vacation. we are starting a good day. let's get to the news. police arrested two people in brussels described as terrorists. police say they seized military training gear and islamic state propaganda. russia is charging suspects in the murder of porous them soft. out to the kremlin in february. the main suspect is loyal to chechnya. visited york, the british government the void the military to help after thousands of people were evacuated. there is enough money for defenses. they need to make sure the money is spent wisely. cleveland took to the streets of cleveland after a grand jury did not indict a white officer who shot dead 12-year-old black boy. the texas teenager in the drunk driving cases been arrested in mexico with his mother. he has been missing for weeks. he was on probation. his lawyers argued that his wealthy pants coddle them and he was irresponsible. now he could end up in prison at. that's a lot of data to look at. michael: we've got a lot of volume today. we did not see much yesterday. today, we're seeing some optimism. they are back to work in london today. all of the european indexes are higher. , thes pushed the euro pound is taking a little of loss right now. the same story in the united states, the s&p is trading higher grade that is pushing up yields. look at the two-year. it's the highest in a couple of years. oil prices are a touch higher today. i have to mention the ruble. another low for the russian ruble as oil prices affect the russian economy. guest host is kit. if he is joining us from london. it's nice to see you back at work. to 2016 andn it move away from a 2015? what is the handoff? i don't know if this means normal trading or not. is there an environment that we recognize, that's not driven by exhaustion us events? oil is the event that is still dominating most things. stabilize,point they they are stable more than up. yesterday they moved down. move and the uncertainty that that triggers is one of the big events for the handoff the next year. we will get back to talking about china. numbers areir pmi in we will get back to focus on what china may do about its exchange rate. i think that is the other big event. mention thel weather. i can't revert first quarter when we did not talk about the weather. is this one where warm weather means you get it q1 gdp? talking about oil, the equallyr traders is it affecting currencies in general? kit: it's more wide than that. the currency most correlated with oil is the ruble. dollar isan it affected. it's culminated with the u.s. dollar. cheap oil and strong dollar have been a thing for the last decade. much more so over the last 10 years than the 20 previous as far as i can remember. it's having a broader impact. even minor things like how fast the federal reserve raises rates next year, if the oil price goes, he will have another round of low cpi in the new year. that will have an impact on the timing of policy normalization ahead. when you talk about the importance of stability in the oil price, does that suggest $35 for the next three months is fine and markets don't need to see the price increase? kit: for some things. if the price stabilizes at $35 a effects stopace being so important. markets, iexchange think it $35 a barrel, i don't think the dollar can go on rising. would settle into a range. i think we would get more scared. i think it's different than in the corporate space. we will find out if we stay here for a long time. can survive? we will go on talking about saudi arabia's response to the oil price in terms of austerity. there may be a currency adjustment. there is an impact to keeping the price down here for a long time. we need to stop going down all the time. let's talk about treasuries and the prospect of becoming growth area we caught theoday with the editor of boom and do report. >> u.s. treasuries are quite attractive. my outlook for a weakening economy and i believe that we've already entered a recession in the united states. erik: do you agree with either of those thoughts? reasons, theelated bond/gold market continues in america? we will see think yields rise dramatically in the states. you might tempt me more in the 30 year yield. certainly, there is going to be an opportunity to buy them. on inflation and the economic ,nvironment, the u.s. economy it's been knocking out 200,000 jobs a month. there is very little volatility. wage growth that we are seeing now a strong enough in real terms to keep consumer spending going. the u.s. economy has failed to get a growth rate above 3% in this cycle. 2016, to point something, something has to change for that to change. i don't see a recession. something has to change for that to happen. when we come back, more and oil prices. coming up, maybe we will get a weather report. the chief economist from oppenheimer will join us. you are watching bloomberg surveillance. we are streaming on your tablet or your phone. ♪ erik: this is bloomberg surveillance on bloomberg television. that is hong kong in the middle of the night. right now, it's time for the business flash. vonnie: thank you so much. toshiba is asking for a credit costso play for mounting great there was an accounting scandal. forecast andey annual loss. bridgestone will decide whether it will try to beat carl icahn's build for pep boys. price to over $1 billion. they are trying to expand their presence. areformer jpmorgan bankers accused of stealing from the dead. $400,000 atms to steal from inactive bank accounts. at least eight account holders had died. the bloomberg business flash. erik: oil is $37. it's worse for private producers. that's because it costs them more, much more to explore for and produce oil and gas. an economist says the writing is on the wall for big oil. provocative argument. here to discuss it is the senior analyst with bloomberg intelligence. thence, i love this piece. it raises so many fascinating questions. justhese big oil companies facing their money? vents: when you look at the groups within that pocket, when you look at some of the smaller mid-cap companies in the u.s., an industry of unconventional drilling. they created a subsector. if you look at the barnett shale, haynesville shale, this has been under development in the last 20 years. of these are the smaller more mid-cap companies that have created an industry relative to the exxons and the chevron's. they have allowed this to occur under their feet. erik: there cost of producing is the issue i would suggest. vincent: in the early stage of a lifecycle, your costs are high. you have this scale. that is key for the smaller and more mid-cap producers. it's the decline in that cost curve over time that helps. erik: this has to create value for the investor. if we look at a chart comparing the price of oil, against an index. we can see that over 10 years, they have not created any value. leveraged. be they are returning no better than the price of oil. the only one that's consistently outperforming is exxon mobil. they are doing something right at everybody else is doing something wrong. ancent: you probably see similar trajectory with all commodities. it's a cyclical bet. it may look very different. putael: industries don't themselves out of business. to the big companies try to gobble up the mid-majors you are talking about in order to rationalize their business? vincent: there is a desire for inorganic growth. there are opportunities out there. how do you chase that scale? if it's here in the u.s. or need big pieces of pie to make it menial -- meaningful for them. vonnie: do you invest in the 60 or project? vincent: there has to be a diversity of projects bid they give you that immediate lift infection in reserve. they take the cash flow to invest in those projects. you have that longer horizon as well. there is a diversity project that one needs to have in order throughoutportfolio the cycle. bigael: we have seen a u.s..k in spending in the i'm sure it's that way around. does that start to flatten out? does it have an impact on the global economy? do we have this continuing into 2016? kit: i think for now it continues. they hope the sun is going to shine another day. it will continue. it's not just an oil story. think it's a drag on it cap in 2016. it's been in a sense the missing the recovery.om i'm not sure that's going to suddenly kick in. i think it's going to be week. i think we are going to need a new cycle of hope of prices recovering. that's the kind of thing, it won't change if oil prices are $50 a pill. -- apparel. maybe for the big companies buying the technology developed, the developed the technology to get oil out of the ground cheaper. thank you very much. we're going to talk about that question on a bloomberg radio later. it was a record year for mergers and acquisitions. going to join us on bloomberg surveillance on radio. ♪ vonnie: welcome back. i'm vonnie quinn along with erik schatzker. we are looking at sunny london. it's a few hours later in the morning. michael: those are phrases that don't usually go together. erik: i see clouds building. is the still with us global strategist. holding down the fort for us as everybody tries to make their way back. it wasn't the best year for strategists. despite the fact that most everything was on the radar including the fed interest rate increase. do you anticipate for 2016? difficulty fore currency strategists is going to be the big moves are going to be what the chinese do or don't do. in terms of how much they did shape their currency. brexit will be a big downside risk for sterling. how will you go to wait the risks? the outlook for the euro dollar exchange rate, the big ones don't look to be that exciting in the sense that the dollar is probably going to rise. michael: i was just going to say, the story of the year was supposed to be the fed raises rates and the dollar goes up. benefits both sides of the atlantic, that's not happening. you've got to remember we've taken the dollar up along way. to between 105 and 110. we have a stand the fed rate hike. we have factored in week growth in europe. we look to the u.s. economy. it grows, but does not take off. i'm not sure we're going to do an enormous amount of different next year. the fed raises rates four times. dollar that drives the well beyond parody against the euro. we are going a little bit further. there is nothing stopping the dollar from strengthening. the fed oring to be the ecb so much. shocks fromhe china. thank you very much for coming into our london studio. we are going to wish you a happy new year. hear from thewill ceo of ups. that's at 9:00 in new york. ♪ erik: good morning. i am erik schatzker with vonnie quinn and michael mckee. it's time for the first word. vonnie: former prime minister of israel has had his prison since reduced. appeal on his bribery conviction. he will serve 18 months instead of six years. use a victory over isis as a springboard to crush the terror group. there are still pockets of fighters holed up in the city. recaptureoal is to muzzle. detainees to be released from guantanamo bay will be transferred to other countries. prisoners cannot be transferred unless officials believe they will not return to terrorism. it's part of the tenant to reduce the number of prisoners held at guantanamo. presidentsing near action by theto secret service. the drones operator landed it as he was approached by agents. he did not know anything about the potential motorcade. no charges were filed. i am vonnie quinn. can you imagine flying a drone like you are flying a kite? maybe it was amazon delivering one last christmas package. that is a very appropriate topic as we head into 2016. the actions of the federal reserve are going to be paramount in determining where markets go. banks arehose central going to be the most important to investors? the ecb cutting rates? i think the fed will be the most active. be in anill still easing stance. they don't expect any major further easing coming out of the ecb. that, if we're looking at term rates, despite the fed a probably raising rates who think a year, rates will be relatively stable. a selloff ining european rates. markets, it's not really pricing yet. your view of the fed in 2016 is in line with what we them.from it contradicts what the market is telling us. future suggest we will see an interest rate hike in march and perhaps again in september. we won't see anything close to 100 basis points by the end of the year. the market is doing is pricing the possibility that the fed has to go slower or stop. the fed can only move according to its models. it's probably the way they are going to go. thatworth remembering watching the data is not the same thing as watching the impact of those rate hikes. that will take 18 months or so to come through. i think with the market is looking at is the extra sensitivity of credit markets to rate rises. of course, the fact that terminal rates are probably lower than they were in previous cycles. a further rateg hike. the market will be taking those rate hikes out of the forward curve. get the market pricing into those rate hikes as they happen. down the line it, they take them out of the forward rates. that's why what we are expecting is unchanged 10 year yields. in your conversations in the investment community, is there any disconnect between investor sentiment and the reality on the ground? certainly in europe. there is an investor funk, if you like. investors of trying to buy european risk for five or six years. is the sovereign debt crisis. that has been a painful exercise. sawany of the headwinds we up until very recently of now turned into tailwinds, particularly credit growth. since 2009, the level of the euro is still down obviously compared to where it was. it was up in the one 30's. that is helping european exports. assuming we don't get a big blowup in china, that should help european exports. energy prices are falling, it does not help european inflation. that is both at the consumer level and the corporate level. all of those are pointing all the right way. the domestic indicators are running the right way. the market does not believe it. just to give an example, when we look at the inflation markets in europe, the one-year forward implied that year on year inflation could reach the target of just below 2%. any is way beyond pessimistic financial sector forecast. we looked down the curve and the level-- market and the 1% where core inflation is currently running in the euro , it does not imply headline inflation reaching that level for another year from now. we need the energy price to stay still. i think the market is very pessimistic in europe. it should be. michael: we had a very rapid move. so.in: i think the market comes to realize that we need to start pricing and higher inflation right now. we need to place in higher real yields. are supposed in the euro area as well. nextel: coming up in the hour, we will talk with jerry webb. we will get his view on how the u.s. plays into all this. that is at 6:00 in new york. bloombergtching " surveillance. ♪ erik: you're watching "bloomberg surveillance." european stocks are traded at the highest level since the first week of december. caroline hyde is with us. caroline: there is concern in the markets about the chinese data showing the profitability is not looking so rosy. we are seen this for the first time since the public holiday. this is leading the charge. is climbing this morning. across the board, you are seen industry groups rise. every single industry group is up. deeper, note bit everything is so rosy. metals opened lower. as you can see, it's not looking quite so hot. it is down by 9/10 of a percent. erik: how about deutsche bank? i see they are going to raise money? you're all over these spanking stories. we know that the way the new co-chief executive has been moving deutsche bank, it's been all about the move toward selling assets, making the bank more stable and more capital heavy and impressive. there will be a selloff product. it's up 2.4%. it's about unloading its chinese state. they are selling it. toinsurance company wants get into diverse vacation in the banking sector. they will earn $4 billion. they are adding 30 to 40 basis points. they are improving the banks stake. many are liking that. there doesn't seem to be much volume. our traders working? about 30% ofs where it's been for the last three months. we are basically stuck this morning. they are managing to hang out to some of these gains. been talking down the euro once again. they want to see a weaker exchange rate boost exports. understand he is making a saying we've not used up all of our ammunition. they are talking about the quantitive easing they can exert first down the euro and stimulate europe's growth. traders not really listening. the expectation is next year a 4% weakening in the euro dollar. vonnie: thank you so much for manning the fort for us in london. let's return. things to they are looking at positive. have we seen the low in it negative interest rates in germany? we think so. negative interest rates are there to keep the currency low. what was interesting in the press conference that we saw was in the first question, he was asked why he didn't do more, mr. draghi did not say they could do more in the future. he said they assess the economic situation. they did not give merit to it. recalibrating an existing stance. ecb is't think the inclined to do more. we think the data will improve anyway. quantitative easing continues in europe. what about the long end of the curve? let's say the bonds and treasury over the next year? justin: where expecting that to narrow dramatically. is half the current spread. that is largely going to come from the european side as growth and inflation get priced into the longer end of the market with an ecb not likely to tighten rates soon. we need to process in real growth in the future and likely inflation. we don't expect yields in the to move that much. if we get a sharp slowdown in china, we would expect u.s. yields to fall. we feel that spread should converge either way. michael: getting back to investor sentiment, any views on the commodity and rates? justin: i'm sorry? i think we're looking at australia for example, we think there is a lot of value in the bond market because so much is still priced into that market. there is some risk there. europe, we see some markets vulnerable to a sharp slowdown in trade. ireland is priced very close to french bonds. future of its growth and deficit reduction is based on the idea that it will continue to grow based on the global trade. value very little relative to germany. domestic driven markets such as australia. erik: we're speaking with justin knight. up, he will be speaking with the ceo of you guess. that is in the 9:00 hour. you're watching "bloomberg surveillance" on bloomberg television. we're streaming everywhere. ♪ erik: good morning. i am erik schatzker. it's time for a bloomberg business flash. tonie: according billionaires, the wealthiest 400 people saw their did worth the klein by $19 billion. his fallen to number five on the list. he lost 25% of his market value. jpmorgan will be the first of the big banks to pay more interest after the fed decision to raise rates. only the biggest institutional clients will have their rates raised next month. they will affect operating deposits which are less likely to be with ron in a crisis. the natural gas company has halted dividend payouts. of everycutting one six employees. they've lost 70% of market value this year. you can expect a lot more of that. justin i do still with us. he is coming to us from london. what happens with the bank of england and rates in the u k? people should be prepared for a rate increase it any time. justin: that's right. relativelyhave been dovish. we think they will be raising rates relatively soon. i think a lot of the debate has been around wage growth. a lot of people expect wage growth to be around 5% when the bank of england it raises rates. the important thing to remember is inflation is very low. when it growth was at 5% in the past, that was with a 2% inflation. we get a real wage growth that is similar to past cycles. we think they should be raising rates in may. inhael: how do they compare terms of rate cycles. i think it's important to remember that in the u k, much lending is dependent on the bank of england, the base rates. a rate rise in the u.s. has much stronger impact. most lending takes placed on a fixed rates over the long term in the united states. a lot can get priced in. is we have seen in the past rate rising cycles been less extreme in the u k van in the u.s.. the consumer is more sensitive to it. erik: do you see any monetary policy that is just unsustainable? i have in mind the swiss national bank. of course they had to abandon that year ago. is there anything out there that remind you of that? no.in: i have to admit that i was very surprised and i think everybody was why the snb's move. it looked like a genius thing to do. almost two days later, everybody understood. that worked well. of course, there are some countries that are eating to keep rates up. that is an age old problem. we have seen it for many years in many countries. it's a different thing than to ratehere is a rational monetary policy. i can't see it. keeping rates loser than it needs to be. i think that's the right half going forward. the biggest surprise of 2016 will be? justin: i think how much yields are going to move. what about china? how do interest rate reflect the losing of policy in china? justin: there is a threat to trade. when we look to china, we think the chinese economy will be ok. we have a growth forecast of 6.2%. to 65%.compared the nightmare scenario of many china as awth in result of a decline of the real estate market. don't think that's going to happen. it's a threat. there is an a associated threat with world trade. for the moment, we think it's ok. michael: we haven't talked about japan. a lot of people are suggesting that japan it gives up this year. justin: yes. we don't think so. we think the bank of japan can keep easing policy. it does need to keep its currency low. the currency should go lower. it's an uphill struggle. they have been trying this for many years are in they have had some success in the recent past. they will need to keep trying. does the amount of debt start to weigh on the market? justin: in a way, that would be a signal of success. inflation proper to japan, interest rates going up, that would be a financing challenge. that would be a sign that japan is pulling itself out of the inflationary environment. we don't see that quite yet. hopefully it will happen at some stage soon. michael: our thanks to justin knight from ubs. thank you for joining us for the hour. you've heard janet yellen say interest rates in the united independent. we will look at the data. the art. in stay with us on bloomberg television. ♪ global stocks higher as the value of optimism affects investors worldwide. that is pushing yields higher. the dollar is weaker. oil prices and gold are up. is this just what happens when you leave the junior traders in charge? perhaps the answer is to be found on twitter or facebook. this is "bloomberg surveillance." i am michael mckee. with us as always, vonnie quinn. an extra special treat as futures look higher. eric says we are the junior traders as tom and francine take off. vonnie: a developing story now in pakistan. police say at least 16 people were killed and 35 more were hurt. to receivelined up their national identity cards. no claim of responsibility. the supreme court partially accepted and appeal in a bribery conviction. the suspect will serve 18 months instead of six years. he is the first israeli leader ever imprisoned. the chicago police officer accused of killing a black teenager is expected to enter a plea today. protests ensued after vanrelease of video showing dyck shooting laquan mcdonald 16 times. a jury decided not to indict an officer after shooting a 12-year-old. the district attorney says there was no way to know the gun was not real. for thousands of travelers, it is the nightmare after christmas. more than 2100 flights were canceled yesterday. more than half of the cancellations involved chicago's o'hare airport. a toy aircraft was spotted yesterday afternoon in hawaii where the first family is operating. man said he did not know about the presidential motorcade. no charges were filed. i am vonnie quinn. i think we will see more of these stories. : people want to pay attention when they are launching their christmas toys. that man was wearing a t-shirt. we have not been wearing overcoats. we will keep an eye on the weather forecast. it is not affecting the market. we see optimism out there. europe trading higher. in the united states, futures are trading higher by 4/10. at the two-year note yield. it is up to almost 1.07%. we have not seen that in a couple of years. oil prices higher on the day. that is having an impact. -- that is having an impact on the russian ruble and its lows for the year. jerry, we want to start with your weather forecast. year, theter of the last couple of years, a major driver of the markets. the economy has been terrible with terrible weather. and exceptel niño for the storm in chicago, we have not seen much this year. there is something funny with the first quarter seasonals in the way we do gdp. we are not adjusting appropriately for the weather effects. thing thiss el niño year, it should extend through the first quarter. we will have trouble reading the statistics. wey adjust the seasonals and expect the first quarter to be weaker. it will probably be stronger. we will end up with an overstated set of numbers and the secondp or it in quarter. i'm not a meteorologist. michael: if we get a mild winter, does that change the calculation? got a lousyu winter, you pick up in the second quarter. if you have mild weather, things smooth out through the quarter. somee going to have trouble estimating what the numbers really are as we fiddle with the first quarter seasonals. it is going to be hard for people to navigate. i do not think it will change or the behavior of what people do. we will advance spring buying if we do not buy a winter coat. vonnie: what do you model for gdp for 2016? modelingam not independently. there is no reason to expect a big acceleration. the government side, we will get fiscal stimulus. we have not seen that since 2010. we will see a tax cut. a little more spending. you get congress, give them money, they will spend it. spend that. consumer confidence is ok. retail looks like it was all right in the holiday season. it will notmber, accelerate much beyond that. what about the downside risk? i have heard david say we are looking at a recession and a couple of months. another person said we were looking at a recession in the next year. 10 years u.s. treasuries are quite attractive. because of my outlook for a weakening economy, i believe we are already entering a recession in the united states. erik: another recession call. glad to hear that. as long as there are smart people like those three gentlemen telling us we are in a recession at a time when employment, retail sales are a time smart people call for a recession, i do not think we get the big excesses that precede a recession. i say thank you for that. i do not think the u.s. economy is looking at a recession in 2016. one this decade, but it will not be this year. michael: what about the other half of the fed's mandate? jerry: it does not do a lot either. we have a lower oil prices and stronger dollar in the numbers already. a bigot think we will see acceleration in inflation. it is nice to see a little pickup. it helps consumers. there is surplus capacity in the world, i do not think we will see inflationary pressure building. vonnie: wendy's see the next fed -- when do you see the next fed increase? jerry: they might want to skip the next meeting to give us, not the certainty we expected a decade ago. they gave us too much certainty. bloomberg says we can look on the terminal -- it said a 50-50 in march.y of a hike not be theirwill concern. giving people certainty or uncertainty. they are looking at the economic data. jerry: sure they are. they're going to look at indicators of where the economy is going. monetary policy works with long and variable lag. what is the best way to work forward with the economy? look at financial markets. they are smarter than any of the forecasts. does that apply, given the fact central-bank policy has distorted asset prices? jerry: i do not know if you can say they distorted asset prices. they have supported risk assets. the thing that works in your favor is if you look at the end , take off the training wheels, the stock market has done nothing since. central banks are a factor in thinking about what the economy is going to do. they are part of the macro economy. they tell us something about their expectations. it is part of the calculus. michael: jerry says the markets are smarter than us. we will find out more about what the markets are inking. au will want to watch discussion with jack vogel. you are watching "bloomberg surveillance." streaming on your tablet, your phone, and bloomberg.com. ♪ erik: good morning to washington and the rest of the world. i am erik schatzker. time for a bloomberg business flash. a struggling japanese electronics company faces mounting cost from an accounting scandal. toshiba posted it would face a loss of $4.5 billion. carl icahn raised his offer for pep boys. pep boys has 800 shops in 30 states. checkettss must pricing every quarter. they will pay a half-million dollar fine. they found customers were being overcharged. do you shop at whole foods, michael? michael: i do. and i want my money back. vonnie and i were talking about how much we enjoyed the movie " the big short." the movie andr in you have seen it, or have read one of the first people to short the housing market sites one of the reasons the fact that incomes are flat, but home prices are still going up. we put together a chart based on the case schiller index. much the same is happening now. the yellow line on top, home prices. 4.6%. average hourly earnings up only 2.3%. is it a problem? we will leave that to the experts to tell us. one of them is jerry webman. an unusual occurrence we should be concerned about here? is this another bubble in the making, perhaps? control,ot out of while the lines to verge, the percentage changes are not that big? if you look at when the price bubble occurred, 2000 5, 2006, you would see a deeper increase in housing prices. housing prices collapsed. they were flat. they have been improving. tail and incomes are improving. not just among young people, but also among older people. retiring baby boomers for some reason. earth rates increasing, millennials coming into a time where there are home purchases. you are not looking at the bubble period in that chart. it would look more extreme if you pushed it back a couple of years. bottom line that bob schiller has talked about, house same ashould go up the inflation. housing is not a spectacular investment for people. it is a consumer good. it was up less than inflation. it has been a little bit ahead. i would not expect a lot out of housing prices. i do not think it is a bubble. i think we are normalizing. vonnie: is this a federal reserve affect? pushing with the fed down on mortgage rates, you get more people buying houses, which would push up. jerry: we are also not building a lot of houses. i need my 30 seconds. build about 1.5 million houses a year. at a million.out that is one of the things. builders have been conservatives, slow to build, inventories are small. would put could, i two more lines, but that would make the chart confusing. one would be housing starts. the other would be vacancy rates. it demonstrates the u.s. single homend vacancy rates are declining. the availability of housing a shrinking in the sense that more of those houses that were previously available are being occupied by renters. not the perhaps it is top line of our single best chart that is the problem, but the bottom line, that wages have not been keeping up. those are the ones that have to move. jerry: everyone has been hopeful they will see wage improvement. earnings, the tale of supported byt is the better measure, the quarterly measure of employment are across the country, we starting to see better wages. we will have to see what holiday sales look like. story yesterday, we had a pretty good holiday season. better than expected. 5% up from last year. reason the is one economy turns along, consumers are ok. vonnie: what do you tell clients? what should they do with money they might have put into real estate? you look at growth globally, i am a fixed income guy. bonds are a wonderful way to get income and protect yourself. growth, you have to look for companies around the world that have the ability to grow earnings better than their current price suggests. that want tople grow a financial portfolio. they have to look at equities. coming up, on radio, a heck of a year for mn day. had eu top 2016 -- how do you top it in 2016? 60.ancisco, 9 ♪ vonnie: welcome back to "bloomberg surveillance." live pictures of hong kong. it is evening time in hong kong. very pretty. very neon. my morning must read. anxiety and strong men. the sense of unease and foreboding settling on major power centers. the world economy is not recovered from the financial crisis. that after years of unorthodox policy, another crisis may be building. theave been hearing that past few days. jerry webman is still with us. the pessimists, may be their voices are being heard more clearly. there seems to be more of them. what are they seeing that the optimists are not? we still have overhang. we are going to be haunted. , iparents talked about always heard every day about the depression. you do not know what it was like. i think those financial traumas that many of us did not see problems stick with us for a long time. pessimistice always out there, it is good, it makes a two-sided market. we should take them seriously. aware about markets that get overinflated, overoptimistic. is it a lack of animal spirits holding back the economy? jerry: absolutely a lack of animal spirit. do i want to be out there, taking risk? homeonversation about builders. it is not because they don't want to do their job, it is the lack of animal spirit. they do not want to get trapped problem years ago. i am going to be cautious. we see that in the housing sector and among consumers who have saved more than what we would have expected them to. we see it in capital expenditures. erik: where is the right balance? prudence was missing in the precrisis. there is no perfect answer to that. the wonderful thing about markets is that they set the against the caution grabbers, the risk managers. there will be a bit of tension. will start to see, as you make more money. figure out how to compete with you. that cycle has not caught fire yet. getspoint this decade, a ahead of ourselves. we build too much of a lot of things and that is when we get a recession. having some pessimists cautioning us is great discipline. coming up here on bloomberg television, david westin and i will speak to david abney. ceo of ups. a busy time for ups. we will speak with david abney at 9:00. it is "bloomberg surveillance." ♪ erik: good morning. it's time for the first word. much.: thank you so the taliban group is taking responsibility for the suicide arming in pakistan. it killed at least 22 people. it injured 45 outside a government office. they've are national identification cards. hospitals are on alert. 30 milesk happened from northwest province. barak hopes the victory will lead to other times over isis. forces recaptured the government compound in ramadi. iraq says the next goal is to recapture muzzle. russia plans to charge a man in the murder of an opposition politician. he was an outspoken critic of vladimir putin it. the 17 prisoners to be released from guantanamo bay will be transferred to other companies. -- countries next week. the planet to reduce the number of prisoners held in cuba. joining us now is mike. he is the author of a new book. there you can see a picture of the cover. jerry wegman. is 2015 is colored by all of the sphere and global attacks on the citizenry. how should governments be thinking in terms of shielding its citizens? book ise point of the they are missing things in their daily practices and strategies. there are things they don't conceive of because we all have blinders. we come to work with a set of values. this makes it unlikely for us to challenge the assumptions of where we work and identify blind spots. proposes ise book thinking the adversary about how should we best prepare for that? on your own it, you will not consider those positions. michael: give us an example of what we don't think about. micah: you work in an organization that is hierarchical. we have bosses. we are less likely to voice challenging viewpoints to our bosses because we think we will be retaliated against or we think it's pointless. it's true everywhere it happens. they don't tell somebody who can do something with information. they are likely to reserve it for themselves or complaint to coworkers. one of the things that red teams do is get over that problem. erik: you talk about how to prepare for adversaries. how to react to adversaries is a question for the rest of us. george soros addressed that in an op-ed he published yesterday. i will quote from it. he argues that westerns society has successfully conquered the fear of nuclear war in the last generation. for the chances that we conquer the fear of terrorism? micah: unlikely. it poses a small risk, 24 diedens died, 35,000 globally. it's a small risk to citizens. it'sruth of the matter is a widely inflated concern because of politicians and the media. you're much more likely to lose your life in other forms of violence and self-inflicted harm. arrorists want to have specific goal and that is to change the behavior of states. that's what we find most threatening. it makes us have different policies than we want. for a west is compelled massive war against them, that is the motivation. they will have truly succeeded. they want perpetual warfare. it's the message. it's the transmission for terrorism. to talk about isis to be blunt, the most critical thing you can do is and the syrian civil war. that's when people become motivated. that's where they communicate with other terrorists. vonnie: by being involved or getting out? every country is involved in many ways. there are 13 countries militarily intervened in syria. there have been over 9000 airstrikes. they've killed 23,000 i select fighters. vonnie:vonnie: people are already intervening. how'd you and? micah: you make it a priority. the single biggest priority was to get a run from getting a nuclear weapon. they shipped all of its low enriched uranium outside of the country could they succeeded in the near term. it has not been the number one administrations to end the seriousness of war. that's what it needs to be. the argumentsf for the success of isis has been the internet makes it easy for them to spread their message, to recruit. there is a debate underway about whether or not governments should change their policies and intervene to shut down these websites in the united states. have the first amendment in the united states. -- professor said you can put this in the atmosphere without an immediate danger. waiting for eminent danger is waiting too long. would it be to our benefit to think about exceptions to the fire in a theater rule? micah: it's a great debate. it's nearly impossible. when you look at the number of over 50,000 ore, profiles. they are just re-created when they are taken down. they moved to encrypted sites. they moved to video gaming sites. states going to go in and identify likely jihadi sites and shut them down? are we going to compel the companies to do it? it's a useful debate to have. haverist organizations always been able to spread the message. makes it were immediate. it's just a nonstarter. thank you very much for coming in. up on bloomberg markets, a discussion with the founder of the vanguard group. if at 11:00 in new york. this is "bloomberg surveillance" on a bloomberg television. ♪ erik: good morning it from a new york. it's midmorning in london. if it is indeed sunny. i am erik schatzker. it's time for the business flash. jeep is being pushed into rental lots. rentals were 57% higher than last year. interest.ill pay more the biggest institutional clients will have their rates raised in a month. they will affect only operating which are less likely to be withdrawn in a crisis. the wealthiest 400 people in the world saw their net worth decline by $19 billion. he is falling to number five on the list. he lost 25% of its market value. erik: is there a science to social media? social flow is building a business on it. companies publish the right message at the right time. everywhere from facebook to pinterest. good morning. what we begin with this. what is it that clients pay you for specifically? a technology platform that the client used to get their content out to facebook, twitter. it's about delivering the right message at the right time. it's a very cluttered ecosystem. is get yourt to do message in a way that will see it and engage with your erik: --. erik:how do you decide when these parents -- clients should get the message out? jim: we are looking at the entire ecosystem, trillions of pieces of data going back and forth. we are analyzing what people are talking about collectively. what is trending right now on twitter or facebook? 100 messages you could edit any given time today, which should go out now? a cocktailoing to party. you want to insert yourself into a relevant conversation. vonnie: how do you draw conclusions that are helpful to companies? often it's what's paid to go out. jim: you make sure the year message is going to resonate with people. we can't take add content and make it good. we can help good content reach its potential. candidateu're a local or a media organization, having a quality message is the most important thing. the less you need to pay to distribute. michael: are you sending out messages for people who give you a list of things? this is what's trending, think about what you send out? jim: we like to automated for them. they produce their content. even political candidates, they know what they want to talk about. it's a message of optimizing the distribution of it. how can you get the best results in the content you've invested. our technology automates that for them. when the signal is there. you mentioned a political candidates and it's a great chart you supplied us with. i would like to talk about it. we see the social dimensions of republican candidates going back to november. donald trump is in the red. he commands most of the attention. what does this show us? the donald trump one is obvious. the thing that is not as visual on the chart that is interesting is how much jeb bush has not been able to move the needle on social media. we saw the same thing with ben carson. after thanksgiving, is candidacy dipped. thatu want to use attention and relevance as the first barometer of how well a candidate is doing, we saw that with ben carson and his all numbers did not look favorable. sameame question is if the thing will happen with jeb bush. do you draw that conclusion? flatlining at those numbers and say their candidacies are doa? jim: i would say it's a concern. it's a leading indicator. it's a leading indicator of what the author going to show. it's not full. the donald trump numbers, he says a lot of outrageous things. we will see how that plays out in the ultimate polls. if you are jeb bush and you want to see her numbers decline, that can't be a good thing. correlationan see a with political candidates to the polls. what about companies that are spending money on advertising? is there proof that getting your message out in this part of information out there at the right time actually helps monetize what you're doing? jim: there is. if the value of building a brand. you can't buy your perfect if they don't know it exists in they want to be on social media because that is what the people are. if you have a product to sell, if you want to get to know you exist, you have to be on social media. you are competing with the world's best content producers. if you want to sell a product, you are likely going to have to pay to get your message seen. these days,sity just like television advertising. all those reforms of advertising. it does pay dividends. erik: what about platforms? i think about her, it has struggled with user growth. your clients care about the growth of the user base or the audience or just being able to connect with the existing users? jim: it's more about the existing users. i've for the clients care to some degree about the growth of the platform or the trajectory of where it's going. if you've got 5 million people following you on twitter, that's a relevant platform whether it's growing or not growing. facebook is clearly the giant, the one that dominates the conversation for most marketers. twitter is incredibly relevant and is real time there's a lot going on in real time. the political candidates gravitate towards twitter. michael: thank you much for joining us. you can always tweet us are in --. the head of m&a is going to join us. you can hear what's next for the industry ♪. michael: it's time now for our report. the euro is flat but the pound is declining. these the best performers after getting hammered for a while because the commodity currency is up 3/10 on the day. the ruble continues to get hammered against the dollar. oil prices fall. top of the 7:00 hour, it's bloomberg go. i will be seeing you at 9:00. david: i will make sure i know what that means. markll go to india where zuckerberg is trying to give away the internet to billions of people. the government has some doubts of a cushion horse. we will see these top stock picker of 2015 and her name may surprise you. we will talk to the head of ups. seasonme off the holiday and we will talk about how they did. all that is coming up on bloomberg . that should be a great conversation. david, we will see you shortly. he sure to watch her go at 7:00. if you could follow me to the terminal, i want to show gasoline prices. fallen like a rock. we are at two dollars a gallon for the national average. it's a greatier thing for american consumers. there is the additional spending? jerry: this goes back to the discussion we were having. consumers are worried. they are going to rebuild their balance sheet. they are going to save more. the most recent statistic i've said consumers are spending three quarters of the savings rather than 50% and we heard earlier this year. as the employment situation improves and as wages improve a people -- that is creeping into other parts of the economy. we are being very cautious and conservative. this loosens up? we will have to see. i would expect the trend we are seeing now to suggest that retail sales should hold up well for next year. would you like and this too? jerry: there a 50's feeling about it. the government should balance its budget. we've got some big existential threat out there. the soviets have hydrogen bombs. we have a generation of people worried about the great recession. we had growth that ground on a for a while. the one big difference is that was not a time of political acrimony. we had a pretty decent growth. we had the gis coming back. time, there was a conservatism because of external that's an analogy we don't often draw. productivity was high in the 50's, we don't see that today. everybody is walking around with an iphone. jerry: it's hard to know. there is a debate if we are measuring it right. does the entertainment we get out of social media, the instant access to information, is that improving output the way we measure it? each time you go on your iphone, that does not show up in the gdp numbers. i think we debate whether it should or shouldn't. we --her thing is productivity lags and legs. remember that great quote from the 1980's. we see the impact of the computer everywhere except in the productivity of the economy. then we got to 1995 and things turned on. i don't know what it's going to look like. it's so much fun to come to work and watch bloomberg because we are going to find out. you need to watch bloomberg every day on your television. thanks for being with us. bloomberg is up next. we continue on radio. we are streaming on your tablet. i michael mckee. we will see you tomorrow. ♪ ♪ david: a world awash in oil. crude has its second yearly loss in the row. top stock ticker wins by using a strategy from the 1930's and betting unfamiliar companies. and valeant stock has tanked this year. lawmakers are skeptical and now the ceo is on medical leave. ♪ david: welcome to bloomberg go. i'm david westin. brendan: and i'm not stephanie ruhle. david: we welcome brendan. brendan: matt winkler is also here. inventor of bloomberg news. and vonnie quinn is also here. good morning. a suicide bombing in pakistan has killed at least 18 people.

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