compare for tough sanctions. biotechle is upon us in and internet software. this is surveillance paying." we are live from new york. joining me, adam johnson and olivia sterns. let's get to our morning brief. quakes bond yields have fallen to their lowest ever. we will get some sort of press release tomorrow. no one expects any significant change. economic data, the home price index. consumer confidence at 10:00. i'm giving it the big ones. twitter -- >> really interested in twitter.

let's get to a data check. we look at stocks and bonds, what a churn before the economic data. futures negative two. the euro begins to weaken. major cross asset series. the six, well under. eight to 10 spread. like the german yield that adam spoke of, this shows some of the flatter yield curve. -- her dose co gold elevated above $1300. what a complex. is steppingop story up gaza.

hitting the only power plant. there could be a long military campaign ahead. any troops must be based on disarming hamas. they have fired more than 2500 rockets at israel. >> the imagery, it is something i watched live. >> think of 1050 people and gaza, dead from these incoming israeli missiles. this is more. -- war. ban ki-moon accusing them of

pummeling with -- ver has been taking a lot of heat from countries around the world for all of the civilian deaths. you go into the tunnels and realize that hamas is trying to wage war for many years. will extend the discussion and moments. i will speak with a finance minister with interesting politics versus the prime minister. united behind benjamin netanyahu. what is our second story. >> more sanctions against russia. they may come out today. sanctions would target key

sectors of the russian economy. this could be bad news for the british banking sector. be difficult news for the german engineering industry. >> this has changed rapidly. all of a sudden, there seems to be agreement before -- between .ermany and the united states it does highlight the french navy deal that might avoid sanctions. i wonder where that will be. a bola, close to 700 people have died in west africa. the fatality rate has been close

to 60% and is as high as 90%. it has expanded beyond africa only once this year. nigeria has closed its borders and put airports and seaports on alert. animals tomits from humans. it is not airborne. to be terrified it is going to take off. >> i like how you say terrified. af to you says today -- this is not malaria. it is not tuberculosis. remote partshese of western africa to the major cities. that seems to be the focus. our guest host for the hour, partner and head of mergers and

acquisitions of jones day. -- lisasa abramowicz bramos. what do you tell your associates at jones day? >> don't count on vacation in august. thisat is the character of moment versus others that you have seen? is capital reinforcement. they're selling things for a multibillion-dollar transaction. it is reallocating capital. fundamental focus on capital discipline.

>> how can we better our how can wether than take advantage. is reallocate capital, get out where you are not so good. would you predict the warm buffets will play? >> there is going to be plenty. what drives the market is the stuff we saw yesterday. >> we have a fed meeting. does anyone expect a change? >> do not make too much news over the summer. not a lot of trading.

people are expecting some of the isnomic data coming out optimistic. it will push the fed to increase forward guidance and will raise -- >> we have jim with us in the next hour. rateas the high interest changed? what is their nuance? they have been wrong. of disagreement over what the pressures are that have made them wrong. the nuances are what are the pressure and how much can yields rise. ol le feel like 30 year yields --

may --. >> you sit on the pink couch and we had a half-hour all off the, record. the state of the market. dni is looking for coupons. deanna is looking for coupons. >> is the fed fueling a stock bubble? surveillance. >> let's get company news. >> a mixed quarterly results for the biggest investment bank. net profit fell 29%. the bank blames rising tasks those -- taxes and market

instability. and u.s.to british authorities. they admit to wrongdoing by u.s. authorities. a snag in talks between the justice department and the bank of america. says theet journal dealings of merrill lynch and countrywide financial are the problems. they are both being at paying a cash fine. today's company news. >> canceling an auction due to market conditions. coming up, my interview with israeli's financial minister.

>> abysses "bloomberg surveillance." manager --nance minister, yair lapid, joins us from tel aviv after the extensive attacks overnight. wonderful to have you. you will have a security cabinet meeting in a few hours. what will be discussed by you, the prime minister and the rest of your leadership? no one within israel government is accusing secretary of carry of betraying israel. he is a devoted friend of israel and doing his best to help out.

it side from that, we have to discuss the fact that israel has agreed to three cease-fires. against israel because this is what they do. do what, think and their organizations do. we have to deal with that and see what we are going to do about it. that they castay dispersions. we said it was the opinion pages of various media. >> i did not accuse you of anything. i just used the opportunity to reassure the friendship we have with secretary kerry. these moments in and the increasing attacks last night, one distinction is the united states, using egypt or

qatar, or turkey as emissaries to hamas. what do we need to do to bring peace to gaza? egyptian offer on the table that we have accepted eight or nine days ago, saying let's go to a cease-fire, keep the cease-fire and let's start talking about the things that through both parties the egyptians with the help of the united states, which is always blessed. military's nation of the gaza area. no country on -- we want the de-militarization of the gaza area. rehabilitation of gaza and this can be discussed because we have no beef with the citizens of gaza, only with hamas. >> can you give us an update on

the percent of the tunnels taken out? this is a huge mystery to people worldwide. what portion has been removed? cannot go into the exact numbers because this is operational. we have found more than a couple of dozen tunnels going andrground into israel other settlements. tong specifically kindergartens, dining rooms, they were trying to kidnap or kill israeli women or children. let's turn to your finance minister. mr. neng yahoo! speaks -- benjamin netanyahu speaks of a campaign. can he afford that? >> we have a strong economy.

we have an a plus rating from all companies. this operation, as expensive as it is is an episode within the economical life of israel so there is nothing to worry about. so manye same time, around the world are critical of israel, would they see a diminished gdp because of these attacks upon hamas in gaza? worried with the decline of world trade, which has nothing to do with this operation. if i have to worry about anything. -- we are following the numbers and we check on a daily basis, but i am telling you, as dramatic as this is, and as eye-catching as it is, this thattion is not something

even touches the fundamentals of the israeli economy. >> one final question -- we look for theitmus paper system. we know the stanley fischer were the central bank that did a wonderful job of stabilizing your banking system. do you wish, hope and pray for a to sustainel exports, even with what is going on in gaza? >> it is always the dilemma. a veryhe result of strong economy. we have a strong currency because we have a strong economy. on the other hand, this hurts exports. is a game to be played. this is also altering your formal question. after 21 days, the shekel was

almost untouched by what is going on. i want a strong shekel because i won a strong economy. i think it should go a bit lower. >> give us an update on the tel aviv airport. if they get rockets or missiles ,owards the tel aviv airport how would that change the dialogue? stopped theas andican fly through israel it was a may stake and they took it back after a few hours. i insulted lax and today i will insult jeff k and say -- jfk and saying our airport is safer than jfk during the winter.

>> thank you so much. yair lapid is the finance minister of israel. about the food at laguardia? >> i am not a fan of the food. >> it has gotten better. lax. took a shot at >> he sure did. one/ ast point -- flashpoint. speak with the former head of the nato forces in europe.

two-daybeginning of a dos fed meeting tomorrow. welcome to "bloomberg surveillance." it is time for our morning must-read. >> it is a morning must-listen. here is what was said. >> why do you call for security for israel and why do you call for lifting the siege? why do you give the right to live for the palestinians as the other nations? brief expert of what was a wide-ranging interview. howpeaks to the fact of

qatar has become a key in the conflict. since egypt is no longer playing the role with the absence of a muslim brotherhood. interplays -- at the center of it, what are we going to do with a palestinian authority? lebanese experience with hezbollah -- groups. are three the palestinian authority, the legitimate group. gaza, hamas. in the north, you have hezbollah. what is your idea of discussion that secretary kerry could bring forward. i know you do not deal with matters of the state department, but diplomacy is about dialogue. how do you do this? >> it is difficult. the idea of trying to find

-- fromelse to mediate the hum assad point of view, we are on the israeli side. hamas point of view, we are on the israeli side. >> does turkey have influence? an egyptian offer was on the table. is hamas listening? and 10:00 p.m.0 on bloomberg television, an exclusive. we will be right back. ♪

>> good morning. "bloomberg surveillance." we welcome all of you worldwide. these are live images from gaza. of fallacious firing --

hellacious firing. moke thisstained spo morning. -day fednning of a two0da meeting. what a busy day across the world with our top headlines. house accuses russia of violating a key arms control treaty. they are testing long-range cruise missiles that would break a 1970 -- in 1980's deal. southwest is facing the second largest fine ever.

the federal aviation administration wants a $12 million penalty. they did not do require repairs on some of its 737s. the charges involve a contractor. pushoks like the nba will donald sterling out of bounds. his wife may sell the clippers. she struck a $2 billion deal with steve ballmer. the league wants sterling out because of his racist remarks. on this, butspeed is this the final deal? to -- final deal is going >> it is never final. >> did he get good news yesterday afternoon? sterling has been suing to block this. stay tuned. >> lawyers or employee. were employee. is this a good thing? one of the problems with the

united states is a cost $500 to file a lawsuit. i think a loser pays system would make a lot of sense. for firms like mine, without be a bad thing? sure. who is holding this back? >> the segment in the bar, the plaintiff's bar. they have huge political input. >> can you estimate what percentage of lawsuits would be dropped if you had to pay for -- >> it would be a huge percentage. it is holed up rather than the merits. i would not say that about the sterling there it -- the sterling thing.

reputationale a risk for lawyers taking on a case like the sterling case? isn't there an inherent check against -- you know -- on the lawyer in the firm. certain firms would never do that case, including mine. the old saying about spell my name right. the interim ceo of the l.a. clippers will be on bloomberg tv this afternoon. dick parsons. far away, there was a merger and acquisition, a combination of those co-companies. there is a budding frenzy from a standpoint of a creative transaction. with its renewed ceo and board

confidence, robert profusek is with us. confidence. this is the first inning of an m and a.- of >> some mind blowing numbers in terms of the size of these things. aremost guys like me, it is billion. that is what pays the rent, so to speak. the pipeline is bursting. there is a factor about confidence. of these other things. the average ceo is about five years, not 25 years like the old days. you have to reallocate your resources. most of the deals we have seen have been about capital efficiency, not empire building.

>> you need a billion dollar worth of deals to pay the rent. if you annualized what we have seen, we're going to be well north above two. can we sustain that? >> so many of the deals involve stock. stock -- >> the market is at an all-time high. by and large, when people announce big deals, instead of stock going down, which is historically the case, the --.rs stock takes the why?is the strategic what is the sweat motivation? into spacious you are good at, getting out of the spaces you are not good at.

we talked a little bit about one of the things is gdp growth is slow. you have to feed them-year-old -- you have to feed them your own multiple. trying tof people are buy scales, rmb, a pipeline. >> there is always a buy versus build dilemma. you have to buy rather than build it. -- lisa permits abramowicz with us. you are in charge of this for bloomberg. money is cheap. >> i am going to sleep early tonight. i wonder how much is the current by optimism orn

how much is because they do not want to be taken over or considered less valuable. not think it is defensive. went through -- we this enormous change and we are in an upswing. if your stocks doubled in the last three years, someone is willing to pay premium, it does not look so bad. if you think your career path is five years not 25 years. youou have to do something, have to create value. why do you think they will back it up a little bit. why is it five years, not 10 years now? >> the whole change in the corporate government paradigm. the space between board and management has been squeezed. activism, you name

these things, makes it in a bowl and it separates. >> do you think the fact that the ceos have shorter range mean we are seeing smaller deals? you see less than the warren buffett-type deals. see --will >> thank you very much. my best charthave of the day. it may put the bubble talk to bed. perspective on biotech. another bubble we are talking about, our twitter question of the day. ceiling -- fueling a stock bubble? ♪

>> good morning, everyone. olivia sterns is in for scarlet fu. >> we are focusing on bubble talk. many concerns about a bubble and

biotech. the best chart shows valuations are nowhere near the bubble era of 1999. valuations are attractive rather than the growth environment. we have heard every body janet yellen talking about investors. perhaps a bubble and biotech companies. 33% efficacy for women in a breast cancer study. there is a reason people pay for biotech. janet yellen has taken some heat from the analysts. the economists caught up with the idea that no one was making money. the county now is better than the mystery it was in 1999.

it is better than i was. >> one of the things we got ,fter the internet bubble things are better. no question about it. .> we know where we are >> janet yellen said there may be a bubble. what are youcz, hearing? >> there is concern that high yield bonds are overvalued. the companies are not capable of maintaining capital structures. they have incurred record amounts of debt. are they able to increase income quickly enough to meet this? reach anothero refinancing cycle around 2019,

2020. we have pushed the maturity wall back. there is concern about that. of the sophisticated investors are petitioning against -- >> what are flows doing? >> they are negative. it was the biggest outflow last week. $3 billion from high yield bond fund's. >> you are good at this review. 2009 was the bull market. we got it again in 2012. >> 2011 -- 2012 -- is today a bull market in bonds? >> 1.3% that is the yield in germany. >> 2009, 2012, both good years.

they have all been pretty good. you look at the average and you are talking nine or 10%, 12%. these are good returns. anyone trying to bet against high-yield bonds, there is been a lot of bubble talk. us.im and grant with what do we have for our snapshots? this is a photographic guy. two images laid on top of one another. yesterday was the beginning of world war i. they superimposed a tank in a scene of present-day london. gives you a little perspective. that is foreboding. that was 100 years ago today that world war i began. -- a shame to think

of how many wars there are around the world right now. competing in the women's 200 meter butterfly. this is the fifth day of the gow -- table --go around the can you do the butterfly? >> no. >> you were like championship -- >> what is your stroke? paddle.more of a doggie for could go underwater long distance. nasa, this one is for you, tom. with then conjunction

opportunity mars rover. it landed on mars in 2004. looks like north dakota. >> the single biggest fight i had with my father. just send them up there. there it is. >> it looks like the desert. that is mars. >> some of these are color treated. it is something what we have with these unmanned vehicles. wall-e.oks like when richard branson goes to mars, you can buy tickets. coming up, turning to derivatives to make bets on corporate debt. why janet yellen may be keeping a close eye on this trend. ♪

>> good morning, everyone. after a night of attacks in gaza, we see smoke.

that is our live image from gaza. this is "bloomberg surveillance." i am tom keene. 1.02 yen here. get to tuesday, let's company news. >> microsoft is under investigation in china. they visited for company offices. have been ordered not to buy windows 8. the company will not comment. the home rental company against a giant home rental chain. they are operating in nearly 200 countries. it sounds like a nightmare. chief.is slashing its he has received 7 million annually for at least the last eight years.

shareholders protested over executive competition. -- executive compensation. when you cannds write a credit. no-brainer. collect the premium. writes about how the big hedge funds are making big bets. >> it is a growing trend. you have fund managers managing tens of billions of dollars. the underlying market is not trading that much. how are you going to make it that where there is not much of a volume. people are circling a basket of bonds with companies and think and i willain value compensate you if there are losses. this is a way to replicate a bond-like that without owning the security.

there is leverage because you may be called on to pay out if you are wrong. >> the funds that are making this bet are writing insurance policies and as long as they keep rising, you are fine. if bond prices fall, the insurance policy is a liability. >> we were talking about this. >> i remember being at the --jing, there was a thing are we back to silly synthetics? >> there have been fundamental changes. has been a regulatory overhaul. these have to be cleared centrally. frome are deriving comfort

some bets that there is some kind of central police officer overseeing all of these trades. investors are not necessarily seeking out risk for the sake of it. they are being pushed into it. they have few options. robert profusek with us. you suggested -- has gone away. one things fueling the acquisition stuff -- the terms, it is not just rate. it is terms. it is a very easy credit environment. there is a clearing agency to know who is behind it. you get 3%, but if the bonds

default, you are out. >> when you have fewer covenants, recoveries are going to be smaller and smaller. people are going to get less back. to the old days when there were derivatives sliced up security. we have the competence of david goldman -- david goodman was going on where the bad ones may go bad but the real risk is in the editor quality? is this going to be a redux of 2007? >> they are increasing. the demand for the risk is increasing. it is a way to concentrate that's that there is not going to be an imminent wave of default. thates go back to the idea this is true search for yields, frothy behavior. the sixth year of financial

repression, where are you going to go for yields? >> who is buying all the papers? , 220 $5 billion under management. they have been increasing the in the second- quarter. they are going long. they are making bullish bets on -- market.ugh the it is hard to maneuver in this bond market. it is an easier bet to go through synthetics. there is leverage. magnification of risk if the market does turn. >> great, we are gearing up for another crisis. >> thank you so much. we appreciate your efforts. we have breaking news. east-southeast of mexico city, not a substantial earthquake, 6.3.

not major, but we will have to pay attention to that. a quicker forex report. weak yen. -- >♪ . .

>> this is "bloomberg surveillance." >> israel increases attacks on

the. benjamin netanyahu speaks of an extended military campaign. europe and the united states prepare tough sanctions on russia's finance, defensive, and energy sectors, and tomorrow, argentina may default. good morning, everyone. this is "bloomberg surveillance." we're live from our world headquarters in new york. it is today, july 29. i'm tom keene. joining me adam johnson and olivia sterns and four scarlet fu. our guest host for this hour, james grant of "grant's interest rate observer." much to talk about at the beginning of the fed meeting. we had a long conversation with chair yellen this morning. let's get right to the morning brief. >> german bond yields have fallen to their lowest ever, 13%, a stunning number. here in the u.s., our yields by the way are about 2.48%.

data today, we have got the case schiller home price index at 9:00 a.m. the consumer confidence comes out at 10:00 a.m. i will just give you a few highlights. before themerck bell. afterwards, we have that twitter , newmont, and american express after the bell. >> you just mentioned pfizer just breaking right now, second-quarter adjusted earnings for share coming in at $.58 per share versus $.57, so basically meeting estimates. pfizer in a tight spot after that failed megamerger, $118 billion attempts to buy up astrazeneca. the ceo needs to make the case pfizer can stand on its own. >> how is he going to grow this thing? useome people say should the cash and buy up some biotech companies. >> earnings growth this year and next year forecast just one big percent. that is the problem with pfizer.

>> it goes back to revenues as robert profusek said in our last hour. >> they are standing on the precipice -- >> whether they go to generics. >> it is viagra, it is lyrica. >> here is olivia sterns. >> let's start with banks. were up 15%, better-than-expected. the company said it costs and settled a costly german tax investigation. and morgan stanley is going all-out to keep its up-and-coming executive to prevent infection. the company will raise base pay for junior and mid-level herb inkers -- mid-level bankers have 225%. and the chief of garden restaurants is stepping down. clarence otis says he will stay on as ceo until the end of the year if needed. activist investors did not like his plans. he pushed through the sale of red lobster. >> israel escalating attacks on gaza. our very own middle east editor

in telt go elliott gotkine is aviv. the cease-fire does not seem to be in the cards. can you tell us the point of view from israel? >> sure, adam. defect is quite simple. it needs to destroy the tunnels in the gaza strip which hamas is using into israel to carry out attacks. five soldiers were killed last night in an incident. now netanyahu also saying in a televised address that the destruction of the tunnels is the one step toward demilitarization of the gaza strip. that is what the israelis want. >> some 50 israelis dead, over 1000 gazans. as israelis start to die by the dozens, if the resistance in israel? >> not yet, and not any particularly large numbers. most israelis you speak to will

say -- this is an operation that has to be carried out. it is not sustainable for the community living around the gaza strip to have one day find himself being kidnapped or murdered by militants who of infiltrating into israel on the ground. and it is not sustainable having rockets being fired at israel, so most israelis support what is going on. >> elliott, earlier tom was able to speak with the finance apir lapid.ou appear loo egyptian offer the table saying let's go to a cease-fire, let's keep the cease-fire, and then let's start talking about the things that interest both parties through the egyptians with the help of the united states, which is always less, and this is what we want is a demilitarization of the gaza area.

>> elliott, is there a belief within israel, that is, that egypt can actually broker some sort of accord? certainly tried. it is the cease-fire proposal that the u.s. is backing. nations isted backing as well. lossow there is little between hamas and the muslim brotherhood and the egyptian president. hamas wants to try to involve turkey and qatar, who are its patrons and supporters. israel does not trust them. so we're still in the same situation whereby we do not seem to have somebody back in mediate that both parties trust. >> elliott, anyone that reads three or four articles will know that what we are talking about here, entrenched positions -- did you hear anything from finance minister lapid that will show any deviation or wiggle knight yahoo! mr. go into security cabinet meetings this morning you go --

as he and mr. netanyahu go into security cabinet meetings this morning? >> i don't think so. it is israel's general cabinet meeting this afternoon hiller in tel aviv to discuss what is going on in gaza and how to proceed. view is the same as netanyahu. it is not always see eye to eye, but the tunnels need to be destroyed, and the military is a and from gaza from israel's perspective. >> one of the things the finance minister told us was that this ejection-brokered offer is on the table. it all banks on who is hamas listening to. our charlie rose went to doha and spoke with leaders of hamas. here is what he had to say. >> the key for the solution is we are in a means. -- are enemies. the solution starts with it the

international community's ,ission to stay to the israeli they owe it to compel israel, so how can i trust my enemy? .e had a number of negotiations >> you can watch the full interview tonight on "charlie rose" at 8:00 and 10:00 p.m. here on bloomberg television. quite significant that the qataris seem to be the key. it brings up the issue -- to what extent are the palestinians a united group listening to one central authority? >> elliott, the other question i the with minister lapid, idea of strength and resiliency of israeli economy. he says the words that have to be said. is he right? >> so far. i have been down to see businesses in and around gaza, and they are fulfilling their

orders. some of their workers are not there for a variety of reasons, but they are still managing to continue to meet those orders. said, theapid gaza operation is not something that even touches the fundamentals of the israeli economy. >> all right, elliott gotkine joining us from tel aviv, thank you as always, elliott. fede begin two days of meeting, which means we need to speak with jim grant of "grant's interest rate observer." his article -- whether you agree or disagree with them -- it is truly a must-read. what is the distinction of this meeting this morning and onto tomorrow for janet yellen? >> she is going to have to reconcile the fact of very, very low interest rates, almost invisible interest rates, with the claims by some that the so-called prudential policies will keep us on the straight and narrow. on one hand, you have the open invitation to borrow to access and to speculate, to speculate

for access with the existence, and on the other you have the growing clamor and sidewalk superintending of the federal circle financial stability people to make rules and kind of nudge us in the desired direction. >> you have been a sharp critic. what is your to do list for janet yellen to get the fed back on the correct track? >> she ought to renounce the policy of price control, which is the real name we ought to assign to these -- >> using interest rates as a point basis -- >> interest rate as a price. price controls generally universally have failed, therefore the policy of interest rate control is likely to fail. we wanted us to start with for the sake of intellectual and analytical straight talk. >> talk about straight talk, you began your current interest rate observer "tiny interest rates

can have big and unhappy consequences." where are we going to see the results of that? >> well, we have seen many happy consequences in the shape of greater bull markets and the assets that wall street trades and holds. that, then comes the tears. walter badgett, the great financial journalist, which oxymoron, adam, but there are some exceptions -- walter badgett and tom, of course. i meant to say well done, sir. >> that is our order question of the day, certainly apropos -- is the fed fueling a stock bubble? tweet us @bsurveillance. ♪

>> good morning, everyone. "bloomberg surveillance." i am tom keene. it is a battle of the bowties. james grant is our guest house, writes "grant's interest rate observer." in this 2014, we are fixated on the economy. we guess that the economy will do, not wondering what exactly is the strange phrase "the economy." jim grant takes us back to the classic 1948. describe the economy. what is a? >> tom, it is not exist.

you cannot touch it, see it, smell it. it is the great multi-trillion dollar abstraction. we talk about it as if it were a thing. it is a concept. it is a concept of very uncertain dimensions. we cannot actually measure it as well as we think we can. diane quarrel came out with a aok a few months ago about short but affectionate history of the gdp, and she admits so much effectively conceived but you really cannot measure it very well. >> the critics will say you have been waiting for high interest rates and it not come, but at the same time, you write "grant's interest rate observer ." learnedility have you since 2007 about the economy i ? >> so many birthday candles have i burned out, tom. i have learned one candle of the future, every once in a while one gets lucky, but what one can

do is to handicap the odds that others, that the consensus is assigned to the future, and from time to time you get very good seemingly impossible outcomes, but outcomes in the past have been quite commonplace. for instance, low interest rates -- we were talking a moment ago about the great walter badgett -- as early as 1852 before he got the economy stakes, he was writing about the inevitable consequences, john vulcans stand anything but he cannot stand to bring percent, meeting at 2%, undated bond yield in london with intel people to speculate -- >> when will we get the gary shilling economy to move to the jim grant economy, an economy of high rates. >> tom, i've been telling you since 2007 -- i don't know. [laughter] what i think we can know almost

with certainty is the prevailing low interest rates are going to do as much mischief as they have now done great stimulus. they stimulated asset markets, but they will presently do mr.. >> we will come back and talk to jim grant. coming up, folks, well ahead of the midterms, president obama considers an executive order to substantially change our immigration policy. stay with us. it is "bloomberg surveillance." ♪

>> good morning, everyone. a very busy morning. it is "bloomberg surveillance" on this tuesday. i am tom keene. with me adam johnson, olivia sterns. we have jim grant of "grant's interest rate observer." the fed begins two days of meetings. let's get you top headlines. >> a breaking story happening literally right now -- an earthquake reported in mexico has reached a magnitude of 6.3 on the richter scale. buildings shook and mexico city.

it was centered about 260 miles southeast of the capital. we will keep you updated as we learn more. authorities in eastern ukraine say shelling killed 22 civilians and one day. five of them died when artillery fire hit a home for seniors. the u.s. and eu are expected to hit the russian economy with new sanctions today. an american doctor contracted ebola in liberia. withs temporarily infected the virus while treating patients with the disease. officials and five west african countries are trying to stop the spread. the outbreak has killed nearly 700 people. totom, u.s. is preparing ramp up sanctions against russia. joining us on the phone for more is the dean of the fletcher school of law and diplomacy at tufts university. he is a retired admiral in the navy.

admiral stavridis, thank you for joining us. natospray arian's leading simple question, do sanctions work? >> i think they do. a good example is iran. if you think about pre-sanctions on iran, we cannot get the iranians to come to the negotiating table and talk about nuclear weapons, yet today they are doing that and doing that with a reasonable degree of alacrity because of the damage they do sanctions have done to the economy. i can give you other examples, but that is the most recent and current one. >> high-ranking nato officials are speculating that putin invade ukraine. having heard anything like that, and if so, what would nato be doing right now to prepare for such a scenario? >> i think it is a possibility, but at the moment relatively low. relatively low as perhaps one in

four. i judge that by the fact that putin had 40,000 troops on the border. he took some of them away. now he is back to about 15,000 troops on the border. i think putin recognizes an invasion would lead to a complete break of relations for russia with europe, so i judge it to be unlikely but not impossible. in terms of what nato would do about it, i think we will continue to do what we're doing, which is to reassure the nato our eyes in the region, ukraine of course is not a nato ally. i think we would push in the international quarter, but continue to drive against russian activity, and most importantly i think we would assist and arm the ukrainian military to try to stop the ofasion in the eastern part the country. >> admiral, as you point out, ukraine is not a member of nato. what nato involvement escalate the situation? >> it would. that is why i do not predict boots on the ground or combat fights.

support theato will ukrainian military with intelligence, cyber support, equipment, ammunition, fuel, and those kinds of supports mechanisms, possibly some advisers but no more than that because of the escalation possibility. >> admiral, with your experience , one of the themes of "bloomberg surveillance" has been the loneliness of vladimir putin. how does that change our policy? leader of perhaps the a great nation getting very little advice? how can we change that? perfectly that is a accurate way to categorize it. putin continues to isolate himself in the court of world opinion. the bad news is, as you know, within russia, he is extraordinarily popular. his approval ratings are roughly double those of president obama, for example. he topped 80% approval. i think until sanctions really bite and the average russian can see the pain that his in perfect

strategic course is causing russia -- until then i think it will be very difficult to penetrate an inner circle. >> admiral, can we really believe in 80% approval rating coming out of russia? >> on for chile, we should. if you understand the psychology of russia, it is one who rewards the strong russian figure who stands against the world. this is a motive shot through russian literature, history, and culture, so until conditions worsen, and let's face it, russia has not had to face conditions, i think putin's approval ratings will remain quite high. >> admiral, there are questions to what extent this new round of sanctions will have the chance to really i russia because they are not all-out bans. it is not clear whether or not the french will be able to ship out the aircraft carriers to russia. do you think this latest round of sanctions look strong enough? >> they look stronger than they

did read or four weeks ago. i am an advocate of very strong sanctions, as you can tell in the course of our discussion this morning. they have to cut across sectors, as you said. defense, to be a finance, individual sanctions levied. i do not think it is too soon to start talking about things on vladimir putin in his travel. >> admiral, let me bring in our guest host this morning. jim grant of "grant's interest rate observer." jim, a question for admiral stavridis. >> yes, admiral, the russian valuedarket has price-earnings basis as less than the iranian stock market. people say that the sanctions are not biting, but russia is already beaten down at least financially. perhaps the sections have already bitten. >> have these sanchez already clicked in? sanctions already clicked in? >> to some degree, yes, but we need more. >> admiral stavridis, thank you for coming on.

that is admiral james stavridis formerly of nato. >> a highly respected individual. and what the country is doing to avoid collapsing. ♪

>> good morning, everyone. "bloomberg surveillance." i am tom keene. we welcome you with future is advancing, of four, dow futures up 39. aivia sterns has come at news. >> europe's biggest and best,

revenue topped analysts' estimates, but net profits dropped. market worries caused by political instability. the libor scanner will cost lloyd bank more than $480 billion. the bank admits to criminal wrongdoing by employees. and there is a snag in talks between the justice department and bank of america. the "wall street journal" says the shaky loan dealings of merrill lynch and countrywide financial. tom, that is today's company news. >> very good. to washington. call it just in time for the november elections, both parties will play of course and hispanic voters. white house officials suggested to allies in congress that the president will allow millions of undocumented immigrants to permits. work torment

phil mattingly is attached to the mood in washington. he is in our washington euro this morning. phil, is this an end around congress? >> it is, tom, and it is one he president has been threatening for months. he has been trying to put something on the floor, trying to put some sort of broad immigration overhaul. at least move the process forward. the result has been that the administration has long been holding some type of executive action over republicans' heads on this, and they are starting to coalesce about ideas to move forward on that. >> is there any middle ground for republican? see, tom.t i "and i have is the undocumented migrant children issue, that is really sprung up in a cute way over the last couple of months, last month i guess you could say. i was interested to see how that would impact with the obama administration would do in terms

of how they were considering executive action that they will roll out in september. i have been very surprised -- lawmakers, lawmakers' aides, and advocates i have spoken to dealing with the white house on this issue has said there has not been any kind of pull back on the white house's side on this. republicans are much more likely to trench themselves in ago after the resident for executive overreach than they are to find any middle ground. >> phil, i'm curious to know how his fellow democrats in congress feel about negative action. on the one hand, they may not necessarily appreciate effectively being gone around. >> adam, i think the really interesting thing -- and what we will have to watch over the next couple of weeks -- is more details of these types of proposals start to come out. it is the red state democrats that are up for reelection. there are policy implications here that are huge. as tom said in the lead in, we are talking about millions of undocumented immigrants potentially being given work permits or deferred action on deportations for a one-year,

two-year, or three-year period. vulnerable democrats running tough races. he policies are difficult. if they find out in arkansas or alaska or louisiana moving forward on this will have a major negative impact on those lawmakers, it will be interesting to see if the administration pulls off. immigration advocates are saying they are not going to. they're set on a path and that is not going to change, but politics, particularly in september, can change a lot of minds when you're looking to control the u.s. senate. howhil, from where you sit, sensitive is that politics to the rising count of children on our borders? politics, a changed 60,000, 70 thousand, or the reported expected 90,000? >> we have seen it come from both sides. the numbers are verified. there has been a drop over the last month, month over month. i think we were going from about 350 per day to 150 per day in terms of the flow to the border

in terms of apprehensions. i am interested in seeing as that drop occurs, even to your point, that the projections are still out there, 70,000, 80,000, 90,000. as that drop occurs, does the urgency as well? in about four days, you will see every lawmaker and soundly for about five weeks. they are not sure if they're going to pass short scale funding. >> lawmakers get five weeks off, tom. >> we have got to rip up the script. so mattingly, do you get to leave for five weeks? lobbying forn this, but it is the tom keene plan, five-week tom keene midsummer plan. i was hoping you can help streamline that, talk to some of the executive. >> very quickly before we let you go, phil, "new york times" reporting 38,000 have been effectively laced with homes or families. does that alleviate the problem from washington's point of view? >> it does not at all.

it is a big issue, and it is not going away, adam, even iwhen five-week recess. quite understood. so mattingly joining us from washington. dow futures are up slightly, and the 10-year yield still below "bloomberg surveillance 250. >> good morning, everyone. "bloomberg surveillance." -- 10-year yield still below 250. >> could want, everyone. onoomberg surveillance" bloomberg radio and bloomberg tv. i'm tom keene. and oliviam johnson sterns. the scarlet fu is excited to return sometime before labor day. our "grant's interest rate observer guest house, jim grant of "grant's interest rate observer." make goodna has to on bondholders, if not to make a trigger a default on its entire $29 billion of current debt.

why would argentina effectively risk trading a default? >> argentina says it is not just $1.3 billion. there is a lot at stake where if the holdouts that not except the terms of her structure, if they pay them, do they continue to pay all of the holdouts, which can amount to $15 billion, and then if they pay all of the holdouts, does that then pursue a barrage of lawsuits from all of these people who accepted the terms of the restructuring -- >> the supreme court has said yes come argentina, you have got to pay up, so it is the u.s. supreme court now versus argentina. >> well, they did not hear argentina's appeal. they are out of legal recourse, now they are complying with a judge in new york. >> why do you not get the sense that argentina is desperate to avoid defaulting? >> that is a good question.

they say this is not a default. they say we deposit the money, a default is when you do not deposit the money. >> jim grant is over here aging. you have written about this, jim. >> i first covered this during the bearings crisis in 1890. >[laughter] >> katie was not there. >> no, she was certainly not there. look around the world today. people still invest a terrific amount of confidence in government that would seem not to be so terribly -- there is an priced to, the 545's, yield about 7%. 7% is not just a fancy rate of interest when set against the prospect of the republic of iraq, so it is not just argentina that seems to be full of saying flaw about a default.

the world is easy at this point. look at the argentinian currency back 20 years or so. ofis a remarkable sequence devaluations or depreciation. what is argentina's hope here besides trying to get to the next world cup? anwell, they need to balance economy and a sad situation, reserves that are dwindling, they are at $29 billion or so -- >> with that is far less than they were when they last defaulted. >> it is far less from their peak in 2011, which was about $56 billion. when they defaulted, it was a complete mess in 2001. everything was back. these are not the same circumstances as they were then, but the economy is not in good shape. they need to regain access to capital market. they cannot keep going the way they are going. commodity boom for all of their inflows, now they do not have it anymore,

they are running out of money, and they need to gain assets to capital markets. it is a tricky time to lay with fire. elliott have any company, or is elliott all alone? >> they are not alone. several other hedge funds are with them in this battle, and beyond them, there are a number investors, italians that lost their savings in the default that are also suing in various different courts, including the world bank. >> to what extent we look for this as to how now all international sovereign disputes will be settled? >> it is difficult to look at this as a precedent because this is a very unique case. he contracts that argentina sculpted and defaulted on our very unique. they are old-fashioned and not really in existence anymore. in terms of the interpretation of the court, that is fairly unique, experts say. in terms of creditors' rights,

this could be precedent setting. >> katia porzecanski, thank you for joining us. you can read her article on bloomberg.com, get up to speed. coming up, we will discuss fed chair janet yellen is the fed fueling a stock bubble? us know @bsurveillance. ♪

>> good morning, everyone. "bloomberg surveillance."

i am tom keene. with me adam johnson. olivia sterns is with us. scarlet fu will arrive sometime in august. >> also this morning, "in the betty liu.r >> with a lot on the agenda. will be joining us, former assistant to the secretary of state will suck you will be weighing in on in the middle east, and ukraine as we await the sanctions coming out from the eu. on a lighter note, guys, if you had $1 billion, you could probably buy anything that you want. there is one particular toy, so to speak, that billionaires like paul allen cannot get their hands on. >> what is it? [laughter] >> a basketball team? >> the clippers? >> at least one billion or without one. it is the gulfstream 650, which is the longest range jet. this is why --

>> it costs $1 billion? >> no come it is not, it is $650 million, a drop in the bucket for these billionaires. the waiting list is so long that you would have to wait several years to get your hands on one, nobody is selling their gulfstream. >> yes. we did not move up. >> i am sorry. >> the surveillance gulf stream, we did not move up. >> it is just what air methods doing. >> it is, everybody wants a g-6. >> paul allen wants to get his hands on one. he has been calling the jet programs all across the country and cannot get one. nobody is selling them. arnie ecclestone sold his for $10 million profit. these guys do not generally make money on selling jets, but the demand is so high. there you go, adam. that is on your christmas list. >> it really is just like handbags will sit you can get more on the secondary market

because nobody can get one. betty liu, thank you. looking forward to the show. >> more than 35% of americans are facing debt collectors. new data coming out from the urban institute. i'm curious to get your take, mr. jim grant. in theory, the fed with all of this loose money was supposed to make it easier to help people get out of debt. is it not working? >> welcome a low interest rates make it very easy to get into debt. >> good point. so you add more. >> well, yes. i think personal debt is not so high as it was if i'm not mistaken. but the fallout from these ultralow interest rates is perhaps more basic than merely borrowing and lending. it has to do with the dynamism of the economy, and so far -- >> birkin handbags and gulfstream jets. >> a friend of mine says that the real interest rates, interest rates raise above the slate of inflation, substantial,

old-fashioned interest rates are likely shock caught in basketball. they force action. way back in the early 1950's, no shot clock, the games were 14-12, no television coverage because -- in business activity, real interest rates force people with cash balances to make decisions. holding idle balances it is like where they going to stick it. holding idle balances has cost less, so we get faces. >> a jim grant, state with us. we will be back on "surveillance ." ♪

>> good morning, everyone. "bloomberg surveillance." coming up tomorrow on the program, william janeway will join us. always an important conversation. he will be on television tomorrow in the six clock our on "bloomberg surveillance." i am tom keene. with me olivia sterns and adam johnson. welcome to our new york city set. jim grant with us with "grant's interest rate observer." and olivia sterns has our company news. >> tom, microsoft is under investigation in china. officials who enforce anti-monopoly laws visited for offices. china central purchasing agency has already ordered state agencies not to purchase windows

eight. the company will not comment, seeing the issue is sensitive. airbnb is reaching out to business travelers. plan puts the home rental company against giant hotel chains. airbnb have a business trip on its website. oracle is slashing its chief stock grant. the company offered him grants on 300 shares. he has received 7 million annually for the last several years. some shareholders protested over the larry ellison. >> larry ellison has made a lot of money for people. recently i have heard a lot of people taking shots at him, and he has made a lot of money for people with oracle stock. mr. grant is with us. james grant writes "grant's interest rate observer." must or disagree, his read. the yellen fed considers inflation. they consider interest rates. they consider economic growth. the great debate -- should our banks, should any central bank,

attend to get out in front of asset bubbles? steve roach is all over this. he thinks they have got to get out in front of rising asset prices. is it possible? >> no. what is new about this is be fed suppressing and manipulating rates, poor 10 years, from 1941 fed951, what is new is the suppressing and manipulating interest rates while talking up and manipulating higher stock prices. , 1946, the fed imposed 100% margin requirements on the stock market as it was suppressing interest rates, thereby punishing speculations. now the fed is using that -- >> chesney martin said, they have a war to fight. we do not have a war to fight. the war was over, and they had to make adjustments here, but the critical thing is -- do you observe with all your study and all the people you speak to that we can even measure the

difference between rising prices and a bubble? poetic terme is a rather than a scientific one. because people do still, some of them, remember the goings-on in 2006 and 2005, i think bubbles is probably to quickly applied to markets. it may just be high or overvalued or valueless. >> i would suggest two bowties could have a poetic discussion on bubbles. >> two bowties could be a bowtie bubble. >> a bowtie bubble onset. notf yellen and co. were involved, where do you think interest rates would find themselves in this environment? ofif you look at the course history, 6% was the standard rate of interests in banks and the bond market side. i would guess the intermediate and longer term rate would be somewhat closer to 6% than 2% or

3%. >> so we are seriously destroying the market? >> i think so. one can't know of course. i would say a bubble in our midst today, that bubble would be in credit. the fed after all has given us a 0% funding cost. the taking on of a lot of corporate and speculative debt. you know, the sovereign borrowers in europe that were on the verge of default as recently as a couple of years ago, were borrowing and numbers beginning 3%. fo% and >> janet yellen has a knowledge this. she recently said there is a bubble, poetic or not, and biotechive debt, and stocks come in social media stocks -- why is it wrong for the fed to be waiting on valuation? >> i think what chair yellen was

trying to do was to let us know that they know that there might be a problem as a way of -- i don't know -- they can say later see, we told you there was trouble, and you did not listen to us. with a distinct and amazing lack of self-awareness, what the fed might say is we have been suppressing, inflating interest rate. of course there is going to be flyaway markets and asset valuations. it is our problem, and we intend to do something about it by mobilizing interest rate and by announcing that we are undertaking an exercise in price control. >> in august, 80 years of this s ofncial crisis -- 8 year this financial crisis. things are great. things are great in the legal business. for so much of america, that is not true. when did the elite get reattached with america? >> or when does america get the

chance to strive to be elite? >> the election was, the voting booth? >> yes. that we have lost a little, but we have lost the moral indignation that we felt that one time and often continue to feel over the deprivation of the american saver. in the service of restoration of banking margins, and he too big to fail, stupid things, they have suppressed deposit rates to nothing. >> do you share mr. gross' mism, this could go on of low adjusted inflation rates? >> of course they could. people do not know, they just say stuff. it could end tomorrow. i think this exercise in massive money printing, the copperheads of manipulation of the yield curve, of the virtual nationalization of our

speculative finances -- all of this is not meant to last. this is not an enduring program of stability. this is as artificial as it gets. as artificial as tab, the late unlamented acrylic tasting beverage from the coca-cola company. >> tang? >> no, just tab. is now $4ance sheet trillion. where does that money go, did it actually blow up any bubbles, and that was our twitter question of the day. is the fed fueling a stock bubble? here are some of the responses we received. absolutely. someday this easy money has two end. made outyramid scheme of cash. another respondent disagrees -- no, because we're living in the 21st entry, technology, usa, not in the 20th century. what is your take on that, jim? >> the rules are different. >> it is different this time. it is really not, no. >> third and final answer -- the

fed is definitely fueling a bubble. the question is -- how big will it get? jim? >> that is a very good question. well, in the case of junk bonds, the markets have sold off, so maybe it had ended. maybe it ended. >> credit spreads are still very tight. >> they are. i am not worried, but i observe you do not get paid to take credit risks. >> can you buy russia this morning? >> russia is trading below zimbabwe, below argentina, below iran according to economist magazine. you are in luke oil. >> i do. -- witness will now consult luke oil is at 5.9 times of book, it yields 6.2% value. this is the commercialize, western looking russian oil

company. gas is 7.2% earnings. >> is there a moral issue to not invest in russia? >> what we try to do is distinguish the values in russia from the policies that those of russia are pursuing. >> ok, but you are buying state-backed energy companies? >> yes. i think this is different than the war in ukraine. i think this is a financial western. ey even though thei are sanctions, you do not think what i am buying in the excitation that cooler heads will prevail. the buying opportunity -- we will know in about six months where the buying opportunity is, but you never see assets this cheap when it is comfortable to buy them. >> i want to come back when adam johnson wears a third bow tie. jim grant, thank you so much. greatly appreciate it. >> "bloomberg surveillance"

continuing. tom is going to head into the radio booth for the next two hours. meanwhile, betty liu will take over television. olivia and i are going to go get a cup of coffee, but we will see later throughout the day. ♪

>> we are live from bloomberg's world headquarters. we have a great show. will join us for

his perspective. also joining to tell us how he navigates the markets, liam axiom, the chairman of capital. billionaires cannot even buy. we bring you a look at the jet that is the envy of super-rich individuals everywhere. how do you get your hands on one? here is a look at our top headlines. the u.s. and eu is on the verge of imposing new sanctions. they would target --. ubs says it's securities and exchange commission is investigating