understand possible terror threat. we are looking at the investigation. tom: there are a lot of uncertainty headlines. we are seeing some movement. the backdrop is oil. francine: let's get to the first word news. vonnie: thanks and good morning. saying, a deadly explosion rocked an area popular with tourists. and are killed and 15 were wounded. turkish television says it was likely caused by a suicide bomber. turkey has been cracking down on groups like islamic state and kurds seeking independence. protectionromising to expel refugees who commit crimes. two thirds of those arrested in the attacks are described as asylum seekers. german skin one million refugees last year. china stepping up its defense. the central bank repeatedly intervened in the offshore markets. to count on ag rapid depreciation of currency. donald trump's lead is growing in new hampshire. winsding to a new poll, he 32% of likely voters in the book and primary. ted cruz and john kasich are tied with second. is engaged to a former supermodel. she is the former wife of mick jagger. they got engaged over the weekend in los angeles. it will be his fourth marriage. i am vonnie quinn. no word on whether he got down on a one knee. tom: did he get up from being down on one knee western mark --? francine: the british community is very excited. it's almost like a royal wedding. a lavish wedding. tom: i don't know which paper it was. there was a formal announcement. a little itsy-bitsy announcement. quitene: it's old-fashioned. tom: just a little announcement. it's like friends of the anglican church or something. it's always price here in london. i need my glasses on to do a day to check. go, we know but that's going. crude was a 30 handle. notese two smart overnight. on the second screen, the fix was 837. two year yield is not helping janet yellen. it's under 1%. visiting 17.83. francine: we have been talking about all we hear in a lot of european stocks were down four days in a row. crude oil you mentioned. his is like an oman's to -- omage to the u.s.. the explosion had an impact on stocks. there has been an explosion in istanbul's major tourist area. tom: what is the one at the bottom western mark --? francine: it's the turkish index. tom: ok. you come up with the coolest things. there it is. really, oil is front and center. francine: every day that goes by, he sits further away from me. let's stick with oil. moving parts of oil. tom: you did burberry yesterday. francine: yesterday was great. it's something that a lot of designers want. they had some great music. let's talk about oil. do we have a chart? tom: we will have a chart up in a minute. francine: we're joined by andrew sheets. thank you so much for joining us. is in consensus that we have not hit bottom. oil will continue dropping. we might see 20. what happens after that? >> i think we have to think about this as a question between short and long-term issues. little waythere is to physically prevented from falling further. we believe 30 or 40 is not a sustainable clearing price. when we think further out, we think the price will be significantly higher two or three years out. the market reaction has been interesting. if we think about the things hit hard by the decline in oil prices last year, they were holding up at her. that suggests part of the market have baked in significant things. there are other things. tom: i understand that everything is scrambling at this. i want to know when we clear the market. -- weno study of where don't know, do we? >> we think that clearing will happen in about 12 once. the market is about 1% oversupplied. tom: how can they weigh 12 months for the clearing of the market? >> what are analysts have looked 50%in 1986 there was a decline in oil price. response from the deuces. they slashed costs. they moved into a defensive entrenchment. that is the playbook. it's about playing for time until the price recovers further out. we had so much news last week about concerns in the middle east, concerns around the world. it's had little impact on the oil market. what is that likely to change? take a conflict of some sort to influence the oil price. saudi arabia and iranian relations are heading south. it's had no impact on the oil price at all. algeria is looking volatile libya, it's coming off track there. we have enormous geopolitical changes. it's not affecting the market. any geopolitics affecting the market. you've raised a point about what companies do. hedge.es will want to causeduld normally have an outside price move ip needed because of corporate demand. >> this is the first crisis have had post shale. happening, thed price doesn't have the upper limit that it had before. francine: are you seeing it at $20? >> i think that's unlikely. pricek we have seen a that has been very volatile. i would not expect us to stay there for very long. francine: who have the toughest time if we hit $20? this was long time coming. can up for audi while, given the basis of its reserves. it can do it couple of years. the pressures on domestic spending become enormous. iran is less the. it's much party to get reelected. a country like venezuela, nigeria, these are some the less obvious markets that could really good russia. some of these countries have been thought of geopolitically as risky are suffering internally at the moment. it might affect external politics. starthis is a very good to the discussion as we look at oil. later today, like a mckee will move to dallas for a conversation with robert kaplan. he is the federal deserve is it for dallas. stay with us from london. ♪ tom: good morning, everyone. tom:there is a lot going on this morning. you're looking at oil. here's vonnie quinn. vonnie: we begin with porsche. are expected to fall short from last year when they introduced a compact suv. they are owned by volkswagen. the richest man in asia and the first tries to control a hollywood film company. for are paying $3.5 billion legendary entertainment. they are the producers of godzilla and the batman dark knight trilogy. among the backers are the chinese largest insurance company. uber faces cap petition in china. are 60 to put five william dollars. 62 $5 billion. francine: china is stepping up its defense. is ang us from hong kong reporter. we had a warning from the chinese official. >> good morning. a very direct warning from the central bank. they went into the hong kong market and the hammer to speculators. china has two exchange rates. one in hong kong and the other that is controlled in china. they are trying to level the gap between the two. that's why they are targeting speculators in hong kong. that's what the intervention came in. it is to the cost of borrowing in hong kong quite sharply. that's going to hurt those guys who are trying to shore up the currency. i know we are trying to figure it out every day. of theave a clear sense lessee makers are trying to do with the currency? i think a pattern is slowly emerging. it's confusing. they are sending conflicting signals. speaking, they are trying to get together to rates. there is a big discrepancy in the two. to get theying exchange rates on an equilibrium. that's going to cost them money. officials are saying that if you bet on one, that's quite ridiculous. they are warning against expectations that china is on a competitive devaluation. that's part of the mix here. it won't do any harm. we may have another story. on face value, china is trying to get aligned. tom: it's bizarre. thank you so much from hong kong. i am fascinated by the jury rigged government. who are they listening to? do they have advisors helping them out of their impossible trinity? >> i think they have some very expert in visors -- advisors internally. a lot of the political are economically is around president. the prime minister historically had that position in this particular government. dealing with two problems, externally pressures on the currency. domestically, they've got to make sure they keep the growth rate going. they can't have a distraction. time, they have to carry out this transition from the expert economy to the service one. francine: we've been talking a lot about the currency and the stock. how concerned are you about china's that and how that plays out? >> the currency is going to be the main issue the market will focus on. borrowing, about the the currency moving up does not take that much of a difference for the credit metrics. is marketst matters are about confidence. they are about protecting the currency and confidence that it sustainable. sustainable there are trade-offs that need to take place. does that mean there are reductions in foreign exchange reserves? thatunilever -- you nailed trade-off. are they searching for those trade-offs within a normal system? does morgan stanley look at the chinese experiment as unstructured? >> it's not the way we would look at it. majorre looking at challenges in a complex and international system. they cannot operate in a vacuum. currency is not down much. other asian currencies have react innocent definitely and are much weaker. that further pressure on them. francine: thank you so much for now. we had to progress to speak with the airbus ceo. this is bloomberg surveillance. ♪ francine: welcome back. we are in london. tom keene is here and the sun came out area -- you --. it's lucky for you that you walk to work in --. tom: i am doing my thing that thing here in -- fit that thing. he called. he has been very optimistic against consensus. betweennterconnection the state of the gold market and financial markets. this leads us to reaffirm a forecast for average gold prices higher. it's amazing how people correlate and poorly. correlate. are we back to normal in gold? structuralll has headwinds from the dollar. if you look at relative valuations, they are at 40 year extremes. performance, at the price of gold has suffered the last three years. we think that could damage demand. we are on the more cautious side. we prefer safe havens like the yen. the idea of a burgeoning demand in china, is there a burgeoning will class in the emerging markets? >> it's incredibly fragile. it's just starting to emerge. the governments are going to have to pride -- provide welfare. think the danger of this emerging market crunch we are having the moment is the middle class hasn't escaped. they have not escape velocity yet. tom: one of the great discussion points is this emerging market dynamic, are they the same western mark --? francine: you have to look at the structural reforms that happened when some of them are not much better. others need to get their act together. tom: we will continue this discussion. bloomberg television, it's about politics. the state of the union, look for that at 9:00 tonight. we will have that in new york. stay with us. ♪ tom: oil has a little bit of a bid in the last half hour. the lead story around the world, here's vonnie quinn in new york. vonnie: a deadly mix loge and rip through the main tourist area of istanbul. 10 people were killed. turkish news media is investigating if it's a suicide wanting. says it president -- he toldrant german newspapers they are not sure if they will offer refuge to a longtime ally. he may not need to leave at all. doctors have gone strike. they will provide only emergenc care. they are unhappy about changes to the way they are updated. hillary clinton has as they tax hike on the wealthy that will lead to the highest top income rate in 30 years. 4% was calling for a surcharge. that would pay as much as 44% in federal income tax. i am vonnie quinn. francine: thank you so much. let's get that the top story, the deadly blast in a stumble. let's go to dustin poole. -- stumble. -- istanbul. >> that's right. through thepped turkish area. it's a very popular tourist spot. it happened around 10:15 a.m. turkish time. we're hearing reports that 10 people are dead and they could beat breasts. -- tourists. grandave been around the bazaar. it's a very popular area. right now, we don't know caused the blast. turkey is dealing with terrorism on two fronts. or thed be islamic state pkk. understand local media are reporting the news, there is a reporting fan. we know anything more on this? hand --nment imposed a n.n -- ba there is a government owned channel that is the only one allowed to report. channels are not allowed to report on events taking place regarding the blast. francine: thank you so much. let's get back. we were talking about this before. turkey has all of the elements that it could be doing so well. it's not. one of the main concerns is terrorism. how does the president deal with this? news,s is terribly bad not just for those who lost their lives. terrorism is such a critical part of their income. this is his temple it's more than likely to be islamic state. pkk is fighting a particular type of conflict and turkey has crackdown on isis. tom: this is a great moment in international relations. children become unruly, we get in the ruling and have chatted house rules. you own the phrase. it's the control of the message. there is a protocol of what you do. governments today, they don't have the luxury, do they western mark --? how do you get the message to play? >> the trick as we have discovered in europe is if , atre behind the message the beginning, social media is like a tsunami. it's not so much the issue. the question is how did let's keep in control of an agenda? francine: he talks about the space of american realism. writes realism is an essential starting point for american foreign policy. this is trying to act knowledge the limits. the argument is being more interventionist might have to be the plan. what should the president say tonight? should there be a shift? i think he is demonstrated that he is consistent in his approach to foreign policy. he turned down the advice of a back in 2012tary when the question was should we intervene. he's not going to change his perspective. if we don't know who we're fighting with, who -- why would we fight western mark --? the chemical attack was a redline. you need to show that you follow the red line the red line is not followed. chinaesson was learned by , the rest of the middle east. this issue of realism is a complicated one. obama believes he's being a realist. the realism, i believe it was big news when we had 50 ruble. the does vladimir putin do economics and become overwhelmed by the markets? it's difficult to say. the week ruble has improved the local budget now it's in russia. they are still selling oil and resources. it has not the pressure on him yet did the local opinion polls suggest he is still very. i agree. the race about the difficulty of knowing who you are fighting for in that region and the experiences of iraq and what the u.s. went through there is a powerful force. this could be a turning point for him. he may look to consolidate power. is this a plus for the international community western mark --? >> my personal view is a government that over centralizes offers the potential to change and is probably not good. if he uses that particular attack as another justification for centralizing greater power in the presidency, that is not a good thing. that is the way any effective government will be up to deal with future. read he wonde might the last election. the first thing that happens after is a devastating attack. this is targeted at tourists. they lost an attack with over is people killed. this one such a target. it's a challenge to his authority. some people might try to use this the other way. withthink that a challenge events like this is there is tragic human impact and political impact and the market impact is significantly more you did. -- muted. there were certain uncertainties overhanging emerging markets. there is implied volatility. it was near record highs. this hurts but was already a difficult backdrop and an uncertain backdrop. tom: we will continue. this is huge news. in our next hour, we are looking forward to a conversation. don't forget, michael mckee interviews rob kaplan. ♪ tom: good morning, everyone. francine and i will be in switzerland next week. look for that on tuesday. it will still be the topic of the moment. it's oil. kevin, what has changed on oil? i look at the technical chart. it's in freefall. color the freefall that we see western mark --? kevin: there is no doubt there is no investment on the sideline -- supply-side. given the massive overhang we've got in stock and the week start in oil demand. tom: what you going to say about the responsiveness or elasticity of that production or supply western mark what you looking for around the world to find the adult will clear the market? kevin: we are looking for a massive slowdown in supply. opec has been increasing. the market is concerned about how we can fit in iranian oil production. they are making fast progress. had a warm winter. the demand is not there. the prices will be pushed down until the market sees very clearly a much more dramatic supply response bringing things back into balance. at the moment, there is little sign of that. down to what? $30, it rapidly descends? kevin: we just reduced our price forecast we are looking for $37 a barrel, the lowest annual price in 13 years. it's very difficult to say hello prices will go. between no relationship fundamentals and prices. aggressiveis a very one. we've got an enormous buildup. it's quite likely we're going to get a copyrighted. prices will continue to fall. the sun is out in london. can you translate for us the ford market about petroleum? kevin: it's telling us there is a big surplus out there. the back end of the curve has come down quickly. the market is not expected to declare. weekly. we are not yet in a situation where the future is telling us we are running out of storage capacity. that is very important. if we get to that stage where we run out of storage capacity, it will widen. it will fall even farther. that is what could take as well below 30 and as low as 20 or below. tom: thank you so much. much thosel you how charts look. it is stunning, the rate of change down 17% since the beginning of the year. hour, he has my of the year. we will talk about the humility we need in this financial crisis. oil is dissenting. ♪ tom: we love london. we get wonderful guests. week, they are wonderful on chinese economics. he is a little dizzy with -- busy with economics. these are among our guests over the next two weeks. quinn -- vonnie quinn. vonnie: profits beat estimates. they are using a rebound version of software to retain thousands of customers. they are using subscription revenue. industrial production in the u.k. fell in november, the most in three years. warmer weather reduced the need for energy. well.h factory outlet snapchat is catching up with facebook when it comes to video. snapchat is delivering 7 billion video clips a day. that rivals facebook. at $16t is valued billion. francine: thank you so much. obamat, president delivers his final state of union address. he will lay out his goals for the last year. on friday, u.s. bank earnings will be less than expected. there is turmoil in china and plummeting oil prices. we go to switzerland on monday. tom: doom and gloom, i'm shocked. francine: when you look around the world and you look at europe, we look at the risk of terrorism and the refugee crisis being the most divisive issue, there is the brexit debate. david cameron needs to negotiate enough so that the country stays in the eu. you throw brexit in, that will add a shock to the others. it will be devastating. referendum get the as soon as possible. he needs to get the negotiation completed in the february european council. ministers free reign to camp out if they want, this is clearing the decks for a quick push. migration pick in next year. how is turkey going to control the outflow of migrants? you get the german government under pressure at the moment. the girls are fighting the germans. there is internal conflict. it is another vulnerability. he is worried that an external factor is going to overwhelm the caution of the fish. -- british public. there are some external shocks on the strategy. , youyou had the privilege studied with gordon would, ben franklin talked about enterprise and a can-do attitude. we did not get to a double-digit psychology until the century. are we going back to an franklin? is this something we need to get used to? >> i think we do. when we look at our forecasts across asset classes, they are significantly lower than the last 30 years. that's the unfortunate reality of where we sit. this is the starting of many bond markets. i think that's the first challenge investors need to set. not a depression of psychology. it's a dampening, whether it's finland or sweden. politics, the established parties have built on the deal that they would provide social welfare. what europe is discovering is emerging markets are not going to grow as fast as people thought. how do you develop that welfare? francine: what is your best call? >> we think credit is a better place to be than equity targets. investors can get three to 5% returns. we think that is good in the environment. jpmorgan back a call. delay, delay, delay. his morgan stanley seeing a delay to central-bank action western mark --? >> there is a lot of gloom out there. one positive thing we can see developing, if that is not want to hike again until june this year. the rate market has been pricing down that passive hike. if we saw the fed come out and articulate that more explicitly, that is something that could be positive. francine: will be able to be the risk of deflation? >> it's already running close to 2% in the u.s. in the eurozone, it's bottomed. in japan, it's been taking up. that's not the major risk we face. tom: this is been great. thank you so much. we have another hour coming up. tom: let's talk about it. the london school of economics will be with us. it's lovely that he has his gap. adam pozen will join us. stay with us. ♪ we live in a pick and choose world. choose, choose, choose. but at bedtime? ...why settle for this? enter sleep number, and the lowest prices of the season. sleepiq technology tells you how well you slept and what adjustments you can make. you like the bed soft. he's more hardcore. so your sleep goes from good to great to wow! only at a sleep number store... find the lowest prices of the season, going on now. save $600 on the #1 rated i8 bed. know better sleep with sleep number. tom: the rationalization of oil is over. brennan and west texas center media approach a $29 handle. china reacts to the market , and the one-way way fed as you want depreciation. in istanbul are investigating an explosion in one of the city's major tourist areas. at least 10 people are dead. good morning, everyone. this is "bloomberg surveillance ," live from our world headquarters in london. with me, francine lacqua. front and center, there is no bid on oil. francine: and we are trying to understand when we can call it bottom and what happens after that. tom: kevin noris was wonderful from barclays in the last hour. spot on about the supply dynamics. now on turkey, here's is our first word news with vonnie quinn. beene: as we have mentioning, 10 people are dead after an explosion in turkey. it happened in an historic section of istanbul. the government says 15 people were hurt. said ite-run tv network was probably caused by a suicide bomber. two majorfered bombings last year, both blamed on islamic state. the head of humanitarian aid for nse united nations says syria in besieged towns need much more help. the three towns have been cut off for months by warring factions in the civil war. the government is giving the go-ahead for more aid. 4.5 million syrians desperately need help. president obama will deliver his seventh and final state of the union speech tonight. the address will not include many specific -- he is -- he expected to focus on themes the democratic candidates have brought to their campaigns. the speeches tonight at 9:00 eastern. rand paul and carly fiorina will not make it into prime time for the republican presidential debate thursday night. theusiness is limiting forum to seven candidates. running back derrick henry led a 45-point victory. 10thma was given its national title. i am vonnie quinn. tom, do you watch college football? tom: a little bit. i was going back with phil bitingly on that a little this morning. it is like religion in america, no question about it. congratulations to alabama. thank you, vonnie quinn. let's do a data check. we look at equities, bonds, currencies, commodities. futures up nicely. euro-dollar a little bit weaker this morning, and oil was a 30 handle and a solid 30 handle for most of the morning, a bit of a rebound in west texas intermediate. on to the second screen, quickly. at 27. was we move on to 24. dollar mexico indicative of the emerging markets stress. francine: i want to focus on turkey because we had the breaking story an hour or so istanbul'slosion in main tourist area, which we understand left 10 people dead. this is significant for two reasons. it is the first such attack we have seen in istanbul, a hugely rich tourist destination. we have see the government response. -- mr.lead to mr. aragon erdogan consolidating power. as we start 2016, there is something to watch out for with investors. tom: meghnad desai of the london school of economics -- it is appropriate to speak to him this -- ing on turkey and on think of your book, "rethinking islam." tell us where we are right now. the many middle of complex going on in the middle east, within the ottoman empire. i think that the kurdish problem is going to be one of the most definitive things. could they have had for the first time an opportunity to establish a military base and capture -- they have had a long-standing quarrel with turkey in the eastern and southern part. kurdistan claims they inhabit. so there is this conflict between turkey, and syria and iraq. this is going to grow. francine: we understand it could be a suicide bomb three people on the ground are investigating. we are seeing live pictures. this was in front of a mosque. this was an attack that appears to be the first of its kind, and it is different than ankara, which is not a tourist destination. istanbul is a place where foreigners go. >> it is indicative of -- tom: you are suggesting this is a kurdish action, not an islamic state or caliphate action? be much more a kurdish action than an islamist action. tom: i spoke to you the day of the terror bombings in bombay. all of our listeners and viewers worldwide see a terror event every week. bring a common theme or sensibility to how we defend ourselves against this terror, whether it is if you are from india or turkey or the next attack that we will see across europe or america. meghnad: one thing to remember is that we have been here before in other episodes. the whole northern island problem -- it lasted 30 years before it got settled. that is in a small part of the world. problem,e the islamism unsolved border/boundary problems in the ottoman empire. britain drew arbitrary lines, etc. so how do we solve that? that is where the issues are. francine: haven't we been here before? to me it feels very different. than the taxferent in paris. -- than the attacks in paris. this seems that you can convert nationalism into something different. meghnad: modernism failed in the middle east. , with alar alternative shot iran, that failed. they lost three times -- with the shah of iran, that failed. they lost three times with israel. tom: i would suggest chancellor merkel does not have the luxury or other treatments you have done on the ottoman empire. what is your prescription for mrs. merkel to get back control of the domestic agenda in her germany? meghnad: the first thing is, having admitted immigrants very generously and correctly, she then has to read the riot act to the immigrants. "you have got to behave like german citizens, or else we will deport you." she has to be absolutely firm that they will be no sympathy just because they are immigrants. they have to behave themselves and they have to be integrated back into german society. that will take time and a lot of resources. i do not think she can now go back and start deporting half a million people. that is not in the cards. tom: meghnad desai is with us, book of the year. we will talk about that later. i was on the third floor of harrods for two hours with my royalty check. francine: we will be back with more meghnad desai shortly. and talking about one of the biggest fights in corporate history, airbus versus boeing. that is coming up next. ♪ francine: this is "bloomberg surveillance." tom keene's shopping trips to harrods just got a little bit cheaper. this is after had some dire data. tom: where is the emotional level for francine lacqua? is it like 134, 139? francine: return to paris -- we turn to paris where airbus is having its annual conference. guy is with fabrice bregier. guy: good morning. you were remarkably relaxed about the turbulence happening in china right now in the financial markets. you say the economy is difference -- is different. you have a lot of business coming out of asia. as china slows down, the rest of the region slows down a lot, in places like indonesia and malaysia. why are you not concerned and why are you so a beat about what is happening? fabrice: because this is what we monitor. in these countries we have more and more people who want to travel. traveling by plane is pretty cheap, so when you have enough revenues, you travel by plane. the potential is huge. i can tell you in 2015, no chinese ally -- no chinese airline would talk to us and say -- the concentration of the airports, air traffic management is not fully optimized, and they would accept more deliveries. i am pretty relaxed because i do not see the signs, but the global economy regarding air transportation is going down. it is going up. as china or southeast asia, we can see six person -- 6% or trevor growth. -- 6% air traffic growth. guy: there is concern that in other places within the region you have these huge orders going through for narrow bodies, and some of those may suffer because people want to travel and it is cheap, but maybe if the economy slows down a touch, those people start getting taken out of the market. inrice: we went through that 2008 and 2009. this is totally different. the airlines want the aircraft. differ thes payments. invest in other companies. 2016 is, my problem in to ramp up production of a i would have and 50% more aircraft. my commercial director would like me to go higher than that. i am dependent upon the supply chain. the supplyl get to chain in a moment. let me ask you about tensions in the gulf and your concern there. , lower forprice longer, that is what the market is pricing right now. those those cofactors are linked . talk to me about what you see. factors are linked. talk to me about what you see. big growingave very plants. -- we are very pleased. so again, we do not see that there is an impact on the traffic. ourill continue to model business, which is linked to the worldwide economy. point, when there is 1% growth of the gdp, there is nominally close to 2% growth of air transportation, and this is why we are much more resistant. guy: let me talk to you about the a 350. in the summer you were talking about zodiac. you have been quiet about zodiac , one of the key suppliers. this morning, shares are under pressure after you started talking about it again. are the problems with zodiac nearly fixed, and how big a problem is there within the supply chain? fabrice: i would not say they are nearly fixed. inould hope they are fixed 2016. i would hope that we would take measures to react measurably in 2016 because we are on board the a350. we had 14 aircraft last year and least 15 to deliver at this year. my job is also to ring the bell and wait and see. guy: just to follow up on that. can you confirm that you have deselected them? yes.ce: that is done for a simple reason. the supplier, with an existing -- this is a temporary decision, and we will see. it will be a very strong partner, but they have to improve. indeedank you very much for your time. from the airbus press conference -- back to you. francine: guy, thank you so much. it was great to hear about some of the gulf states, and we have been talking about the fact that it was very difficult to get new orders. today we have this jumbo order for the a-380. the massive plane, priced at $3 trillion. and bus makes about nine cents on the dollar, eight cents on the dollar. boeing is a little bit better, $.10, $.11 on the dollar. there is nothing old. they have all sorts of new airlines. boeing 747, and british air is gorgeous. it was new or something. with meghnadnue desai. adam posen is alive and well. adam posen and meghnad desai, from london. "bloomberg surveillance peter: stay with us. ♪ right now to the vice-chairman of federal reserve. fischer repeats a recent speech. this is an important confab, particularly when you look at what is going on with china, with oil. west texas intermediate, 31.43 per barrel, off the bloomberg terminal. also, a morning must-read with francine lacqua. francine: we picked something that came out last week because we want to talk turkey. this is a "new york times" editorial. already built a disturbing record as an authoritarian reader, willing to trample on human rights. francine: this was written before we saw this blast. cracking downogan on reporting from local media today. is turkey the next vladimir putin's russia? fabrice: more than that. record aso rival the a longest governing person of turkey. amarkably, in a country with secular constitution guarded by the army, and islamic party has won three successive elections. determined to stay a power, and he will be democratically elected dictator for the foreseeable future. he does not have rivals. in a sense, everybody will go to him because he has provided stability in the middle east. francine: if this does not turn out like we understand, a terrorist attack in istanbul, will that be a way for him to comelidate power and maybe into more of a dictator without ruffling up? he will be more powerful than he already is because he has been legitimized. like when mrs. gandhi declared an emergency, as prime minister, he can declare an emergency, say i can do this, and suspend human rights. tom: there is so much emotion for all. it is such a beautiful building. i have been there, i think, twice. it is a deeply centered building. explain to me how islam and the muslim faith translates in istanbul. we have a big understanding of our eastern and western christianity. explain to us this relationship between istanbul, constantinople, and the muslim community. fabrice: i think when the muslims took over istanbul, that was a complete defeat of eastern thrown out ofion, its use in -- of its eastern thing. but what is also important, the calipha, 400 the years, was emperor. caliphate the- is correct word to use? fabrice: caliphate, yes. the papacy was also running europe. tom: ok. meghnad desai with us, from the london school of economics. we are going to come back. so much to talk about. it is hope and audacity. president obama, a long way from his successful book years ago, his final state of the union address, 9:00 p.m. tonight. look for that worldwide on bloomberg television. stay with us. "surveillance," from london. ♪ the only way to get better is to challenge yourself, and that's what we're doing at xfinity. 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. tom: good morning, everyone. "bloomberg surveillance." a beautiful new york. bruins, aer the hockey moment. the rangers doing it to the bruins last night. right now to our first word news in new york, here is vonnie quinn. vonnie: no claim of responsibility for a deadly bombing in turkey. the blast killed at least 10 in a historic section of istanbul. 15 others were hurt. some of the victims were tourists. said ite-run tv network was probably caused by a suicide bomber. turkey suffered two major bombings last year, both blamed on islamic state. vladimir putin says it would be easier to grant asylum to syrian leaders but the russian president told a german -- vladimir putin says bashar al-assad may not need to step down at all if elections section by the unr hill. china is stepping up the fence of the you want. -- its central-bank strengthen the yuan almost a full percentage point. china is trying to deter speculators chemical is aiming -- saying the -- the next mrs. murdoch would be oncear-old jerry hall, who was married to mick jagger. it will be the fourth marriage for the 84-year-old news corp. founder. global news, 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world. francine: we are getting news from president erdogan out of turkey. .e is speaking in ankara we understand that he says a syrian suicide bomber may have done this istanbul attack that happened earlier this morning. the exchange is significant because we have been trying to figure out -- turkey has already been the target of many security breaches, and it could be the pkk or islamic state. tom: i do not know where the word "may" goes into that headline. it is a little subtle. i am sure we will have much more on this. francine: he is not saying much more. he says there is no terrorism but -- there is no difference between i.s., pkk. desai.o meghnad and joining us from washington, adam posen, on the set with vonnie quinn. if we can look at the american economy, you have been writing up a storm as i have been talking up a storm, on what lawrence summers, in this mystery of where we are within our productivity and stagnation -- what is the distinction that we should focus on within the debate that larry summers has engendered? adam: the issue is relating to the stanley fischer speech that you covered before the break. his productivity down? we have a terrible productivity print for the last quarter in the u.s. is it down and the state down, or is it down for the next couple of years? it away it is bad news, but if it is the next couple of years, there is reason for the fed to get ahead of the curve, and reason to expect the economy to come back. if it is not, if it is all about fundamental change, robert gordon style technology is just not advancing, then we have a limit to growth. tom: we can go to robert gordon, or for that matter, meghnad desai -- to most of our viewers, maternity is n corporations -- ty is that corporations win. it is a question of politics, and that is where her, youand fisc have to draw the line. joe stiglitz has pointed out some things as well. who is right? adam: you should trust the fed, not the markets. francine: you do not see any chance of a rate hike? adam: i think the fact that we talksaw the vice chair about multiple hikes -- for them to reverse that, you would need more bad news and we are seeing. what we are seeing from the labor market is not bad news. the labor market is underpricing the likelihood of a number of rises in the year to come. theie: i want to go back to stanley fischer comments and productivity because you said we are either two years out or there is limited growth. what side you come out on? adam: this is the biggest issue i have been confused. i was convinced that productivity we come back. i did not think that everybody woke up one day and the left arms had fallen off. there was no obvious cause, so there was a temporary thing, i thought. but with productivity growth staying low, being true across the west and world and japan, then i start to worry more that something fundamental is in place. it should not affect the fed that much because of the two-year horizon, but i am worried about productivity now more than i was two years ago. vonnie: so you are productivity -- you are concerned about productivity and its path over the next two years? adam: i do not think it is worth raising rates right now. but if you accept that we are going to have this domestic wage push, which is the assumption of thee making, the fact productivity slowdown makes you more likely to want to raise rates, because then you are back into the 70's in a minor way. that the limited growth, you will start bumping up, that is inflationary. if you are a productivity bear, you are a fed hawk. tom: i like that. i am going to quote you on twitter. meghnad desai, stanley fischer joining "surveillance" from paris -- i am kidding. her withirman fisc his speech. let me turn to the bloomberg terminal. eradicating japan, deflationary mindset, not an easy task. meghnad desai, the fear is that it hurt his back to the england of the 1930's that nobody liked. is there a risk of going back to the kind of political tensions that come from this dampened economics? fabrice: knowledge about -- meghnad: knowledge about growth and all that is from the 1950's and 1960's. productivity is going up, and we are now in a downward cycle, downward cycle where growth is going to be low and inflation is going to be low. rates -- w interest tom: i knew what meghnad desai was going to say. adam posen, does the government need to spur investment? do we need lbj to come to the rescue with investment tax credits or infrastructure credits to jumpstart investment, to get the animal spirit going? adam: yes. there is no downside to doing it when interest rates are this low or when the private sector has been so reluctant to invest over the last few years. there is no downside when we know public investment and infrastructure has foregone in the last few years. it may not have a huge beneficial effect, but it is much more likely to lead to short-term growth and long-term growth than anything else you do right now. francine: this is the conversation we are having in europe. what the governor is saying and he says policies will succeed. much of ant having effect on productivity or inflation. meghnad: we should be welcoming that inflation is so low. at's welcome the fact that long 75-year inflation cycle is over for the time being and rates will stay low. given that, how can we operate? tom: adam, you wanted to join been -- to jump in on that? adam: i have to disagree. problem forn is a three reasons. first, you have wages not going growth if productivity is low, you have no room to cut wages without going negative, which leads to very bad outcomes. you also have fiscal problems they get worse when you're in a low-inflation environment. low inflation is telling you something. it is not because we have more in 1985 central banks or 1992. there's something wrong with the world economy when you see this low inflation. meghnad: the low-inflation of the 1990's was because china was manufacturing low-cost goods. inflation has gone out of the system, prices have collapsed, oil prices have collapsed. many processes do stay low. so we actually now are in a situation where i do not see where inflation is going to come from. we ought to welcome it. we ought to see in the next foreseeable future, we are going to be in this world. tom: that is where i wanted to go, adam posen, and this wonderful discussion between you and meghnad desai. adam: it is overweighted. i do not disagree with meghnad desai on the fact that we have little inflation pressure anywhere. i am not sure the strong pickup in wages is coming in the near-term. i disagree on the goals policy. because we have had a collapse in gold prices, that it is necessarily a good thing. it is not. tom: this is what it is all about, folks. meghnad desai and adam posen with an important conversation. speaking of that, another one in tomorrow, michael mckee with dallas fed president robert kaplan. he was the surprise pick by the dallas fed. this is an important conversation with robert kaplan. from london, "bloomberg surveillance." ♪ tom: good morning, everyone. "bloomberg surveillance" from london. lots going on today. let's get right to a business flash with vonnie quinn in new york. vonnie: two chinese companies are among those bidding for general electric's home appliances business. they are each offering more than $3 billion. ge agreed to sell the unit, but antitrust concerns killed the deal. alcoa's fourth quarter is splitting -- shows the company is splitting in two later this year. growing demand for alcoa's auto and plane parts, alcoa says aerospace sales are at 9%. snapchat video is catching up to facebook. snapchat is delivering more than 7 billion video hits a day. becauseals facebook there are 15 times as many users -- which has 15 times as many users. 4000 jobs will become from upstream worldwide in 2016, 600 jobs within the north sea. there is a mix of headlines here. tom: thank you so much. a lot of news flow there and job cuts as people right side for the new economy. let's get a single best chart right now on neil ferguson, this ideal of comparing china and india. i'm worried about the stereotypes that can be said here, but there it is. per capita gdp for china and india, back 20 years -- this is a long chart were slope matters and percent change matters. meghnad desai with us. china falling down on growth, or is it about india and modi is going to catch up? meghnad: i think both. china will grow at 5% or 6% in the foreseeable future. india can grow at 7.5% to 8%. i think they will converge together, but it will take 25 years. is a convergence of 25 years, adam posen -- when you the at olivier blanchard, template here is the gloom of the new mediocrity. do you just assume we move beyond that, back to growth for china? growth for india? or for that matter, growth for the united states? adam: you cannot assume that anymore. i think the imf and others are right to worry about it. i think olivier blanchard are is as confident as stan fischer is that we can come back. about thedesai says catch-up of india and china coming from both, with india sustaining and perhaps gaining a higher growth rate, china having to adjust to a slower growth rate, those are realities that will underlie the world for a wild. we should not -- for a while. there is so much to be done in terms of reforms. in the u.s. we are throwing away 10-plus percent of gdp on health care in ways that no one else does. with that, you can have seven years -- several years of additional growth. it would still buy us a decade or more. francine: how concerned are you about china's debt, and how do you expect the debt crisis to play out? adam: i think it is not yet a debt crisis. i would argue that the market overreaction to china really is not about debt. there is a long history across countries over time that if you have a pure equity correction, the outcomes are not necessarily that bad. china's case, there certainly is a lot of bad corporate debt, but compared to the amount of savings in the economy and compared to other places where there are huge amounts of foreign conservancy -- a foreign-currency debt, that does not apply to china. tom: we will come back with adam posen and meghnad desai. i would like this to go cointreau or five more hours. this week on "bloomberg london,"nce from adair turner, david folkerts-landau, and howard davis. stay with us. ♪ tom: equities, bonds, currencies. we always look at currencies. how about the forex report. 116 on yen would be jaw-dropping and refute abenomics. so.king at the mexican pe this is an index that we do not usually look at, the asia dxy, a bundle of the asian currencies, ex-japan. show, awonderful wonderful hour with adam posen of the peterson institute in new york. desai -- andlord meghnad desai. let me go to the basic idea in hubris that i go back to something you said about adam smith, your wonderful history at the beginning of the book -- we are all looking for a god or a clockmaker to make things go. the god has been quantitative easing. it really has not worked out. it really has not worked out. meghnad: i think it has put us all to sleep. too long, andted what it has done is getting people used to such low interest rates that they are doing foolish things in america with acquisitions. nobody is investing and people are now beginning to feel very nervous that they overvalued the assets. tom: are you saying that we are in a bubble? meghnad: absolutely. tom: i want to go to saint posen right now. you live this with the bank of england. what have we done with qe? what is the outcome? is it a bubble? adam: no. i will be the prodigal son and say that things will be ok on that score. tom: this is very old testament. do not think qe has done anything as powerful as people say, especially on the negative side. there is clear evidence that it did calm markets and that it kept credit conditions stronger than they would have been. if you look at japan, they are making some progress. they are not where they want to be, but they are in deflation until they did real qe. then this idea that the low interest rates are causing all this stupidity -- if you have a list of good projects, the choice to do a project that is any percent return -- that is an 8% return, there is nothing about a low interest rate that says you should take a lower return project. the same projects exist. it has nothing to do with qe. it has to do with problems in the corporate sector, intellectual property rights. the real economy is not being determined by qe. it is being determined by real things. but qe is having unintended consequences. there is a great column from mark gilbert saying he is looking at yet more alice in wonderland consequences. it seems that the markets and we as a whole have become too comfortably numb to some of the effects of qe. adam: i don't even know what those words mean, francine. i am not trying to be difficult. whole "alice in wonderland" concept is bizarre. when we talk about the markets doing strange things, prices do not always match fundamentals. that is the point of markets. vonnie: there is the thought that there will not be any room. adam: i tend to agree with larry summers that you should yourself that that you shoot yourself in the foot now so that you will be able to stand your ground later. i do not quite get it or it i also think it is just a reality. economyot put an through a recession because you have ended up in a bad place now. i am not necessarily saying the small interest rate rises will cause a recession. i do not think they will. i hope not. to lord desai. phil about her, ex professor london school of economics, raises his probability of a recession in an economic slowdown. do you agree with him? meghnad: i think that would be a crash,al trouble sort of but i do not think he will be the decision. tom: meghnad desai, thank you so much for coming in. adam posen, as always, thank you so much. dr. pozen will continue with surveillance on radio worldwide. important research coming up. carl weinberg comes out and flat out recant his inflation recall for 2016 and calls it the unthinkable. he sees a real disinflation in economic slowdown this year and completely reverses where he was four weeks ago. francine: that could be our morning must-read tomorrow. are thrilled to continue our discussion on economics and international relations. adair turner will join us tomorrow. always opinionated, and i dare turner on grexit. we think vonnie quinn in new york. ♪ stephanie: china goes defensive, aggressively buying the you want. oil goes past a 12 year low. the state of the union -- the bloombergs union -- crunched the numbers to find out how we are really doing. stephanie: welcome. you are watching "bloomberg ." it is tuesday morning here in new york city. i am stephanie ruhle. david: we are talking about markets. and we have our colleague -- guy: it is always about markets. whenes not matter president obama is speaking. it is always about markets. matt, it