It was a pretty big mess. Miss. The net for the Fourth Quarter. Mike what is your thinking about this . Tom, go ahead. Every bank reports differently. X charges, . 32. Who has the best press release and friendly as three . It is not bank of america. [laughter] jpmorgan is pretty clear. They definitely lay out their businesses. Goldman has a simpler model. They are easier to deal with because they have fewer of the businesses. Bank of america, i really dont know what is going on. They reduced Retail Banking centers. They are reducing the retail footprint. This is a trend that is going to happen. The question is, how much does it accelerate if the fed does not raise rates soon . Branches become a lot more expensive if you have expensive Interest Rates. What do you make of this seven sense of charges . Cents of charges . This is just a reality. All of the banks are trying to clean up so that they have a cleaner 2015. We continue our focus on optimizing the balance sheet. Forget about it. Do they do better if we do better . They are definitely linked. In the last two quarters they have had higher provisions for credit losses. You have started to see a turn in credit. Credit has been very good for the last four years. It is starting to pick up a little bit. 43 billion dollars of net income and they enjoy 3 billion less. I just cant let go of the way they are shedding retail options. Branch offices are just a marketing charge. Fewer people are using the branches. A lot more is being done on mobile. It is not that good of a business. The shares are down about 2. 5 in the pretrade. We are guessing it has to do is legal liability. The fog of fines have they finally been lifted . They are getting closer to the end. They are over 16 billion of legal costs this year. Jpmorgan, 2013 was there year. This is been the year for bank of america to wrap up a number of things. Adam parker is with morgan stanley. Robert hormats is now with kissinger associates. None of it matters. Professor hormats you are at the state department and you learn the swiss bombshell. The profanity that must be used. What shock this morning, absolutely stunning. It was. Europe is in a very tricky position. They have just had enough. Yes. Then you have strong deflationary pressures on most of the other parts. The politics are more complicated. You have this rise of the antiimmigrant third parties. I know Brendan Greeley wants to talk about this. There is a flight to quality. Our u. S. Equities a flight to quality . . Absolutely. What about treasuries . What is happening in the treasury market . Same reason. Secure and stable, relatively. Do you put your world in the world of fixed income . I dont know about the world of fixed income but i do think you have a number of securities that offer higher yields and higher growth rate and are wellrun companies. I would much rather own u. S. Equities than government bonds pretty much everywhere. You know just how hard it is to close the trade deals. The only thing that possibly might get done his trade. Is that the right way to move or is there another direction we might be moving in . You put your finger on it. It is probably the easiest from a legislative point of view. Republicans are more profree trade than many people in the democratic party. You can probably get a Transatlantic Partnership done over the Obama Administration that would strengthen our economy and other economies and demonstrate progress in key areas the Foreign Policy where we are not making much progress. I want to rip up the script and go back a couple of days. Should you or Vice President biden have attended this protest, this moment in paris . Absolutely. I think this was a huge mistake. I believe the president should have gone himself. If there was a reason and i have not heard a good reason why he did not go, but if there were any reason then at least you send the Vice President. If you dont send the Vice President , you send the secretary of state. The attorney general was there already. He should have gone. We already talked about this being an embarrassment. The shift to the right in europe. How tangible is this shifts to the right in europe . It is tangible and it is increasing. You have the National Front in france. You have the new dawn in greece. You have the Northern League in italy. Even in germany, you are seeing some of this. More and some of the other countries. This is a problem, in part because these parties dont want to have a solid european front on anything. They are antieurope antibrussels they are weakening the european position and putin is prying off these right playing off these rightwing leaders. It is dividing europe and putins goal is a weaker europe which will make his job easier. Dont the major parties in europe need to adjust in some way . The increase in popularity of the populist parties say there is something to address. Absolutely and they are going to pull over to the right because they dont want these rightwing parties to do well. It is pushing european politics to the right. That means antiimmigration antieurope antiregulation. Yes, the european populists that vote for these parties say, we dont want brussels telling us what to do and we dont want a lot of immigration. It is antimuslim. It is antisemitic. Mark massed out masdow writes about this. Russian president Vladimir Putin s moves in Eastern Europe have a disturbingly familiar ring to them. It is also quoting a lot of these other groups that are not satisfied with the National Governments and using them to weaken the National Governments. We will continue this discussion. We will speak with robert sinch on this historic day in ceric. Zurich. What are you going to do today in your money with your money in your Swiss Bank Account . Good morning. Bloomberg surveillance. We are trying to bring you the best report we can. Futures. We have a morning mustread. The new york times. Why drugs cost the most so much. Companies are taking advantage of a mix of laws. I liked it because it is really true. What happened in europe as that the Drug Companies enter into negotiations and they set a price that the government can afford. In the u. S. , there is so much fear mongering that if you cannot get the pill, you are going to get the 85,000 pill and everyone feels so terrified they are not going to get the latest and greatest thing. Adam parker is with us for morgan stanley. Bring us over to pharmaceuticals. Who makes the money on an 80,000 roller doug 80,000 drug . I do mean the individual stocks. Who makes it . Im glad you asked. Four years ago, we made our Biggest Health care move. We held it for four years until last month until we downgraded it. It has gotten very crowded. When i go to my meetings, almost everyone tells me i feel like we have seen these huge rotations of the stock market and im a little bit worried. We are very crowded on a sentiment front. It is time to start selling a little bit down. With all of the news flow we have had with all of the news flow we have had, have you shifted your strategy as to where your rates are . How do you do your job with the negative rates . Look, it has been a real problem. Three months ago, the consensus was to short the tenure. It has shifted and the consensus is probably too long for short year 10 year. To long the short10 year. The question on the yield curve is, is it flat or is it dead . [laughter] i like that. We ares will to bring your Richard Greenfield and paul sweeney. We will talk about content being king. Stay with us. Good morning, everyone. Bloomberg surveillance. Im tom keene. With me, Olivia Sterns and Brendan Greeley. Right now, we go to robert cinch on the Swiss National bank. Negative Interest Rates is their tool to try to protect their economy and protect the people of switzerland. What are the ramifications of this for mario draghi . They got out in front of the january 22 meeting. How difficult does it make it for mario draghi now . This meticulous take a little bit of pressure off of mario draghi. Clearly the swiss had tied their currency to a currency that was depreciating pretty rapidly, the euro. I think this was an opportune time to get themselves out of a difficult situation. Lets revisit the confidence of a few years ago. The confidence that switzerland is different. It will longer tolerate a euro Exchange Rate below 1. 20 swiss franc. It did not work. What does it cost the government of switzerland . They will be tallying those numbers for quite a while. Swiss Foreign Exchange reserves have exploded from the beginning of 2012. Of particular concern is that they just reported that the reserves went up by 33 billion during the month of december alone. That is just an unsustainable pace of acceleration in their reserve accumulation. The money coming in. You have been out front on this. Here is wy plot six years ago. Wow. Coming off the swiss move, do we go to a new regime of currency war that could lead to deflation and outright depression . This is a move that i think if you comb through some of the data, really does make some sense. It is amazing how well the swiss economy had been coping with the strong swiss franc even before this. If you look at the yearend before november and the trade surplus over the previous year, it was in a record. The swiss were enjoying a record trade slur plus surplus. They had tied their currency to the euro, which was depreciating. If you look at the swiss franc versus the dollar, trading somewhere around. 88, it is about where it was. This is a move the timing is a bit surprising, but when you look across all of the fundamentals, i think this makes a lot of sense. It is probably a bit less of an extreme action than some people may have been thinking an hour or two ago. Olivia coming you have headlines from the Swiss National bank. The governor of the Swiss National bank has been speaking. He is saying that the swiss franc is still high. Divergence from the global monetary situation is going to continue. The Oil Price Drop will also boost economic growth. He says that the Swiss National bank is considered committed to price stability mandate. Our faith in the Swiss National bank is obviously shaken because in 2011, they said they would defend the floor, but they have capitulated now. His resume is too long to list, but robert hormats, you have been in the room and some of these discussions what have we learned about the leverage that europe has over russia in the last three months . We have learned that europe does not have a lot of leverage over russia nor do we have a lot of leverage. But the oil markets have a lot of leverage. Russia has not diversified its economy. The russians have counted physicists, engineers mathematicians they could have diversified and they did not because the policies are so centered on these big oligarchs. As long as oil was doing well, putin was doing well and russia was doing well. He could give money to his friends around the world. He cannot do that anymore. They cannot diversify now. It is too late. He is very vulnerable. What he will do with respect to his policy, visavis ukraine is another matter. It could strengthen the solidarity of russians behind him for a time as he says, the west is imposing, the west causes the oil price to go down. I dont think that will last forever, but for the moment, he has been able to sustain that approach. Vladimir putin has conceded that russia needed to diverse of five. Was there a moment that was missed . They developed a certain area right around moscow that i went to and i was the american cochair of a group working on diversification because American Companies served to benefit from that. When medvedev left, it petered out. Coming up, president obama wants big cable to be able to compete. Whiplash. That is what we have going this morning. The swiss bombshell dropped. Everything out. Futures went negative. Futures are almost flat now. Crisis over. Blackrock says quarterly profits helped 3. 3 . Fell 3. 3 . Net income decreased. Blackrock suggested that they beat the four dollars 60 a cent average. They boosted dividend about 13 . The largest investor in the new york times. Carlos slim gained the options after lending the paper in 2009. What a few months have made what a difference if you months of made for elon musk. Tesla stock is been falling. Sales in china are not looking very good. Shares fell another 6 to under 193. Lest we forget the multiple on tesla is still pretty crazy. Not too worried about mr. Musk. We look at the media, cable. Imagine the garden of eden. Internet competition, internet access. That is what the president wants to have happen. He has urged to the sec to new prize does neutralize neutralize cities from selling their own broadband. Only 5 of americans have competition at all 25 of americans have competition at all for that internet speed. Rich greenfield is with us. Paul sweeney a bloomberg intelligence. Rich we know that this approach works in some cities like bristol, virginia or lafayette, louisiana. Is this a model for the rest of the country . Competition is good for consumers. The more competition you have, the higher prices you get. The only reason you can get 300 megs from Time Warner Cable is you have verizon coming in with competition. There is no doubt the competition works. The problem for cable stocks is that not only is the president really pushing his agenda of competition, but at the same time he is pushing an agenda of using telephone monopoly like regulation called turtle two for Net Neutrality and you are going to over a more regulation, as well as more competition. We think that is going to create a lot of pressure on cable stocks and the comment you just made about raising the bar for broadband we are not going to consider broadband as anything sub 25 makes how do you say there is no competition in broadband and then allow comcast and time warner to merge . We are much more concerned about the likelihood that the government does not try to block time warnercomcast. Cable had a huge run with stocks a couple of years ago. They are out of the investor spotlight right now. They are focused on content and other areas. There was a huge focus about six months ago. Would you buy . I think they have pretty good attributes generally. Compared to other assets, a lot look better than government bonds. And theyre paying dividends. Yes, and they have stable attributes. I think people would rather give up a lot than give up their cable. We have come back hard this morning. It is absolutely extraordinary. The euro is weaker. We saw a move toward a weaker euro off the Swiss National bank. Oil captures two days of good news. Yen is much stronger versus the euro. Good morning, everyone. This is bloomberg surveillance. Richard greenfield and paul sweeney with us. Adam is a partner with morgan stanley. I want to go to the heart of it content. Murdoch wants to buy time warner. The ncaa just at the ball out of the park with espn ratings. I think content is going to still picking five years from now. We have had a tremendous explosion in terms of distribution. It is no internet delivery of content. Think netflix. The key issue for the Big Media Companies in hollywood is to make sure that as consumers go online that their content is there and the Media Companies get the content. Have you seen all of the new season of game of thrones . I have not. I was hoping you could get it for me. [laughter] everyone is trying to copy game of thrones. What does that mean five years from now if none of my kids are watching tv . There are two major issues you just raised. On the first half we have the fact that there are 65 billion of tv ads. If your kids are not watching tv , my kids are not sitting around watching tv, they are watching instagram their friends are playing around on snapchat. Tv used to be this up or i shall on. It used to be special. The specialness of tv has evaporated for the younger generation. We are finding lots of content to binge on on netflix, amazon you saw the mining Golden Globes the other night this change in behavior is changing advertising. How do brands which consumers . You are seeing all the big brands struggling with advertising numbers. They are all missing numbers. Then why do the stocks go up adam parker . I agree with your sentiment. We have been getting very worried about it because technology is changing quickly and it is hard to take a longterm view and evaluate the cash flow. For five years, i would have come on the set and you would have done well, very well. You could have owned many media stocks for five years and looked like a brilliant investor. In the last six months, these stocks of started to crack. Can you have a good house on a bad lot as the media space deals with major secular pressures . Rupert murdoch is going to come back. You believe he will take time warner . I think in 2015, 1 of the things we are talking about is that we are going to see more consolidation in the media space. 2014 was contribution on the media side. We think 2015 might be a time when we see consolidation on the content side. If you went back to 2009, you could have bought a lot of stock in that well. A lot of these were on fire and did really well for a few years. People were worried about the growth potential, who the winners are. That creates confusion. We have seen a few rotations. We have all this, we have new tvs. What is the thing you envision . The one thing you want to keep your eye on is a Virtual Reality is going to impact time spent. Come on. Absolutely. If you spent time in the oculus rift and scene where we are at, you will be able to buy one of these before the end of this year. You will be able to buy an incredibly high quality what am i going to do with it . You are going to bring it on set. The virtual honeymoon is going to replace the actual one eventually. [laughter] really . [laughter] adam parker with the comment. That was a joke. We need to do a whole media thing. Thank you. Mr. Parker will continue with us. We will try to figure out what to do with him. Speaking of spending your money the economy needed retail therapy, we did not get it. Why retail sales were so bad in december. This is bloomberg surveillance. We will be back in just a moment. Good morning. This is bloomberg surveillance. It is time for our earnings edge. We just got bank of america results. Profit dropped 11 as fixed income trading revenue fell. The hope here was the gains from Investment Banking with offset the decline in trading. That is about what we saw with jpmorgan. Exactly. Similarly the way we saw the cfo of jp morgan come out at the end of december and telegraph this price signal that trading was going to come, we have also heard Brian Moynihan say that we are going to see a decline in trading revenue in the past couple of weeks. Trading was not great. This goes back to what we have been talking to our analysts about. Everybody thinks volatility helps trading. Gray asic is looking at expense reduction. Whalen is looking at shedding assets. Taking deposits in making loans. The banks involved in trading are having a harder time making it work. People see expect to see a lot of jobs go here. But are they just cutting into the bone . Is there anything more to be trimmed . Adam parker is with us with from morgan stanley. This idea of use of cash. How does it look in 2015 . The market is clearly overpaying for a level of yield and underpaying for the growth in the dividend. The reason is because Interest Rates in the bond market are so low. There are two high multiples for utilities. I think you have that challenge. I think that will change if you get the backup and yields eventually. The second thing is that in the last 12 months the Big Companies that are doing buybacks are not outperforming the companies that are not. Expectations of the future growth rate are more negative. Investors probably want them to do something else. Increased dividend, by smaller companies, change the smaller i want you to suggest to me what the Earnings Growth is. We have a base case of 7 for the s p 500 this year. We will have a 2 net buyback on top of that and a 2 dividend yield. That gets you to your yearend target. I think we will have a very Strong Equity market this year. Interesting. Give adam parker your money. What are you going to do with the money in your Swiss Bank Account . Tweet us. This is bloomberg surveillance. Good morning. I thought it was a quiet day, but it is not. History made in zurich. Caesars has put its largest unit into bankruptcy. Creditors oppose the companys restructuring strategy. Some junior bondholders are accusing caesars of brazen corporate looting. An ohio man is accused of plotting to blow up the u. S. Capitol building. He showed his plans for bombing the capital and shooting people to undercover officers. Inthose are your top headlines. Mr. Jordan replaced hillenbrand a few years ago. The most interesting discussion is that the swiss are now orienting itself on a general fx situation. I have absolutely no idea what that hedlund means and i dont think the Swiss National bank does. Theyre flailing away with a collapsed threeyear experiment. Lets review. This idea of things are bad, swiss people are getting crushed, lets pack the currency. You can only hold on for so long. They were trying to prop up some of the elses currency. Absolutely. Look at that chart. Swiss franc. There it is. You can see it get stronger and stronger. This is trade weighted swiss. Exports are terrible. You cannot buy a watch. It spikes that. They say no. The line is he for todays announcement. Before todays announcement. It looks like they are paving the way for mario draghi to announce you eat qe. I know this is a massive exogenous shock and we will see more of this. I think this is a massive acceptance of reality. We have this quote from Thomas Jordan saying that the Monetary Policy situation is difficult. Ya, it is difficult. Ubs says it comes as a complete surprise. Swatch calls it a complete surprise. They have no words for this and that it is going to be a tsunami. Lets go over to the u. S. Markets. Retail sales. Numbers came in yesterday very disappointing. Does this change Janet Yellens thinking for lift off . There are a number of factors. Full employment stable pricing. Morgan stanleys housecall is that it is going to between be 16. We think the economy is fine, but the fed will marked on their own forecast a little bit for the year. Your shop has the outlier call. Every day, he looks smarter and smarter and smarter. The housecall is definitely later. My sense is that they will wait also. The expectations for earnings of come down sharply. Nine out of 10 sectors have revised down. It is really important. If you are an Energy Analyst and you did not cut your earnings in earnings season, you are pretty lazy. But nobody has raised estimates in the areas that benefit. I think retail sales will be stronger in january because the oil price is accelerating and they are not perfectly accurate as far as consumer spending. I am optimistic. As far as discretionary spending. The stock market will not go down. It is the most hated bull market ever. How do you suggest that this continues . There is always going to be corrections. Know there is and. We just looked at it no there isnt. We just looked at it. I think this is going to be the longest expansion ever. I think it could go to 2020. I look at economic factors, corporate behaviors, credit cycle and there are a number of reasons to think that. The astrology about the market only lasting six years the market does not die of old age but of rational reasons. Corporate arrogance gone awry, credit events none of which look likely. Jeff gundlach pointed out that there has never been a seven Consecutive Year streak of bull market runs. I think you need about 10,000 years to get the gist go significance of that. That is true, but you have not had a lot of other things happen. Fair enough. But mr. Parker just said is the single most intelligent thing this week. We base presumptions on a few statistical events instead of looking at a bigger pool like out to the basic 30. We dont get there, do we . No. Here is what i think. I think of earnings decline, the markets are going to go lower. You tell me what you think is going to make earnings decline. It could be a much stronger dollar. The conversation we had this morning is intelligent and it matters what about your yearend target . A believe that the u. S. Equity class looks a whole lot better than other things i could buy. Thank you for your wisdom especially on the swiss franc. You were brilliant. [laughter] adam parker, thank you. Good to see you, guys. You are not going just yet. We have to answer our twitter question of the day. What you going to do with the money in your Swiss Bank Account . I will need to open one. Buying swedish fish or swedish massages. [laughter] we are going to see action in sweden later on today, as well. I have a note saying the bonfire in the currency we may see money flying. It is time for the agenda. We are looking at the stories shaping the day. The agenda without question is what happened this morning. This is history in the making. The snake in the early 1970s. This will have a massive effect. What is my agenda . This matters in moscow. This changes the dialogue for a lot of people. The fragility that we observe in moscow. I dont know what they can do in moscow. Russia picks new Monetary Policy chief. These are problems that you cannot solve by replacing Monetary Policy. Just to connect the dots it looks like the Swiss National bank was under pressure because of concerns about what is happening in russia. We are going to get the Oscar Nominations and just half an hour. You know some of the favorites. Wes anderson the grand budapest hotel. That is my favorite. The theory of everything. Will Keira Knightley fire her stylist . That is tom keenes question. No. We will continue the outrage over Keira Knightley stress. We say think you for watching and thank you to our guest and our team. We see history made insert. We will have much more coverage next. Good morning. Good morning. We are live from bloomberg world headquarters. You are in the first joint retreat in more than a decade. We will talk about Keystone Pipeline with senator john hoeven. We will go to scarlet fu at the breaking news desk. If you look at early market trading, it is down right now, following an earnings per share of six cents pair that includes it billion dollars of the Legal Process that the bank had warned it would include. That compares with a nine cents analyst estimate. In a look at some of the trading numbers, i found equities trading