markets, crisis over, markets catch a bid on a hope, prayer, believe that janet and mario draghi will react. releasing new toys for scarlet to buy this weekend. they will generate additional tax flow for carl icahn. good morning, this is "bloomberg surveillance" i am tom keene. with me, scarlet fu and adam johnson stories this morning, -- we are not starting with apple. we will get there. >> ebola. spoke afterama meeting with government officials or cord ending the response. >> it may be appropriate for me to appoint an additional person, not because the three of these folks have not been doing an outstanding job. this is my national security adviser. it is not that they have not been doing an outstanding job,

really working hard on this issue, but they're also responsible for a whole bunch of other stuff. >> the white house has admitted taxes and handling the first of u.s. ebola cases. on capitol hill, house members a plenty of criticism for the head of the cdc. tom frieden said ebola is not a significant public health threat to the u.s.. vladimir putin says meeting with european leaders was "positive." sign there is any resolution to the situation in ukraine. ukraine says rebels attacked with artillery and tanks three times in the last day. at least three ukrainian soldiers were killed. europe and the was accused putin of providing pro-russian rebels in ukraine with money, weapons and soldiers. there is concern putin could use the crisis as an excuse to disrupt. is for you. one

tim cook has a new lineup products. to deliver on sales and expectations. the latest devices, this is one of them, the new ipad. includes a fingerprint sensor and thinner. power and moree more performance and more capability and an ipad, our customers and developers have begun to use it in ways we could not imagine. >> more, more, more. apple has a new line of macintosh computers. hold that thought, tom. there is more. last month, the come to brought out new iphones, smart watch, mobile payment systems. the end of the are typically is when apple makes the most of its money. >> i will be buying them in hong kong. >> yes, leaders have agreed to talks with the government aimed at ending three weeks of

pro-democracy demonstrations. police clear the barricades and open roads in one part of the city that has been blocked i protesters for weeks. organizers estimated one point that were drying up to 200,000 people a day. now those crowds have twiddled to just a matter of a few hundred. >> baseball, baseball. what a strange world series. further third time in the five years, the giants are going to the world series. through-one blast in the bottom of the night to get the giants a 6-3 win over the dreaded st. louis cardinals. the giants won national league champ in chip series four games to one. next up, the 33 to one odds, kansas city royals. game one is tuesday night. those are your top stories. housing starts at a: 30. -- 8:30. >> and to forget ebola. it has cast a pall over the

market. >> which is bigger, isis or the threat of ebola? >> let's do a data check. next screen, please. down. vix has come >> it has come down a bit. slightly weaker ruble. 10-year bond. a point 14%. -- 8.14%. p will do my zztop impersonation. this is the angst were looking for. greek debt to german

debt. >> i like the word you chose, angst. in other words, it look at the equity markets down 10% from the high back in september and we think, it is so bad. it was only nine percentage points. >> do you realize our entire control room has no idea who is easy top is -- zztop is? finding a collective bit. what to make of this tumultuous week. how to respond to stunning volatility. advises hedge funds. let's cut to the chase. how are your clients? it has been, to put it mildly, a white knuckle ride for the last record too. i will say back to maybe adam's point, you're just showing the vix. volatility for english majors --

>> that is going to be next weeks single best chart. both are just about 30% over the past 30 years. on indie given year, -- on any given year. week, up until last europe was in the 9% range. asleep. >> where are we now? >> 21, 22. >> i get we're still way less volatile. what i'm getting at, this is a return. i think people have gotten accustomed to the fact equity rates are not volatile, and they are. >> the core idea this morning, central banks. where are we on qe? i've lost count. >> five? four? >> somewhere in between.

my own personal opinion is you of reached the limits of what you can expect monetary policy to do. was an apocryphal story that ben bernanke got rejected first mortgage, but you can increase the reserves all you want to draw the cash out there you want, but if you operate a tree system that our banking system that is still tight, the velocity of money continues to go down, which is exactly what is happening. it helps at the margin, but it is not resulting or helping the people -- >> what is funny, first you and the team started writing about pushing on a string like three years ago. we are back to that same point. markets are higher but the fed is pushing the strings at the end of the day. >> none of this is really helping the people it is supposed to help. don't want to make this a class thing, but people with

assets, financial assets, stocks, have done great. the average person is not enjoy the fruits of the recovery as much. that is because the money is not getting into the system. >> what are we going to do now? here's a supersecret jason trennert chart. the line going up is quality in the line going down is garbage stocks. we are all on the race for quality, right? >> i actually think after this settles down, you will see maybe a little more ever broadening out, things like small cap's, things that have gotten beat up particularly badly will probably do a little bit better depending on how you define quality. german bonds which are now 75 basis points -- >> hold that thought. and negative on the two-year. >> in a world like that, you don't have to take a lot of risk to get a lot of incremental --

you can buy apple and get 2.2% dividend yield. >> we will talk about apple in a bit. it isn't this a case where people are just going to sit on our hands until the meeting in october? >> in many ways, we have been held hostage a little bit to policymakers. if i were a central banker, i would say, how about a little help? how about politicians, feel free to get involved. >> good to have you here this morning. we will talk about europe in a bit in this hour as well. >> should we pose our twitter question of the day? it is short and sweet. what are you buying now? treat us -- tweet us. >> google shares are falling

after missing estimates. what should investors get excited about when it comes to google? we will discuss. we will be right back. ♪

>> this is "bloomberg surveillance." we are taking a look as shares of google, down in the premarket. earnings per share and sales missed in the quarter that just ended. it is about a slowdown in search advertising and heavy spending r&d and herring. spending increased a must 50%. websitest google's own

rose 20% last quarter versus 23% the same time last year. advertisements keep falling as well. mobile at prices dropped 9%. >> the stock is down premarket. what i cannot understand, paid clicks up 17%. the amount of stuff coming through the door is going up, but the actual clicks themselves -- i wouldlower think 17 is bigger than 2% and that ultimately would be more important, but clearly, the market is a different opinion. courts let's check in with our guest host. you look at a the results as well. certainly, the core business is of concern because it is maturing. many analysts are focused on the side businesses that google has invested in. will this make a difference for the company? >> right now the core business

drives the company going forward. their growth is starting to slow. we start to look at android, google play store, and areas like youtube. up 70% ofclicks were that growth is decelerated. not only are the costs per clicks -- >> i use google on my phone. is that with this is about, less on my desktop? >> that is a big part of it. google -- mobile search is going up and they say those clicks are going up at really not have conquered -- >> what is this what factor at google right now? >> they have to look at these other businesses. >> but what is the panic? these guys walk around like, were not evil, happy, happy. >> pivotal rish shirts says google should account for more than 50% of all internet related advertising outside of china.

it already captures more than 10% of all global advertising. it is a dominant position. >> but is it too big? >> that is sort of the problem. they capture the world in the pc era. facebook is a really big player in mobile and then you have reallylike alibaba ramping up. google does not have any part of those is this is. >> i don't want to put you under pressure, but will they invite google -- >> that is the top. >> i love uber. i don't know where that would affect their core business. the just a click, it would be interesting. >> family focus on the fact google trailing has $11 billion in free cash flow? >> not unlike apple. massive cash flow. is that a theme for you, jason, just follow the cash? >> i think it creates an enormous put under the market,

specially large-cap tech when you have that much cash, you have a lot of flexibility to enhance shareholder value if you need to. google hasn't needed to recently, but maybe it will follow in apple's footsteps. >> google has several classes of shares. singer growing -- on tech companies. that will be more the case as the primary markets mature they can't get the growth they're accustomed to. >> you go where the money is. a lot of the cash on the balance sheets of u.s. corporations, a good portion is large-cap tech. in many ways, you can at the claim or i would that many of these companies are over capitalized. a point. have can't haveing, you it both ways. you cannot keep the cash -- this that point, what is

beer is the a google or apple for big, dramatic acquisitions right now? >> google is a lot more into it than apple. beats withstanding, apple is not making any large acquisitions. google has been successful in some of the bigger acquisitions and also unsuccessful. ?> what is the real worth >> at no, i would probably say $15 billion. >> $11 billion in free cash. 3% debt. >> it is a taxi dispatching company worth $15 billion. >> with some regulatory issues. >> what is it going to be worth in 12 months? new way ofle logistics. if you look at some of google's core businesses, it would align well with some of their data. >> did you know children can use ube around the world on yourr charge card?

it is like a utility. >> imagine that. we should point out that the latest issue of bloomberg business week is on newsstands today. it features that man right there . $2.2 billion is what he paid -- >> for the l.a. clippers. >> coming up, admiral james will bes, now the dean joining us. we will be right back. ♪

>> good morning, "bloomberg surveillance."

let's get to a morning must-read. here is adam johnson. capital of the economic advisers now at stanford university with the hoover institution. kid?d you use a ouija as a >> i would freak out. >> i remember them. i would move them to freak my friends out. >> a disruptor.

, how do you come up with your gdp forecast? >> we have models that are based our chieff what economist does. classic gdp equation and build from the bottom up. consumption plus investment plus government spending plus exports is kind of the way we do it. >> to you by the research the blue-chip advisers is just as good as anything ousts? >> i think there is an element of truth in the idea you want to talk to people. this is somewhat foreign on wall street. if you are an economist, you want to talk to people that run businesses. to determine what the growth of the -- >> standing there. >> there's a lot of wall street economists you can spend your

entire year at of the career and not spend any time talking to somebody who actually has gotten her hands dirty. i think there is an element of truth in that war was to in that. another morning must-read. influence the global dragging us down. it goes back to this week we were dragged down by fears of european slowdown, importing deflation, importing quick what i'm glad you went there. this is key. within the correlation of us to europe, is it about gdp growth or much more about prices, interest rates in deflation dynamics? >> in that regard, the u.s. economy is still 70% driven by with quite consumer spending.

>> net exports for the u.s. are a drag. negative -- >> because of the import. >> we import more than export. the best thing you can say about europe is, it just doesn't grow that much to begin with. the delta or in terms of what you're losing isn't all that bad. a policy error could come down to the fight within the ecb, within the eurozone about germany's role versus that of the periphery. >> christiana, how much do you see the global growth in terms of tracking down tech, if at all? >> i'm not sure if it will slow down tech, but certain sectors will be impacted. areas where there is already a -- like smartphones,

where the growth has pretty much stalled and notice the emerging markets that have less revenue bees and and lower yes margins. i really think it depends on where you saturate it and not. tech is a great area with her is so much more for things to grow that there are market opportunities everywhere. >> you just summed up the apple story. christina warren along with jason trennert, our guest hosts for the hour. ♪

>> good morning, much better markets this morning. here is a many data check. across the board, everything better. ruble, i will get to in a moment. weaker yen. all clear on the market front. here is the ruble chart. this is a rate backdrop to what ryan chilcote is with me -- witnessing in milan. you can see the breakout to the right to an ever weaker ruble. i call that putin's litmus paper. we have ebola, ebola, ebola. the islamic state. europeaking our eye off

and we are wrong to do that. this is a real battle i'm going in eastern ukraine -- battle ongoing in eastern ukraine. , all day, up at 3:00 in the morning at these meetings. it has a big europe feel to it. this is different than the other 21 meetings that have been before. withid a lovely one-on-one vladimir putin. how did you get in front of putin? listen, the stocks have been going literally round-the-clock. they were supposed to take off with the german chancellor meeting the russian president at 7:00 p.m. yesterday for their first talks since june. i was in normandy. that is when they spoke last about ukraine. they were supposed to sit down at 7:00. putin was late, so they sit down after 11:00 p.m. in the intel

after 1:30 in the morning. i'm still standing outside behind. the russian president emerges and i asked them, what do you have to say to this criticism, these accusations that you are not doing enough to solve the crisis in ukraine? he looks at me and says, i'm always accused of something. he jumps in his car, waves to me and drives off. little did i know, he was on his way to the former prime minister italy's villa, sylvia berlusconi for two more hours of talks. at least that is what we were told. is,hat i would like to know how does the fighting in eastern ukraine color these meetings? people are dying as we speak. does anyone in milan care? >> they do care. --fact, the summit i am back i am at, is a bit of a sideshow. it has been completely overshadowed by these talks

which are happening not here at the summit. after putin went to bed at 4:00 in the morning and the italian -- former prime minister visited with him at the villa, he went to what i'm calling the breakfast of champions. the meeting attended by every single european leader you can think of. they were all there to talk about ukraine. those talks, we're told, were difficult. then they agreed to have more talks. these are called the enormity -- normandie talks. they will kick off in half an hour. there was a real desire to end this crisis, if are no other reason, of course the casualties -- three more killed over the last 24 hours. 300 people killed since the cease-fire was announced. 3000 people killed since this conflict began. europe once the sanctions.

they want this thing over. >> thank you so much, ryan chilcote. we have breaking news. revenue growth, not so hot. >> but for the full year, on track to hit the higher end. we were just looking at how the revenue beat analysts estimate but third quarter overall revenue rising just 1%. thehows you the state of world. >> correct. something jumps out at me. the industrial segment of 9%, but third quarter earnings up 22%. does that speak to an acceleration as we go into 2015? i think so. if you think about it theoretically in terms of what is happening -- has happened the last week and take out the emotions, interest rates are lower, a lot of input prices are -- thisnd it looks like policy makers may

work harder to spur growth. personally more optimistic on the u.s. economy. >> ge is very different chart than the other ones we have seen. they have been sluggish since june, not september. >> they're trying to focus more on their industrial business. when an apart her was on, -- adam parker was on coming was talking about capital spending and backlog orders. third quarter backlog for general electric, 250 billion dollars, up 9% from last year. is that encouraging sign for? >> this has been a dog that hasn't barked in the whole recovery. which is to say more companies have been intent of maybe buying back shares are doing financial engineering rather than reinvesting their own businesses. google, notwithstanding. generally speaking, a lot of the company's have financial flexibility to do financial engineering.

>> i want to rip up the script. is ge going to buy ipad? >> the ipad is a great custom device for a lot of their enterprise software things. if ibm or other companies can really start to craft unique applications for these devices, great portable computer. >> the nfl teams have a surface and hate it? >> i did not know anyone used the surface. >> i can't see jeff and melt arguing about us officer ipad. microsoft has to train the nfl not to call them ipads. >> that is the smartest thing i've heard all week. can we go home now? >> with a lot more coming up on "bloomberg surveillance." jim bullard joined mike mckee he wants a halt in decline and

ablation expectations. we will tell you what he thinks the fed should do and what it means for interest rate expectations coming up after the break on "bloomberg surveillance." ♪

>> good morning, "bloomberg surveillance."

green on the screen. let's look at top headlines. smoke the pipe, struck the dog, it is going to be ok. shares of google are trading lower. missing estimates. the ceo has been looking for opportunities beyond desktop-based search ads. investing and business software to mobile services to glass to driverless cars, take your pick. james, said yesterday technology has become "the tool of choice" for terrorists and encryption her's the agency's ability to collect data that is authorized to collect. j.p. morgan chase beginning to build a vast corpus campus.

could be on the far west side of new york city. negotiating with officials over a possible $6.5 billion complex. it would include two high-rise towers and become home to 16,000 employees. those are the top headlines. it is amazing. i was watching the high line on the west side. the number of cranes on that side of the city is incredible. >> it is a real statement. >> or a mecca, for that matter. >> the traffic jam in midtown is so bad, you can get there. >> it took me 47 minutes to go from the upper used side to the meatpacking district and that wasn't even all the way downtown. >> if they go through with it, you know what they will call it. >> what? >> the diamond district. is --amond >> the dimon.

>> oh, that dimon. >> christina warren is going, he is such a tool. >> it is called bowtie guy humor. >> let's talk about the markets. st. louis fed president spoke with michael mckee yesterday and here's what he had to say by the u.s. economy. >> u.s. macro economic fund metals remains strong and i think the u.s. macro economic forecast remains intact based on today.a i have i still think we will get through percent growth in the second half of the year and still think we will be over 3% next year. i also think there are bullish factors coming out of this market selloff that are good for the u.s. economy, lower long-term rates in the u.s. is usually a bullish factor for the u.s. lower oil prices is a powerful incentive for the u.s..

i think those are feeding into an already strong u.s. economy. >> with oil prices, citigroup has quantify the effect of lower oil prices and will provide a $1.1 trillion to the global economy. >> it is bizarre to hear bullard talk about like that. to 2000ennert, back yesterday, you see what arguably the smartest most elastic guy on the fed just said, what are we worried about? that sounds like a george bush i i economy. what we're worried about. with what is happening in europe last week, people are starting to get scared that we're forgetting about the ben bernanke doctrine, which i would sum up is to say if you have a choice between inflation and deflation, you always want to err on the side of creating too much inflation. don't get yourself in a liquidity trap.

i'm not sure there is that much to worry about, but by the same token, if you are on the fed you say, listen, the dollar strengthens, a form of tightening. -- ration, commodity inflation, commodity prices. >> weaker commodity prices would be an offset to the rising dollar, right? >> that's true. but at the same token, a really gives the fed a little more flexibility than it would. i'm not so sure they will change the end of the taper. we will see how it pans out. i think that would probably create more uncertainty than is necessary. i also don't think what people's expectations about future rate hikes, i think they keep getting pushed out further. i think that may be more important. >> are single best chart speaks to that. it is from your colleague in washington. what it shows his market expectations of future installation falling. take a look. the yellow line is a 10 year breakeven rate where investors

the annual inflation over the next decade. the white line tracks the odds of one or more interest-rate increases by next year june 2015. it was at 50% in mid-september and now looks like the midteens. those rate hikes -- >> this is the market betting on deadly, betting on yellen, betting on roseanne crane? >> if anything, janet yellen once as a policy goal, i would say -- this is problematic. almost too much of a good thing. close to price stability but you may be a little too close, little too close to the line and what more inflation, especially to help -- jason, these distortions that you and i see, these are not in our economic textbooks. does this distortion play over

mostly to christina's world of technology and entrepreneurship? money is free. >> i think so. if you look at profit margins -- they keep making new highs. people of said for a long time -- it makes people believe -- >> christina, at the technology event yesterday, investor with tesla. a guy like that with tray for -- draper? >> i believe so. >> it is business as usual for them. >> as you said, money is free. they're just looking for opportunities. >> does she know that is a dire straits song? i'm showing my age. >> jason said something important. profit margin resume -- reaching

all-time high. something structural. how much of the structural change comes from your world of technology were you're able to increase productivity? >> it is a big part of it. commodity pricing becoming what it comes intentionally offset your cost. you're able to shift your margins higher to the consumer. risk is more of a social and political one. dislocating -- >> it is not surprising. ishink this is part of -- it in dramatic of that shift. >> phelps of harvard at 8:00 am

this morning. worried about higher interest rates. must watch and listen this morning. from new york city with green on the screen, features of 23. stay with us. it is "bloomberg surveillance." ♪

youe're honored to bring charles peabody in the next hour. phenomenal and the vectors and dynamics of the banking industry. he will give us important perspective. charles peabody really worried about counterparty risk. we will address that as well. >> christina worn with us this morning. you're the perfect guest on the day after the ipad debuts because in a note, this one got my attention, you say -- can we quote you on that? you went there and put it in print. explain why this apple pay i will it, what everyone a

college, is a bfd. >> it is finally doing what all these payment companies, banks, and retailers have been promising for the last decade, which is it is going to be bringing payments on the white skill level. metercard was telling yesterday before the apple pay announcement, they are you had about 80% of the various cardholders or banks on board. that was under nda. since apple pay was announced from an additional 500 banks have signed on, and that is just with mastercard. staples, starbucks, uber, target, whole foods, apple store all on board with this at launch on monday the 20th. you will have this huge 20 million device penetration already of these devices a new finally have all the big banks and the big credit card companies on board. that is finally bringing this together, and that is what we needed. >> what does this mean for

android powered devices? >> it is a good thing. when you're upgrading our systems, they have it built-in. so there's no reason that android cannot use them, too. it does become or difficult depending on the carrier, but it doesn't mean android has to be downtrodden. it does give apple a huge advantage because they haven't all right there. >> i used to carry cash. i don't carry cash anymore. i write two checks a month. kids go, what are those? what is apple pay going to replace? >> you won't have plastic in your wallet. this is actually a true chip and pen replacement for your credit card. what is happening, your card is being to record connected -- not just a copy, it is its own entity. >> my phone ran out of batteries

in the cab yesterday -- >> that is the risk. you're going to get -- >> it will have a huge battery. >> can i handle the manly 6 plus? >> jason trennert, can we handle apple stock trading your the all-time highs? >> i think we can. from my perspective, the stock is cheap. it is a category killer. carl icahn in their -- >> you are still bullish and long after what we have seen? >> i am. it is the future of cash flows and interest rates. interest rates are lower than they were a week ago. as we godo top photos into another hour of "bloomberg surveillance." covering the waterfront. this is in washington. protesting outside the white house, calling for a halt to all flights from west africa. just shut them down.

obama saying -- >> that got some real traction. >> in ebola czar. there been so many missteps, like the second owners who told the cdc, i have an elevated temperature, can i still fly? the cdc says, yes. >> z manual. weeks ago. us a few our number two photo, queen elizabeth and prince philip are visiting ceramic puppies commemorating the falling of world war i. >> jason trennert thomas single-handedly, led the charge on honor of the poppy. explain the symbolism. thank you for mentioning that, tom. that comes from a form -- poem. flanders field. >> we in america see all of our brethren in the united kingdom

with the poppy on the lapel and we don't do it in you say we should. >> there is a canadian doctor who wrote the poem, but a nurse popularized ity here in the states. thatd we will be wearing poppy november 11. our number one photo of the day, the view from the 75th floor of our neighbor on park avenue. the tallest residential skyscraper. the penthouse sold for $95 million. 104 condos. tom has put his bid in. powder blue? >> we all know it is some tech guru. >> that is the building. from the roof of our building. you realize how much taller it is. worn wood not because dead in some slum hole would not be warren

caught dead in some slum hole like that. jason, as always, thank you. let's look at the forex market. euro. ye, strongern stay with us. charles peabody on "bloomberg surveillance." ♪

> wier is coming as putin beats with european leaders. putin frets over frozen euro. on hope,atch a bid prayer, believe that yellen and drug he will act. mario draghi will act. good morning, this is "bloomberg surveillance." i'ms friday, october 17, tom keene was scarlet fu and adam johnson. many top stories this morning. sides to the ukrainian crisis, talking about it in italy when the fighting resumed in ukraine. in milan, vladimir putin that with his ukrainian counterpart and also spoke with others including german chancellor angela merkel. putin called the meeting positive. no signs there close to resolving this crisis. >> markel says there is great

difference is going on. is an understatement. ukraine's has progression rebels attacked its forces three times of the last 24 hours. there is concern putin could use this crisis as an excuse to disrupt natural gas supply to europe this winter. ebola czar mccord made the u.s. response to the disease. president obama says he is open to the idea of having one person in charge. the white house admitted lapses and handling ebola early on. on capitol hill, lawmakers criticizing a response by the centers for disease control. talks we are all scared. we need all hands on deck. we need a strategy and we need to protect the american people. first and foremost. it is not a drill. people's lives are at stake in the response so far has been unacceptable. >> the cdc director was the focus of the criticism. he told the house hearing ebola is not a significant public health threat to the u.s. >> shares of google trading

lower in the premarket, posting for quarter profit and revenue that missed estimates. the company spending more to try to get at cells going again. larry page has been looking for opportunities beyond desk-based search as investing from business software to mobile services, cars, google glass, etc. shares of luxury shoemaker jimmy choo are rising. for is a company known $2000 sandals. selling shares at the bottom end of the marketed range. time choo went public at a when growth jury industry has slowed down. still, revenue growing at high double-digit. in china, where else? >> that is what you whole focus is, china. our focus on baseball. talk about improbable. the san francisco giants are going to the world series. three run homer in the bottom of the night. the giants 6, cardinals 3. they win the national league

championship. four games to one. not bad. they're up against the kansas city royals. game one is tuesday night. the giants-royals. who would have thought? this all caps wit her twitter. you got the black thing going. >> you are referring to my outfit? >> dressed elegantly in black. i did not want to wear black and orange because technically, i am a yankee fan. >> royals? >> i don't know. a lot of people will be rooting for them but -- >> my mother seriously nosediving about sports and whenever she decides to root, it is based upon whether she likes the uniforms. >> let's do a data check. better, better. futures up 23. nymex crude elevated. right on to the second screen.

vi, doublex off the complacency of six to eight weeks ago. yen is weaker. i cannot convey enough the seriousness in the intensity of these meetings in milan. ryan chilcote is there and reported these are 28 hours a day meetings. very different from the normal european blather. speaking of the cardinals, it is a cardinal rule, markets only advance missed worry. the walls were rebuilt. the bears are in their moment. thomas lee is head of research and runs global advisors. he's a just markets cannot move higher without doubt. he is not a doubting thomas. he is a resilient bull. charles peabody with us as well. congratulations on your new shop. you were ebola jpmorgan and still one now? >> that's right. we're going through some turbulence, really pretty scary turbulence for investors. i think it us in a couple of

things. it is headed for long-term and the positive taking a back step. people are focused on liquidity and what is driving the selloff. >> the meeting is focused on the drum of hedge funds with their leverage down this down that. what are conservative people doing given the tumult of the week? >> i think the tone and what their plan of action is really changed. last week, i think people were taking this in stride. the end of last week, the sort of chaos of this week has gotten a lot of people asking, is there's something scary out there? done a lot of work. we have talked to a lot of people. i think it is liquidity contraction, the downward spiral driving this, but the good news is, i think there are glimmers of hope. i'm so confident we're going to rally to the end of the month into the end of the year. yesterday, down 7.4%] ok, not a correction. >> off the high from the 18th to

the low we saw on wednesday. trust peabody, you correctly called the mortgage crisis. , do youook at the world see anything we should be concerned about right now? >> i think margins. i don't understand how you can take the 2% gdp environment, 1.5% inflation and turn it into double-digit earnings growth for the s&p 500 without margins expanding. once you can an industry citing things like promotional pricing for incentives, and you saw this with the banks when the rate structure shifted downward, people gave up on margins. you have to have margins expanding in order to produce -- >> but they are at records, 9.8% 920% for the s&p, -- for the s&p, the highest it has been. >> and they're expected to compute out by the second quarter 2015. >> so we are at the margins? >> i think so.

>> i want to bring in the quote of the week. we were going to do this later, but i think it is really, really important on counterparty risk. the idea, tom lee, and this is charles peabody's observation, the worry of 2008 begins to seep in. answer is, counterparty risk is tangible. do you sense what mr. peabody senses? >> i'm not familiar with his comments. works let's bring up the wuote if you can. -->> let's bring up the quote if you can. are you worried about the behind-the-scenes within the banking industry? -- i think it is a serious problem if counterparty risk does become pro-. isother words, the term

translating into credit tightening. i don't see any evidence of that at the moment. >> i think it is very evident. you're seeing it in job on's and european peripheral sovereign debt. you are seeing it in a number of areas. aboutall -- you talked the reductions of liquidity. you are seeing that being instituted -- >> you are saying this is a permanent change in trend or just these are widening of spreads? widening of spreads is like the same thing is people saying, semi conductor stocks are down 15% and it always means markets top and. that is something we've heard for the last two weeks. industry,the banking charles peabody, you're sensing a seismic change. >> you heard banks reducing liquidity for financial assets. that is a result of the macro

credential tools of the fed employing. the m&a game, for example. there certainly efforts to rein in leverage lending, which is been a key source for the m&a game. we think m&a is peaking. if you look at the primary markets for debt issuance and ipos, it is starting to slow. that is skewed a secondary trading. >> kenny financial system within that tapered or temperate, connecticut the rest of the sectors within the s&p 500? >> again, if there was true credit tightening, that is a negative development. but again, i think there's a difference between a technical in thison -- environment, i don't see how people are actually adding leverage. >> scarlet, it shows the wonderful debate we try to have on "surveillance." these guys don't agree. >> image and everyone was structured for higher rates. -- you mentioned everyone was structured for higher rates. untilyou look at it

december 2015, you're making new highs, which means they are taking off the table the idea of fed tightening. >> in june, he said a city could lose up to $7 billion. do you think that is still the case? >> in fort exchange trades? oh, i would not say that. citi is taking risk at an inappropriate time. i think the culture there is well voiced by chuck prince when he said, we're going to dance until the music stops. that is what citi is doing, taking incremental risk at a time -- >> we will talk about dancing at citi. how are you dancing? our twitter question of the day --

>> good morning. glenn harvard of columbia business school at 8:00 a.m. this morning with eddie lou on "in the loop." st. louis fed president james bullard once to keep buying bonds. this was an exclusive interview yesterday with michael mckee. he said slow growth is still a threat. ,harles peabody, our guest

correctly called the mortgage crisis of 2005. charles, through percent to to gdp,owth, is a -- 3% tangible benefit outside the bond market? mean depends on what you by buying bonds. our feeling is the spread whining trade will get more dramatic and be in three years. emerging market bonds relative to develop world bonds. it is going to be in job bonds relative to treasuries. if that becomes dislocated of, it can knock us off this fragile recovery. we could be talking some time in 2015 about a recession. >> in other words, you're saying the bond market needs the fed to continue buying bonds to provide stability for the financial sector as a whole? >> i would argue, quite honestly, this liquidity is going to get tighter and tighter and tighter. ,> looking at corporate bonds

the spread widens out. tom lee, the money is, does the question is, visit fuld over into the s&p 500? -- does it fold over into the s&p 500? >> to generate a unit of economic growth, you need a couple of units of credit now. it is a big deal. i'm just not familiar with -- bullishness single digit or a continuation from what we saw in early 2009? >> i think there's a structural problem with some people who talk about credit tightness and say that is sort of a driver of the economy. at the end of the day, what really drives the economy is really pent-up demand. the need to seek -- if there is demand for something, the supply credit will come because there's an economic senate to supply whether it is from the shadows or traditional banks. what people are losing side up, investment spending in the u.s.

a 23% of gdp is debt recession levels. it is not because people don't need anything. capital stock is really old. we have a lot of people living in basements. people set auto sales would never get back -- >> we are thrilled to have both of you on. startling different opinions. >> crisis over, everything's fine now. we will be right back on "bloomberg surveillance." ♪

>> this is "bloomberg surveillance." has just reported earnings and it is a beat. when you back out the tax benefits and dva, the accounting adjustment, $.77 per share with analyst looking for on average $.54. on the revenue side, $8.9 billion come also higher than what analysts were looking for. shares are trading at 33.4 the

in the premarket after yesterday -- flush. investors seem to like what they're hearing. >> "the wall street journal" have blended trading up 12%. working number of 9%. charles peabody, this is not goldman sachs. what is the difference between the clarity and goodness of goldman sachs worse is these apparent good headlines? >> the common theme of all caps on market things is the beat on revenues has been in trading. i think your what you also saw was a slight beat in the wealth management. for financialnue advisor. explain to our audience why that is important. >> that is considered more of an annuity source of revenue. the expansion in their pretax margin has been a very positive story. >> 22.4%. >> for this coal -- quarter. is the business people will pay a premium for, whereas

trading is very volatile. the beat looks like it was primarily in treating because investment banking revenues came in around one .3 billion, in line with expectations. the asset wealth management came in around 3.8 billion. morgant safe to say stanley are doing what merrill lynch would like to do? ,his guy was a piñata, scarlet four years ago, five years ago. >> james gorman. >> he is arguably bankruptcy year in 2014. >> i think that is this distinction. merrill lynch is still global when it comes to capital markets types of products whereas morgan stanley is trying to be much more discreet, i guess, is the word. >> busy succeeding by what he is not doing or what he is doing? >> he is succeeding. we're in the sweet spot that speaks to morgan stanley

strengths in terms of their platform. --, equity, and walk wealth management. >> we sell goldman sachs results yesterday, setting aside less money as a percentage of revenues to pay employees. that sets the tone for the rest of wall street. why doesn't morgan stanley set the tone the way goldman does? in theman, like 33% third quarter yesterday, was low relative to the run rate. it will be back up close to the 40 plus percent. >> it might have been an anomaly. >> there is a move to return more of the upside to shareholders. what's we saw that goldman and now here. should we be concerned looking at the different banks and what the report over the past week with 8% growth at morgan stanley when affect jpmorgan and bank of america both produced 14% growth rates, double what morgan did? >> earning your cost of capital

is important because that is how you can demand premium violation. america, are not. citi -- >> they're taking the biggest risk. to get the earnings so they can return capital. that is so important. your purview,om how does too big to fill banks do in the next five years? is it the land of poor tell us partners?- portalis >> it will create opportunity for smaller, nimble players. i think it is good the larger institutions are not all pursuing the same strategy. the one thing i observed during

this, i've been on the street for 22 years and only worked at large banks, i think many of these big banks have actually become bluer chip. tried to eliminate -- it is impossible, but try to eliminate ethical problems in the asustry, looked at try to be transparent as possible. i think the industry deserves better multiples over time. >> charles, do you agree? >> i think they're done a good job at d risking their ballot sheets. that has been forced upon them. you have change from a balance sheet risk to counterparty risk. >> and the big banks? >> he is certainly a runner for that. >> was that an answer? politics. >> a political answer. >> goldman sachs -- >> lloyd blankfein. >> thank you. >> in terms of risk when it's

meant, goldman sachs is one of the best in the industry. that is a culture that comes from the top. >> we're beginning to get to a sum. re-surprised over the last four or five earnings reports? >> only in trading -- >> but is that sustainable? >> i don't think it is. we have turned from good volatility to bad volatility. if you don't have the primary issuance, you're not going to have good second -- >> charles, we're honored to have you here, charles peabody. we need to go around the world on a friday afternoon into the weekend. it is an important hong kong recently. this is one of the bike much of yesterday. scrub it, i would say a lack of violence, but there does. that's a lot of tension because of that beating up of a demonstrator who had ties to a political party. that is tent city. the rows are still occupied by protesters. toabout 200 as opposed

100,000. oniral james stavridis geopolitics will be joining us shortly. please, stay with us. we will be right back here on "bloomberg surveillance." ♪

♪ ♪ ♪ ♪

♪ >> this is "bloomberg surveillance." let's get you company news -- rejected aands sweetened buyout offer and the company will proceed with a $451 million bid for their competitor. momentum or the tv industry moved to live streaming. onlinerolling out a new subtraction service that will cost $5.99 per month and allow internet users to access live broadcasts. thousands of episodes of older series will also be available. tim cook has to deliver on

expectations of their latest products. apple has an of mac computers. lee.r guest host is tom back its losses falling below $80. it's a nice bounce back this morning as opec considers the contingency plans. you say to by energy shares. you want to go along on exxon this morning? yes, i would say that is probably the only change we have seen in the past month. we like tech and health care and the usual but with the oversold conditions in the market, the one thing that popped out as energy stocks look really cheap and beat up. >> i look at anadarko is a premium explorer. it's in its own bear market.

it has gone through that bear market pointed 18%? >> yes, the price of oil is scaring people because we are at levels where production does not make sense. i think there is that worry that has been created. i think it depends on whether or not it's a permanent change or temporary. >> what's the biggest mistake people mistake -- people make in analyzing cash flow? important fors investors when they model cash flow because free cash flow is a huge effect for performance, it correctr applying the normalized margins or excluding temporary factors like companies suppressing cash. >> you are calling this major bull market. thatlked about the thing everybody got wrong was shanking margins. is your optimism based on margins being stable or

improving a little bit for corporate america? i think many people are fundamentally getting the facts wrong. profit margin since 2012 have expanded. what people don't realize is that net profit margin as a function of asset productivity. asset productivity and leverage are quite low relative to historical cycles. >> where were the dow be five years from now? >> i think more in the s&p 500 terms. >> where is the dow going to be in five years? >> i think the snp in the dow in five years will double. that means on the s&p 500, peak earnings around 190 -- $150-100 $90 per share. >> it's important to say will double. that's 14% cash on cash return. will be really

accelerated by investment spending. should be around 26 today which is almost $600 billion of just first-order investment spending. legendaryss is a investor who says he is bearish and must to be in cash. is that short-term or he is he just wrong? >> i have known doug and he is not saying he will be in cash for five years. he is correct to say i don't know what is going on today. i would rather sit back and went for an opportunity. it heregood, you heard first, double in five years. >> looking at the premarket trade right now, futures are higher and shares of morgan stanley are rising in the up almost six percent after better-than-expected third-quarter results and trading revenue topped estimates. onas you look at that green

the screen, some of the magnitudes of the moves are incredible. at 1.85ear yield was wednesday. >> s&p futures are up by almost 27 points. >> this is "bloomberg surveillance." served asmes devris the nato supreme commander. dean of thes as the fletcher school of law and diplomacy at tufts. we are honored to have you here, thanks for being with us. >> thanks a lot. >> congratulations on your new book called "the accidental at admiral." you have said the u.s. is way too late on this war against ebola. is focusedeone who on moving material, people, assets. what should the white house do now? >> first and foremost, we need to realize we will not cure our way out of this. we will isolate our way out of this. that means logistics.

it means moving the material. i think we need to centralize control of this thing. czar.k we need a nobody likes centralization but -- ifwould you serve as a czar you are called upon? i will let the president answer that but to be a medical profession it's to be a physician. >> does that matter if china does not a point ebola czar? if we do it in isolation, it's not very effective. >> this will be a global, geopolitical trend that requires isolation of villages, countries, potentially of regions. this will be a big challenge so whether other countries have czars or not, we will be forced to work together. >> is it our mission to lead? >> i think it is.

i don't think anyone else has the capacity to do this. >> you work at tufts and diplomacy. -- in diplomacy. they diplome. this is out of "the washington post" - >> this is a delicate issue and the military gets it better than we do. >> yes, exactly. there are some odd parallels in the cyber world. we are willing to surrender some of our privacy in the cyber world in order to achieve a greater good to protect ourselves more. i think is the same in his bio epidemic. we have to face the reality. we are not headed for world war z anytime soon but we've got to move more rapidly. >> do we need george patton to

be our czar for ebola? >> we've got to get going. putting somebody in charge to centralize is the right answer. >> i love the fact that you went 149, to that chapter, page the depth of strategic planning. we have to be more tactical and that requires flexibility to pivot. how do you do that? >> i think you have to go for speed. isis is an example. if we had moved at speed against isis, don't think we would be in the situation we are now. we are seeing some minor good news there. it's going to continue to require our lead. >> do you share mr. panetta's criticism of the president? >> i have not read secretary panetta's book yet but i believe we need to move faster in global events as a general proposition

and we have not been doing that last few years. first perked up, why hasn't this shop in india or china yet? >> i don't know the answer to that. it would be interesting to do the forensics. potentially, it has shown up in china and india but it is not publicized. >> i look at the emotion out there. what would be your counsel to to listeners and our viewers get a grip on what our institutions will do about ebola? >> i think we need to recognize that it is not an airborne disease. you cannot catch it across an air gap. as we say in greek, let's slow down on the personal risk point. the second and more important point is that when our institutions kick into high gear and i think they will over the coming months, we have to be ine to have confidence decisions they make in terms of

the isolation. that is the bottom line. >> "the accidental admiral" looking at rallies and stocks in our twitter question of the day -- what are you buying right now? ♪

>> this is "bloomberg

surveillance." we are talking about apple. the new ipad is out and do they have apple pay where you walk into starbucks and swipe your phone and it works. betty liu is joining us now. you take over bloomberg television and about 12 minutes. we finally have a launch date. on monday is when apple pay will launch. all the tanks or many of the banks have scrambled to be part of this system. they see the millions of accounts that apple has and they to realize that consumers will using their phone to pay. ceo will be coming on the program. it is a regional lender but what will count are the retailers. big onesome of the

like mcdonald's, starbucks and others, radioshack. the pentagon has to sign on. is this the way it will be at the pentagon and every other government institution? >> i hope so. we have chained ourselves to one generation or two generations back in technology and part of it is the pentagon is such a buyer and make huge investments and they don't want to shift. i think biometrics in particular are the coming thing and i think the pentagon along with the rest of the government needs to move up. >> because it's much more secure, it seems. you would hope it is. walmart is one big retailer that has not signed on yet. >> that would only happen to be the largest retailer. >> exactly. >> tom lee is focusing on apple in your world of technology, you are bullish. apple is trading near the highs at about 15 times earnings. do you buy apple? >> i think so.

not be based on how stock used to trade or because people think it's a hard where company. it is really a services company with incredible roe. if you look at consumer staples stocks come you say that should get more. i think apple is a true transformational consumer brand. the margins and pricing power atw why is it only trading 15 times the market? in terms of "in the loop," you a look at economic data? >> janet yellen will speak at 8:30 a.m. about income inequality. i'm not sure how much we will have on the current situation the markets but martin feldstein is joining us as well as gun hubbard. ' coming up on >> looking forward to it. that begins in 15 minutes. >> it's like a countdown. >> we are helping you countdown to the market open.

open,ms of the market apple will be reporting earnings we've lost our focus on earnings because of all the turmoil we have seen this week. will the focus returned to earnings next week? >> i certainly hope so. i think people can start focusing on fundamentals again. >> we will be right back right here on "bloomberg surveillance." ♪

>> good morning, everyone, futures are up 26. monday, stephen king of hbs -- of hbs just -- hsbc. good morning, everyone. "bloomberg surveillance," with me is scarlet fu and adam johnson. around.etter tape all the turkish border gets the headlines as the islamic state takes territory in syria. isl second front, consolidates power west of baghdad. control of anbar province is precarious.

general savridis launches his book," the accidental admiral. ." it is quiet on multiple fronts britt wonderful to have you here. we have geopolitical exhaustion. which you focus on more, ukraine or the islamic state? >> i think the islamic state is the immediate tactical threat. next in the queue as winter comes on will be ukraine and the gas pipeline into europe. projectionuld be our for the islamic state? do we need boots on the ground or a better policy? >> we need both. general john allen is trying to build this coalition we are trying to get turkey into the game. they have the second largest army in europe with enormous capability. we've also got to get the firepower coming from the north and the south with the iraqi security forces.

we need a three front war against these characters. >> one of the complications is kashmiri assees the terrorists. >> the good news is turkey is bombing but the bad news is they are bombing the kurds. we've got to reverse that. >> the kurds are fighting the islamic state. >> exactly, we got to reverse that and get turkey into a position to apply military power. we've also got to get boots on the ground and i think we, no one needs to hear this, we need 10,000 troops. >> by when? >> as quickly as possible to provide the on the ground spotting for the aircraft to provide the advice and mentoring for the security forces and be the stiffening elements in these iraqi sigourney forces. we will not get this done from the air. general dempsey said that and he is providing the president with a wide range of options. this is a greatquote from

your book -- convergence is the dark side of globalization. it is the merger of a wide variety of globally mobile human activities. bring that to the ukraine -- as european leaders meet in troop heaven. >> they are and we've got to stand up with russia and get them to back down and get their troops out of ukraine and not use energy as a weapon in europe. this is really a concern. >> what is your to do list for secretary john kerry? >> it's for the entire administration. number one is to get global concern and number two is to strengthen the nato alliance. i think that is crucial to get nato collectively engaged, 28 nations, half of the world's gdp. number three us to strengthen the ukrainian armed forces.

number four is to figure out a modus effendi with russia. through how think to make a relationship with russia work. >> how do we tackle that agenda? you are pretty close with the russian ambassador to nato. does the current administration not place enough of an emphasis on that relationship? >> we need to look at the big spokes of this relationship with russia which are energy, counterterrorism, counter development -- a whole variety of issues including the arctic, piracy, and narcotics. we got to build the big agenda within the context of that, we got to use the personal relationships to help solve these problems. >> where were you on christmas day in 1989? >> in 1989, i was on board a cruise or, the. ussantietam in n gulf >> you are out there on our multiple fronts? >> i was. >> the key thing in this entire

debate is amateurs like me reliving 1989, the soviet union 101. vladimir putin projecting nostalgia for the soviet union or is a greater than that? >> when we talk about putin, i am reminded of john mccain's quotation which is "i looked in his eyes and i did not see us all." i saw three letters, kgb. " he is a reconstructed cold warrior. >> where is the bridge that might bring mr. obama and mr. putin together? >> i would say the best potential for something like summit andng to be a we wanted to move in that direction. >> we've got to look back at this market, green on the screen today. long orthe day to go are you waiting for something

into monday or tuesday or december to say by now? to time't like to try autumn. -- two-time a bottom. there was evidence there is capitulation this week and the vix inverted and there were birkenstocks. i would it and close my eyes. >> i love that close my eyes -- time to answer our twitter question. what are you buying now? here are the answers -- that's very cautious. >> where is the panic on the vix? we wrote a piece about that

this morning. the way to look at the panic is what do you have for protection today versus three months ago? it is inverted. you are paying three points more to get protection today than four months from now. in versions only happened nine times since 1994. what happened after it inverted? thee times it worked during financial crisis. the market was higher 100% of the time. six months later. >> thank you. >> 10 days to a bottom. >> the second answer to our twitter question -- which sector has those best companies of our time? >> i think health care is as blue-chip as you get. like american tech companies. >> can you buy the defense contractors? >> yes. i think they've gotten beaten up and it's a great space.

they price their services and dollars. >> they have taken the big cuts in personnel and are ready to bounce back. stravidis, equity strategist. >> buying swedish blue chips -- >> this is a sophisticated answer. you've got much higher dividends in europe? i think people should by u.s. dividend stocks. >> no wavering in that respect. >> i will rip up the script agenda. has written the most important chapter on our politics, chapter 9 -- leadership challenges and pitfalls on our commanders. you are scathing about washington and what they did to stanley mcchrystal and general petraeus. in annapolisybody

in 1972 aspire to be you if they are going to get blown up on some of their that wilbur mills would not have blushed about 30 years ago? >> i will simply say that people make decisions and you have to live with the consequences of those decisions. we all do. >> are we looking for perfection? >> we are and that may not always be the right answer in the world. agendaeat chapter >> my item is on ebola. the president is considering appointing an able is our -- and ebola czar. the aggregate at number, about one million units, that is half of where we were precrisis. at 8:30ng starts here a.m. which is a litmus paper for optimism. admiral, thank you so much and congratulations. your book is wonderful. congratulations a

new shop. i hope you're right, doubling in five years. >> it's friday. on"bloomberg surveillance" radio continues and "in the loop" is next. ♪

is friday,ning, it october 17 and we are live from bloomberg world headquarters and you are "in the loop," and i am betty liu. -- we had a wild

ride this week. janet yellen is expected to begin speaking in about half an hour. european markets are rebounding and equity futures are in the headlines. i will be joined by three leading voices to put this volatile market it to contacted -- context -- here is a look at our top stories -- a big third quarter for morgan stanley had earnings that almost doubled beating wall street estimates and one reason is an increase in revenue in trading stocks and bonds. we have heard that with other big banks. james gorman wants to improve returns on businesses. capitaluire less equity then trading. the next big appointment from the white