we talk about banks, the ecb, and we have an eye on terror. tom: we also have john studzinski from blackstone and joseph nye.have we'll talk about the francoisnce that hollande faces. it was something to see the faces yesterday as president hollande spoke to mayors. it was something. francine: then they had the prime minister of france speaking today. we will keep an eye on that. vonnie: good morning. are not sureis what happened to one of the suspected terrorists. eight were arrested yesterday. at least two were killed. it is too early to tell of the suspected leader was among those who died. president obama is dousing russia's optimism they can reach a deal with france and the united states fighting the islamic state. francois hollande has agreed to cooperation, but president obama wants more proof rusher is focused on the islamic state. ae u.s. has unveiled counterintelligence. identifies five missions. among them is infiltrating and disrupting adversaries, disrupting computer networks, and so-called insider threats. the pledge of having the eu's lowest unemployment rate by 2020 because of the influx of refugees. it is excepting more refugees per capita than any other country with a 7% jobless rate. in manila, police battled protesters not far from where asia-pacific leaders were leading. they criticize the philippines for his close ties to the u.s. you can get these and other breaking stories at the new bloomberg.com. tom: a data check. not a big deal off of the fed meeting. futures are up. that is a nice top to the morning with the vix closing 16.85. west texas and intermediary with a cup of coffee, $40.76. the big 16 point -- i don't have the vix this morning. the vix 16.85. 2.07 when i walked in. i will call it boring but tenuous, that is how i see the data. what do you think? francine: we will have to look at the indices. they are a little higher looking at euro-dollar, dollar-yen. talk about crude oil. look at the nymex, 40.74. looking at their trajectory, it has been following from 40%. we have to look at the reasons, that will give us an idea of what central banks are thinking. , the nuances.zing was the conversation with alan blinder at the economic club of new york. let's go off script to gold. ages.n't done this in this is inflation interested gold. we come back like this, down we go. the idea is that we break 1000 and get into this resistance level. this is the commodity in persian. vonnie: there are so many reasons. this is a downward curve. copper,per, copper, francine, we thought we would show gold today. francine: all over the commodities. police in pairs are not sure what happened to this is back to the suspected theater of last week's terrorist attacks. hans nichols joins us. they confirmed that he is not in custody? : that is where we are. because we have such a bloody situation inside the apartment t-denis, at sain least one suicide bomb went off and grenades were thrown. of the leader was intentionally to ripped apart by the bomb to tell. there are looking at it forensically. threatalking about the of chemical weapons. how much of it is for real, and how much is to give the president extra powers? hans: things feel very real in paris. we have heard that claim that the next attack could be potential a biological or chemical, from the state prosecutor of paris last night. we heard that this so was planning another attack. 70y have seen more than weapons. paris seems like it is an ongoing police operation. you can see some tourists and people paying homage, but there are a lot of police. they're returning to normal in some ways, but it is also very tense and heavily guarded. the headline on chemical and bacterial weapons was jaw-dropping. how will the other european cities, stockholm, berlin, reacts to this new reality? be coordinating a lot on friday in brussels. the interior ministers are largely in charge of police detection and operations. have all try to coordinated response. in brussels, there are six raids taking place in mollenbeck, at the home of one of the associates of the suicide bomber that blew themselves appear. the fbi had warned that rome was the site of a potential attack. you, so much.k hans nichols with the latest from paris. a lift off from the fed in december looks increasingly likely. if we look at what we heard last night, the minutes from the october meeting, most members have turned hawkish. let's bring in our guest host. the blackstone vice-chairman, john studzinski. you are one of the greatest thinkers in the economics of things. commenting to me about the terror attacks. first, there needs to be a realization that this is something we will have to deal with in the longer-term. the threat or -- attacks or the threat of attacks. mr. studzinski: there are interesting discussions we are starting to have. what is happening today is different than the last attacks on charlie hebdo. that was targeted at the media and the french police. this attack is more about attacking western civilization, a way of life, the symbolism of the way of life in paris. europe is seen as more in terms of attacking the west because of the large muslim population and the open of more ofd because a right and left polarization of the political situation. also the perception, and we will see if it is right or wrong with president hollande, that there is not enough strong leadership in europe beyond angela merkel. without strong leadership it provides the opportunity for some type of war. this is a war, let's be clear. with the pope said was right, this is a war, not a one off event. francine: one of the biggest events to 2016? we are talking about a major geopolitical situation, and it always goes back to the central banks. it is like the whole world is -- read myntary monetary policy instead of military policy. wherehere will be a shift the world would get away from monetary policy. bill dudley made the right comment about the most transparent possible rate increase we have seen in a long time. it will happen at some point, let's move on. it will have an adverse effect in the short term. it could have a longer-term effect in europe for the foreseeable future. having said that, the german economy has to build infrastructure at the same time to deal with immigration. that is another side. tom: within the international relations, and you are one of the leaders, you are the chairman of one of the most magnificent houses in continental europe, the ben franklin house. or joseph nyein parachuted in, we would need a new international relations. what is your prescription to move forward against the islamic state, and your prescription to jumpstart better european cohesion? mr. studzinski: you are very kind to bring up then franklin -- then franklin -- benjamin franklin. i'm a great fan. he was a great polyglot. if you were at a parachute him in, he was a very good listener. he would have face-to-face meetings with whate and try to interpret he heard among the french, english, and americans at the time of the american revolution. translating that two today you would have someone that would try to develop a much more open dialogue and try to avoid the types of violence that is taking place. tom: do we need to listen to vladimir putin? the meeting the other day with clinton and obama , i got the impression president obama is starting to listen to mr. putin, and vice versa. if that is the case, i think we're getting to a point where --re will be a more rigorous that is probably too strong of a word. -- ofy virtue of a the fact that we have accepted president assad for the moment. tom: we will speak about m&a, the nominal gdp. .ohn's pinsky in this hour joseph nye of harvard university. .e move from bowdoin to harvard we are honored to bring you the author of "power and interdependence." bloomberg "surveillance." ♪ francine: welcome back. businessour latest flash. the biggest deal in the drug industry. pfizer will buy allergan for more than 100 $50 billion according to people familiar with the deal. is located in ireland. it could be outside the u.s. for tax purposes. of a reason to increase stimulus. central bank of japan left the stimulus unchanged saying stimulus is improving. kuroda said he is willing to accept it. -- apologized for the emissions testing scandal. he is says that both like and will have a remedy for the cars in the u.s. that are affected. that is our business flash. you have more francine: oil trade, as you were saying, the u.s. government data -- crude has expanded for an eighth week. joining us is the chief energy correspondent. also with john studzinski us is our guest host, of blackstone. how much to is this have to do with demand? we don't know if it is slowing. how much does it have to do with the fact there is too much oil? we havee supply side too much oil. saudi arabia has been targeting market shares. one ofis quite good at the strongest rates we have seen over the last two decades. china has a slow down and oil depend. we have one of the best rates for indian demand. seen demand having good data in terms of oil consumption. and the u.s., people are driving more, so the demand is fine. tom: i know you brought a map. we have a surveillance map. it shows geographically -- look. the orange line is 530 kilometers? 530 four meters, the record stock high. super put that in tankers, every tanker one after the other? it goes from here, our headquarters, almost to edinburgh. john studzinski, i have a question on the oil industry. sheetill we see balance of adjustment? the rollout in hydrocarbons? mr. studzinski: i didn't hear the first part of the question. sheethe balance adjustment in oio? everyone is waiting for the good will to become bad will, and then become no will. when will we see the adjustment? mr. studzinski: the capital markets have been pretty -- open to the oil industry in north america. on the equity and debt side. they have slowed down a bit on the debt side. it will continue to be further shakeup in the next three-months to six-months. tom: john studzinski from blackstone. oil, west texas, $40.77. gary shilling suggests lower for longer. gary shilling will join us for the next hour, then on bloomberg radio through the morning. always interesting, his belief in lower oil. ♪ ♪ francine: welcome back. i am francine lacqua in london with tom keene in new york. it is thursday. the ecb on the back of the fed minutes yesterday. this morning's must-read comes from the cover story, why isis has all the money it needs. he writes the islamic state got into the oil business before it captured global attention with beheading videos in the summer of 2014. we are joined by john studzinski of blackstone. in your well written article, you made the point that they are financed very well. surplus.even running a they not only control oil, but collect taxes. when you control that much territory, upwards of 8 million people, and you can generate income, it is impossible to stop it from outside. the oil of love, the obama administration said a year ago and repeated this year, that we have bond there oil revenues to $100 million a year. after the paris at tax we found out they had -- after the paris attacks, we found out they had recalculated that and are earning $5 billion a year. it is $400 million. there estimates from the rand corporation, they earn enough from oil to pay the salaries of their fighters twice over. they also have other fast revenue streams that we cannot touch or get close to. will they try to hurt them financially or hurt oil reserves? mr. studzinski: we can only double around the edges. they generate income from the territory they control. unless we move on a day, which i don't think anyone thinks is a good idea with o dust with 150,000 troops. essay ins go to the "esquire" magazine. it is a broader economy, what about the correspondent base. why can't we go after the nations, governments, and private enterprises in the adjacent nations? mr. studzinski: there was a myth in that piece. they don't rely on foreign donors or the international banking system. after 9/11 we created a to trace international transactions to cut off financing of international terrorist groups. this is a terrorist army in control of the huge territory from which they generate all the revenue they need. banks that they graft, upwards of 90 in iraq when they swept through last year, are estimated to have up to a billion dollars in cash. they're generating hundreds of millions of dollars squeezing the people in those territory with every kind of tax you can imagine. on acongratulations must-read article. i cannot convey the lack of hysteria in mr. simpson's article. i urge you to read it. later, henry mcveigh, we're looking forward to that. bloomberg "surveillance." ♪ i just had a horrible nightmare. my company's entire network went down, and i was home in bed, unaware. but that would never happen. comcast business monitors my company's network 24 hours a day and calls and e-mails me if something, like this scary storm, takes it offline. so i can rest easy. what. you don't have a desk bed? don't be left in the dark. get proactive alerts 24/7. comcast business. built for business. tand that's what we're doings to chat xfinity.rself, we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20. it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. francine: welcome back. live pictures of president speaking in paris. earlier we heard from the prime minister. paris is extending the state of emergency for three months. paris, the expected terrorist hideout raid was so violent, police are not sure how many militants were killed. age were arrested and at least two killed. they don't know if the organizer of the suspected attack was among those who died. belgium has launched raids . is turning attention to how to maintain it security at its biggest diplomatic having since 1948. 80 heads of state will gather for the united nations summit on global warming. there will be 40,000 delegates. protestas canceled a ofch expected to draw tens thousands of demonstrators. employees are aware of a video, but say there is no specific threat on new york's times square. since the paris attacks, they have deployed extra police across the city. the house plans to vote on a bill today that would block syrian and iraqi refugees from entering the country until top law enforcement officials told congress they are not a threat. the white house says that would not increase security. the biggest diamond in more than a century has been discovered in africa. the 1100 caret rock is slightly smaller than a tennis ball. the only one that is larger is part of the british crown jewels. you can get more at bloomberg.com. tom: i could see that on beyonce 's finger. it is christmas. beyonce? why you have 2 lovely people waiting. mr. studzinski: i would've thought some of your hedge fund friends in new york would have lots of wives that would be delighted to have that on her finger. tom: no doubt, but hedge funds are underperforming. when will that change? when will hedge funds start earning two in 20 again? mr. studzinski: i think you cannot generalize about hedge funds. there are probably 800 hedge funds right now. no to hedge funds have the same strategy. with visiblee public strategies, we have those friends in common. with lowe are those key constant strategies with lower returns but less volatile returns. tom: you can't get smoother than that. the only reason he can be that smooths is because he froze up in bowden for four years in maine. that was smooth. wenttudzinski: and then i to chicago. if you have ever been to chicago, you can freeze even more. francine: he should be a politician. when you look at strategy around the world, different regions, is china concerned? you also came back from japan. europe,at the u.s., china, and japan, are we focusing on the wrong thing? mr. studzinski: if we are talking about investing in terms of where we look at the world in terms of long-term investments, there is aear money, lot an interesting real estate in europe. coming the u.k. or spain out of think portfolios. there are other businesses in europe that are also interesting . because of the geopolitical tensions that you have seen in the past week, a lot more money will flow into the dollar, a lot more will flow into the stock market, and the u.s. will have a geopolitical premium in the short-term. you have to separate a good place to invest -- i would say that europe is on the margin, probably positive. if we are talking about 15-years, 20-years, real estate in brazil is real a powerful country. problems now,g but real estate in sao paulo, is also still positive. .n china, there are many chinas there are six economies in the u.s., in china you have to separate the east coast from the central part. there are certain fundamentals in china that are doing well, whether growing at 5% or 6%, probably closer to 4% or 5%, but the numbers are different degrees of interpretation. japan.e: talk about looking at central-bank action and inflation, i have a chart showing that the government succeeded and corporate profits still went up. they're the highest since 1954, but that is not translating into the real economy because of pennies do not invest or increase wages. mr. studzinski: companies are interesting. i was there on monday and tuesday. the recession announcement occurred, the japanese did not pay too much attention. they feel like they have curved deflation. a bi statement because they have lived with deflation. the sense of leadership and companies, japanese are being told they have to invest more. there are starting to invest more. i don't know how well -- i love japan because everything works. delicious. it is a very efficiently run country. the government is putting clear targets on people to invest more. abe is not going to give that. people perceive the leadership in a strong way. tom: to the work at blackstone, particularly in real estate, i spoke yesterday with james lockhart. where is the new internal rate of return? in the world of blackstone, long-term, quiet investment with a new terminal rate and lower nominal gdp, where is the rate of return transaction to transaction? mr. studzinski: every real i don't- first of all when the real estate group. my friend -- tom: the answer is numbers lower, right? willtudzinski: you know, i give you the same number answer i gave you on hedge funds. every place in the world, all of our returns the past 25 years has been on average 18% a return matter. around the world, unless we have a certain -- we are not lowering thresholds. same discipline. one thing about mr. schwartzman, he is a disciplined gentleman. that is reflected in how investments are analyzed. nothing is ever lowered. the discipline is adhered to. we are not lowering our thresholds, i think that is a profound statement. do you and mr. sportsmen -- mr. schwartzman have to extend your duration of deals? a everyone goes through five-year strategic plan. way blackstone go the other turning a seven-year transaction into a 12-year transaction? mr. studzinski: the reason people like to invest in alternatives, they outlast cycles. many u.s. pension funds and ciber and wealth funds choose alternatives, whether a private equity alternative, or credit, or real estate, because they five-year, 15-year duration and will not be subject to a short-term cycle. you have to look at them in a different way. tom: those important what he said about the new threshold that he and all alternative investments have to deal with. we have a wonderful guest in the next hour. with all that is going on in paris, joseph nye. power in independent is the bible of international relations. this is bloomberg "surveillance." . ♪ ♪ tom: good morning. bloomberg "surveillance." .he beauty of new york getting into the festive season. it is creeping in a little. a little chillier weather, still no snow. let's go to london. morning: what a day's move or, we are keeping our eye on the pharma company in talks to buy allergan for $380 per share. it could be the drug industry's largest a deal. how much aref all, we confident the deal will go ahead, and is this all about tax aversion? are seeingg they'd is pfizer wants to do the deal. they want a version. is a great company. for the last eight quarters they have beat their quarterly earnings estimates are a good business. last year, they went after astro. what the treasury is going to say and how much that will affect, but from our sources, we know they're close to an agreement and we have a price in place. documenting $370 to $380. ,r. studzinski: do you think putting the tax aversion aside, do you think this is a good deal. with thee not dealing aversion point, and you are just thinking about the rmb pipeline pipeline, being more focused, which is the way the industry is going -- does it make sense putting the tax aversion aside? >> if you keep in mind, pfizer has been talking about splitting its businesses. putting it on one side. has a couple of these brands, which makes sense for pfizer. you are seeing consolidation in the industry. allergan had been saying when they split after -- because they wanted to grow in the market, they would do another big deal. tom: this is a question for you and john. and we end up with one drug company? that is a great question. it will take a while, but this is the industry's biggest deal and the biggest this year. it seems like there is more of an appetite. saidcatherine mann of oecd , saidher day -- of oced the other day her concern is guys like you and steve eye rolling industries. is there any harm in this consolidation? mr. studzinski: people get away with these big generalizations. tom: that's what i do. francine: her point was that there was so much cheap money see megadeals that don't make that much sense, but people can finance it and it is cheap. mr. studzinski: my sense is that the roll up was predicated on the narrowing of the categories on which you will have a major market share drug expertise. this focuses them on a certain category, not expanding categories. >> one thing we keep coming back to is this is a deal that is done for a version. is that prski: management? if they hadn't said that and only focused on strategy, would they not have elizabeth warren and everyone else focusing on this? have they mismanaged pr? francine: people would have figured it out. this is something that the pharmaceutical companies are known for. now, when they're going for a company with a domicile in ireland, where there are tax benefits, people are going to do the math whether or not they say yes, this is why we're going after them. mr. studzinski: it is very timely, of course, and this plays back to tom, i have the time of the presidential debates and elections, are the candidates going to talk about lowering the corporate tax rate and bringing in for an income at a lower tax rate in a way that will be efficient from the standpoint of job creation and preservation. that should be the constructive discussion rather than locking it. if they are going to block it, that is interesting, but there are positive things to repatriate the cash that is sitting abroad. thatine: we'll get back to . later today, we will hear from a 3:00 p.m. in new york and 8:00 p.m. in london. this is bloomberg "surveillance." on bloomberg tv, your tablet, bloomberg.com, and your phone. we will be back. ♪ tom: good morning. bloomberg "surveillance." hong kong is noting the devaluation and appreciation. persistent depreciation of the interestenminbi is of in the early evening in hong kong. this guitar business flash. vonnie: -- let's get to our business flash. 26% the year that ended in september. they are trying to change to a more diversified industrial group. delta airlines is increasing ambitions and emerging markets. have a 49% stake in air mexico, also in china and brazil. tinderer of match and will trade today. match raised in its ipo. shares are the low end of the range. that is our bloomberg business flash. thank you. we have to talk about valuations. still withnski is us. we started by saying there is a lack of political leadership. and you look around the world, the u.s., europe, the u.k., it seems politics are becoming more extreme. people are more left wing and wing than they were, i guess, because the world is more uncertain. is that the risk for the next decade? mr. studzinski: the last five years, there have been 15 geopolitical disruptions in the world. i think the economy expansion has overrode that. we are focusing on a new reality. paris has focused the eye on the seriousness of the islamic state. leadership.is about talkmany conversations about, leadership is more definitive and washington. obama is being challenged. of a seriousg more leader, and the last 12 months, whether it is syria, cuba, iran, the prisoners, he has become more decisive. when you go to the things obama is passionate about, he comes across as a good leader. francine: when you look at the u.s. presidential debates -- mr. studzinski: the debates, particularly on the republican remember, the big industry in america is the defenset, industry, and technology. americans love entertainment. there encouraging the candidates to entertain them, as opposed to come up with substantive platforms. the security and foreign-policy issues that are being presented as a result of paris are going to create a new series of debates. and they have to. americans, for the first time, are going to start asking who do they trust to lead them during a crisis. is one thing, who i want to entertain me on "saturday night live" and who do i want in a crisis. they are different answers. francine: we seem to be in a situation where people say that world markets are not focusing on it, but you have people on the show telling us that they would get out of the eu. mr. studzinski: i don't really like these people that come on your show and model everything. i can create models to demonstrate anything. the u.k. has always been formidable in north america and asia because of their knowledge and access to europe. the u.k. has been formidable in europe because of its knowledge and access to north america. i know that is a big, sweeping statement, but looking at the past 30 years, 20 years, that is a fact of life. also, london is very important as a global business center. london together, the european union, is the still biggest economy. there are three arguments that are very important. know froml want to global wall street, with your experience at morgan stanley, and on to blackstone, the future of european banking. you alluded to an interesting transatlantic relationship between new york and london. i am an optimist in london. what is the john studzinski subscription to jumpstart the german, french, and netherland banks? suretudzinski: i am not so that you have -- chosen the right word. the reality is going forward, i annk jumpstart -- it will be increasingly bigger and bigger challenge. if you are talking about jumpstarting one of those companies in the top five, you have the continued success of the chinese banks. jpmorgan, bank of america, wells, and citibank will go from strength to strength with their global footprint. the europeans need to become less global and for international. they will have to choose four or five markets in which to prevail. john studzinski is with blackstone. coming up, we return to paris. we will bring your joseph nye of harvard university and talk to him about the challenges president hollande has with france's power and interdependence. bloomberg "surveillance." ♪ ♪ ♪ tom: france cannot you allow the use of chemical weapons by islamic militants and this is the french and the americans who say russia must attack the islamic state. with power and independence, france seeks allies in its war against terror. westis hour, josephnye and texas oil is $39 per barrel. this is "bloomberg surveillance." it is thursday, november 19. that was quite a headline at 3:00 this morning from the leadership of france on these fears of a different use of weapons. ne: where watching that closely with possibly more arrests in brussels. these situations are fluid and i would focus on equities on the back of central banks and the price of oil feedback and what the ecb will do with qe in december. tom: right now, let's get to our first word news. belgian authorities conducted half a dozen raids in the brussels area and police are looking for associates of the suicide bombers. the belgian prime minister announced a big boost in funding for anti-terror measures. the constitution change so terror suspects can be held longer without being charged. two suspects died yesterday in paris. a house vote is expected on a bill that would make it harder for syrian refugees to and to the united states. president obama says he will veto it and it would require the refugees to get clearance from law enforcement and security officials. president obama is reaffirming america's alliance with japan. he called japan a great partner and said japan is an extension of u.s. security. slogansators shouted against the asia-pacific forum and they criticize the philippines are siding with the u.s.. the former subway high prior spokesmangh-profile will be in court today. fogel will get no more than 12.5 years under a plea deal. the 10 year is 2.26. gary shilling later in the hour. i want to make clear that iron ore broke down to new weakness overnight. i miss that earlier. let's go to the terminal and look at another commodity, gold. inflation adjusted gold. i bought here and sold here. all you have to now, down we go with inflation and up to go with the idea of coming back to the trading range. : the idea of buying gold as a safe haven has turned down. we need to continue to focus on paris with important news. we just saw the french president speaking in paris and we need to speak to hans nichols who will brief is and how europe is responding to what we have seen in paris. good morning, just a few things on the numbers -- it spentlike france was another $600 million on this enhanced security. they are debating in the national parliament whether or not to extend emergency powers, extend powers to president hollande. they already increase the defense budget by $4 billion net gets to the larger conferenc conversation. down a marker and they will defend the security before they defend growth. tom: there are great articles today about where are the allies. whereour european view, are the french allies? : dave depends, if you look in terms of air assault, it's the u.s. and potentially russia. what you see within europe is germany and france are trying to stay together. they are holding the line and refugees saying this will not alter their refugee redistribution problem. merkel earlier this morning spoke in berlin and said they want to set a town in greece and register everyone there but things are working more smoothly in terms of cross-border transfers. it's one thing for her to say that and another to get her coalition partners especially in bavaria to believe it. franice: when will we know that vladimir putin is an ally and will fight together with france? hans: that's a good question. as we look at what's going forward, how much support will the french president give to for will be a signal increased aerosols on forces in positions inside syria. they have indicated there will be coordination with the russians for it i would caution that no one has made this fundamental answer on what you will do withassad. can he stay? there is a range of opinions and until you have unity and agreement on that, any sort of strategy will be difficult to implement. tom: thank you so much. week, whereerful humbled by our guest this week, wher we are thrilled to bring you joseph nye. his book changed international relations and some would argue invented international relations and his new book is out. here is a quotation from 1977 -- does america have any power against the islamic state? >> yes, but it has eroded. tom: as you wrote. >> it you are looking at who has the most military power in the region, the u.s. does but there is a lot of things you cannot do with military power. somebody said you can do a lot bayonets.with they i there is a revolution in the region and it's not dealt with i just military power. we found that out the hard way in iraq. tom: it's not just in the region. we need a post-american world is not about a contained border or region. the borders of lawrence of arabia are gone and now we have an islamic state everywhere. how do we adapt to that reality? >> we will have to admit that the world has a transnational dimension to it and borders are not as tight as they once were and the kind of problems we see are flowing across borders. see it in terrorism, we see it in cyber events as well. it can happen in an instant. islamic states are extremely organized and have a huge amount of money that they get through taxes and they collect through oil revenue. how can we stop that? trying to physically stop the production of revenue from oil. we not only have been bombing area butities in the we have now been increasing that to include trucks that transport the oil and sell it on the black market. are trying to deprive them of that source of revenue. to the extent there is revenue from outside, we use the international banking system to slow that down. the truth of the matter is they still have plenty of money. this is not an impoverished group. : we have a great bloomberg businessweek story informing readers that because they have so much control over banks, the international monetary usual banking finance system is of no use to them because it's more difficult for us to track that money. >> that's right, it's not like sanctions on iran when we were trying to press them on the nuclear deal. the banking system was crucial in terms of being able to enforce those issues. isis has access to funds without the international banking system. the french president does not have the luxury of soft power. how does he shift from your world too hard power? >> you need both. smart power -- tom: can we quote you on that? >> i have used it before. hard power is the ability to use force or economic sanctions to either coerce or pay. soft ability -- soft power is the ability to attract and paty. you need both to deal with a group like this. you have to use hard power against the hard-core but you need soft power to prevent them from recruiting from the surrounding softer parts. tom: do we need a new strategic relation with mr. putin? >> we need to coordinate some of the hard power. i don't think we want to give up on ukraine and the fact that vladimir putin stole his neighbors territory. i would not relax sanctions on vladimir putin. we will have to do business with vladimir putin isi in this event in other areas. s tom: we will speak of the optimism on america later in the hour. coming up, we will speak to professor schilling of amherst college. done his idea and opposes that oil will move lower, stay with us," bloomberg surveillance." ♪ francine: this is a live picture from washington, d.c. and the hawks in the art at -- are out at the moment and we have the job reported december 4. it's time for the bloomberg business flash. talks between pfizer and al again good lead to the drug industry's biggest deal ever. pfizer might pay up to $150 billion for aller and could get a tax breakgan by making the home base ireland. plunged fromindows one year ago. windows share of the market fell by nearly half to 1.7%. the bank of japan decided today not to boost economic stimulus despite their second recession in three years. the move was expected and the bank says the inflation rate trend is improving. let's bring in our economics expert, michael mckee. fmo minutes yesterdayc and most market watchers said this is what we were expecting. probability of a fed move has not moved in the last couple of days, why is that? the fed said we have to be talked out of a move. what does it look like when a tree falls in the fourth and does not make a sound? call up that two-year chart we were talking about. a little volatility around 2:00 p.m. when the minutes were released and then nothing. the markets have priced in a fed rate move and that's what the fed has been looking for. they want the markets where they are when they are ready to move. do international economics get to rail copper or the negative yield in germany? michael: they seem to be on track according to the minutes. the pressures from the dollar have abated somewhat from the september meeting. they key line is explaining their outlook, a rate move will be appropriate in december issuesd unanticipated don't affect the output. presidents saying they are looking forward to a fed -- a rate increase and economy is ready. : will the fed not have to point to how it's going to start exiting? been talking have about this for a long time and the professionals know what they will do. it's a question of confidence building and what they will do. speaking in is washington and then goes to capitol hill. she's got a couple of opportunities to lay out what their technical options are. we will probably hear from others including bill dudley who has to carry this out. so the hawks and doves are out and if we don't get a terrible jobs number, it will be liftoff or december? michael: it will unless we get a terrible jobs number on december 4. the good news is than the fed feels they get it over with in the minutes clearly show their frustration with investors focused on the idea of when we left off. what they really want to talk about is once we go, how far will we go and they want everybody to know not very far. tom: joseph knight is with us. josephye -- joseph nye is with us. ignore thetral bank international economy? >> absolutely not. as the fed tries to figure out what it's doing with this relatively modest increase in interest rates, you have to ask what the effect will be on brazil or what will be the effect on all commodity producers. how will it interact with china? in the sense of the interdependence of the global economy, they have to look at the american economy first. the american economy is affected by the rest of the world. the we did not see that in fmo see minutes? michael: they take into account was going on in the rest of the world but they have to make policy eighth and what's best for the united states. comingy this is what's so adjust your policy so you're not adversely affected. the other interesting things is what might happen after that. , 2017, westart hiking will have an interest rate above 1%. looksbert kaplan said it to be veering away from his predecessor, dr. fisher. will that make a difference? he gave a speech yesterday suggesting the markets need to focus on the long-term equilibrium rate and it is lower than we thought in the past. bill dudley gave a similar speech not too long ago and this is what the staff presented at the october meeting. the equilibrium rate is the rate at which you get maximum employment without triggering accelerating inflation and the staff said that an kaplan says that is lower than it used to be before the financial crisis. the sentiment is that we are close to it in the short run which would imply only a few moves next year. in the longer run, it is lower, it is the new normal. the fed has sees that and says we will not go very far. the market will adjust down to where we end up. tom: so this is the transition from professor to president. michael mckee, thank you so much. shilling will be those with an extended conversation on radio later. look into her closet and find out how many gold buckles are on the toes of her shoes. burch better than you think you do in the 8:00 hour, maker of shoes with gold buckles on the toes. ♪ franice: welcome back then you are looking at live pictures of london. the mood is summer and more politicians say the terrorist attack cannot lead to a closed europe. it's time for the morning must-read. vonnie: i picked something month nye wrote last before the attacks in paris. we just heard president obama affirming a compact with japan. or globalilateral agreements do we need to enter into in order to combat something likeisis? >> the london economist at an estimate of either the close allies or the close working partners the united states has about 60. some of these are treaty allies like japan, others are close working relationships. basically, we will have to do more of these partnerships. there is not as much you can do alone. events from these the early 1940's. do we need a big event? do we need to get world leaders to come together and make a new architecture for the world? >> i'm not sure you will get a new architecture. you look at the great recession of 2008. it led to the g-20 which just met. tom: it was a photo event. >> that's right, in the first years after the recession, the g-20 did have some impact. coordinationseful among bureaucracies but it's not the big new institution. i am afraid we are going to have to learn to work with networks and put together ad hoc coalitions rather than looking for a big one. we will talk about the ultimate network between china and america and your optimism on america in a moment. morning, later this square ceo jack dorsey re-prices with a vengeance. an interesting interview later this morning on bloomberg television. stay with us. ♪ i just had a horrible nightmare. my company's entire network went down, and i was home in bed, unaware. but that would never happen. comcast business monitors my company's network 24 hours a day and calls and e-mails me if something, like this scary storm, takes it offline. so i can rest easy. what. you don't have a desk bed? don't be left in the dark. get proactive alerts 24/7. comcast business. built for business. tand that's what we're doings to chat xfinity.rself, we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20. it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. francine: welcome back and here are some of the great stories you can check out on bloomberg.com. square 1y company raised/3 less for an initial public offering. allie baba has prepared a 130 million fund to invest in hong kong startups. there was the biggest decline in six years in twist watches. the fall was led by the industry's largest drop by 39%. we are just getting news that belgian police have made one arrest in a certain links to the paris attacks. done on thee being remains of two suspects who died in the police raids and they want to know if the ringleader was killed. he was not among the eight people arrested. belgian authorities conducted a half a dozen raids in the brussels area. ministeran prime announced a boost in anti-terror funding and wants the constitution changed to let police hold suspect longer without being charged. police and belgium have made one arrest in those searches. the french parliament is debating an extension of the state of emergency that will extend police powers and limit public gatherings. france is posting this is focusing on security for its biggest gathering where 30 heads of state will gather for the u.n. summit on global warming. there will be 40,000 delegates and france canceled a protest march. bosnian officials are: killing of two soldiers a terrorist attack. they were shot u -- yesterday in sarajevo. the man fled to his home and bloom self up. witnesses say the attacker appeared to be an islamic radical. minnesota argenta fighting the two officers in the fatal shooting of an unarmed black man. demonstrators are gathering at a pre-to -- any precinct house. the officers union denies any wrongdoing. you can get more on these and any breaking news stories at bloomberg.com. ne: u.s. president barack obama spoke at the apex summit in manila this morning and said the u.s. has a great partner in japan. let's bring it back to joseph nye from harvard university. when we see heads of state talking about great partners, the european union and especially france, has great partners. doing need to stop talking about u.s. foreign policy, does this need to be a free world foreign policy to fight the islamic state? ,> i think you have to realize as i put it in the subtitle book i once published, the world's only superpower cannot go it alone. the fact that we have good allies. europe is an enormous set of capabilities even though it has trouble and japan is still the third largest economy in the world. these countries being allied with is give us capacities which other countries don't have. china which many people get worried about has very few close allies. they have north korea. if you look at the advantages we have, they come from the fact that we are embedded in these alliances and networks which give us more capabilities. e: your biggest concern is fighting the islamic state or skirmishes in the south china that the the concern u.s. will get involved between china and japan? >> we have an alliance with japan. that intold the chinese the east china sea, certain islands are covered by the u.s.-japan security treaty. that is a clear position of deterrence that we have expressed. we also need to work with china and other things at the same time whether it's climate change or financial stability or terrorism. we will have to walk and chew gum at the same time. tom: 10 years ago, the japanese destroyer steamed into boston harbor and they brought the constitution out. next to me stood world war ii veterans with tears in their eyes to see that. we are now showing the flag in the south china sea. do we know the chinese military might? we got wrong the russian intelligence. do we have confidence we know we are showing a flag to? >> we have a pretty good sense of what's going on in the south china sea. we have observed chinese naval operations and have a good idea of their budget. it's worth noticing that we have a freedom of navigation operation going through the south china sea and the territory that china claims. which we think is against the law. we have the commander of the pacific fleet in shanghai on a ship visit. we are trying to keep a balance between the tough lines saying this is where the law allows us to say it. we might have to change that and working with the chinese in areas where we can. tom: that balance is multidimensional. that was a failure in manchuria in 1939 and 1941. what do you observe to find when then balance gets tipped over and it becomes skewed? when theeople think chinese economy is larger than the u.s. that that will be the tipping point. i don't agree with that. i argue that china will not pass 20 u.s. if ever until the 40's or 20 50's. the u.s. spends four times as much as china. we are a $17.5 trillion economy in 2014 and china is at $10 trillion. they have made great progress but they are not about to pass us. in: we will do an interview 2045. >> dig me out then check me out. have any of the presidential candidates come out with anything novel with international relations especially on the republican side? >> i don't think we have seen any serious debate on international thinking in the campaign. domestic issues i've taken forefront. what you have is a lot of posturing. in the republican debate, there are differences. tom: it's not teddy roosevelt. >> that's the problem. eating whichever ends up that the nominee will have to continue with what they have been saying on that campaign trail. >> very often, person who says one thing and a campaign does another thing after he or she becomes president. we will see. andie: going back to china the islamic state in the terror attacks in paris, presidentxi was expressing condolences. will they end up getting involved. will china have to get involved in the middle east? >> china will be increasingly dependent upon middle eastern oil. ironically as we become less dependent. china has to be involved. on the other hand, if you look at the capacity china has, it's much less. they have devoted more of their troops for united nations keep easing -- peacekeeping missions but that's not the same thing as having a fleet that can open the straight support moves which the united states has. tom: thank you so much for coming in today. we will come back with professornye and continue the discussion and we will talk about the new world order. we go on to gary shilling in our next section with oil pushing $39. he will talk about lower commodity prices. ♪ ♪ hong kong has lived with the policy and politics of china. we thank you listening with us this morning. volkswagen is expected to announce drastic spending cuts tomorrow. regulators will make their diesel powered cars meet pollution standards. the owner of dating site match and tender begin trading today by raising almost $400 million. shares were priced at the low end of the market. iac interactive corporation is involved. tom: there it is. barry diller is wheeling and dealing. "details"blication of magazine will be lighter this year. i have a five year subscription to it. you wonder where magazines will be in five years. vonnie: they will certainly be fewer. foreign affairs will do great for no other reason than the type is large. that's the only magazine i can read. we had joseph nye with us who has put out an important must-read on american optimism and china. i dovetail this into the henry kissinger world order. your messages for more optimistic than the complexities dr. kissinger looks at. if we have a new world order, why would you suggest america can be so optimistic? henry's book says there has never been a world order, among other things. the extent that there has been as beenom world war ii largely because the united states has been the dominant power. that has allowed us to preserve a degree of order. sometimes people call it the american century which is what i call my book. i think the pessimism the american century is over is undue. there really is a capacity in the united states to organize others and deal with issues more than any other country. it does not mean anything -- everything is perfect. there has never been a perfect world over but the extent to which the united states is still the dominant country and able to organize others to get things done -- before teddy roosevelt, there was gridlock in american politics in the late 19th century. how do you get your optimism to work with the reality of gridlock in washington? >> we have always had a pretty inefficient government. the joke is that we created inefficient government on purpose so that king george could not rule over us and neither could anyone else. we wanted liberty, not efficiency. thomas jefferson opposed george treaty which the was his accomplishment so it's not new that we are tied up in knots. right now, we are in a bad spell. there is a growth of partisanship which i think does not do is any good. take, for example, the case of the south china sea we talked about. we have not ratified the law with the sea treaty. with the minority of senators though wewant it even have republican secretaries of state and chairman's of the joint chiefs of staff saying we should do it. we want to use the law of the sea treaty to constrain china but because of our domestic politics within the republican party in this case, we cannot yet this treaty ratified. --: it's not as proceeding is not as pristine as u.k. politics. francine: and not as pristine as chinese politics. how much do we know the endgame for chinese politics? >> china wants the chinese dream. he wants dignity for china and acceptance of china but they are not in a position to be a global partner to the scale we are. what china becomes and how it behaves even in its own region depends on large part on what we do. we can shape the environment which helped china make those choices. they can actually play a very difficult role so they are not the super powerhouse of the world but if they don't play discouragecould world growth and world peace. >> absolutely, the last thing we want is a collapse of the chinese economy. the chinese are still a major source of world growth even with their lower growth rates. but 7.5%coming up growth from a $2 trillion economy is not the same as a 6% growth on a $10 trillion economy. we need china to do well. aboutne final question europe. what does chancellor angela merkel need to do to support hollande?francois >> they have to keep a tight personal relationship. the working relationship of france and germany is what makes europe work and there is a lot of stress not just from terrorism but the larger refugee issue. so far, they have kept pretty close. tom: thank you so much for coming in. this is an important time for international relations. readabilityvey the of his latest effort and his optimism on america with china and i recommend you read any number of chapters. he will try to sell a few books on deflation and disinflation and will be hasessful -- gary shilling been the most corrective market economists over two decades and we will find out if he is right on oil, next. ♪ tom: good morning, everyone. let's look at the foreign exchange report. the euro is stronger. a no set about the republic of france doing better. said about the republic of france doing better. it's a jumbled foreign exchange report for it our single best chart, we will do that with gary shilling. it's on oil and is a reaffirmation of what we saw yesterday. when thearrel oil and chart comes up, that's for gary shilling is. he is below other analysts. what is the distinction of $35 for a brief time down to the permanence you see a $20? there is nothing permanent about $20 but that's the marginal cost of producing oil in texas in the persian gulf. when you are in a price war and that's with this is, it's the marginal cost that matters. it's not the full cycle cost of drilling a well with all the pipes and infrastructure. it's not the cost of budgets for saudi arabia or venezuela. is the marginal cost. the saudi's are saying this is what we will do. it's a game of chicken. they will not back out as they have in the past and let someone else come out and grabbed our share whether it's other opec companies or russia or american fractures. kers. when opec had their meeting, they said 37 million per day. they have taken off the limits. is there any more of an oil dividend to be had in this division? vonnie: say that again? if it reaches the price, will the consumer benefit? 85%, the windfall in gasoline price declines has been safe. -- saved. would spurght it consumer spending but in tough times, people increase their saving rate and do it in recessions and have done at this time. you're not really seeing that windfall in terms of spending. saving andreasing consumers are way under saved and their assets are lower. but it's not doing much for the economy now. get to $20 per barrel, it will not stay that long. some body will be forced to the mad and eventually the price goes back up to the average cost covered by the price. you can do a lot of damage in the meantime. you got the major oil companies now and they are basically borrowing to pay dividends. they think that is important. when we look at the price of oil, hand -- how can we be sure this is an oversupply issue and not something more sinister which is a demand issue, the fact that there is a concern we are looking at the possibility of recessionary growth? >> it's both supply and demand. if you have a situation right now where you've got 2 million barrels per day of supply over demand, obviously, that reflects not only the increased -- uction of a lot of areas americanfrackers are getting more efficient but demand has weakened. when you look at the slowdown in china and the continued slow growth in north america and global world -- look at the imf and world bank -- they are constantly cranking down their forecast for overall economic growth. that is important in terms of oil demand so you have treasures on the supply and the demand side. francine: it's difficult if you are a central bank to look at this and decide what your next course of action is. does the low oil price mean moreqe from the ecb? >> we are in an area of deflation and commodities are leading the way. oil is an important commodity but it's not the only one. you look at agriculture and copper in the other metals, it's a broad-based deal. the central banks have the target of price stability in all the major central banks of a target of 2% inflation. inflation bute they hate deflation. they look at japan and prices decline and people get used to it and they wait for further price declines before they buy. that means slower economy and japan has had about 1% average gdp growth for 20 years. that is the poster boy for central banks. they are scared on this. tom: are we becoming like japan? aren't.ally japan has the longest lifespan in the g-seven and no legal immigration. they have a high living standard but it's a uniform population. i think it's very different. tom: gary shilling will continue with us on bloomberg radio. joseph nye will be off to a speech at the waldorf and we appreciate his early-morning attendance. we continue on radio with gary shilling. "bloomberg " is next. a little better tape this , commoditiesopper are lower. stay with us across the bloomberg world. ♪ ♪ (ee-e-e-oh-mum-oh-weh) (hush my darling...) (don't fear my darling...) (the lion sleeps tonight.) (hush my darling...) man snoring (don't fear my darling...) (the lion sleeps tonight.) woman snoring take the roar out of snore. yet another innovation only at a sleep number store. stephanie: the biggest health fair deal. -- health care deal. pfizer in talks for $150 billion. square coming up short. lesson plan.s 1/3 get ready for lift up. fed policymakers say a recent data has reinforced the case for a rise in interest rates. welcome to bloomberg . it is thursday morning. you are joining us in new york city. i'm stephanie ruhle. david: we have a lot of news to cover today. we have help from erik schatzker. good morning. drew armstrong. we have to have whenever we are talking about pfizer. and dan, it is really a delight to have you. not least because she has been so excited about this. dan, of course, is duke university business go professor. an expert on behavioral economics. stha