Transcripts For BLOOMBERG Bloomberg Surveillance 20151019

Chinas gdp is front and center. Its a huge deal. Right now, we need to get to our first word news. Isnie chinas economy staying close to the forecast. Slowest poorlyhe expansion since 2009. That is set to off set exports. The Chinese Government wants it to grow 7 year. Thed is taking site at biggest play since the civil war. They are backed by a ring in special forces and russian airstrikes. Wave ofuld be another refugees heading west. The palestinians are giving up a wave of attacks on israelis. One israeli soldier was killed and 10 people wounded. The attacker was shot and killed in police say they shot and killed a foreigner by mistake. The Iranian Nuclear deal has now taken effect. All sides will have to start delivering on a promises they made. That means a limiting 95 of your rich enriched uranium stocks. The west is getting ready to lift economic sanctions. This may be the end of the road for a Stephen Harper after a decade in power. Canadians vote today. The poll suggests the liberal party will be the next prime minister. Those are your top headlines. Tom a lot of elections. The canadian one is interesting. Its been followed worldwide. Theproxy for some of tensions out there. Theres no question about that. Lets move on to the 10 year yield. 2. 04 . Movingy thing it really is gold. Elevated, not mere 1200 it, but we are getting there. We had the news friday, the speculation of the finance manager minister. That is an abrupt move for those who were already out the door friday at noon it. Come on in here. Lets take a look at china. To 2007. 999 china is doing so much to divide a stimulus. They did not have a democratic debate. Printing it suggests management. The good time and the bad time, this is a good time to bring in the hong kong office. We are talking about a grind in china gdp. What is a level of concern in beijing to go under 7 . Theyve let it go just below the 7 mark. It would be close to 7 before the year is out. We saw something about a mixed bag. Its showing that the new drivers is coming along well. Of the old China Economy are still struggling. Manufacturing is in a told him. Its quite a mixed picture here. Francine what do we know about the real figure western mark how much was this inflated . A lot of traders are treating this with skepticism. There is always skepticism around chinese data. That is healthy. They set a growth target. We still have growth come in very close to 7 . You wouldve thought that wouldve taken a big hit from the stock market. Services were the main contributors to growth in the quarter. Skepticism is there. What we need in china is more highfrequency ratings. We need more innovation sector. There are some new data points about the economy rather than depending on some of these old growth readings. Tom there such a sharp difference between Service Sector growth and manufacturing growth. We have been in every nation. Give us the distinction of chinas separation between better than good service and egg more challenging manufacturing recession. You are right. We have the two speed economy. Its getting larger and larger in terms of the size of the economy. Its not enough to offset the kind of heavy investment we see in manufacturing and all of the old components. The old drivers of chinas economy, there is not enough to offset that yet. Factories remain marred in deflation. Exports continue to struggle. Things justside of as enough to fill the whole. Francine Larry Hathaway is with us. He is the chief economist. His firsts one of interviews. Its great to have you on the program. We are talking about services and manufacturing. If you look at the demand, its much lower. Larry its great to be here. Thank you. Rings truee heard about china. Manufacturing is we can service is stronger. That is a global phenomenon. Production is weak everywhere. From that perspective, thats no great surprise. Its gratifying to see Services Growing Faster in china. That echoes what we see in other economies. There is a structural story to this. We are in that next wave of chinese development. It was always going to be much more services oriented. It is coming in the neck of time. Francine that means the transition is working western mark 6. 9 , as long as its above 6 . Are you ok with that . Larry its convenient in that its close to the target of 7 . Wehink the skepticism that incurred is correct. I think the figures are probably higher than the true numbers would suggest. There is still something that is correct in the characterization. They are rebalancing. The consumer is holding in because nominal wages are growing at a rapid rate. Inflation is very close to zero. It is supporting consumption and that helps the services sector. Tom how does your view fold into investments . You did that for years. Weve got a little bit of green on the screen. We have some right of the screen. It looks like a big model and a churn on this monday. How committed are you to equities forward . There isthink that significant returns across most major liquid markets. In the last 45 years, its run its course. Thats true for equities which apart from emerging markets are trading on fair to rich valuations. That is true in fixed income as well. I think we really begin with the idea that expecting returns should be low. Felt macro is being more is in the higher volatility that ensued in august and has continued since then. Its a function of another number of things. Means expectedn returns adjusted are very poor. The real art here is trying to build a diversified portfolio. Tom the question is, do our viewers stay in the market committed with expectation of single digit return or are they supposed to be building cash right now to mark . Larry i think you have to adjust their expectations. They are going to have to look at it. Participation as well as other strategies that are perhaps more market neutral. I think these two things are the core of portfolio construction going forward. Later, this is a very important interview. Michael mckee speaks to the San Francisco fed president John Williams. Surprisesams always in his interviews. That is 2 00 your time. I cant figure at the time zones right now. I dont know what time it is in london. Its monday. It is surveillance. Good morning. Tom i left my wallet in london. It took my wallet. Its a great day in london. Every day i was there was great. We had a great time in london. Thanks to all of our team over there. We need to get to bloomberg. Here is vonnie quinn. Shes right next to me. Ohiobased maker is in talks to buy a german competitor. They build hardware and software for atms and a cash registers. Revenue about 70 of from europe. Looking at twore volkswagen offices in france. Omputers were seized in raids nearly one million cars in france may have the software. Andi goes public this week the ipo is expected. They are expected to trade on the New York Stock Exchange on wednesday. They will have a market value of almost 10 billion. Francine everybody wants a piece of ferrari. Harare, its ferrari. Undertakes the biggest management shakeup in 10 years. They are scaling back the trading empire. For more, lets bring in nicholas comfort. This is a drastic move. The reason is we get rid of the people that were very close. He just wants people who are more risk compliant orb risk averse. Not so focused on revenue. Nicholas its going to be a mix of these factors. Management reputation a did suffer from other legacy issues facing the bank. Takebecause he wants to the bank in a new direction and make radical changes to individual parts of the bank. Managers may see something different. Thats going to lead to their departure. Francine what will Deutsche Bank look like a year from now . Do we have a clearly laid out plan that they wont be an Investment Bank . Nicholas everybody is waiting for the strategy position in 10 days time. Thes when we will see roadmap for the bank. Clearly, he is building on strategy announced by his own assessor in april. Will he scale it back more . What are his plans . Bank . Bout the consumer will he be investing there . I look at the announcements over the weekend. Do you just assume there will be major layoffs in new york city as they separate Wealth Management out and get new responsibilities to managers in new york . Nicholas i think if there are any layoffs in new york, it would be more on the investment taking side. Its an area where they will be pushing. In the Investment Bank, there are different opinions. Some people would like to see a radical retrenchment. Some people say they need to stick it out. Within the tea leaves over the weekend, you nailed it. What is the tendency . Nicholas i think he is going to be making test the Investment Bank, including the u. S. Actual jobot of the losses will be elsewhere in the world. Maybe we will see a lot in the back office across the units. The bank has a huge number of consultants. That is really where we are going to see the headcount go down. Francine i love the way tom have to bring it back to the u. S. This is a huge european bank. We are still trying to figure out. What is the number one challenge before, depart from the investment rate. You have to make it more manageable. Nicholas the number one issue is capital. Absolutely. That is how they are going to face rising charges and take risk. Thats going to push down the capital ratio. They are the most leveraged european bank. That is something that investors are not happy about at the moment. Risk toaway from leverage ratio on the balance sheet. If i may add one more, cost. This is a strategic battleground. Everybody was to hear details about net reduction in cost. Cost savings in the past, they have done well. They really failed to achieve a net savings. Francine thank you so much for coming on. Coming up later this morning, we sit down with jpmorgan it chase ceo jamie dimon. This is bloomberg surveillance. Tom good morning, everyone. Its bloomberg surveillance. Good evening to those of you in hong kong. I thought it was fog, but its pollution. Its beautiful this morning. This is from one of the great thinkers on capitalism in america. Its a fascinating read in the financial times. Its called a strong free press is our best event against kearny capitalism. Its very different than the read i guess you could say its the idealized version. Tom its ugly, but we get it done. I think mr. Churchill once quoted america on that. Discuss the open press. Francine he is not mentioning any a countries that have a problem with this. France has media part. They focus on investigative journalism. As you read the morning press every day . Are we less and less free . Larry three cheers for the free press. A problem. S its an age old one. Shedding light in the dark corners where impropriety takes place is always a good thing. I first encountered it during the Asian Financial crisis working out of that part of the world. Thats where the term crony capitalism had its roots. Ive would say this, we live in an unequal time. The age of plutocracy is how some people call it. That is also probably undesirable. Dollars,ount votes and that is probably an undesirable outcome. Im not going to defend crony thatalism, i would say sometimes there are little hidden benefits in this as well. In the aftermath of the populism of the financial crisis, there has not been a big backlash against global trade. When you think what it takes to elect a public official, say a president of the United States, its a lot of money. The money may be swaying political opinion in desirable directions. Its a complex picture is all i am saying. It,cine when you look at he was not mentioning a lot of the european states and countries that still have in some ways a problem because there is not that clear clarity. That is a concern going forward. Well get back to larry halfway in a couple of minutes. Coming up, roberto joins us. That is at 6 00 new york time. And is bloomberg tv bloomberg surveillance. One of the main stories we have today is on china. Ferreri is selling 10 of the firm. Update on that next. I just had a horrible nightmare. My companys entire network went down, and i was home in bed, unaware. But that would never happen. Comcast business monitors my Companys Network 24 hours a day and calls and emails me if something, like this scary storm, takes it offline. So i can rest easy. What. You dont have a desk bed . Dont be left in the dark. Get proactive alerts 24 7. Comcast business. Built for business. Bloomberg surveillance. New york is in the distance. You can see all the fans of curtis granderson. He is having a career year out there. Tigerswith the detroit from before. The mets were rocking it last night. I love the way he plays the game. I also love the way vonnie quinn says the news. At i was looking lets move to china. It appears that the stimulus are keeping the economy on track. The gdp rose at an annual rate of 6. 9 in the third order. That is better than forecast. It was the slowest expansion in seven years. They have cut Interest Rates five times in the last year. The u. K. Is getting ready for a windfall during its visit from a the chinese president. The amount of investment they will announce during the trip he will bese to staying at buckingham palace. The attacker who killed a soldier with an wasnt arab citizen of israel with no record of militant activity. He opened fire at a bus station. At least 11 other people were wounded. At least 40 new palestinians and eight israelis have died in the latest round of violence there. Merkel says there has been project on turkeys willingness to work with europe on the refugee crisis. Turkey cant do it alone. We spoke about sharing the burden. Turkey has received Little International support so far from a great effort. Turkey has been left in the lurch by its international partners. Turkey has taken in 2 million refugees from syria. Germany to earned draft a plan for the United Nations Climate Control summit six six weeks from now, Global Leaders meet in paris to reach agreements on how to cut fossil fool use fuel use. Those are your top headlines. How tom waslove here in london last week and he is all global. Now he is talking about the mets. We want to talk about rugby. We will talk about that in a while. The chinese president makes his first statement to the u. K. Our next guest says that its a golden opportunity to foster that relationship. The previous and work for the world bank. He is a professor at the London School of economics. Still with us is larry halfway. Thank you for sticking around. When you look at the lavish ceremony that comes with his visit to the u. K. , the u. K. Wants that special relationship. He is staying at buckingham palace. That is not given to everyone. Inits the first time decades that the present has visited u. K. Its equally important for china. Is ink whats interesting terms of economic cooperation, there is a large scope. The u. K. Has an International Financial center and china is undergoing financial globalization. It really needs the u. K. China the u. K. Is looking for investments. They are sticking a stronger relationship and parts of the world other than the u. S. International partners. Francine he is talking up the special relationship the u. K. Is trying to sponsor with china. Can they have both . Larry its a complex situation for the u. K. Now. The u. S. Relationship dates back centuries. I think will always be first amongst equals. The u. K. Has clear economic interests to china. Thats going to bring conflict with the United States. Francine how does the u. K. Play this . They still want that special relationship with the United States . China was to be accepted as a world power. Does this do a long way . Its very important for china. Friendship, mutual trust. A commitment to a longterm relationship. Endorsement is very important for china in terms of building its you international image. On that basis, the economic interest will give pragmatism. They really care about openness. They care about globalization. There is a lot of room for mutual benefit. Booki look at the classic marks his revenge. If you bring that to china, do you see an adaptation of their government to capitalism, given the grinding slow down we are seeing an Economic Growth . Absolutely. There is a lot of at that adaptation. Its responding to internal pressure to givmore human rights. Governance, in terms of adapting to market economies, its absolutely changing. Tom i read your time at ubs. You had Jonathan Anderson on the watch. He wrote billion articles on a the fiction of urban enrolled there. What does china look like right now . Arry we just heard it its a country in transition. That process of urbanization is very much underway. Half of the population is in a rural area. That will change in the coming decades and china will look more like the west in that sense. That is going to be a source of tremendous growth opportunity. It will be a source of certain social stresses and strains. Things are not accomplished easy. What is required for that to be handled successfully is brought it financial stability. Thats were big questions,. Can it pull this off of years to come without some dislocation . I think the jury is out. Francine it seems to have a handle fairly doesnt have a handle . Now they seem to be firmly understanding what the problems are and trying to fix them. Larry i think they understood the challenges all along. There is an inherent conflict right now in chinese policymaking, economic policymaking. There is a desire for minimum growth to ensure adequate job creation. On the other hand, they are rebalancing the economy. Those two can come into contact. They have done the exact same thing that are working against its rebounding. I think that is the big challenge over the coming years. Francine thank you so much for now. Later, Michael Mckee sits down with John Williams. That interview will be live from our San Francisco studio at 2 00 eastern. This is bloomberg surveillance. Francine it this is bloomberg surveillance. Lets see what youre watching for the rest of the week. Us. E dimon joins a few hours later, there is a live interview with John Williams. That is at 2 00 in new york. On thursday, the ecb sets Interest Rates. That is at 7 45 a. M. New york time. Lets get more reaction to the chinese gdp numbers. Us is the professor of the London School of economics and Larry Hathaway. We talked a little bit about growth. Its difficult to really read the transition that china is going through. Are you confident that consumption will be higher . Are you worried that households are being strangled . I think its funny to talk about rebalancing to consumption falling frome is 70 to 60 . Otherconstantly 80 in countries. This is the kind of distortionary growth model for china has. It is really hard to stimulate chinese consumption. Get allow them to claim their shares of gdp. Is laborst barrier mobility into services. That needs to be loosened. I think there is pressure on consumption. Inflation expectations are also catching up. People respond by becameng more, rather letting more wealth to protect against a the lion decline in purchasing power. Francine they need to know what to do so that this gets rebalanced in a smoother way that we have seen. Larry i think thats undoubtedly correct. There putting a pressure on traditional avenue of growth. The trade balance is expanding. It is mostly through import compression right now. There are a number of challenges. In the mediumterm, we are the Services Expands or expanded. That is understandable. I think you will see more Household Income growth given the low inflation. That will keep it from tipping over. The acceleration from here seems very unlikely. The downward trend that is so clear in your charts about chinese gdp growth is set to continue. Tom on the political front, the United States will show the flag in the south china sea. Will the british navy show the flag . Is the is clear insident has a strong stand terms of what has historically been chinese territory. Maintaining that stance with front, the, on that chinese and not going to waiver. Tom give us an update on the unique relationship of britain and hong kong. Where are we now . Because of the historical link, the Cultural Exchange and areuse these two countries very open have a very open mindset, its committed to globalization of policy. I think there is a lot of Common Ground for cooperation and especially through the hong kong Financial Center that will develop strong links with the global Financial Center in london. Do you think that they will get down to business and sign things a rex couple of days . I think the most important ,hing will be blueprints strategies for cooperation in the next decade. I think the chinese intend to bring investment into the u. K. And they have a lot of surplus savings. That has traditionally gone into u. S. Treasuries. They want to go to places that welcome chinese money. You cant that is one big difference from other european countries. China expresses a lot of interest, that they have met with a lot of resistance. Be back withwill Larry Hathaway very shortly to get his final thoughts. Coming up, Michael Turner of ohio joins us live. We will discuss the fate. This is bloomberg surveillance. Tom the home run. Mr. Granderson is doing better than a good. They get a day off today as they travel to wrigley field. I love the National League baseball. It is a special treat to have mets comes baseball in a frigid baseball. We will need more before the series is done. Chinese hackers are still at it despite a new suit Computer Security deal between china and the United States. Says strike of california they have spotted seven attacks on it u. S. Companies since then. Has decided if they should start seeking an interim ceo to replace the airlines ailing chief. He suffered a heart attack thursday after a little more than a month on the job. Discussed it friday. There has been a lack of information about his health. Here is how bad things are for the tv business. 300,000 americans drop their service. More than 600,000 had cut the cord in the second quarter. They report results soon. Tom thank you so much. Dr. Y hathaway is with us in hathaway is out of the university of texas. To break this over to investment right now, in a correction mode , what are rebound Companies Going to do given the new terminal rate and the new nominal gdp presumed by all. How does that work in the investment world . Larry the first thing we have to realize is the market is not traded on inexpensive multiples. Average earnings are very high compared to previous cycles. From that perspective, given the low Interest Rate environment, the natural thing is for companies to borrow and buy back shares or borrow to buy symbiosis shares. Somebody elses shares. That means your investors should be thinking about two things. Sharp in their pencils looking for the discrepancies that open up more within the market, within sectors and industry groups. Take your eye off the broad index. Thats probably not going to go anywhere very fast. The idea that we are not measuring productivity directly. Part of that is corporations. Are we underestimating the permits for corporate behavior to generate Free Cash Flow western mark . Larry up until very recently, those gains in productivity flowed to the bottom line. It boosted that. I would be wary. In the u. K. , we are stunned to see wages rise as the labor market here has tightened. That may just around the corner in the United States. The environment will change to something more normal. Francine are you expecting equities to correct . Larry i doubt it. Not very much. I think the feds moves will be well telegraphed and they will. Odest grade things francine we have to talk about rugby. We dont have a european nation in it. Is this a bad omen . When you look at growth for earnings in europe, we have not been doing it so badly. At the same time, it seems like we are always a step behind the u. S. And i am talking about Interest Rates and banking. Larry my own teams are out. I would say its only fair. Emerging markets have been badly beaten. Its only time when it came to their comeuppance over sports. Its a reverse correlation. Tom one of the great things we saw late in the week last week was the idea of commodity deflation pricing of the cycle and that real inflation would be upon us. Do you have a date where we could actually see inflation . Is it december . Is it june . Larry we did a thought experiment. Core prices continued to rise at the same rate over the next three or four months. Guess what . Inflation begins to move up noticeably. Thats a big pace effect. Oil isis tumbled this time a year ago. Oil prices tumbled this time a year ago. We are going to see inflation rates above centralbank targets. Tom this is a huge theme. Im going to give days in David Rosenberg a shout out and the one message i had in london idea and alleffect of a sudden for our viewers and listeners, statistical inflation will be upon us. Francine the one thing we try to figure out was what exactly is spurring inflation at lower. The experts, to nobody seems to agree on what has spurred inflation lower. Larry i think its pretty straight. There are street steep declines in commodities. Got core cpi in the United States. Underlying inflation in europe is 0. 9 . That is not as low as the headline. The headline is going to get this lift because we are going to wash out those oil prices from year ago. Tom the pilots of British Airlines would not let me on the u. K. Nolane with my tie. Francine you are talking about the mets and not rugby. The pilot said it get this man out of here. Nextooking forward to the hour. Roberto gallo joins us. That is at 6 00 your time. Is bloomberg surveillance. Is one thing that you can try to understand better, is it that activity western mark productivity western mark . Larry its essential to get a handle on it. Tom the china Service Sector booms and bails out a manufacturing recession. Is in slowdown . Maybe it is our problem. , as the Investment Bank is split asunder. London is distracted by a potential 7 billion writedown. And boots in iraq and afghanistan does america want or need a third front . Good morning, everyone. This is bloomberg surveillance , live from our World Headquarters in new york. It is monday, october 19. Im tom keene. We will Touch International relations in this hour, but chinas first this morning, isnt it . Francine it certainly is. That itshowing us again is in a downward grind . 6. 9 . It is still a pretty good figure but it is met with so much skepticism about the real figures. Tom we welcome all of you worldwide. A good week to get started. An important interview to the week, jamie dimon later this morning. Michael mckee with John Williams and the San Francisco fed later today. Right now, our first word news. Here is vonnie quinn. Vonnie you are mentioning the pace of growth in the chinese economy, the weakest it has been in six years. Say that gdp rose 6 in the third quarter, slightly better than forecast. There is weakness in exports and manufacturing. International monitors say syrian troops are poised to reach a the countrys largest city. Intense fighting is on the outskirts of aleppo, where rebels are trying to oust president bashar alassad. Syrian troops have been recapturing territory since the russian jets started attacks nearly three weeks ago. Israeli Officials Say the attackers killed a soldier with no record of militant activity. The man opened fire at a bus station yesterday. 11 other people were wounded. The attacker was killed by police. At least 42 palestinians and eight israelis have died in the latest round of violence. The Iran Nuclear Agreement is in effect. Dealsdes must deliver on finalized three months ago. Iran has agreed to get rid of nearly all enriched uranium and shutdown centrifuges. The cubs need to get busy if they want their first pennant in 70 years. After losing 20 to the mets in new york. Great catch. That robs the cubs of a home run. They will be in chicago tomorrow night. For all of you globally, they practiced this. You literally expect him to do that, he is so good. For those of you globally, this is the romance of american baseball, to see these two teams this late in the year. What a treat it is, whoever wins. Rugby, ireland got devastated by argentina. Tom ireland had a ton of injuries, right . Vonnie yes. Tom there is my entire rugby i think wales is out, too. Only scotland. Tom rugby. Data check right now equities, bonds, currencies, commodities. I will look at golden a moment. Futures at negative two. Oil churns as well. The vix, 15. 05, showing good feeling in the markets over the last 14 days. 1173. Not near 1200, but it begins the week at it interesting level. Lets look at china here. Of theo with the boom time, down we go to the grinding mark below 7 . Vonnie it looks suspiciously incremental, doesnt it . Tom like it is being managed. Evans or did they do that. Enda curran is in hong kong. Enda over the controlled economy, the government sets a target. And then growth comes into where the government wants it. That is fueling a little bit of skepticism right now. Have just come out of a summer of turmoil, a 5 trillion stock market. Somehow, growth has come in close to a 7 target. Despite theleast, headlines that came out of china, people are seeing a broad array of data. People are looking at the german sector to get a band of to get a better handle on activity. Does this give chinese investors anymore confidence . Enda it is really tentative. We have seen a pickup in Credit Demand last week. That is very important. I have seen perhaps a hint of resilience. We will get more details on that tomorrow. All considering that the government is pumping money into infrastructure, there is a sense that maybe the economy may have bottomed for now, and that could be the track an attractive moment for Foreign Investors to look at china. But we are not there yet. Vonnie was consumption the key cushion to giving an input to this gdp . Is this what prevented on enda l sharper slowdown . Consumption is becoming an increasingly important gross driver, or contributor to chinas growth. Cinema ticket sales are booming. China consumption is seen as an opportunity on forward. Starbucks has highlighted the china stock market. The china growth market. There is a slowdown of debtfuel,ng in the consumer driven economy. Tom enda curran, thank you so much. Has created great value for bloomberg surveillance in recent weeks. Truly looking around the world with the tea leaves and the signals of the debt crisis, moving out of the crisis to the debt recovery, as he widely signaled. He joins us on the set this morning. Wonderful to have you here. You mentioned china and the idea that stimulus will pull away. How do you see a lack of stimulus in china . China decided to embark on a large scale industrial stimulus. As a result, they doubled private debt in the economy, so these are local governments, corporate, stateowned, shadow gdp to going 100 of 250 gdp. They have to reform their economy. Month,look 100 billion a it is not that month. It is not that much. Tom what will be the knockout effect of instability to other debt markets . Commodity prices will remain low. This is going to affect countries that are very china dependent, like brazil, where we also have a sovereign crisis, a political crisis, and other economies. Australia is the main one. It took 20 years for australia to go from 3 to one third exports to china. They are the main provider of metals to china. The Consumer Sector is holding better, but many other countries outside china are linked to the industrial sector. These countries are going to get hurt. When you look at the china growth figures, this is an economy that is heavily burdened by debt. It is hurt by widespread overcapacity. When the chinese officials try and do something, it is only about tempering the slowdown in china. This is not about making it go back to its glory days. Alberto i agree. It is true china has a lot of reserves. Trillion toom 4 3. 55. If you are a trillion or, you do not like losing 100 billion. This is the restructuring of the economy that will last at least five years if not more. Sue re so you are losing 50 to 100 a month. We expect the number one priority for china is reforms,lso internal corruptions issues with the local governments. So reforms, if needed, will do some stimulus. They will lower marginal rates. They have one of the highest policy rates. Francine so we do have a fear of recession with the Chinese Communist party at the end of the month. Will they come out with concrete Structural Reforms . Alberto when i look at the reforms, there are three main avenues. One is local governments are trying to streamline spending, which has so far been in a lot of shadow banking. The second reform is to streamline shadow banking. 60 of gdp. Tom did you say 60 . 60 . Alberto yes. Havingat is why we love you on, stunning statistics like that. Robert gallo is with us today Alberto Gallo is with us today. Michael mckee with the economic interview of the day worldwide. He is in San Francisco to speak with John Williams. We say good morning. Stay with us. Bloomberg surveillance. Tom good monday morning, everyone. Bloomberg surveillance. Ice in central park over the weekend. It was so cold here. Unbelievable. Now we need a business flash. Here is vonnie quinn. Vonnie diebel is in talks to buy a german competitor, diebold the bold die is in talks to buy german competitor wincor. Computers were seized in raids last friday in a french probe from vw. In a french probe of vw. , arari is beating ford wednesday debut on the New York Stock Exchange. Its market to value could reach 10 billion. That is the latest Bloomberg Business flash. Tom we could speak to Michael Moore of bloomberg for somewhere in the vicinity of one hour. Theres so much going on in his tood of too big to fail, big to succeed. Let me start with joy to bank. How bad will the layoffs be in new york for Deutsche Bank . It is a long way from alex brown, isnt it. Be re certain will there certainly will be some cutbacks. Fixed income has not come back the way that Deutsche Bank has structured itself. Biggeste one of the fixed income, and still are, their top three firm in that area. It has slowly ground down new rules and lower activity, and the low rates generated enough activity. Tom francine, jump in here. Francine this is a drastic call. It seems this is for three main reasons, that they are getting ready they are getting rid of senior management. They also want to get rid of people that had maybe brushes with regulators, and instill a new culture. Is this the crux of it. Deutsche bank needs to reestablish trust . Once they do that, then Everything Else follows. Is legalone part of it issues, the other part is a natural progression of a new ceo wanting his people in, wanting new blood in. You are seeing some people from large Successful Companies that have navigated the new world, guys from jpmorgan and blackrock , who are understanding where regulators are pushing the banks. They are the ones coming in and taking on new roles. Chess we are seeing pieces moving around the board. Is it going to make any difference fundamentally, or become more like an American Bank that way . Michael we will hear more about the strategy next week. I think this is part of that, but certainly you will have to see some reshaping of where the capital is allocated. Tom jamie dimon will be with us on Bloomberg Television later this morning. What is a question you would ask him . , ifael i would ask him rates do not rise significantly for the next two years, do they have to reshape the way they are allocating their balance sheet, or can they make progress . Tom i like that. I would ask jamie dimon, the future of Retail Banking in america i do not get the branch system. It is an expensive billboard. Francine, what would you ask jamie dimon . Francine how he would shape the bank to be better than the rivals 12 months from now. If you look at what jamie dimon has done or what he has to do, is he over the worst in terms of regulation concerns and what we call scandals . Michael i think they are passed they are past the biggest pieces of it. They have gotten past the crux of the mortgage issues. It becomes a case of if the drags on. Ndal there might be a new normal of, like we saw this quarter on most 2 billion in legal costs. You cover the massive victory lap on the success of Morgan Stanley. What will you look for in Morgan Stanley earnings this morning . Michael we will look for, in Wealth Management, whether the market declines start to have an impact there. They price in from the beginning of the quarter. It should show up more in the next quarter, but if we start to see a slowdown there, that could hurt the margins. Gallo, what question would you ask jamie dimon . Out there know gallo with rbs. We will continue our discussion. Michael moore, thank you so much, on a busy day at bloomberg. Our conversation the jamie dimon, look for that in the 9 00 hour. Us for more on economics, finance, investment, and international relations. We will touch on syria later. This is bloomberg surveillance. Good morning. Francine this is bloomberg surveillance. Im Francine Lacqua in london. We are not seeing the lavish welcome that we are seeing we are not seeing the lavish welcome in london of president xi. He will have a 41 gun salute, lunch with the queen. Tom he is not competing with the pope, either. It was on to see the white house greet the pope and 24 hours later greet the leadership of china. It was clumsy all in all. One of our smartest legal minds at harvard this is one of a this is a copyright. We just saw the star wars piece. This goes to songs from 60 years ago. Francine and vonnie, let me go to you first. The idea of sampling old cuts, from 50 years ago, some people are saying you cannot do that. Vonnie the robin thicke court case this has to do with it does not take any of the original song lyrics. It is fascinating. Tom everybody has an opinion on this. Really front and center in the United States. It goes back to copyright as an export industry, a la star wars. I was not expecting on monday morning to talk about egyptian copyright law. But there we go. We cover everything. I read up on it, and egyptian copyright law is very much like what we have in the u. K. , which is the moral right, something that in the u. S. You do not cover so much. It is with intention, something that does not actually feel right. Me, the basic idea is it getsto court and it crushed in court. You cannot take copyright from decades back. The final line is long live sample and the credit that goes with it. You have to give credit where it is due and maybe a few cents for playing it. Tom i look at it as a huge port as a huge part of our export industry. There is exporting star wars, exporting the mets baseball. The new york mets are and importing tom keene. You were in london last week, tom. Tom they stopped me and customs and said we would not let you back in. A smart treatment on this ongoing battle over sampling. Coming up, we will sample the view from dayton, ohio. Michael turner, one of the more interesting twists on politicians in america. He has a terrific cd. Always interesting, and we will discuss the state of u. S. Defense and our international relations. We will focus on syria. From new york and london, this is bloomberg surveillance. Good morning. I just had a horrible nightmare. My companys entire network went down, and i was home in bed, unaware. But that would never happen. Comcast business monitors my Companys Network 24 hours a day and calls and emails me if something, like this scary storm, takes it offline. So i can rest easy. What. You dont have a desk bed . Dont be left in the dark. Get proactive alerts 24 7. Comcast business. Built for business. Tom good morning, everyone. Bloomberg surveillance. Tom keene and vonnie quinn in new york. Francine lacqua is in london. Here is vonnie quinn. Vonnie with Chinese Government efforts to keep the economy moving, it seems to be working. They have had the weakest growth in six years, but slightly better than forecast. Britain is getting ready for a windfall visit from chinas president. Xi jinping is expected to announce several investments during the trip. He is the First Chinese head of state to visit in 10 years. Israeli Officials Say that the man who killed several yesterday is an arab soldier with no record of terrorist activity. At least 11 other people were wounded. The attacker was killed by police. At least 42 palestinians and eight israelis have died in the latest round of violence. Germanys chancellor says turkey theilling to help solve migrant crisis. Angela merkel we spoke about of the factburden that turkey has received little support so far. Vonnie turkey is now harboring more migrants than any country in the world, more than 2 million. Saudi arabia is putting off paying some of its bills because of the oil slump. Saudi payments to some Government Contractors are at least six months late. The government wants to cut prices of some contracts. Of theirises 80 economy. Tom you have to love the economist to quotes philosopher george stanza. Derick newman joins us quotes philosopher george costanza. Frederick newman joins us along with Alberto Gallo. Wonderful to have you here, fred. The basic idea is you are steve majors looking for a stunning terminal value in the United States. What does it mean for all of asia and particularly for china yield. Ts its u. S. 1. 50 fred if u. S. Yields rise, you get capital outflow that is tight. Having lower u. S. Term rates reduces financial risks. It does not produce growth, but risk down. Keeps the pricehere has got to be a to china exports, isnt there . The export cycle is not doing well, so we need to fix domestic demand. It is all about construction in china. Tom have they ever done that . Have they ever fixed domestic demand . Fred the data overnight showed that again. Theie what about evaluation . Fred i dont think that will happen. The problem is not competitiveness, it is the local structure that is deflating. You need to keep the money in the country. Depreciation is playing with fire a little bit. , we talk frederic about gross gdp. Isnt the real problem underlying everything that china does, debt, and the fact that households are burdened with debt, and that local governments are burdened with huge debt, and that that needs to be fixed yeah go fred we have seen very growth incredit china. We need to get away from the credit dependency, and therefore you need to address Structural Reforms. Cap keep talking about this, but it is essential to put economy the to put the economy on a Sustainable Growth path. We will see more reforms coming especially with regards to state owned enterprises. That raises the profitability of the sector and helps the economy get away from the debt dependence. Watch at the end of this month new reform proposals. We talk about hard numbers and gdp figures, but china wants to be embraced by other world powers. Does that filter through what officials in china will do to move the economy and do something much more that is consumer led . China is much more receptive about any suggestion about what to do with the economy. Reached out to the world bank in the past. In this particularly difficult period, it is important to merge with the chinese and talk with them about economic reform. Tom Alberto Gallo, there was a huge splash a couple weeks ago. If we get a 1. 5 u. S. 10year, what does that do with the calculus for europe and china . It has to be a massive shock. Lower rates are being called for in the u. S. And china. Central banks will not raise rates. If they do, it will be too high. If they do come it will not be too high. Tom is this pushing into 2016 . Fred you might get one or two rates, but the curve has flattened tremendously. Tom where has it flattened to . Alberto 1. 5 in the u. S. I think half a percent on the 10year. Toward that, i think it makes sense. Like we said before, it is good shortterm for markets. It will calm down things and revamp the yield. Admits it makes the em debt bubble worse. Could we actually get expansion of Monetary Policy again . More qe . Alberto we are definitely going to get the ecb to do more by yearend. There is lots of momentum across all economies after the debt crisis was solved, so ecb will do more. Purchasesto diversify towards loans, securitizations. Maybe even equities at some point. The fed, it is a very hard sell to do another round of qe, but eventually when the next slowdown happens, you have no dry powder. Tom this china do qe . Fred not at this point. It is not qe. They are pumping money in tom but it is not qe . Fred a lot of the programs you are hearing about is injecting certain parts of the Financial System and taking it out of other parts of the Financial System. Vonnie next ordinary Monetary Policy, it is not qe. Fred they are not buying bonds. Which is interesting. Tom thank you so much. The hsp research the Hsbc Research note we saw about 10 days ago. Later this morning, jamie dimon. A. M. In new at 9 00 york. Tom good morning, everyone. Economics that is what you get on bloomberg surveillance. Michael mckee in conversation with John Williams of the San Francisco Federal Reserve bank. Ook for that we did this for Alberto Gallo of rbs and Frederick Newman and Frederic Neumann of hsbc. There are some stunning numbers on this. 0. 28 e a third effort to on the important germantwoyear yield. Alberto clearly the ecb policy is not working. Thank lending, the transmission banks, is nothe happening. There are structural drivers of deflation. Commodity prices, the overinvestment in china, and the demographics as well. For china tood have these low rates . They did up the paper price up, youll down. Fred i think the china effect is on germany. Less inflation globally, so china i think is part of the reason. Tom is importing their disinflation in deflation over the regime, right . Fred they are actually keeping capacity online. They are not shutting factories or cutting real estate investments. So this is a problem. When you keep capacity online, you keep factories producing under the market price. You basically dump deflation on the market. Stanley saidn mario draghi is good for basically 10 big figures on the euro and it is discounted thanks to mario draghi. He has to be careful that he does not undo some of his work. The problem is there is some reaction on the fed. A dovish reaction from the fed can push the dollar up again. You will probably have more we are looking at other things to stimulate european growth, which should be banks lending. You have one trillion euros in the Banking System from loans. You have to have other ways of getting credit to the economy. Francine how much disinflationary pressure is there . Mario draghi has been saying it is too early to say whether there is a market downturn. We have someone like even of utley saying that if you strip out the effective lower energy prices, there is another trend. Fred we should not think of Commodity Prices in a vacuum. Chinese demand is down, so the lower global Commodity Prices is the first leg of a disinflationary process. The second round effect is weaker exports both from the u. S. And germany into china, and global trade is suffering. I would argue we are seeing persistent disinflationary pressures even into core inflation and across the world. You think the ecb will do something this thursday . Because otherwise because they need to act sooner rather than later to counter the disinflationary pressures . Fred it is possible they will extend the length of the program. However, this is just an anesthetic. It is a cyclical tool trying to counter a structural problem. We are at the end of a super cycle of debt that lasted 30 or 40 years. It is a structural problem. Qe is not enough. Tom but the money question for combinedrbs, their heritage, can we exit with stability and control, or do we do it with a junk condition . To see thenk we need leadership around the world to execute policies. Tom do you see that, alberto, or will we just continue functions here . Alberto without a physical response, we will have tom it is illogical to have a chronic negative Interest Rate. Vonnie and what would happen when we start going into the next downturn . Alberto the problem is that central banks, it is not governments raising taxes and ruining their chances of getting reelected. I am not sure europe can do it. You have different governments, different politics, and at some point people are angry. They go on the street and learn what qualityoflife qe has created. What if we got a boost in Commodity Prices, if oil were to bounce or copper or some of these other commodities . With that help out in some way . Fred it would in terms of Inflation Expectations that might stabilize. You might see commodity exporters in terms of trade improving. I am doubtful this would happen because not only do we have weak demand, but the supply response is weak in that space. I am doubtful commodities will become an inflationary force for the economy. Yourine alberto, back to point about qe infinity. Are staying put because it is too difficult to understand what will happen to inflationary pressures, or the lack of, in the future. Are we at a catch 22, where the more we write, the worse it gets . Will we be stuck with qe infinity if policymakers are not tougher . Sometimes you can say they have already missed the boat because china is affecting germany and italy and something needs to be done very soon. The ecb is content that they will extend, they may be more dovish than expended than expected. The question is, will european governments finally do something on the physical side, where germany spends, now that asia is now that they have the volkswagen scandal, will they that they haveus a keen related over the last years . Tom it has been wonderful to have both of you here. Thank you so much. A great way to start the week as well. Here is what you need to know. We are going to talk politics. We are going to Talk International relations. All of that will be pushed aside by bengals football. Bengals,s 60 60. Good morning. Tom good morning, everyone. Bloomberg surveillance. A cool, cool eastern coast ing for a really clear central park was especially clear this weekend in the cold air. Dollaryenrt was 1. 19, a brief 1. 18 stronger. Euroyen showing some of the tilt toward stronger yen versus. Uro, from 1. 36 down to 1. 3523 there is the forex report. Lets get to our business flash. Vonnie we start with the proposed deal in the tech sector. Tablerior offer on the in stock,0 per share like a semiproposing a pmc deal. The deal was announced three weeks ago during president xi jinpings white house visit, but cant strike of california says there are seven attacks on u. S. Companies since then. United continental discussed finding new leadership after the airline ceo suffered a heart attack. Directors could not decide whether to appoint an interim ceo or find a replacement. He was stricken after months on the job. His condition is not known. That is the latest from bloomberg. Com. Tom joining us from ohio, from dayton, the former mayor of , Michael Turner. He is a republican and chairman of the House Armed Services subcommittee on air and land forces. Describe for me boots on the ground. Grounds boots on the mean . Michael it is a broad range of issues. The real issue is that when you have space that is contested, are you conceding it or are you active in the space . You can have military advisers and those assisting those on the ground, and you can have people engage in trading in training isnd you can have there such a halfhearted commitment to both our Foreign Policy and military policy, that frequently they try to manage everything away outside of any conflict, and we have seen that that has not been successful. You end up conceding ground in iraq and syria. Tom dr. Kissinger had an oped goingeek talking about after a Strategic Vision for the middle east. What is your Strategic Vision as the u. S. Confronts a new mediterranean . You do not observe and Obama Doctrine . Michael he went through with removing qadhafi in libya, but had no regime plan. He did not continue to support counterterrorism and holding back extremists. In syria, he is opposed to the regime but is taking no real action to it. At the same time he is trying to do bombing with isys but still with isis was still conceding space to them. Saudi arabia is a huge ally of the u. S. This is a country that has put lavish benefits on its citizens to keep them loyal and not radical. Does this go to the heart of the stability in saudi arabia . Michael the bigger issue with saudi arabia is back to the administration needing a policy. With halfhearted commitment to Foreign Policy and military policy, there is also the issue of how they have treated our allies. We are in a situation where we do not have the strong situation ath saudi arabia that we had one point. They are very needed as you look to the middle east and what is occurring around them in their neighborhood. They need to be an actor, and we need to be a partner with them. Vonnie you have complained that the administration does not have a plan. However, it has taken a uturn on afghanistan, decided to keep troops there. A quick response, because we do have to break for news. Michael it is at least in the leastition it is at recognition from the administration that counterterrorism needs to be done. Isis is getting a foothold in afghanistan as the taliban has had recent military success. The Administration Needs to support them, but they need to full on support. The lackluster, halfhearted commitment to Foreign Policy is evident in how unstable afghanistan remains. Morgan stanley out early. You wonder why, but there it is. I am stunned at how expensive the decline is, from 4. 2 billion down to 3. 4 billion. As always, earnings are a mess, as they are with any securities firm, dealing with this alphabet soup. This really carries on the told that we saw from Goldman Sachs and others. Vonnie i was just going to mention that it affects dba. Revenue, 7. 77 billion. Tom stay with us. This is bloomberg surveillance. Good morning. eeeeohmumohweh hush my darling. dont fear my darling. the lion sleeps tonight. hush my darling. man snoring dont fear my darling. the lion sleeps tonight. woman snoring take the roar out of snore. Yet another innovation only at a sleep number store. David big news from the big banks. Surprising news out of Morgan Stanley. And Deutsche Banks new boss shakes up his management team. Chinas economy has not grown this slowly since the financial crisis. What it means for the rest of the world. And brazil takes a beating. Its economy is in shambles. Could its president face impeachment . Difficult welcome to bloomberg. Im david westin. Stephanie i am stephanie ruhle. David it is a bank morning. Stephanie here to kick us off, our own christine harper, finance under, and stephanie mehta, editor of bloomberg live. We have a big day. David we do. I am looking forward to that interview. Steph