stock market? ferguson is about more than race. it is about the economic divides of america. good morning, this is "bloomberg surveillance." it is friday, august 15. i am tom keene with scarlet fu and adam johnson. mr. johnson gets us started. grewernight, u.k. economy a 10th of a percent. 8% . >> this is front and center. when that sounds good -- in asia, the bank of japan may cut its growth forecast for the fiscal year for fourth time. that sales tax went up and is now 8%

u.s., the entire manufacturing at 8:30. 9:15, industrial. --acity utilization >> it has morphed over the years. everybody still looks at it. >> university of michigan confidence at 9:55. estee lauder reports today. 100 anniversary of the opening of the panama canal. was like the summer book. >> summer reading book. >> 20 or zero. >> on the panama now? -- on the panama canal? >> teddy roosevelt and the urgency of getting it through. they touch on it in a biography.

let's get the data check. futures up 5. what a nice close. yields go lower. dipping below 2.4%. >> nymex crude at 94 at one point. >> american oil, the big showing see,equity in place and 12.42. i put gold in there because it is doing nothing. this is europe. we will talk to gideon rose about this at length in the next hour. this is 30 years ago. this is really nice. what a churn here at 4%. ben bernanke would call this a

hockey stick. is it a japanese hockey stick or -- i don't know what that is. it is a move down. this is the italian 10 year yield. whichnot like germany touched under 1% earlier this week. economic stagnation. people using the word "depression" more often. >> it is understandable. in germany and tracks -- 2/10 of a percent of it is understandable. >> this idea of a just going on forever. we looked at the newspapers this morning, the webpages as well. scarlet fu focused on the webpages. >> we need to start with iraq. maybe the political crisis there

is over, probably not. prime minister maliki agrees to step down after almost four months of deadlock and eight years in office. he lost support of his own party and president obama. it clears the way for abad to take over. friday into their afternoon and evening, there's no discussion of that new government -- >> not yet. curious, maliki was standing there with, how do i say his successors name? >> abadi. >> maliki is standing with abadi. in other words, we are all in this together. that was a powerful statement. not sure what is going to happen, but still. from "the washington post" -- and hopeu have bleak

at the same time? >> some i say that has been the trend for the last five or six years. >> the islamic state just came out of nowhere. some cities were forced from their homes. that is why maliki was forced out. he lost his ability to control -- >> on international relations, gideon rose will join us in the next hour. >> protest in ferguson, missouri, the suburb of st. louis took a much lighter tone last night. local police were replaced by state police. we know there have been several nights of sometimes violent demonstrations after police shot and killed an unarmed black teenager last week and. the protesters were fairly angry about police officers wearing military gear and pointing protests at them. the governor who had come under lots of pressure, made the change yesterday.

>> i would say the single word is "clumsy." >> it was not well handled. >> there has been a lot of clumsiness to this tragedy. >> and how quickly clumsy can turn to disastrous. >> we will turn them with an academic to my professor who's written extensively on this, later in the hour. >> on how did we get to this point. also we will speak to someone who lived in ferguson, which i think is important to speak to one of our bloomberg businessweek types that has some incredible -- >> first-hand experience. icahn, he discloses he has taken a stake in the publisher of "usa today." we got those from the quarterly reports. they were released yesterday. it has gotten out in front of

carl icahn because last week, gannett announced how it plans to split up is broadcasting a network. the fast-growing parts versus the floor. >> fox and time warner have done it. it has been very fruitful. you split those different sides and you can sign a different multiple to each business. >> don't you agree the distinction of those splits is what gets the that -- debt? each deal is different. could arenot cookie credito traits. front pagee the stories this morning. >> we need to focus on what europe is focusing on. you would think would be the economy. no, eu foreign ministers truly urgency meetings in brussels address iraq, in particular, ukraine.

ukraine with the challenges between russia and nato and europe. the convoy of russian humanitarian aid is the most visible. love this as the day simply get -- all of this as the day simply gets shorter and have the coldest winter coming. hans nichols joins us. as you visit brussels, what is different about brussels this time versus a week or month or year ago? >> what is different about this meeting, it is entirely emergency meeting. it is a snap ending. all of the foreign ministers are coming here. there's a crisis mentality. more so on iraq and i say ukraine. on ukraine, they simply want to find out -- they just started meeting. they want essentially find out what is going on. no one really has a great sense of what is happening in these rebel territories. before any decisions are made, they will have to hoover up some intelligence. >> these meetings start with

knowing how they want them to end. what do the eu foreign ministers want the goals to be tomorrow morning or monday morning? what -- we will do iraq first. on iraq, seems like there's a slow march in inching toward having some sort of european wide arming of the rebels. the kurds. the germans are moving that way. they were the foot draggers. they seem to be headed in that direction. difficult to get 28 members to sign off on that, but that seems to be the direction. the political structure in baghdad, that makes it easier for the european union to say, ok, now there is uncertainty in baghdad and we can start earning the kurds. >> i'm curious to know if given what we learned this week, gdp declines for germany and italy, stagnation of france, is there any renewed purchase -- purpose that these ministers have to work together? i'msking that question when

in frankfurt next time. i think that is mostly -- the question is what the ecb does. will germans dragged their feet on some sort of asset purchases to really try to inject more money into the economy? the interest rates are low. but they still haven't figured out a way to meet their targets. france is going to bust their target. it is a challenge. >> hans nichols, thank you very much. he is in brussels. i think what we learned, nothing has changed. >> and europe is all determined by what germany says. our guest host for the hour the global chief strategist at citi private bank. he emerges as analysis of equities at the macro economy. when you look at what is going on in the stock market, we have these headline risks out of ukraine, iraq and the middle east. are these legitimate risks or headline risks? >> these are very legitimate

risks. what they are are risks. they are till risks, things and probable that could end up becoming a bigger problem and so you have to discount them. we have talked for the last couple of months that risk is just not visible in the marketplace. in some places we have seen that is still the case. the chances of oil spike up up 20% over the next couple of months. one out of 100 probability in the marketplaces. these things get priced into markets, and i think they have. you take a look at this mild correction we have had. very broad-based -- >> is it over? >> there are encouraging signs. the fact that credit equity rates, fx, they all move together lately. we finally woke up toward the end of july.

we got out of our sleepwalked and started to focus on these risks all of a sudden. i think that's a good thing. the fact that we have come to grips with this has the feeling of some legs here. >> you link earnings analysis in the american economy. who is right, the cup half-full people or the cup have empty? that is philosophical. >> it is partly an issue of timing. in a sense that profits are high . they are still growing. how many more years of this can we have? we're talking about europe. the one thing you said, u.k. was up .8 percent. u.s. was up 1% on a non-annualized basis. europe is still depressed. it is probably four years behind the united states in terms of a recovery in terms of

deleveraging. longer -- in the u.s., we have had 3.5 years of almost 200,000 job gains per month. we probably have two to four years of economic growth your before some kind of cyclical setback. long.be i don't mean to sound trite, but that sounds pretty good to me. >> that is something along end of the bond market, long leading in us posted credit at these markets, which are not so long in terms of leading indicators. the yield curve is a long-term leading indicator. ath the federal funds rate zero, it is hard to believe in the next 10 years the funds -- >> steven wieting is optimistic and can stay around. you have a twitter question today. they have been hugely popular lately. >> and i think this one will be as well.

>> he is on vacation right now, but it is a working vacation. he's putting up several fires at one time. is it a domestic crisis? foreign crisis? >> is a ferguson, missouri or a rack or the fact that his own party is pulling back? >> send us your answers. , coca-cola taking a monster stake in monster beverage. onwill discuss right here "bloomberg surveillance." ♪

>> good morning.

coming up, the op-ed of the week, we will speak with a.m.ssor feldstein at 9:00 "in the loop" with betty liu. that at 9:00 a.m. this morning. this is "bloomberg surveillance." i am tom keene. with me scarlet fu and adam johnson. i feel like i need a monster energy drink. >> we all do. >> just got your local coca-cola distributor. they're taking on a minority stake in monster beverage. the price tag is about 2.15 billion dollars. the move is to get in more aggressively on energy drink business, which has been growing and doing quite well. earnings that coca-cola this year, if you look at the consensus estimate, flat. zero growth. >> people aren't drinking soft

drinks. it is seen as not healthy. people are moving toward energy drinks and healthy drinks. coca-cola is been trying to make investments in those areas, but not really gaining much traction. this is a deal in which it really gets to take on monster's natural sodas and juices and at the same time, it moves its energy drinks but which include burn, mother, and play. the satellite tricks up your alley, tom. >> wikipedia. the drink is not recommended for pregnant women. it is caffeine. it is essentially a new delivery of starbucks, right? >> straight to your veins. put don't know why people it into the temple. >> do you? >> i don't, but i would take coffee intravenously if i needed it. >> this is bad stuff. sugar and caffeine. >> in my view that for your body, but it is good for the stock.

wells fargo says it is a win/win for coca-cola and monster. in addition, monster gains access to the international market. >> i've never had one, full disclosure. is it better or worse than a coke classic? >> that's like, which is more negative, negative two were negative three. >> i'm serious. which is better or worse for you? >> i don't know. >> maybe that should be our twitter question of the day. >> we will do it on monday. >> bonnie herzog gives it a thumbs up. the transaction. we will continue to follow the stories and others. coming up, we're going to talk geopolitics.

whether it is china, the middle east, ukraine or iraq. gideon rose will be our guest host in the 7:00 a.m. hour of "bloomberg surveillance." ♪

>> good morning, "bloomberg surveillance." futures up 5 off the bloomberg terminal. let's get to the top headline this morning. celebrating second of his trip to south korea, some 50,000 people packed the world cup stadium. it is up and waited some four hours for the ceremony to begin. it was the first papal mass in

the nations history. another huge crowd, this one marching in pakistan. the opposition leader calling the prime minister's ouster. he wants sharif to step down. sharif is accused of fraud in the national election 15 months ago. he is struggling to revive pakistan's economy and end the taliban insurgency. major league baseball, the chief executive is rob manfred. he will secede bud selig. major league baseball has had labor peace for two decades and revenues last year of eight leading dollars. those are the top headlines. >> this is contentious. as to one of the boston red sox was part of the debate. they did the old contentious vote and unanimous vote afterward. who are they fooling? i don't get who they think they are fooling. >> is that like the federal reserve? >> yeah, i like that. >> good analogy. everyone debates and in the

decision is unanimous. >> he was interim commissioner forever. i think the headline is, there has never been as successful, happy commissioner. morning must read this morning. >> this blew me away. this comes out of "the new york times." >> i did not know that. >> i am blown away by those figures. cars?destrians killed by >> have you noticed tickets for moving violations have gone way up? >> i remember moving to new york

and being surprised at some getting run over at 6th avenue and of being in section b of the newspaper. in other cities it would be, "oh, that is terrible." but in new york, it is not. >> i never really look at the speedometer when i drive. >> this is serious business. i wanted to share those numbers. >> coming up, we're going to discuss whether corporate earnings can sustain this bull market going forward. this is "bloomberg surveillance." ♪

>> some of the smart stories on morningd, a gorgeous after a terrific rains earlier this week. record rains in long island. today, all clear. rose-colored glasses. good morning, everyone. it is "bloomberg surveillance." i am tom keene with scarlet fu and adam johnson. just more more to talk about. data have a bit of a check. in terms of economic data, there isn't a whole lot that is going to really move the market given week had retail sales earlier this week. we do have producer tresses. futures up slightly. yields are down.

below 2.4.holding -- the 10-year holding below 2.4. , 1%,ven germany is so low even though we have inflation, germany is going to pull our ten-year lower. >> we saw that with italy this morning. >> crude oil continues to fall. what did you say it was, the lowest since when? >> the lowest we have seen roughly seven or eight weeks, off the top of my head. >> it is friday. you and i could start a bar conversation at 4:00 talking the italian -- >> that's right. >> tell us about your chart. >> you want that? i'm so excited. twice? here's the italian yield 20 years back. here's the turn of normalcy.

crisis reversal. we have never been here. this is italy. his is a big, sophisticated economy. economists call this a hockey stick. >> it is an economic term. this is a victoria hockey stick. >> now it is a shaft. >> a hockey stick for really tall player. >> who apparently is still growing. talked about trading down, macy's, nordstrom, walmart all lowered their eggs forecast as s&p 500 companies post profit gains of 9.5% on average. steven wieting, our guest host for the hour. how can, given the fact consumers count for 56% of gdp excluding health care, how can you have this diversions where retail is really struggling even as the s&p is a hold as well? >> bear in mind, retail, when

you think about in-store retailers, they are getting displaced by the internet. it still in sales. importantly, much more important point about this expansion, this is the first time since the 1970's we had u.s. economic expansion where the savings rate has plunged in the trade deficit has exploded. we have a different composition of growth with stronger domestic production and improved performance for lots and lots of areas of the economy that would have gotten displaced by imports earlier, to some extent. there is gross. it is not in all the same places. i think rove is moderate and profit margins are high -- i think rose is moderate and profit margins are high. we do not have to peek out immediately and profits as long as the economy is growing above trend. it is doing that when the and implement rate is falling.

you can see margins persist and gain a little further. >> what sectors do you rely on as a leading indicator? >> when it comes to earnings, financial profits lead not financials. that is a pretty clear case here. ultimately, they will tell us where industrial profits will be. if you did see a real demand, the meaningful one, in up and downiods cycles and then huge revisions. but mean a real demand downturn, it will give you a drop in industrials later. >> just so i can understand why financials lead not financials, is that because loans are being made and placing put to work in the profits grew from all of that extra -- >> credit conditions lead the economy. what is going on in the treasury market -- interesting thing about the italian chart to me talk about inflation and downturn.

there's confidence in the credit and eurozone among for free members who have long-term issues with the size of their debt. >> if you were to talk to citigroup customers right now, and i think the research and the others during granular -- what are you telling people about yielding confidence for october and december come here is why you should be confident? this,ould say, underlying you know, the financial system is in far better shape. in europe, it is better late than never but certainly late. credit conditions are improving. the economy still has pent-up demand. there's been none of this internal financial disruptions that would lead to meaningful downturn. that this really has a broken down to any meaningful extent. >> i wonder, with the slowdown in housing, the federal reserve has cited that several times, adam retailers results being

lukewarm, indication that consumer spending is pretty fragile. could that in peril the m&a we've seen are the early stages of the capex we are seeing? >> class of the composition of growth has changed, it would definitely include single-family housing. there's a lot of transactions. a lot of people own homes that are buying other homes and vice versa. but if you talk about marginal buyers, someone who doesn't own a home in new survey them, the demand levels for new single-family home from non-homeowners, about one third of long-term average. there is a real shift away from the desire to be a homeowner. housing is stronger and really has nothing to do -- it is weaker now and really has nothing to do with interest rate or mortgage rate level. will point toe that, but they don't come to the fact the mining sector is growing at a double-digit pace and providing gradually about as

much employment growth as you would see out of subsector much larger sector like housing. >> last question is i want to circle back to the consumer. the fact both nordstrom on the online sales and amazon, which is all online sales, posted some issues, problems, shrinkage. should we be concerned? >> i think we're in a very moderate growth pace for broader consumption expenditures. it could approach 3. i have a hard time the second order earnings which are 11%, but i don't think that is a real underlying surprise to investors who have less optimistic expectations that is really strong hockey stick estimates. >> coming up, steven wieting, you mention housing. personal best chart shows challenges first time homebuyers face. we will discuss coming up on "bloomberg surveillance." ♪

>> good morning. our twitter question of the day -- that is a serious question here on a friday and is most interesting geopolitical summer. gideon rose will join us in the next hour. let's get to adam johnson here

on "bloomberg surveillance." dispute risingw over refugees and that a wrecking mountaintop. thisgreen berets say miniature in crisis is over but some kurdish officials warned that help is still needed. the islamic militants have swept across the region. truce is easing tensions in gaza. the five day cease-fire worked out by egypt is still holding. israel not commenting on u.s. reports which criticize the conduct of the battle. more than 1900 palestinians and 67 israelis died in the monthlong fight. scene.goodbye to the candlestick park in san francisco is closing. paul mccartney's concert was last night, the football show. it was the longtime home of the 49ers in the giants. it will make way for a new complex.

that is the passing of an euro. >> the beatles their 1966. i saw willie mays play there. >> that is cool. >> i was this tall. coming outthe coffee of my grandfather styrofoam cup. i remember willie mays baggy pants fluttering like a sail. because it is 55 degrees when you watch a game in candlestick. >> it was miserable. let's get to the single best chart. >> it is on down payments for homes and how it is going up across all segments of u.s. housing markets. the rate of change is the past as for the cheapest 25% of homes. that is the chart on the left. the average down payment is now 7.5% of the sales price, up from an average 4.2% in the years leading up to the recession. the results in the 79% increase in the down payment. for the middle, the size stays

raten 8% but still at 7.3% of change. at the high-end, since you are high-end guys, down payments rose thomas 21%, up 10%. >> he says getting a mortgage now, he says --steven wieting with us with citigroup. berkeley, is this holding back the american housing? >> it is compared to the bubble period, probably closer to where your part of the whole bubble period beginning. it is having some effect. as i mentioned earlier, sort of the desire to even do this has come down some. i think there's a whole friday of things that are holding back traditional single-family housing. rental apartments are being built. a there's a lot of contradictions here. you want all of these policies to bring the economy back to

where they were, but you want all of these other policies to prevent us from ever having any kind of financial distress. i think it tends to be backward focused. >> we have a surveillance correction. it is not fluttering in the wind. luffing. ned, thank you for e-mailing in. >> e-mailing from cape cod. >> let's get to our photos. >> we have some good ones. this is cool. number three, in russia. sort of like the tank olympics. >> sochi. >> yeah, sochi. i think 12 countries are represented. some 60 companies. >> mainly -- manly. sport.nly

there may even be some u.s. companies. i did not realize that. >> there are no opening ceremonies for this. >> awesome photo. came up witheric that. >> let him know he can stay until monday. >> number two photo, what is it, fruit ninja? this is a real ninja. an expert swordsman. i believe this is in los angeles at the grove -- >> this is photoshop. >> i think this is the real deal. >> this was a promotional thing. you know, everyone loves to play fruit ninja. it would be like, i don't know, if you went to the farmer's market and the did a promo for

farmvillers or whatever. you're not buying that. number one today, victory day in japan. this was the day when japan surrendered -- >> 69 years ago. far, seminalso work capturing that moment. there's been some debate over the past year or so whether that was staged. still a lot of people look at that as the moment. >> "life" magazine. and skill put this on one of his own covers. gil put this on one of his album covers. >> i had it on a poster in my dorm room in college. >> such a romantic. >> like the naked cowboy.

until monday, those are the photos. >> coming up, as the nation watches protests and rioting in ferguson, missouri, we're taking a step back to see how this suburb ended up where it is today. what kind of conditions led to this event. we will discuss it right here on "bloomberg surveillance." ♪

>> this is "bloomberg surveillance." tom keenet fu with and adam johnson. company news from the files of bloomberg west. investigating the auditor cording to "the wall street journal" said matan a social network $6 billion valuation last month before crashing back to earth. its shares were later suspended from trading. alibaba ipo is so big it is drowning out other hopefuls. at least two other companies are stalling to go public because of alibaba. a record-setting sales of more than $20 billion is anticipated. yahoos chief executive top one of the neglected properties. were semi-reviving yahoo!

stores. reviving yahoo! stores. that is the latest company news. >> we are all riveted i what is going on in missouri. the story of st. louis is the tale of each and every american city, decades of chronic inequality. part of it the reality of capitalism and part of it the desire for separate communities. research shows in each city has a certain character, certain history to its separations. how important is the university of iowa, their shared history and discusses the divide of st. louis and joins us from iowa. when i look at st. louis, i think that delmar boulevard. why is delmar boulevard different than any other major street of divide in any other american city? think st. louis is

remarkable city in terms of segregation, partly because st. louis is a city with southern in its race relation but northern and property. there is a historic segregation reinforced by all sorts of private and public policies, real estate practices, that created this sort of iron divide between african-american north st. louis and white south st. louis. , whiche is the arch shows the expansion of america. continue on that. what is the difference between st. louis and detroit, for example? >> one of the remarkable things about st. louis, which is playing out today, is it is remarkably fragmented metropolitan area. there are over 100 incorporated

municipalities that have over the course of the last century coach the city of st. louis -- louis. the city of st. >> professor gordon, we are trying to understand how we got her in the first place. is it possible to actually point to specific policies, whether there are zoning policies or whatever that enabled this kind of effect of segregation to happen? i think there's really a chain of policies. st. louis is one of the few cities that tried early in the 20th century to his own property -- his own property but it was struck down by the supreme court. covenants was placed on deed and confine the african-american population closely to the north side of st. louis. the covenants were systematic

across the city and even more so in the suburbs as a way of sort of checking the growth of the african-american population. >> professor gordon, which are angle of the militarization of the police. my morning must read is from two members of the commit on national legislation and write in "the new york times" for police department fergusons, the path to becoming a peer military is a short one. it is no surprise law enforcement agents want to use it. there's been a lot of government funding post-9/11 to local police departments. how's that has riveted the attention that already existed in ferguson? >> you have what is a classic story from eric and cities, which is a confrontation between an african-american population of white police force. you put it well when you militarize that, when you give all these communities that sort

iscapacity, the overreaction predictable. >> professor, i'm sure you're aware of, showing support work on segregation in race from the early 19th century were the professor talks about a small movement in people ends up being a larger segregation. isn't that what is going on in any community in america today? >> yeah, and i think for much of the latter half of the 20th oftury, it was a pattern segregation by race and that has been displaced somewhat by segregation by income, which is growing starker and starker in cities like st. louis -- >> so you would suggest the segregation of 2014 is decidedly different from 1963, 1964? >> no, i would not say decidedly different. i would say reinforced more by

economic means right now than by explicitly racial ones. but the underlying pattern is substantially the same. from theood, professor university of iowa,: gordon. gordon. report.old economic ruble does better thursday, friday, as may be russia does a little better. >> i want to get some final thoughts from steven wieting. the third quarter tends to be a volatile one for global equities. do you see that playing out this year as well? >> absolutely. what is remarkable is how quite the first half was. less than 6% injury or correction at the worst point,

calming down. it is finally beginning to move at a normal pattern. >> ok, complacency may be over for now. coming up, gideon rose, editor of foreign affairs magazine will be our guest host. ♪

>> this is "bloomberg

surveillance." >> a maliki steps aside. common ground in baghdad? europe struggles with ancient tensions. the new tension could be depression and deflation. when he lived in ferguson, there was no tear gas. the ferguson you do not know. good morning, everyone. this is "bloomberg surveillance." we are live from new york. it is friday, august 15. i'm tom keene. joining me, scarlet fu and adam johnson. our guest this morning, gideon rose of "foreign affairs" magazine." >> the u.k. economy grew 8/10 of a percent -- 0.8%, way ahead of france. asia, the bank of japan may cut its growth forecast for the fiscal year. that would be for the fourth time. at 8:30, we have the empire manufacturing number. we have the producer prices

index. at 9:15, u.s. industrial production, as well as capacity utilization. i always have trouble saying that word. earnings before the bell. estee lauder. it is the 100th anniversary of the panama canal opening to traffic. fascinating. >> it is. i have read one or two books. >> that is the morning brief. what do you have for company news? >> customer payment card information may have been stolen. the possible breach could have occurred in june or july. an investigation is underway. a film producer controlled by found possible flaws.

apple is putting $700 million on sapphire. material tothe replace glass on its iphone screen. sapphire is harder and more expensive than regular material glass. >> there is a big stock story here. glass.gorilla and this is headed by gd technologies out of arizona. that is a blow. it is a big change. >> this was dropped last night. >> the glass helped. that stuff is very strong. gorilla glass is incredibly strong. >> is it made by gorillas? >> mine was scratched by my keys. >> sapphire is stronger and more expensive. >> we have a wonderful guest to

get you going through friday and the weekend. the world'srough geopolitics. is america in search of an endgame? "foreign affairs" magazine talked long and hard about how america will extract itself from iraq. the endgame will be discussed in the next issue. gideon rose. you have put together this e-book, a compendium of your best work. >> the fundamental challenge is you have a government that is using its power on behalf of one part of the population and excluding others and how do you democracynclusive that helps everybody? no wait, that is misery. you are asking about iraq. the challenge is essentially the same. you have a military challenge in terms of maintaining order and fighting back the isis group and a political challenge of how to together as a country

and have a government that is healthy and unified. withdraws, thes. less influence and control it has over the situation. we are like the kid with the finger in the dike. solution project a that far away from america? is there any proof that we can have a constructive effect or is the endgame is solution -- dilution? -- delusion? a lid on things if we are there. .t is like the old clash song if we say there will be trouble, if we leave, there will be double. has shownnt obama plenty of restraint in providing assistance. what kind of leverage does the the incomingr premised her quest -- prime

minister? --the idea that will be there will be a local leader who is amake everything stable fantasy. obama wants to walk away. he has dipped his toe back in to isbilize the situation it not clear how you get a really better over time. is there a certain amount of arrogance to think that we as americans can go in after we brought so much havoc in iraq and just show up and fix it? >> there is some arrogance in assuming that we can fix it if we want to do. some humility is in order. so is the recognition that we are not the problem and iraq is fundamental problems.

if we don't try to fix it, we have to accept that it is going to go into even further chaos and we may not want that either. end?w do wars >> either with a win or a loss or a drop. and iraq, you have a different game. -- or a draw. in iraq you have a different game. we decided to tiptoe out what the locals continue to fight. we decided to casually withdraw hoping that nobody would notice. >> hoping. this is foreign policy by hope. >> we got out because we didn't want to play there anymore. >> adam, you know this. in investing, if you hope -- >> if you are in the hoping business, you are dead. >> the investing thing is more like you made a bad bet and then you have and wanted to get off your books. >> is that what happened with president bush and iraq?

of this is the delayed consequences of going into iraq with absolutely no plan with what to do the country -- with what to do with the country after you topple saddam hussein. we are still grappling with the question. >> that is true. >> on this weekend in august. are you doing a grand tour of europe? >> i'm taking five days at the end of august. >> in the summer, america is looking at what is the endgame? groupcretary kerry have a of people around the table saying, here is the endgame? or is it one big hope? >> they have no endgame. americans want an end game because they don't like to engage with the world on a long-term basis. u.s. power is an important aspect of global stability, but it also comes at a price.

the real questions americans have to ask themselves is not just what is the endgame in any particular area, but is this a part of the world that we have to care about? do you care about who governs falluja or to create -- tikrit? this detached engagement costing us in terms of our focus on other crises? >> it is not that the detachment is costing us. i don't buy the general conventional wisdom that other people are looking at this and this oneou are letting area play out over here. it could be the opposite. if we go back into iraq, you could take your eye off asia, which is even more important. you could take your eye off ukraine and russia. >> how do you define our isolationism as we look at the summer of discontent? >> i don't buy isolationism. there has been such a threat of interventionism that anybody who

suggests a slightest bit of pullback is tarred with the label of isolationism. ron paul was and i shall wish and asked -- an isolationist. go backe do not want to into iraq is not isolationism. >> and putting american lives at risk. >> you started off by making comparisons by making comparisons and ferguson, missouri and iraq. are we hoping for an endgame in ferguson? >> it has been 150 years since the civil war. the federal government and the national polity has yet to fully integrate the south into the broader national consensus and protect local minorities there. we expect the minorities -- iraqis to do that in a few years. it has taken us a long time. >> that would be a start and arresting foreign affairs magazine.

our domestic foreign affairs. >> we got tired of trying to reconstruct the south after a few years in the 1850's and 70's. essentiallynd said the local elite cannot do it in the civil rights movement. rose with "foreign affairs" magazine. >> so much to cover. >> our twitter question of the day is certainly apropos. obama'spresident biggest crisis? is it international, domestic, your thoughts. >> speaking of international, coming back after the break, we will bring you exclusive sound from mexico's national oil fields. ♪

>> good morning, everyone. good friday morning. this is "bloomberg surveillance." chinese president has spent the summer widening his anticorruption campaign. targets include the head of state security, as well as the star tv anchor, the tom keene of china. [laughter] is he just removing his predecessors influence, dismantling old patronage networks? >> this is really, she who must

be obeyed. be obeyed.ust it is centralizing power. china has a major corruption problem and xi is establishing himself as the strongest leader in well over a generation. >> he's changing the model of being a leader in china. he is not under the old idea of consensus power. >> he is trying to run the entire country. a much more thorough job than people might have expected. >> if we taken at face value, how does he route out -- root out corruption without admitting that the system is rotting to the core? like itou make it seem is not so much a few rotten apples, but not the entire system?

you can target some and save the rest. >> what does it tell you about how far he is willing to achieve his goals like reforming the economy? leader thatto see a actually understands the need for reform and is prepared to take the sensitive steps to do it. whether it can be reformed without the whole thing going to pieces, we don't know. -- jason. was in forgive me. gideon. i was in china about three years ago and a major property developer told me that you must have a partner in the government. how does china try to change that whole way of operating? isstate capital fundamentally corrupt because the government has too much power and it can dominate the entire economy. over time, can china moved to a truly free market? that is something that basically has been very difficult for many

countries to do over the decade. china has been extraordinarily successful on so many fronts in the last two decades that many people say, don't bet against them. likee to say, it looks there is going to be more turmoil ahead in the chinese economy. >> more turmoil. gideon rose is our guest host for the hour. we will discuss the death of a leading candidate impacts a presidential race. ♪

>> good morning, everyone. "bloomberg surveillance." i'm tom keene. with me, adam johnson and scarlet fu. our guest host, gideon rose of "foreign affairs" magazines. let's get to our top headlines. >> state troopers are not keeping the peace in ferguson, missouri. missouri's governor took authority from the police. protesters are angry about the shooting of an unarmed black

teenager by a police officer. is celebrating mass on the second day of his trip to south korea. 50,000 people packed the stadium. participants waited for hours for the ceremony to begin. it was the first papal mass in the nation's history. major league baseball has a new chief executive. rob man fred will -- manfred will succeed at clec -- bud selig as the commissioner of major league baseball. >> it is always difficult. that is my basic take. it is herding cats into a room. getting them to vote. >> the egos. >> i love the reference of billionaire baseball owners as hurting ca -- herding cats. at a38-year-old kid

harvard business school as turning the mexican state on its head. he is the new ceo of pemex. fascinating being a former oil trader myself. >> i think this is a really cool story. here is a company that is nearly -- has had a nearly 80 year monopoly on mexican energy. schoolchildren celebrate the nationalization of the oil industry. this is very emotional. the only reason it has been happening is because the president provided the support for it to happen. he has tapped this 38-year-old emilio lozoya, who is a very much member of the new guard, he is a young global leader from the world economic forum. of transforming the state monopoly into a competitive entity. >> what did he say? how is he going to do it? >> he is going to get money from

foreign companies. changesimportantly, the in the laws allow us for the first time to partner with companies that will bring three elements to the table that will allow us to increase our production rate. number one is technology. number two is financial capital. number three is human capital. theyey lack the funding, lacked the expertise. he is very confident that they can be competitive because the cost of production per barrel is $20. >> 20 books. that is incredible. -- 20 bucks. that is incredible. >> who are they teaming up with? how do they find them? >> he was very coy about it. he would not name names. he would not publicly reveal it. they are in talks with chevron. they have had hundreds of approaches. nearly all of the oil majors. >> when it comes to reform, they are doing everything right. i hope the market ultimately

rewards them and the benefit of that. if you are an international and you want to get your country moving over the long-term, this is what you would do. you would do what mexico is doing over the last couple of years. it would be a great success story. >> to get back to what i was saying about who he is going to partner with, chevron has been publicly disclosed. with all of the major international oil companies, not just chevron. the majors are interested mostly to invest in the deep waters of the gulf of mexico. 53%-60 4% -- 64% exploratory success rate. but we did not necessarily have the expertise to develop those projects and bring them into production. >> they are probably most

excited about digging offshore. the american side of the gulf, mexico, everybody has been digging in and dropping holes. on the mexican side, it has been completely unexplored. they are also excited about the prospects of shale. is that they do not have the same land rights as many countries outside the u.s. and you need a lot of water to develop the shale. >> the fascinating subtext here wantsrybody in the world that u.s. expertise, from the nigerians to the russians. is that the most effective lever ultimately and foreign policy? using big business? can also denyou it. when you are seeing with ukraine and russia is that our response to a geopolitical strike is to remove our economic carrots and

to deny them access and they'll reward for good behavior should be to have access to our technology, expertise, finance, and so forth. >> he is a tough man to nail down. >> he is a tough man to nail down. we had thesed when tragic headlines about the children at the border. i was doing research into what the immigration flows are doing. i saw that people are not really crossing the border to come into the south of the u.s. looking for work because the mexican economy is picking up and that is thanks to the reforms under the new president. the most important are these reforms to the energy industry, which he thinks will bring $50 billion of foreign investment yields to the production of a lot of infrastructure. >> a lot of money. olivia sterns, thank you. >> our twitter question of the day. we go back to the president. the challenges he faces in this august. what is the president's biggest crisis?

this is incredible. adam, sixe had, months ago was totally different. >> completely. >> and you can add domestic issues to the table as well. ferguson, missouri. the nation watches the military police response to protesters. ♪

>> this is "bloomberg surveillance." i'm scarlet fu with tom keene and adam johnson. let's get you some company news. there was a second player in the running for ge's business. electrolux would like to buy the unit. quirky iscalled interested as well. the unit is profitable, but they want to focus on other areas. employees will not have to work opening and closing shifts back to back anymore. thanompany notified more 130 thousand u.s. employees about the change in any mail today. ,000 u.s. employees about the change in an e-mail today. carl icahn has taken a 7% claim in gannett. >> i have something i have to talk about. a classic car has been optioned

for a classic price. this is unbelievable. geo went a 1962 ferrari for $38 million. that is a manga for said car. >> i'm waiting for it -- that is a magnificent car. >> i'm waiting for a picture of you writing -- riding in it. >> we do not know who the buyer was. nother one of these set the record last year for the highest private transaction. highest at athe public auction. isn't that magnificent? tom keene, that one could have been yours. i'm sorry you are prepping and could not put the bid in. >> he might have been the anonymous bidder. the nose? -- who knows?

comfortable sitting here with gideon rose, the editor of "foreign affairs" magazine. what matters to dr. rose. the tumbled of the many elections of 2014, next, brazil. the presidential candidate eduardo campos died in a plane crash. i still can't get over how weak the brazilian economy is. >> it is actually fascinating. one of the most interesting things about these elections is that markets are now looking to political leadership and the desire and ability to implement reforms as the key to whether emerging markets will take off. you see in brazil or indonesia or in japan that the question of is the country's leadership going to actually reform is going to be the key to markets.

brazil has not been a big favorite with markets. a lot of thae election discussion has been about, will new leadership have the reforms sense to do what is best to get the economy moving again? >> i can convey to you how wrong i was about the success of the experiment. does it matter if the candidate for president is pro-capitalism or pro-socialism? it was a shock to many people. cardoza was to a certain extent as well. ausseff has been disappointment to a certain extent. it is an open question. it isbrazil 101 is that largely a domestic economic experience. is that true? >> america has to care more over time because it is the largest economy in the south.

it is a major player globally on the stage. it is going to have a huge, important future. right now, it is not nearly as connected as some others. in the long run, you have to be bullish on brazil. a reformed government that could actually get the economy moving again would be best. president visiting brazil a good idea for washington? >> overtime, yes. u.s.-brazilian relationships have been chilled in recent , but over espionage issues yes, it would be great if we could partner with them over time. >> let's get you a data check. we have economic data coming up this morning, including empire manufacturing -- a gauge of manufacturing around new york state. also, wholesale inflation producer prices ahead of that. futures have added to their gains.

they're up by five points. >> nymex crude. >> that is a turnaround. >> it was down yesterday. fear is receding around the world. >> geopolitical tensions are taking place at the moment. television.loomberg "bloomberg surveillance." bloomberg everything. i'm adam johnson. with tom keene and scarlet fu. our guest host is gideon rose of "foreign affairs" magazine. it is time for top headlines. >> please. >> there is a dispute about the refugees on the iraq you mountaintop. qi mountaintop. the green berets say the crisis is over. marked with the pakistan opposition leader calling for the prime minister's

ouster. he is accused of fraud in national election -- the national election 15 months ago. , saying goodbye to many memories. we are talking about candlestick park in san francisco. the beatles played the park in 1966. the longtime home of the 49ers and the giants is going to be razed to the ground to make way for a new and attainment complex. >> i have fond memories -- entertainment complex. >> i have fond memories of candlestick park. >> i was there ages ago. i was like this tall. it was magical. paul mccartney held a farewell concert. >> he is the guy who had a band before wings, right? >> i think so.

>> you talk about willie mays and race relations in america going back many, many decades. as we move into this weekend, the president has both police in protesters to order ferguson, missouri. it is one thing to observe and discuss these many challenges of ferguson, it is another to have lived the experience. "bloomberg businessweek" spent time with the "st. louis dispatch." wonderful to have you here, jim. we really appreciate your first look here on surveillance." if you were to speak to anyone in america, including the president about ferguson, what is distinct and original? >> one thing about ferguson the people have to recognize is that a lot of people think of the problems that do with race, problems with class and income,

as being inner-city problems. i think what ferguson shows us is that what used to be thought of as inner-city problems in the 1960's in 1970's have moved to the first ring of suburbs. ferguson is as isolated racially and economically as an inner-city neighborhood. people would be surprised by the isolation impac. what i think you were so good at, the advantage of an inner-city is that you can focus on the mayor. centere an institutional to a ferguson, missouri, where you can have that one voice? >> no. because of the way mystery has been organized, there are lots of small municipalities. probably over 100 municipalities within st. louis county.

you have a lot of people who don't have a lot of power. and on thing -- you have a town that is 70% black and the police force and institutions are all white. 5% black police force. people feel they have no power. when all they see is military for our -- power from the police, that is troubling. >> we talked about it being the legacy of civil war dynamics. >> it has much more of the south. -- i grew upealize in st. louis and worked there. >> did you ceased in new zealand muziel play?stan >> i did not. there were covenants that restricted property transfer to blacks all the way up until the

late 1940's. even after that, there were all sorts of reasons that we had racial dynamics that are hurting us now. >> thank you so much. we look forward to your article "bloomberg businessweek." good morning. it is "bloomberg surveillance." ♪

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

i'm tom keene. scarlet fu and adam johnson with us as well. the summer box office. it has changed. it is up and down and up and down this year. success or failure of any release is major. "let's be cops." adam is all over that. "the expendables 3." ."he giver they will determine if the gains will be held. liu is up to tune on the summer box office. >> i am. it feels like it has been a big summer for movies, but we are down. about $4 billion are expected in summer movie sales. oft of it is because some these big movies were released earlier in the year. i took mymerica" -- boys to see that -- and others.

"spiderman 2" and others did not do well. watched "teenage mutant ninja turtles" last week. >> every summer, there should be one big loss boxster -- blockbuster per week and. 2" was an disappointment. " was ault in our stars runaway hit. >> it was such a sleeper hit that i missed it. >> we go to "surveillance" movie expert gideon rose of "foreign affairs" magazine. >> i took my 10-year-old daughter to see "guardians of the galaxy."

there was a very nice talking tree who had one line. a catchphrase over the summer. "i am groot." >> there was no tom cruise voicing or any stars. >> it was chris pratt from parks and recreation. there was a leak of "the expendables 3" -- who wants to see that movie? do you think it will eat into sales? >> it may. try toate is suing to make sure it doesn't happen again. it is really hard to get your handle on people who pirate movies. >> i will editorialize.

movies are losing their magic. >> why could you -- why would you go to the movies if you could sit on your favorite chair? >> i'm into netflix and their original series. you can watch all of "homeland." >> i finally finished "game of thrones." >> coming up, we will talk about europe. how should the epb respond to gloat -- growing deflation rates? ♪

>> coming up, we go vertical with the air force thunderbirds and we have a conversation with the secretary of the air force. we get the view from the top. we being, i would throw up on a plan, adam johnson. >> no dramamine. i have to tell you, the view up there is mind-boggling. we accelerated to 500 miles per hour 25 feet over the runway. then we went vertical. we came out at 15,000 feet and there we are. >> were you stumbling all-around

when you got back out? or did you have your bearings? >> it was intense. it was the ultimate assignment. howard was that the airport was able to get through sequestration -- how it was that the air force was able to get sequestration? it is an amazing story. >> that is coming up on monday. this is "bloomberg surveillance." with tom keene and adam "maverick" johnson. let's get you company news from the files of "bloomberg west." the tiny social network surged to a $6 billion valuation -- shares were suspended from trading. alibaba is crowding out other hopefuls. two of the companies are stalling plans to go public because of alibaba. the chinese company plans to hit

the market after labor day. yahoo!'s cheap executives dumps off one of the neglected properties. it is reviving yahoo! stores. startup that to a yahoo! took over some 16 years ago. that is the latest company news from the files of bloomberg west. >> this week, we learned that euro zone growth -- france flatlined in the second quarter. gideon rose, i'm curious. is there any legitimacy that as things get worse and everyone gets worse together, somehow the country together and they are ultimately able to move forward? >> one would hope. unfortunately, the political crisis has not driven and he went toward greater structural reforms across the board, toward bringing anyone together. the outlook continues to look grim and it is going to get

worse as ukraine and russian sanctions continue to help things contract. it is still every nation for itself. is it still that way? >> it is, although germany seems to be willing to do what is necessary for the whole at the last minute and just enough to keep things from collapsing. the germans won't let things fall apart, but they are also not doing enough to push things forward all the way. the french situation is pretty grim, frankly. the reforms are not there. fault of thee socialist government that is trying to publicize as opposed to privatize? >> their initial move in that regard did not work out very well.

structuralp-rooted, issue that the current government is not doing enough to fundamentally reform. >> what about the prospect of social unrest? where would you expect to see it first? >> the east. you are already seeing pockets of parties in a variety of countries. i do think the problem is social unrest as can -- unrest. i think it is stagnation. it is hard to get things moving again when you have shot all your arrows. prism, a harvard phd in government, etc., how does gideon rose define a depression? there are economic authorities that actually have measures to these things. i don't think we are there. is worrisome that the recovery is not really taking off fully and then seems to be slipping back a little bit. here --onversation

industrial production in the united states versus those european nations, it is like night and day. it is stunning. >> yes. >> stunning. why our economy is growing 4% and europe is flat. >> and speaking of economies that are flat and in recession, i want to bring up russia. more than a week since russia struck back with its own sanctions on european and u.s. food imports. russia is still struggling under tightened sanctions from europe and the united states. isolations choosing and a domestic boost, as opposed to integration with europe and the world economy more generally. that cannot work in the long run. it has never worked and it won't work. in the short run, it is doing ok.

you have to assume that in the long run, his position is going to be weakened or russia is going to further stagnant. >> we go to hans nichols in brussels. i have been to brussels three times and i don't get it. what is brussels? we go to brussels for more what are we going to? brussels, what are we going to? >> they were supposed to be a bridge for political unity in -- unification. you are trapped in this halfway house of europe. >> this is like boston politics. >> the articles of confederation. it is kind of like the u.n. the u.n. doesn't seem to accomplish a whole lot. >> no, but i like the ideas of the articles of confederation. >> they are not fighting each other, they are not at war, let's be thankful. >> let's get to the agenda.

what are you looking at, tom? >> i'm looking at the two items we discussed this morning. ferguson, missouri. to 1963 andcontrast 1964. i thought jim ellis of bloomberg businessweek was brilliant on that. he said there is a major difference here. this is not the city, this is the suburbs. you have major geographical distinction. a bettering story as we opened friday morning. making theose was link between ferguson, missouri and iraq. iraq is on my agenda this morning. aliki stepping down finally. topaves the way for al-abadi take over. what is at the top of his to-do list? the warringit ethnic groups together to fight

off the real crazies in isis. >> tom, you have to head off to radio. >> off to radio. what is onis -- >> your agenda? >> capacity utilization. if our factories are operating at 79% capacity, which is very good, that would be the highest since mid-2008. that would really speak to the fact that this economy whether through fits and starts and it now have 4%nd we gdp growth in this is more evidence of that. >> we will watch that. let's get to the twitter question of the day. we want to be in rose to weigh in on this as well. what is obama's biggest crisis? -- we want gideon rose to weigh in on this as well. what is obama's biggest crisis?

>> i would say losing the senate would be his biggest crisis. >> his most immediate one. >> the republicans would need to take six seats. can they get the other three? >> they have a better than even chance of taking the senate. if i were obama, that would be my biggest concern. >> on the foreign-policy front, ukraine is still the more immediate crisis with more dire implications. that is the outward looking crisis the president faces. finally. his golf handicap. he is working on that in martha's vineyard. between golf and ice cream. >> he is not really on vacation, is he? >> he is not really on vacation ever. he is always dealing with the world. he is never on vacation.

>> even as he works on that golf handicap. >> thank you so much. "bloomberg surveillance" continues on radio. "in the loop" is up next. have a great weekend, everyone. ♪ . .

>> good morning. 15.s friday, guys, august you are "in the loop." i am betty liu. warren buffett reveals the

company is betting big eared all this can be used for a new record price of over $200,000 per share of berkshire hathaway. yes. harvard university professor martin feldstein warns on possible excesses in financial markets and why that is angering several economists. the former reagan economic advisor joins us at 9:00 a.m. bacon and states of refer? which do you it might be an indicator of your politics. prime minister nouri al-maliki has agreed to step down. he will be replaced i haider al-abadi, who has been backed by the united states and iran. soa-cola is swapping