>> live from bloomberg headquarters in new york, this is "market makers." with erik schatzker and stephanie ruhle. selling off are stocks and hammering the currency a day after dilma rousseff wins reelection. >> playing doctor or playing politics? new york and new jersey impost quarantines for anyone exposed to ebola. the white house and happy. -- ain't happy. >> perp is paycheck. millenial -- purpose

over paycheck. not all millenials are demanding that companies show them the money. >> 4 days. >> remember what day it is? october 31. her favorite day of the year. >> i know you are excited about the brazilian elections. >> you only have one thing on your mind. >> halloween. >> are you going to dress up for the show? >> executive producers do not think it is a good idea. i now have to move on. olivia sterns would like to dress up, too. she will show up in a hazmat suit. top business stories. investors are punishing brazil a day after president dilma rousseff was reelected. the benchmark index was more

than 6% at the open, up more than 6%. it is now down 20%. the brazilian real fell 3%. dilma rousseff is promising major changes. she presided over brazil's of growth in two decades. a winner in the battle of bananas. two companies buying chiquita 81 million. after shareholders voted to reject the takeover of the irish banana producer. an offer for chiquita in august. in new york, a five-year-old boy being tested for ebola. the boy has a low-grade fever and is being held in isolation. the mandatory 21 day ebola

quarantine in new york and new jersey are drawing criticism. in new jersey, a nurse who worked with patients in west africa was quarantined over the weekend. she called her conditions and humane. officials plan to release her today. she has not shown any systems -- she has not shown any symptoms. chris christie defended the quarantine. >> i do not believe we can count on a voluntary system. job is toment's protect the safety of our citizens. we have taken this action and i have no second thoughts about it. >> the white house says new policies in new york and new jersey are not grounded in science. the world's best performing ceo, according to the harvard business review, is jeff bezos of amazon. jeff bezos has a toner -- eholder jeff bezos has a total shareholder reserve of 15,000%

since sounding amazon. the runner ups are the ceos of cisco and elliott. -- and iliad. do you know who you would have said? who makes dove? starts with an l? >> you're losint me. lenovo.hold products -- >> lenovo? >> lever. unilever. that is for would have picked. -- that is who you would have picked. >> he would have been a candidate. we are going to move on. down to the wire in brazil. in the closest presidential election since 1985, dilma rousseff came out on top. winning reelection with 52% of the vote. now promising great change in her second term. clearly many brazilians want

change. 48%. how much change due investors need? let's ask jeffrey, head of global emerging markets strategy at ubs. with us from boston. inis not a pretty picture the brazilian financial markets. investors are voting with their wallets. what do they need to see from dilma rousseff? >> a couple things. they need a bubble. a better balance of economic policy. we have argued that the slow growth of the economy in this particular cycle since the global financial crisis is down because the government is too big. crowds out private sector investment and investment rates are low. the currency is too strong and it is tough for companies to operate. you want to see a rebalancing of fiscal and monetary policy. the other thing investors want is better performance, more investor friendly performance by the state owned enterprises.

which have done poorly in di lma's first term. looking for a better investment and dividend policies. more freedom for state owned enterprises to perform efficiently. those would be the things the market once. >> what do you think the chances are that dilma rousseff is going to deliver? >> the first thing she said, apart from the fact that there will be change, which we must welcome, she is focusing on political reform. which is campaign finance reform. that is not exactly what the market wants to see. at thisthe chances point of some sort of structural reform on the economic front are decent. investors are going to have to wait. to see who the new policy -- what the new policies will be and what the new personalities will be. waitingit will be a game. the market is not going to rally until you see some of those reforms coming through. given that after the first term

of dilma rousseff the market once to see proof that this will change. are there any sectors within the brazilian economy where we could see a positive note? >> we have focusing on stocks in sectors that really play out well in this environment. sectors that have got beneficiaries of the weaker real. 2.54 today next year.to 2.70 we are also focusing on domestic stocks that have structural growth trends within their sector. more defensive plays. we like education and insurance stocks. some of the defensive consumer names. we like some of the industrials that will benefit from the weaker array-- weaker real. we are out of commodity names.

there are a few pockets where investors can do things. we need to see what the new policies are going to be. >> you are right. investors want more investment in things like infrastructure and improvements in health care and education. something other than a redistribution of income to brazil's lower classes. to the point that you were making about political reform, brazil is riddled with corruption. i'm not sure that dilma rousseff's objection is to root out corruption, but if reform resolved some of that, won't we see less of the inefficiency that makes the brazilian market -- that plagues the grizzly brazilianplagues the market? >> some of the things about

corruption, there are so many things that could be done in terms of political whatm, it is hard to see would it read at contraption -- what would root out corruption. >> what if she lost? would you be feeling positive about the economy? is it too far gone? have been more positive on the market. you would have had a realistic chance of some serious structural reform to create better conditions for growth. what we need for better growth is a smaller government, lower a lower rates, currency. that would get the private sector going. i'm not saying it will not happen under dilma rousseff but it was more likely under -- had the opposition candidate won. the market is not giving up on

brazil, they are just saying we need to see what the policies will be. brazil benefited from the commodity boom and from the chinese expansion, from globalization. of growth.w sources those have got to come internally. you've got to have lower interest rate and a lower currency. we want to see policies that will facilitate that. we're going to wait for that. >> thank you very much. head of global emerging market equity strategy at ubs. a sigh of relief. 25 european banks failed the stress test. investors say the tests were mostly credible. no more doubt about the health of europe's financial system. stress tests cannot tell us how long it is before those banks start lending again. we turn to francine lacqua in london. what are they saying in europe

about the flow of credit? europe has been seemingly starved for credit now that the banks had been pronounced healthy, is the cap going to open up? >> i wish i knew. serra fromd de algebris, he said the way you have to look this is a pipe. it is a transition mechanism. now that we have credible stress test it means that the ecb is looking through the pipe and saying if people want to lend that mechanism is going to work. the million-dollar question is do they want to land? that depends on the real economy. they will moveay towards lending more money but you have to have demand, which they said is not there. there's a little bit more normalization in the air. have a listen.

, which clientsks have good business ideas, which projects can we finance? all ceos are in let's do business mode. the first time in seven years. new regulations, seven years of a pendulum. initially, it seemed like a very positive surprise. only 25 banks failing. of those, many have made big progress towards patching of the whole in their balance sheet. there appears to be $8 billion of new capital needs to be raised to restore the health of the european banking system. now that investors have considered the results, have they come to a different conclusion about the quality of the stress tests? they were much more stressful than the previous ones. of investors are saying

they are more credible and they are so credible. but they did not knowledge the problem of deflation. 7% gdp, that is more than the fed did. deflation was not taken into account. 0.3% deflation was the most stressful. when you speak to the ecb vice we do not he said consider that deflation is going to happen. that thenterpret this ecb was afraid of putting deflation into the stress tests. or they are giving a message to the markets saying do not worry about deflation because we are there to back you if it happens. shares initially rose for banking stocks and now they are on the decline. analysts said the stress tests are not bad back.

now they are looking through and see an economy that is not going.. -- not growing. figure was not impressive. how are they going to do business if the economy is not growing? >> it is one thing to have supply of credit and another to have demand. francine lacqua from london. >> coming up. chris christie's ebola policy. --tics say the e-book critics say he might scare off people who want to fight the disease. ♪

>> welcome back to "market makers." scientists.versus the governors of new york and new jersey have mandated 20 one day quarantine for aid workers returning from west africa. andrew cuomo and chris christie say they are doing what must be

done. the head of the cdc says it will not help and could even hurt by discouraging americans. dr. tom farley is the former new york city health commissioner. please help us. which side the you fall on? >> on the side of public health people who are saying this is a mistake. it is unnecessary. the cdc has procedures to monitor people. hinder the response because who would want to volunteer if when he comes back he is treated like a criminal. it might backfire. if answering yes to a question going to gore into quarantine, it gives people an incentive to lie. the, let's ignore the stigmatization issue. many people going to africa to help fighting the problem where it originates. think about the nurse in dallas

who got on the flight to cleveland. that is what people have in the backs of their minds. >> the nurse who called the cdc. that is what people are worried about. this is not just a scientific position, is a political .ecision at the end of the day, what matters is public confidence and public health. is it wrong to go slightly too far? you try to reduce your risk to zero you might make mistakes that increase your risk. our greatest risk is not one of poor people with -- our greatest risk is not one or two people with ebola. is that itt risk will spread across africa and maybe to asia and beyond. we need people going to west africa. >> you are more concerned about the stigmatization? >> absolutely.

the doctors and nurses are heroes. for every one craig spencer, we need 100 crake spencers. in west africa. we had a couple and burst -- inhave had a couple embers this country. you have to stop it out where it is burning. >> you feel like people in america are saying it is not my problem. people are focusing in the u.s. rather than where the problem is. we might have 10,000 cases per week by december 1. they will need 7000 treatments beds. the system is overwhelmed and we need a bigger response. >> you write the former public health commissioner for new york city. what is your view? what is the appropriate response? consistent with

the cdc. people who have treated patients should be monitored. they have a system to do that. they report to the health department once a day. we have an outstanding health department in new york city. the moment they have signs of being sick, they come in for treatment. that is what happened to dr. spencer. >> in dr. spencer's case, that is how the system should work? >> i believe that is how the system should work and did work. the people who are at greatest risk are the winds administering to someone who is gravely ill. vomiting. those people are health care workers. from a nurse catches ebola a patient, whose fault is that? >> i'm not in the business of , i'm in the business of preventing. the nurses and dallas learned that infection control

procedures were not enough. they have upgraded things that nurses and doctors have to wear and they had upgraded the supervision. i feel optimism that that will control the spread of infection in health care facilities. our biggest problem is where the fire is raging in west africa. there is no better organization to set protocols for dealing with ebola then the cdc. you are a supporter of what they recommend. how about the latest cdc has conducted itself? questions about what is going on --ernally, has integrated has eroded your confidence? >> there are differences in communication. people are looking for a trusted voice. can contain this problem.

we are not going to have sustained transmission. cdc is still the best public health organization in the world and we should listen to their advice. sharing you so much for your thoughts. i feel more relaxed. >> thank you. >> thank you so much. -- former commissioner of new york city's department of health and a fellow at hunter college. >> much more to come on "market makers." please do not go away. ♪

>> coming up. the end of the road for qualitative easing. how companies win the war for talent. it takes more than a paycheck.

we hear from the former ceo of patagonia. ♪

. .

>> live from bloomberg headquarters in new york, this is "market makers." on "marketek here makers." >> time to cover one of my favorite asset classes. we have been talking about the selloff of asset debt or i want to bring in someone who knows more about this than anyone, jim keenan, the head of americas credit. let's talk about what this last month has been like for you. we havef the things been saying is that the high-yield market is no longer cheap. it is not rich yet either.

we are in the later stages of a credit cycle. how longquestion is will that stage last. the stabilization of the economy, and the environment, is the higher market is still a 6% asset class. it has bouts of volatility. but it is still at 4.5% for the year. when we saw credit selloff as equities did a couple of weeks ago, where you thinking? >> when you look at the real selloff, there were a couple of key things going on. you had a global slowdown. and then you have the real movement in commodity prices. when you look at the entire market, it was really a real selloff that was specific to a couple of sectors. else faded. but there is been a strong balance. >> rebalance -- were you panicked in terms of liquidity?

it seems like people were racing to the door in terms of credit. it made me feel like we were back to 2008. was that the case? >> there were specific things going on in the credit market around liquidity. in general, you saw a correction. there was a 5% pullback, it escalated the full-time percent correction. that affected all markets, not just credit markets. you saw that in equities, you saw that in the credit market being soft. it was severe. but there was a stabilization that went on. are you concerned there is enough liquidity in the credit markets now, given how much money you manage? it's like moving the titanic. can you get done what you need to to make a difference, when there is less liquidity today than there was a few years ago? >> there is a higher level of trading costs. in the investment process, you have to understand the cost of liquidity is coming out. it's fine up until when you need

it. we take a longer horizon with regards to what our investment thesis is. i thought the selloff in the correction was actually healthy. it created more discipline in the market. they got rid of the complacency in the market. it created some opportunities. >> after an episode an spreadsce like that, are widening out while it is happening. they've tightened to since then. are they whiter now than they were since we went into that period of heightened volatility? will he stay there? >> its really wide on those three sectors, energy, and retail. that's were you see the correction. >> i wondered if it taught people and experience about the price of liquidity. maybe they didn't know what it should have been heading into that little episode. now they have a better idea. >> it's part of the price of liquidity, but the price of risk. it's not complacency in the

market. there is more discipline around it. you are in the later stages here. evaluations and credit were full. the value in equities were full. a global slowdown, because of the ebola risk started to heighten. you sort of the ca correction back in the market. liquidity is something that people have to understand when they are pricing the risk of assets and what their investment thesis is about what their exit will be. >> now that we are in the so-called letter stage, or late innings of the game, what are you going to do? you are naturally long. there are lots of people who specialize in distressed assets. they are beginning to lick their lips. looking at the deterioration of credit standards, the probability the defaults are going to rise. opportunities that will come their way to pick up things on the cheap. not so easy for you, is it? >> it's about the mix of the portfolio. we run different styles for different times. i think the distressed cycle is a bit of ways here. we look at the stabilization of

the central-bank policy, globally, the fed is starting to shift. it will be a longer horizon. you look at the credit standards , where they are using, it's certainly more issuer friendly. that being said, most management teams have been conservative over the past several years the same way investors are. it's hard to see defaults really rise up. it's around 1% right now. i think the distressed opportunity is going to be there. it is probably a couple of years away before it starts to come into full. on a regular portfolio, most of our investors, it's what are the opportunities in high-yield? 80% of the assets around the world and fixing come trades less than 4%. if high-yield is back to 6% is providing an alternative for many investors. the long market is even less ball. we like the asset class right a vulnerability, but is something strategic and people's portfolios.

it provides less risk and volatility than the equity market. >> what are issuers telling you? what a things look like to year-end it? >> it slows down a lot. you also have your earnings. there's a blackout season where people don't normally come to the market. i think you'll start to see the calendar start to come back as you start to see the stabilization in the market. i would expect the next month to be fairly sizable. we don't see what we saw in 2007, where you saw the used private equity deals. of the deals you still see our refinancing and continuing to push out the calendar. you do see some m&a activity and some shareholder family activity. three large degree, the calendar is not going to be substantial. >> jim, you mentioned high-yield in particular, maybe some of those bank loans, certainly the bank roads -- bank loans less subject to interest risk than the treasury market would be. normalization of

fed policy, which we might see by the end of this year, effectively you invest? >> you have to look at the normalization of the policy. as they are doing it, what's that mean for the whole economy. what's the relative value to other assets you can invest in. fixed income securities get you two to 3%. -- 2% to 3%. as they are normalizing, what does that mean? what's the help of the economy and health of the growth in the market? in an environment where you start to see an improving economic environment, that is what is driving normalization. that tends to be good for equity. tends to be good for credit spreads. >> leaving tempo, how's that affected your business? >> we haven't focused on that. we are looking at the markets quality ofwith the the earnings and the quality of the companies we are investing in. what we've seen is not a lot of volatility around the markets. the volatility is in focus in

regards to this global slowdown. >> jimmy, thanks. great having you here. >> we come back, the drugstore chain that is not prescribing you apple pay. it is not the one.

>> first, bloomberg. >> and erik schatzker, here was stephanie ruhle. apple pay is had some stumbling blocks.

last week you could use apple pay at cvs and rite aid, this week you can't. they shut it off presumably in favor of a rival mobile payment system under development. how much of a blow as this to apple? let's find out with olivia stern. >> you can think of this as two sides bring up into a battle on the payments industry. on one side, you have apple and all the payment companies. on the other side, it is a consortium of retailers being led by walmart. walmart, target, best buy, cvs, rite aid, they are all banding together to try and form ais thing called current-c, payment system because they don't want to go through credit card companies. they are trying to come up with their own rival system of. -- rival system. it's in development, it is not live yet.

in the meantime, they've turned off apple pay. apple pay will work into it a thousand retailers across the u.s.. that's because any point-of-sale device that uses nfc technology that lets you tap and transact, apple pay would have been live that over the weekend. cvs and rite aid turned it off. >> as a consumer, shouldn't we be happy about this? it's more competition, which should be better for us? >> you also might be very annoyed for cbs and write it for making your life more difficult. >> i didn't have apple pay a week ago. >> but now you want to use it. a retailers are saying you have to use our own proprietary regional system. the retailers want the data themselves. apple pay is pretty anonymous. it doesn't give you as much information about the transactions. the loyalty run all programs come other discounts, directly to the consumer. and again, get behind. >> you are a consumer. what do you think?

>> what i know is how much merchants hate the credit card companies. ,hey charge you a very high fee between the banks and the credit card companies, it's called interchange. in some cases, it can amount to not 10%, but several percentage points. you spende, they make $500 to $1000 on the little box that sits beside the cash register that you have to use to swipe your card. the merchant bears that cost. money to not a lot of walmart, but you added up. tens of billions of dollars in fees generated by credit card transactions. >> obviously, they are trying to avoid that. their system uses slyly different technology, the qr codes the lovely barcodes -- that look like barcodes. the irony is that apple, which you would think is the innovator, is actually siding with the incumbents. what they are doing is

entrenching this kind of monopoly that -- >> apple loves monopolies. they are used to them. >> the alternative was a campaign kind of like what square it took. going door-to-door for merchant to merchant, persuading them either to ditch or not to buy credit card terminals in the first place. >> if you are apple, do you want to go up against amex and visa and mastercard? when i get them in bed with you. ? cut of the getting a transaction. the other thing to keep in mind is by turning off all near field to medication devices, that is wallets ands for soft cards. >> it is a problem for apple pay. i haven't seen -- >> crimea river. >> is not live yet. >> apel have been mad at cvs and rite aid -- a lot of people have

been mad at cvs and rite aid but not apple. offers you increased security. the fingerprint scanner does what a password can't do. i don't know whether the debit card that currency and -- current-c is developing will be like that. >> they say it will be secure. you send a signal that it is not actually sending the -- you don't actually expose the -- is a token system. .rik is going to 20/20 you send a token through the apple pay system, and through this one. it's much more secure than the 1980's swept cards. >> which of course, we are still using. olivia, thank you very much. olivia stearns on apple pays war with cvs and rite aid. >> how companies attract top talent. sometimes doing good is a better selling point that doing well. ♪

>> welcome back to "market makers." workers generation of is demanding more than a paycheck, they want a purpose. more companies are trying to show how the use business as a force for well-being. can they win the war for talent? let's ask chris thompson, the former ceo of patagonia. buynow many people like to patagonia gear, or tom's shoes. in terms of recruiting talent, is it true that potential employees superstars really care about the social mission of your company? >> they do. there is no question in my mind that really talented people, whether they are leaving business school or another business -- they are looking for businesses that they can sink their teeth into in terms of

their business expertise, but also, that there is more to life than just a bottom line. >> that hasn't always been the case. can you point to a time in suddenlyhere you have seen people coming out of business school saying this woman mission is now? >> in the last 10 years, you really see a change in this. >> kris, i want to play for you an excerpt of a conversation i had with larry fink. he runs blackrock. keenan's boss, who was just here a few moments ago. about theing to him difference between short-term-ism and long-term is in. larry considers himself a long-term kind of guy. he is openly asking some of the same questions we are asking you. >> there's a whole debate about long-term short-term, it has two -- we have to bring that back to the owners. what is your responsibilities?

is the totality of it just maximizing profit, or is it trying to learn a very good return, and would you sacrifice any return if you focused more on long-term horizons? >> so if a guy that oversees $4.5 trillion, is saying, maybe we ought to think about returns, in terms other than just pure profits -- what does that mean? >> i think there is a sea change going on within the is this community. , in hasn't been the threat terms of what people have gone after. patagoniae founder of , who still is a privately held business by the family, i think he really has been a leader in doing good work is good for business, and companies and corporations have to have greater criteria than just the bottom line. they have a moral responsibility, in my opinion.

>> have companies in the last two years turn to you for guidance and consulting to help shift their mission, so they can follow you are saying? >> i think so, within the sustainable apparel coalition. we have seen tremendous numbers of new businesses coming in. we are trying to figure out how to build what they sell in a cleaner, more ethical way. i think that is absolutely a trend. >> how hard is that at a time when consumers are addicted to retailers brands super sailing everything? can you create and run a business where you are socially conscious, and the people who buy your products want discounts all the time? there is athat segment of society out there that realizes that a should be buying more what they need, rather than some blue what they want.

and there is a huge growing market to spend your dollars with companies who are trending towards the right direction. absolutely. >> what about the incentive problem? that's kind of what larry was getting at. a company like patagonia, the gives away 1% of revenue or 10% of profits -- 1% of revenue. could a company like that go public? or if he went public would you just -- >> it's the limit of your imagination to say a public company cannot do more than it is currently doing. of course they can. the question is will they? the shareholders of public companies want to sacrifice, which i think needs to be examined by itself. sacrifice that 1% to do extraordinary good for greater community, which they survive on. so, of course they can. the question is, will they?

>> do you think they will? in the last 10 years, you've seen a shift, whether it is consumers who want to buy from companies who are doing good, or talent to want to work for copies who are doing good. do you think we will see a shift in terms of shareholders? >> there is what i want to see, and what i think we'll see. i think over time, in the view of climate change and all these other major shifts that are happening, you will begin to see the role of business change such that things that you can imagine them doing today -- can't imagine them doing today, they will begin to do in a good way. >> you a font these kinds of battles before. we were talking before the interview started about the book you did in chile for example. -- the work you did in chile. you were fighting with the government to try get a private park established. it ended up happening, it took more than a decade. talk to us about some of the other work you are doing. >> on the conservation side,

since you were in chile in the early 90's, we have continued purchasing key habitats between chile and argentina. we have bought just over 2.2 million acres of land so far. all of which eventually we hope will be donated into the former -- form of national parks between the two countries. we've donated for national park so far. four national parks so far. we hope to donate 12 national parks, and leverage that 2 million plus acres between that and 6 million acres. -- concept of live it private philanthropy and public work is really changing. very quickly. remember that all national parks in the united have some form of private philanthropy attached to it. , the former ceo

patagonia. she is doing good work and you should too. salesforce is a public traded cabinetry they do it. ♪

live from bloomberg headquarters in new york, this is "market makers," with erik schatzker and stephanie ruhle. >> saying goodbye to uncle sam and his tax system. the number of americans renouncing their citizenship has soared this year. meet the new power behind the throne at google, and what his promotion means for the company. >> stressed out? not hardly. the banks have flunked stress test, and have been left off the hook for good behavior. welcome to "market makers." i'm stephanie ruhle.

i'm their chapter. >> can you believe there are that many banks in existence? >> they tested 130. how many are there in america? more than 7000. >> that's crazy. if you were asked before there were how many banks in europe that would be stress tested, how many would you said? >> at least a thousand. >> i would've thought since the crisis come other would have been more consolidation. >> that may be part of the problem. >> i couldn't believe there was a number 35 in terms of high yield here. there are 35 possible underwriters? >> to go back to the european stress test in a moment. we begin with the bulletin. these are the top business and finance stories from around the world. investors made it clear they are

not happy with those election results in brazil. brazil's and shark equity -- benchmark equity fell. the resulting currency dropped more than 3%. that is what happens the day after the president was reelected. she says she is planning to make major changes in her second term. her first term, brazil posted its worst economic growth in two decades. the real estate market is speedbump. pending sales of existing homes rose .3% in september. among the reasons cited, tight credit, and a small inventory of homes. europeann, most of the banks that failed the ecb stress test have already been able to make up for it. 24 banks were found to be capital deficient. of those come only eight lenders haven't yet plugged the gaps identified in their capital. or satisfied the ecb with plans to shrink or find other ways of meeting the requirements.

earlier on bloomberg, we talk with the former ecb president. done in extremely professional and credible manner. confirm permitting to that most of the banks in europe are healthy, and can and would resist extraordinarily different -- difficult drawn out. ecb becomes, the the financial supervisor for the entire euro area. a monthlong fight over bananas has come to an end. petrelli ruben saffer group have agreed to by chiquita brands, for $681 million. rejected the takeover of an irish banana producer. they made the offer in august. >> bananas are important.

in our guest of the hour. he may be a huge banana fan. >> but he is not bananas. >> only i am at. he served as white house chief economist during the final years of the george w. bush and administration. now he is a fellow at the hoover administration. it's great having you here in studio. whenever we have you remote, we always want more. let's talk about the u.s. economy. what do you think? >> we are basically in the same situation we have been in for the last few years. ok, but not great. when i say ok but not great, if you look at the last quarter, we had 4.5% growth rate that is pretty good. had -- we needed 6.5% growth just to get back to postrecession recovery average. it's been about a percentage

point below the postwar average. when you think about a recovery, inc. about what a word recovery means. when a patient is sick and they were cover, what does that mean? it means their health improves at a more rapid pace than would be true for another individual. because you have to catch up to normal. not only have we not caught up with normal, we are actually diverging from normal. what is happening is the economy is growing at a rate below the long-term average. what does that mean? it means that right now, we are sitting here looking at an economy that is 12% below where it would have been had we recovered. that is a lot, and people don't feel that great about the economy. >> you prefer to look at this in terms of what? real gdp? nominal gdp? i take it not so much the and acclimate rate has that looks for good. focuses onuy that

the labor market for a couple of reasons. i think the labor market is probably the best indicator of what is going on in the economy. the second is, if you are thinking about how the average american is affected by the economy, it's the labor market. even you guys are workers. >> not really, kind of. >> you care about what is happening. you care about how wages are doing. you care about how employment is doing. the best number to look at is not the unemployment rate, it's the employment rate. the employment rate is simply the number of people working relative to the number of people in the working age population. so is the share of the working age population that actually has jobs. that's the bottom line. it comes through all the stuff about our people dropping out, our people doing other things, is there a black market -- all that stuff. 58.5% tostayed around now 59% study. where should it be?

during the prerecession years, it was at 63.5%. if you correct for demographics, the fact that my generation are retiring more, you might drop that down to 61.5%, 62%. we are still way below where we need to be. another way to think about that is, we say look, every month we get the jobs report. we all get very excited. how many jobs are being created? numbers like tuna 50,000 sounds very good. not bad. 250,000 sounds very good. but we are not keeping up. what that means is that we need to get another 5 million jobs to get us back to that number i was talking about. it to expecttic is that the economy will create that many jobs on a monthly basis? the rate at which it is grading jobs right now is better --

creating jobs right now is better than it was the last several years of the bush administration. yearsing the last several of the bush of administration, we read unemployment rate of 4.4% at the end. at that point, treading water is just fine. ends,sly, we had the which i won't take credit for or apologize for. the point is, if we are thinking about our we had a strong economic situation right now, the last few months i would say have been stronger. here's the good news. economists always paint a dismal picture. it's in our nature. anythingid is there good out there that we can look at in the economy as a whole, there are a few things. the first thing we can look at is the hiring rate is up. the most important number to look at, in terms of is the labor market recovering is not unemployment, or employment to population ratio, is how we people are being hired for month.

that number should be 5.5 million in the recession troughs, it was 3.5 million. now it is over 4.5 million. we have come with an halfway back. that's the good news. over the last couple of months, that has been up. the other thing i would say about that market is that you want to look at the difference between quit and layoffs. a good economy, lots of people are quitting. in a bad economy, lots of people are getting laid off. you don't quit when they are no jobs out there. the difference between quit and layoffs is almost one million. that is a good number. it's not where we should be. we should be 1.5 million. but we are moving in the right direction. >> you mentioned wage growth. we talked to so much about income inequality. we talked about it more in terms of the social impact. wewe really focus on it, if focus on increasing wages, do you see a real impact on the economy? >> sure. but i would say goes the other way around. are actually a reflection of what is happening

in the economy, rather than a creator of what is happening. >> were more time? >> it's a reflection rather than the creator. here's what we know. the single most important determinant of wage growth is productivity. if you looked over time and productivity growth in the united states, and you grasp that against average wages, what you will see -- you may have to smooth it. not every single quarter. you have to smooth it over a couple of years. what you will see is that they moved together. wages grow and productivity grows. if productivity falls, then wages fall. in order to get our wages up, what that means is that we have to create an economic environment where productivity is growing rapidly. if productivity is growing rapidly, we will see rages -- wages grow. >> i thought we could just stop paying ceos a gazillion dollars a year, and start paying field workers more money. look, there are certain

inequality issues that i think we all worry about. to me, the most important issue is not so much how much the richer making relative to me. there are a lot of people in the world who are a lot richer than i am. i'm not so worried about that. i am rich enough. but we need to be focused on is actually not the top 1%, but the bottom 20% to 30%. unfortunately, we have not done well and bring that part of the distribution up to where they should be. >> ad, we continue the conversation in a couple of minutes. -- ed. coming up on "market makers," who passed, who failed. we will tell you what the ecb stress test tells us about the health of europe's banks. >> plus, larry page is still in charge. but now he is someone to do a lot of the heavy lifting. ♪

>> most european lenders got a clean bill of health from the european central bank. only eight banks of the 25 that failed the stress test have yet to plug the holes in their balance sheet's. not too many. just eight. what the tests don't tell us is whether these banks will do what they haven't been doing up to now -- lending. the ecb has been pumping liquidity into the european financial system. but that hasn't seemed to increase the flow of credit. with europe now in a recession, who exactly is demanding all of these loans? here to tell us is roberto henriquez. the stressabout test. now that we are looking forward, as opposed to backwards, whether they will have the desired effect. increase the flow of credit in europe, and jolt the european economy out of its slump. >> i think they're are going to make a positive contribution towards unblocking the liquidity channel. i think that is going to happen

over the short term, in the sense that because european banks are focusing so much on the comprehensive assessment, they were really leveraging more. there weren't many european banks are in the course of 2014 that actually wanted to grow their balance sheets. given that we now have this milestone by those european banks, i think they can go back to basically what is their day job. providing credit to the real economy. i also think that over the medium-term, it is going to be supportive in terms of unblocking the liquidity channel. that is because of the market really does believe that the european banks have higher solvency levels, and have her balance sheets, then i fundamentally believe that the credit risk premium and the equity risk premium for the european banks should receive. that translates into lower funding costs for the european banking sector. which ultimately should translate to lower funding costs for the real economy. and i click quite confident that be an important step

in a blocking the liquidity channel. >> you think we will start to see european banks business again? it seems like they were just getting themselves right-sided. do you think passing the stress test will change their business? >> i think so. when we look at, for example, the results of the last stress test that we had an europe, back in 2011, i recall that the negative reaction in the core tier one ratio at that point was about 1.5%. the pre-stress ratio for the largest banks was somewhere around 9%. 2013, thet-forward to average core equity tier one ratio was 12% for the institutions participating in the stress tests. i may click quite confident that the european banks have now got to a minimum level of solvency, which allows them to think about expanding their balance sheets.

that is extremely important in terms of evaluating whether these stress tests gauge whether the european banks have sufficient appetites and capacity to be able to support continued lending. >> ed lazear here. i have a question for you on the importance of these stress tests and the significant increase in liquidity forecast on the growth in the european economies. the me give you a statistic that troubles me a bit. one of the things that happened in the united states was that we had pretty lagging investment. at the same time, corporations had plenty of cash on hand. it doesn't look like they are particularly credit constrained. the question i would ask you is, do you see a different situation in europe? do think opening up credit, improving liquidity, will affect european economies to a greater extent than it has in the united states? >> i am quite constructive that it is going to make much more of

a difference, potentially in the regions within europe that are potentially experiencing the most violent contraction. i'm referring to peripheral european countries, where i think the european banking sector -- certainly those institutions that were exposed to the periphery had to take very aggressive balance sheet contraction. that has had to knock on impact, in terms of those economies. it was in those peripheral countries where you have the demand for credit. but that the european banks could not, obviously, meet that demand. it is not a very clear picture, when you look at europe as a whole. i think in the peripheral, you have had demands for credit. but the banks have not been there. stress as part of the test exercise, the fact that you can allow european banks to actually build that capital base to make them more available for lending, i think that's important. i would agree that potentially,

in some of the core european countries, there is potentially a lack of demand. that reveals a more structural issue. i don't want to portray the picture that now that we are finished with the copper heads of assessment of the european tank -- central bank, we will see a sudden spike in terms of a spike for credit. it will be a gradual process. point to have well-capitalized banks is one we have achieved this point. >> roberto, where will you see evidence of this demand? how quickly will be see evidence of it, where will we see evidence of it? so much of it initially was on the supply side, whether it be liquidity or husbanding of balance sheets that banks were doing heading into the stress test. now we are talking about the other side of the equation. the demands of the equation. it seems over the course of today they given the most recent there economic indicator,

are these persistent concerns that the demand just isn't going to materialize. >> i think that is a legitimate question. i think that, believe best indication of that will see -- we will see is the behavior of european banks as we go into the first quarter of 2015. we have already seen tentative signs of expansion in terms of credit supply. , one of the things that did concern me was if you look at the ecb credit service, it was particularly in the periphery where you had a high percentage of applications for credit which were not being satisfied by the european banking sector. tentatively, we start seeing volume expansion. of these powerful economies like ireland, spain, and italy for example. we can obviously get a bit more comfortable. but the best benchmark is whether we get the ecb lending surveys, which is you an indication of how these banks

are being with their balance sheets. >> even if those banks are open for business, and they open up in terms of lending, should they be accepting those applications, and lenny to those businesses and peripheral countries where things -- lending to those businesses in powerful countries where things are so bleak? carefulas to be very when making very broad assumptions. i don't think those banks are going to be open for all business. thecially in this part of cycle, you have to be tremendously selective. we are also in a downturn in terms of the credit cycle. rather than having a blanket approach of not wanting to grow your balance sheets, you actually selectively allow for some credit expansion where, obviously, underwriting criteria are going to be relatively stringent. i think that's possibly the first step. >> roberto, great perspective. we thank you for spanning time

with us. talking to usuez, about the prospects of european banking after the stress test. >> we come back, saying so long to the star-spangled banner. a growing number of americans are doing that to avoid u.s. taxes some. ♪

>> it is 26 past the hour, which means bloomberg is "on the markets." right now we have a look at and feel mobile, the mobile secure to come in that has been under attack for months. >> it has been delayed twice. >> this finally came just in time on the 15th. has mobile -- nq mobile been called a massive fraud. it says the couple he has

overstated ready. they say an internal profile found no instances of fraud. it comes down to whether you believe the auditor. really? >> it is proving positive today. we will be back with more. ♪ . .

>> live from bloomberg world headquarters in new york, this is "market makers" with erik shatzker and stephanie ruhle. >> welcome back. i'm stephanie ruhle. >> i'm erik schatzker. ed lazear is our guest host for the hour, former advisor to george w. bush and now fellow at the hoover institution. >> we are going to talk about company and has backyard -- major changes inside the google plaques. larry page is taking a step back and promoting the senior vice president who will oversee all the company's products except youtube. what will the management shuffle mean for the tech giant?

bryan womack is here from san francisco. he covers google for bloomberg news. texas this is a really interesting move. larry has done a few things over the years since he came back to lead the company as ceo. the bride --ates the vice president to a high level. he has some core products under his leadership now. it has also given larry page a lot of free time to be more strategic and think long-term and be a ceo, if you will and not be caught in the day-to-day stuff. >> thinking long-term and not having to worry about the day today, some people think that's what eric schmidt was supposed to be doing in the chairman's job and larry was supposed to be running the company. >> that is a good question. eric has done a lot of heavy lifting on relationships with government and a lot of

regulatory scrutiny around the bigd will stop google is a company and google is doing a lot of stuff that would take an hour to go through just on the high points. page'ss a lot on larry plate. >> stanford business school -- is google the one and only place every business school student wants to be? >> there's also facebook, but certainly google is one of the very top places to go and for good reason. , anda fabulous company there are many fabulous companies in the valley. ands trendy and attractive people can make their mark there. one of the things that has happened in the valley is there's been a bit of a transformation. it used to be that silicon valley was a tech libertarian place, just leave us alone, we don't want any government intervention. -- of the things you said

one of the things they have to worry about is the government and it used to be that the was a faux and now they are becoming more of a friend with all of the money coming from the obama administration. i wonder whether your commentator thought that might have an effect on the way the valley might be moving and google in particular. >> what do you think? >> it is an interesting dance here because at the end of the day, google has come under a lot of pressure in europe. arehe same time, they investing a lot of things. it's a company with a lot of different interests will stop this company is huge, so no matter what, when you get big, you're going to get the eye of a lot of regulators from around the world will stop google has a

hybrid relationship with governments. >> isn't that because they don't have a choice? back in the day, they could be the libertarian tech and leave us alone, but they are such a huge part of the economy at this point, don't they have any other choice? at microsoft. they were small and got huge and a lot of scrutiny. same thing with google. google is one of the biggest tech companies high-value innovation. some days microsoft or apple are bigger, but this company is doing $160 billion a year. it's a huge company and it's going to catch the eye of a lot of government and they do a lot of consumer facing things with privacy and data and the different things we have the morning about for the last couple of years. it's hard to avoid the regulators i in this case. >> why does it seem in the case

of google, apple, facebook and others, the recognition of the need to have a relationship with washington came so belatedly? i think that historically, washington was not a factor in the growth. gorete the fact that al says he invented the internet. for the most hard, most of that development took place in the private sector without a lot of government help. most of those companies were very small -- >> but they are some of the smartest people in the world. it did not figure out all the information they were collecting -- ?> who >> the people who run these companies. the privacy risk they undertook would not catch the eye of government? >> why invite the government into the kitchen of the government wasn't knocking on their door? >> better to invite the

government in then to have them break down the door. >> it has not been that bad for them. >> remember, eric schmidt is someone who has welcomed the government and has been very active in supporting the obama administration. whether that has worked to the benefit of google or not remains to be seen. google has had a lot of trouble in china and other places. it's not like these are problems you can solve. you have to think about these things and plan them strategically and stay on the right side of things and i think for the most part they have done a good job. so credit to them. >> we have to leave it there. thank you for giving us the latest rate down out of google. >> coming up, of course they blame the irs. of americansumber renouncing their citizenship rather than pay the full tax load. "work it makers will be back. ♪

>> i'm erik schatzker and you are watching "market makers." this is a good topic -- there may be a long line of people waiting to become u.s. citizens, however a growing number of actual americans are heading in the other direction, turning in their american passports rather than paying more taxes. peter cook has the details. the policy is sending americans packing for other jurisdictions? what is going on? americans number of renouncing their citizenship rose 39% in the third quarter this year. there could be many reasons why they did that but one explanation is a new law that took effect in july that makes a harder for americans to hide their assets overseas outside the reach of the internal revenue service. the law is the former account tax implants act. it's a response to the revelations that ubs and other

former bad -- other banks are scheming to hide their assets from the irs. ubs payday $780 million tunnel the and handed over information on 4700 accounts. the rule started requiring institutions to put a 30% withholding tax on those who do not provide information on u.s. account holders will stop with more banks complying, more americans are making the decision to turn their american passports and. 776 dropped their u.s. citizenship, far more than the same time last year. renouncedcans have their citizenship which is on track to set a new record. the u.s. is the only country that taxes folks no matter where they live and it certainly raising questions about this change. concerned we be that over what 776 people are doing? >> we should not.

the problem is not people moving overseas, the problem is capital moving overseas. if you look at all the studies, and i mean studies from right-wing, left-wing think it,s or academics, you name they are universal on this point -- the most distortionary taxes not attacks on people, it is a tax on capital. the reason is obvious. if you think about what is the most mobile factor, what is the easiest thing to move, if you are a german and you are trying to decide if i put my money in a corporation here, denmark, the u.k. or the united states, that tax rate is going to have a big effect. even if it doesn't move u.s. dollars, the marginal dollar is not the u.s. dollar, it's the international dollar coming in. that is the problem. i don't mean to say having people leave the united states is not a problem. we certainly worry about that especially if they are productive and active parts of

our economy. but i would say this is a relatively minor issue. the big one is capital. >> with the best way to fix the problem? >> i'm a fan of a territorial system. but that's a relatively minor problem. if you look at how much we lose through the inversion problem, even by the president's estimates, it is a small number. >> that is true, but there is a lot of american earnings trapped because companies like cisco don't want to repatriate at a high tax rate. >> but the more significant problem is the failure to see significant investments in the united states. that's not because of international taxation, it's because of our own taxation.

it's not the international issue. i want to ask your take -- i heard senator portman over the weekend say is republicans took over the senate that would improve the chances for a deal on corporate taxes. i want to see if you agree and dealwith the terms of that look like if those sides are not in agreement at this time? i defer to rob on anything having to do with politics. i knew rob at the white house and he's a terrific guy and this dude observer. future, theo the president has said he would like to lower corporate tax rates and i think there is a deal that could be had. expensing rapid depreciation of capital, but those are details.

the corporate loopholes is something republicans like. there are plenty of things we propose as part of the bush team to reform the tax system that are consistent with what the president likes as well. i think the guy like rob portman or paul ryan who i think has been effective in the house got control of this, we could see a deal. it requires both hardee's to agree and we not only have to get the congress to decide that the president has to decide. >> do you think that is a possibility? >> people change and let's put it this way -- i have not seen any evidence from this white house over the past six years but there is help. -- there is hope. >> things to you. gethen we return, we will some final thoughts from ad. ed.rom

♪

since we're back now with a few final thoughts from our guest for the hour. it's time for word association. we give your word and you give us a thought. tea party. >> my gosh. the tea party i think has their instinct in the right place. they certainly believe the economy and government should move toward. i think implementation has been lacking and one of the big problems is it's not the tea party and its philosophy, it's some of the personalities that have dominated the rhetoric. we saw that in the shutdown of the government. and not automatic helpful to the republicans or the country. >> wanted it easing? >> good one. >> you're like a game show host. >> its time has passed and it probably past two years ago. janet probably knew that as well.

we need to use out but i don't think they felt it was effective. after theut of steam first quantitative easing. >> are you surprised there's no inflation as a result? >> i'm not. ben bernanke kept saying this. the fed has the tools in the short run if they have the willpower to keep it in check. the willpower is a major difference from what happened in the past. seeing howblem is they unwind and whether political pressure causes them to do things that are inflationary. >> paul krugman much work >> paul and i were colleagues at stanford. policy.usly disagree on >> where do you disagree with the most? >> i disagree most in that i was in the government and he never was. >> there you go. >> let me tell you what i mean. frommentation is different

having the vision from what we want to do. paul lives insay an ivory tower? >> i would not say that, but i would say when you actually have to do this stuff, one of the things we thought about was could we implement it quickly and we decided no. i think president obama found the same thing when he was in office. it's not a disagreement of what you would like to do. >> it's like the ceos say. execution is hard. >> what do you think of janet yellen? >> i love janet. at harvard,eacher she's a sensible and thoughtful person, she doesn't share my politics but i think she is a wonderful person and i think she will be good. >> princeton or harvard, stanford, what do you think of for-profit education? >> any educational system that as competition is good and. flowers loom,

think the charter system is good. i don't care if it comes from the private sector or public sector, the best evidence is if you look at k-12 versus the universities, our universities are great, they are competitive and we do fabulously. k-12, not so well. >> an absolute leisure. thank you. ♪

>> thanks for watching. that's going to do it for today. >> tomorrow, the cofounder of

the audience. no one knows better how to create a social media buzz than this guy. it's 56e meantime, minutes past the hour. that means bloomberg television is on the markets. bouncing between gains and losses, on the negative side at the moment. best weekly off the gain since january of 2013 with energy leading the declines as a group. down about 2.6% as oil prices sink below $80 a barrel, touching a two-year low. joining me is a derivatives strategist rubbed a in -- from an km holdings. this talked about volatility we have seen that has pulled back to some extent. a little bit in today's session. what will we see going forward?

it was a cross asset volatility event, the first of its kind since june of 2013. largest since june of 2012. is creating an nice floor for a year in rally. along with all the other metrics we watch, it will begin to flag in the indices and individual names. one critical questions that will get answered is where will the floor be for spot vix. since january 2013, it has been in the 10 to 12 range, but a regime change to an environment of higher volatility would put that floor around 15. that is a question that's out

there and we won't know until late november or december, but it is something to think about. >> it still very low volatility. >> but it is a floor. if you go over the last 30 years, since implied volatility came into creation, there's never been a pullback crater than a are sent during a -- 8%, sok greater than it's about that floor. we could see sharply higher volatility. to talk about merck -- it's the worst performer in the dow. it reported better than estimated earnings but revenue missed in global sales are down 4%. the company reported promising results from one of its drugs to treat lung cancer but there's a little good and a little bad it here. how was the options market reading it? >> you have a relatively large buyer of upside calls.

a's been characterized as slight miss on the quarter but importantly, before the november options expiration, all the major hepatitis see players will present including work will stop -- all the major hepatitis c players will present, including merck. let's talk about another company that has yet to report earnings and that is twitter. reporting earnings after the close. what do you think? there is some optimism around it. but there is optimism if you look at the consensus -- it's forecasted above guidance but the internet stocks have performed poorly in the third quarter if you look at yelp, amazon, netflix and pandora, all are down on average 15%. netflix is a company we are

positive on and we see about a 30% upside to his price target. but we want to hedge this quarter and focus will be on the monthly active user metric. about 14 was up million and the range of expectation is 15 to 17. the stock certainly could get hit. inwant to go out and sell november a 59 strike call and turn around and buy a 42 call spread. that will protect you. >> thank you so much. "money clip those quote is next. clip" is next. ♪

>> welcome to "money clip" where we tie together the best stories and video in business news. i'm olivia sterns and here is the rundown. you could bank on the treadmill and some that ale get to walk it off. u.s. fears linger in the -- president obama says let's hug it out while the mayor eat meatballs. brazil plus president holds onto power and there are protests. the san francisco giants need just one more to win the world series.