. they stunned. they cut rates for the first time in four years. the future of american banking. thousands of jobs will be shed. vladimir putin keeps pope francis waiting. good morning. this is "bloomberg surveillance." brendan, i love how you bring up iceland is the opposite of greece. brendan: iceland exited capital controls. they did everything you are not supposed to do after the crash. put people in jail, impose capital control, told its creditors to jump in a lake. it has been able to exit crisis mode sooner than greece. tom: they restructured. how shocking.

let's catch you up with our top headlines. vonnie: greece wants to buy more time with its creditors. one great -- one greek government says tsipras wants a nine-month expansion. the pace is picking up. >> it was constructive. we will move forward towards a solution. vonnie: angela merkel is putting pressure on tsipras. the outbreak of mers and south

korea has gotten worse. it throws it -- it poses and imminent threat to consumption. new zealand cut rates. one change for bill clinton if his wife gets elected president. he loses a chunk of his income. betty liu asked if he would still give paid speeches if hillary clinton is in the white house? >> i do not think so. i will still give speeches on the subjects i am interested in. i enjoy those rings. vonnie: he defended his foundations and donations it has received. he said allegations like algeria bought influence by donating is misleading.

nike uniforms will have the same -- they have won a deal to make uniforms for the nba. nike will be the first apparel sponsor to have its logo appear on all uniform sports designs. the stanley cup finals. the chicago blackhawks had a 2-1 win over the tampa bay lightning. brendan: tom made a face when you said adidas. i have asked what they said is appropriate. they you can say "adi-das" or

"adidas," either is fine. we will see how many people are working back into the workforce. tom: two-year yield elevated. i want to get to new zealand. yesterday, 30 yield bond, all the yields up and elevated. let's go to the terminal. this is australian new zealand dollar, showing the level it has then back-and-forth.

here is the strong new zealand dollar. new zealand is better than good. brendan: new zealand is an inventive economy. it is a silicon valley type investment. tom: developing nations stumbled. expect the unexpected. new zealand slashed their interest rates.

it is 100 parts china. interest rates are rising. central banks are cutting their target rates. you write these beautiful reports. lots of charts. what is a chart right now that in capulet -- encapsulates what we are seeing now. >> i think it is the basic labor force. it has been dead flat for four years. it is now picking up. this is a sign we have a recovery in place. they are talking about rates starting to go up. on real terms, they have been going out -- they have been going up for a while. with negative rates in europe the actual rates are flat. tom: can janet yellen ignore the

economic recession? >> she has already said she would. she stayed independent. when she is looking at the jobs number, the labor force number, they are all going up now. she recognizes that. the fed wants out of this environment. brendan: your note says largely demographic. demographics based on age or gender. we are not going to fix what is going on with age, but we could fix women getting back into the workforce. >> women have been joining with the labor force and equalizing the natural role they should have. that has equalized.

you have the percentage of women in the workforce pretty much where it should be and we are back to what is the growth rate in the population, what is the eagerness to go back to work? tom: this is an interesting discussion. how we ignore the realities and shots from outside the united states. bring up the chart here. this is milk prices in new zealand. this is a huge deal. they have a zillion more cows. they have lower milk prices. brendan: every once in a while, you do something to show look

what i can do with the terminal. tom: these things add up. >> they have added up. we have had the ukraine. greece, two years ago, would have scared everyone. spain and italy would not touch that today. we are coming out of these abnormal's. we have momentum here that is real and sustainable and we have seen a little bit of momentum in europe. vonnie: where is wage growth and productivity? >> probably six months away. tom: 2.8% gets my attention.

i will go with robert, the idea that growth can be good. we do not care, do we? brendan: this is the question we have all been waiting for, asked and answered. i am going to do the albertson lee nan i want to go back to new zealand for a second. they punch above their weight for a couple of reasons. they want to pay inflation rates at 2%. they have an intellectual weight to what they do. it is greater than the size of their economy. robert: that is true. we have been against ourselves. some of the smaller nations look

at what is in front of them and deal with it. inflation is driven by prices. interest rates have to relate to that. that is why you see inflation rates going up. tom: lots to talk about. we will talk about the american banking economy later in the hour. a wonderful twitter weston for you. this on central banking. which central bank look set deflation and cuts next? stay with us. ♪

tom: watching the 10 year yield. yields higher worldwide. vonnie: after keeping pope francis waiting, vladimir putin gets a lecture about ukraine. the pontiff told russia's president he must try harder to make the cease-fire work. clinton was 17 minutes late for the meeting. apple giving iphone the power to block ads. users will be able to download an app that will block pop-ups on most sites. taking aim at one of the banking industry's one of the biggest critics. he said he does not know if elizabeth warren understands the global banking system. she said the government should

have broken up the big ones after the financial crisis. brendan: here is what we are trying to understand. shares of johnson control gained 4%. the move would be a major shift for companies that used to be the largest supplier of auto parts. i have a note here that breaks it down. we think of johnson controls as an auto supplier. it also has building efficiency.

tom: free cash flow, 47,000 employees, they are getting it done. heaven for bid a transaction that is constructive brendan: do you and florence influence? you see activist investing. you see the effects of it even if you cannot see what is going on. tom: where is m&a going to be? does it keep going on? >> it depends on the sector.

tom: are you taking a shot of senator warren? robert: i do not understand this big. we have more in the nonbanking sector. they are shooting at this piñata all the time in missing the point. brendan: i would argue that her critique of banking has been more subtle than they are just -- it needs to be more substances then she just doesn't understand global banking. we need large entities out there. we do not have that in terms of financials. tom: are they constrained by deposit limitations?

robert: it is an 80's thing. tom: what is jamie dimon's constraint? robert: he has one of the strongest financial constitution -- institutions we have left. tom: was the number one advice for them to get the best practices for mr. diamond? -- four jamie dimon? tom: you have lived in germany. how is deutsche bank treated? rendon says they have two reasons they need to do. they cannot get rid of retail

operations. they need the deposit. this is the real problem. they cannot do the things they need to do. robert: they go together. we have to get to the investment side. tom: we will look at commodities. all of the rate movements out there, the hallmark out there, the 10 year yield is within a hair of 2.5%. stay with us. ♪

tom: i want to get to hans nichols. in "the telegraph" -- a bond crash has been an accident waiting to happen for months. money supply aggregates have been searching all this year in europe and the u.s., setting a trap for a small army of hedge funds and prop desks trying to squeeze a few last drops out of a spent deflation trade. all of this dovetails into greece. you cannot make it up. younger -- yunker-tsipras have reestablished personal ties.

hans, we are getting desperate here. we get silly ad lines about reestablishing personal ties. when do we become adults? hans: when mr. tsipras and madame merkel can have personal ties. there is a relationship between juncker and tsipras. he felt burned by what tsipras said. they are nowhere close to any kind of agreement. the market is optimistic they are getting there but they have to get an agreement on the primary budget surplus. varoufakis said 1% is too high. the old agreement was 3%. brendan: they were satisfied with 1% a month ago.

here is the thing with the 1%. no one denies with these negotiations have really hampered growth in greece. what was doable three months ago, the same numbers put you at 0.5%. you saw the unemployment number coming out of greece. unemployment rising is a good barometer. brendan: yesterday, germany announced it was willing to let greece make one concession at a time. is that going to bear fruit? hans: germany did not announce it. it was done by my borders here on bloomberg. -- it was done by it great reporting here on bloomberg. it is a step-by-step baby step.

the german government has denied the report saying they have the full agreement of the ecb. it is an interesting story and that is what caused the optimism. tom: thank you. hans the nichols is in berlin. brendan: coming up, vladimir putin cap the pope waiting. this is "bloomberg surveillance." good morning. ♪

tom: hey worldwide show today with ramifications for the u.s. right now, we are on the watch for goodtime headlines.

>> in brussels, alexis met deep into the night with the music -- the leaders of germany and france. one government official said the country is seeking a non-month extension to the bailout. the new group of american troops will be deployed to iraq within two months. president obama is sending up to 250 u.s. military personnel to train u.s. -- to train iraqi forces. this will raise the current u.s. troop total in iraq to about 3500. longtime twitter investor made news just hours before the company's annual meeting last week. he called on twitter to broaden its appeal and new products.

sacca also suggested that google, microsoft or facebook should make bids for twitter. mr. sacca: although companies can explain to their shareholders why they paid so much money for it and feature those companies with that blowing out or competing with something else they are competing with. i don't think apple cares enough. vonnie: you can see the full interview on "studio 1.0." tom: he is a breath of fresh air. vonnie: j.crew shaking things up as well after posting a disappointing first-quarter sales. it will cut 175 jobs. in soccer, it was only a neck submission game. the u.s. managed to beat the top-ranked team in the world.

a 21 -- a 2-1 win. tom: this is men's soccer in germany. they are the best. brendan: germany as far and beyond -- germany is a most incomparable. what is interesting is that american soccer is becoming german soccer. the german coach is taking heavy conditioning work and applied it to the u.s. team. a lot of the u.s. players lay in the german leg. -- german league. tom: nevertheless good for the united states. this is serious, particularly after the impact pope francis has had worldwide. filed under you can't make this up, he cap to the pope waiting, claiming he was stuck in traffic in milan or somewhere.

and then to top it off, vladimir putin of russia exited supposedly in a massive motorcade to go see silvio berlusconi. will you please translate what i just read? it is bizarre to me that of the leader of a g8 nation would greet the pope like this. am i right? alexandra: you are absolutely right to this never happens. although, with putin, it does. this time, it was 70 minutes. he arrived with this insane motorcade. after they had this extremely cold meeting where our reporters were there, they said they spared -- they barely spoke to each other. the few things they did say to each other without translators

was in german. putin picked up the lang when he was a kgb agent. so, yes, it is a very bizarre thing. the pope did not take it very well 10 he was very cold to putin. brendan: that was a subtle hint. help us understand the broader context the between russia and italy. this trip of all eu nations is significant because italy has been the most willing to make concessions to russia, is that right? alexandria: that is more or less right. italy is part of the eu. they are not saying they are going to make a concessions to russia. but let's say compared to other eu countries, they are more tolerant. italy has a history of doing business with russia during the cold war. about a third of the talons voted for the communist -- third of italians voted for the communist party. tom: within this, within the

discussion, is the potent -- is the pope a diplomat? if that is the case, what did they talk about? alessandra: he is. where do you do with the next kgb agent who has a poker face where you don't not know what he is thinking most of the time? he gave putin a president. he talked about peace and tight about ukraine and how importing -- how important the minsk accords are. putin just nodded. he gave him a medal, saying i will give this to you to remember to maintain peaceful agreements. that was obviously a subtle hint to putin. vonnie: why was this meeting set up in the first place? alessandra: he has met him before. all leaders eventually have to come through. let's fit that way.

it isn't that strange. the pope is a diplomat and is a politician. it seems unusual to people but the catholic church has been brokering deals for thousands of years. most recently, we know they did hope -- they did help obama broker a deal with cuba. tom: thank you so much. she is our rome bureau chief. i just thought the whole thing was -- brendan: my favorite detail was not just the greeting in german, but the departure. putin left of the pope's side to meet with his friend silvio berlusconi. this is bloomberg "surveillance" on bloomberg television. good morning. ♪

tom: what a day in the equity markets. 18,000 on the dow. rates still higher this morning. let's go to a single best chart. brendan: regional banks are leaving homebuilders behind. that is the subject of today's

single best chart. looking back a year. tracking two indices the homebuilding index in white and the kbw regional banking index in yellow. so they move roughly together. he noticed in the last two months a divergence. lucky for us, we have robert alberson here with us. does this mean that regional banks could possibly be leaving their dependence on mortgages? or do you read something else on this? mr. alberson: they have already left. american banks no longer hold mortgages the way they used to. you look at the reverse in canada, it's half mortgages. it is the safest banking system in the country. what you see is the unintended consequence of stimulus policy for housing where they have only driven up so far the price of homes. they have not driven up homebuilding.

they have not driven up construction. it is kind of a cup half-full. now we are at the stage with the inventory is so low that it's pretty clear homebuilding will finally take off again. but i think the two are disconnected in that regard. brendan: what has been suppressing hunger of? -- suppressing new home growth? i'm sorry, new homebuilding. mr. anderson: the industry has been too optimistic and too aggressive. it is tough to get financing at this stage. the regulators look sourly at anything real estate related. vonnie: will the mortgage industry come back? homeowners. will that give a boost to regional and small backs -- small banks? mr. anderson: hopefully. unfortunately, we were not doing it for a long time, minimal down payments all kinds of

advantages. that woman be removed in a long time. so mortgage bank say, why do i want to get in this? mess? tom: not only that, but in the early 1980's, we enjoyed housing problems and then another in 2006, 2000 7, 2008, whatever. why would any sane bank want to get involved in the third housing -- mr. anderson: i think you are right. if you look at the data of home families versus family income we have the bubble we have the crash, and it has gone back to almost 40% back up to its last peak in 2005. what we are stimulating it is prices, not the growth in housing nor homeownership. brendan: has there been a shift since the crash in the way we think about homes as part of our

own portfolio? is it no longer an investment just a place to live? mr. anderson: you are on something very important, which is after the crisis, the whole attitude about credit. the changed. it certainly changed for the business community. they were pretty close to losing their ability to live. i think american consumers have backed off on credit in general coming clean homes. you see that already in their rising savings rate. with lower gas prices, what are you going to do with it? i'm going to put it in the bank or somewhere. i'm not going to spend it. there has been an attitude shift, simply -- certainly. vonnie: what about raising rates? mr. anderson: i don't think it has any relationship to it would incentivize consumers quicker so they don't catch the rising rate. but i don't think it will the banks. banks are looking at the sector hoping they can return to it and have some control over the underwriting standards.

but the government has set such a low bar on underwriting in their own portfolio. they've made it into a dangerous business. tom: should we do our photos? we have great photos. vonnie: number 3, 3 u.s. astronauts have begun their journey back to earth from the international space station. a month ago, a rocket failure delayed an earlier attempt. terry verts and his crewmates have spent six months upon the iss, carrying out scientific research and demonstrations. brendan: i'm amazed by this. we have all of these pie-in-the-sky ideas of how we are going to go to mars. how little we know about how the body can withstand that much

time and space. tom: well do they do when they get home? canvonnie: we will have to wait and see. number two, cowboy boots turned into flip-flops. brendan: i asked for this. vonnie: customize your personal cowboy boots into sandals. sometimes you can't get rid of something. brendan: i asked our photo editor for this picture specifically because i was told by a friend in new orleans that this is a thing that is happening in the south right now. i am amazed at american ingenuity. what other country would created the cowboy boot and then the cowboy boot flip-flop? vonnie: this one is a video. millions of cicadas emerged from underground for the first time in 17 years. they spent almost two decades

feeding on tree roots. once they come up, they make a deafening chirp, mate, and i. sometimes they swarm -- and die. sometimes they swarm reporters, too. [laughter] reporter: ok, no, not doing it. vonnie: i think it was a most enough to make a resign. brendan: honestly, we laugh at local reporters but they are there but for the grace of god. tom: this is like in cleveland. they have the moths or something off of lake yeary. vonnie: a particularly delightful footage. tom: what do cicadas do. brendan: they are mostly just a nuisance. there is a 17-year cohort in

maryland as well. it came out a couple of years ago. they are just a real pain. they show up everywhere. tom: oh, you meant the insects, brendan: yes. they make a deafening chirp mate, and die. for our twitter question of the day, we asked which central-bank cuts next? we saw new zealand first. we all pay attention to the rates of the royal bank of new zealand. who else is watching. let us know. ♪

tom: it has been a lovely spring. we really haven't had a massive 90-degree day yet. vnonnie: not yet. let's get to our top headlines. the state of texas is putting out the welcome mat for general electric and other companies.

texas governor greg ofabbott embedded them to pick up and move. ge has said it is considering whether to leave connecticut. brendan: this is an old trick. rick perry used to do this. vo richard bransonnnie: -- vonnie: richard branson is offering a new leave plan for parents. in baseball, if you can't win the game, at least put on a good show for the fans. torii hunter had a tantrum before being ejected last night. he yanked off his shirt and

tossed that, too. tom: it's called doing an earlier, the manager of the baltimore -- an earl weaver, the manager of the baltimore orioles. vonnie: i want to see more tantrums like this. brendan: that is what tom looks like. tom: show this again. all the guys that do this are uniformly considered nice guys in the sport. he is not a jerk. he is a nice guy. for those of you worldwide, this is baseball at its finest. they do that in banking when they lay off 10,000 people as well. long ago and far away, bankers had skin in the game. it was called a partnership. the legendary henry calvert man has asked for a return to bankers. perhaps we will get there.

it is not about synergy. there is something more going on. it is a good time to talk with robert alberson, looking at the health care of our banks. what is going on? jpmorgan, hbc, deutsche bank and a list of characters after them -- why is this happening? mr. alberson: retail banking is tougher. we have a new regulatory agency which makes it less advantageous and more punishing. but number two, you've got in consolidation what you see very clearly is it's no longer let's buy that one and take out the cost. it's let's buy that one because they have a business line we don't have and they have better financing. tom: how many people have you counted in a branch bank in new york city when you walk by? three? are there people in branch

banks? brendan: there are. what i want to understand is, when we talk about regional banks and larger banks, in the future, given the regulatory environment, what is the smallest sized bank they can survive out 10 years? mr. alberson: it is really over a billion. and some are saying that it is heading over $10 billion in time. tom: it's the canadian banks. esther alberson: we still have 5900. tom: but still, that is the scale of going from -- brendan: are we going to see another wave? we solve the banks under $100 million in assets disappear. -- we saw the banks under $100 million in assets disappear. mr. alverson: they are diminishing. we are seeing new super regionals being built. tom: if hsbc and deutsche bank

make headlines, are there lots of little banks we never do headlines about that are going through the same cost rationalization? mr. robertson: that is the larger story. the larger banks have done what they can and they are doing what they should now. the value to the mac in banking system has always been small and medium-size banks because they are the ones who can deliver credit. they are like capillaries into the local economy that deliver jobs. don't beat up on them. tom: will they be there in 10 years? mr. alverson: absolutely. that is where the momentum is now. our economy is moving from consumption to production. it will be local jobs in local businesses that drive it. brendan: small business loans come from small banks. do you see him a looking to washington, that there is going to be some differentiation looking forward to what rules apply to larger banks and what rules apply to under a billion dollars? mr. alberson: you are seeing

some of that now. it's pretty minor. if you stay under a billion, you have a certain advantages. i think you should just get out of there. one positive sinai have seen in regulation came from the u.k. where the premise or families said -- he is decline the war on banks over. this has gotten silly. vonnie: where are the opportunities? mr. alverson: the place you have the most opportunity now is in business banking. you want to look at banks that have large commercial banking where they show growth. as rates start to go up, you will see a huge back in the bottom line. in general, this is heading towards a bit of a nirvana for the banking sector. tom: thank you so much.

in the foreign exchange market, a lot going on. yen still stronger. aussie kiwi weaker. stay with us. ♪

>> this is "bloomberg surveillance." tom: new zealand blanks.

dairy prices are lower. they cut rates for the first time in four years. asia is astir as japan halts yen depreciation. china growth stumbles. a conversation with michael porter of harvard. american business must focus on the good of the commons. good morning, everyone. this is "bloomberg surveillance ." brendan greeley with me. any number of ways to go this morning. sort of a stew. brendan: i am fascinated by news from the active phones. watching the knock on effects of everybody following news of the new zealand rate effect. tom: south korea as well. they've all got the reasons. brendan: when tom starts the morning with the news she is really excited. tom: here's vonnie quinn. vonnie: more exciting news.

greece is looking to buy more times with creditors. after late-night meetings with leaders of germany and france, a greek official says alexis tsipras once the bailout extended by nine months. tpm tsipras: it was a friendly, constructive discussion as always, and we expect to intensify our efforts to bridge the remaining gaps. vonnie: germany's chancellor's pressuring tsipras, angela merkel saying it is time for him to back up his words with action. 10 people have died from middle east respiratory syndrome. the bank of korea says that the outbreak threatens consumption and the bank cut interest rates to a record low. new zealand made a surprise interest rate cut. that sends new zealand's dollar,

the kiwi, to its lowest level in five years. bill clinton promises to make a major change if his wife reaches the white house. he says he would stop making paid speeches. he spoke to betty liu in denver. mr. clinton: i don't think so. once you get to be president you are just making a daily story. i will st give speeches though, on the subjects i'm interested in. i really enjoy those things. vonnie: clinton defended his foundation and the donations it has received from foreign governments. he says allegations that they bought influence are "incredibly misleading." nike gets a multimillion dollar deal to make uniforms for the nba. adidas opted not to renew its agreement. and the stanley cup finals are all tied up.

chicago topped tampa bay last night 2-1. game five in the best-of-seven series is saturday in tampa. those other top headlines and a lot of numbers, tom. tom: for those of you on bloomberg radio, backhands weaker shots, they are tougher goalies to read. the little soft backhand. brendan: it is like a knuckleball. you don't know where it is going . tom: backhands win. brendan: that is what i will take from this. tom: hockey tip for the morning. brendan: we will get retail sales and bloomberg estimates for that. 8:30, initial jobless claims. not supposed to change from last month. at 9:45, we release our own consumer comfort index. tom: retail sales very important for calculation of gdp.

let me do a data check. currencies, commodities. we could spend an hour on the data check, it is so nuanced today. when you need to know after the bank of equity performance yesterday, yields higher. rich countries resume growth as developing nations stumble. our hans nichols is in berlin third great experience in this measurement between developed nations and those less developed. hans, absolutely fascinating to me how draghi and yellen adapt to the sub majors like new zealand or how they adapt to the emerging market challenges. hans: well, is clearly weighing on them, right? is just about how they are mandated. in some ways it seems like they are very susceptible to the data which, of course, these moves affect. in terms of the social pressure

unless the world bank as a much better cafeteria than the federal reserve, which, for the record, it does, and they serve alcohol there, there is very little reason janet yellen has to answer to an economist of the world bank. tom: what you are missing is the currency dynamic. it really rolls into what we will see from currencies in the next six month. brendan: i'm curious, hans. you spend a lot of time in frankfurt. hoping me understand the difference between the ecb and the fed. positions between stanley fischer and janet yellen on how much they should pay attention to the rest of the world. hansdoes the ecb have comparable attention? hans: yes. the difference is the ecb weeks. you get more information because of the diffuse nature. 26-executive council governing board there. they either leak or telegraph their decisions much more than

the federal reserve does. the fed is independent. i'm sure i will get hit now after saying this, but janet yellen doesn't need to listen to members of congress. it is independent from congress the president, the world bank, the imf. the ecb has to play a little more. look at how they are accepting greece. -- backstopping greece. tom: iceland has 4.2% unemployment. how do you run a european system with that divergence? hans: does iceland still have its own currency? so iceland has its own currency. you let countries like iceland have its own currency. tom: all of these different countries, there's massive labor divergence. i just don't get it. hans nichols, thank you so much. really greatly appreciated. it is an amazing time and good time to talk to michael. gradually, then suddenly -- i don't know, what is the level

this morning if it is not janet yellen-induced? the interesting newtonian machine, the many gaskets of our global financial system. the world bank says 2.8% growth. i am calling that recession when you look at the global landscape. michael is ceo of market field asset management. are we in a global recession even if the u.s. does ok? michael: no, actually, we probably -- i think you reached your baseline at the end of last year. the central bank started panicking. tom: imf and the world bank are behind the discussion? michael: they are always behind the discussion. the imf is a lagging indicator of what happened in the global economic cycle. decades of history would tell you that. you have had a simple banking panic over the last 180 days. just last night, new zealand and south korea joining the party. and at the very least, as far as financial assets are concerned, we are in a reflation phase and

it will extend the on that. brendan: these two changes in the asia-pacific yesterday. let's stay with career. -- korea. with abenomics, what i did try to figure out -- what are they trying to figure out? michael: they need to get with the program. they all talk to each other and they need to do their part. the degree of international cooperation is a 16 today as it was in the financial crisis without the financial crisis. brendan: competing rates policy is not bigger thy neighbor -- michael: no, it is everybody getting on the same page. if you look at south korea, they released to the money supply data yesterday. they already have m2 growing at 9% year-over-year. you have never seen monetary growth at this pace combined with rate cuts like in south korea. in a typical cycle the central

bank would be tightening, not loosening. tom: is the answer to this currency adjustment? currencies give way -- what does that mean for the rest on? -- u.s. dollar? i don't think the central banks of following policy. they are obsessed with wage levels globally. i don't see any sign that south korea was doing a rate cut because they wanted the ability to depreciate. tom: you are so good at this. jim sweeney" reese -- james sweeney at credit suisse says they are overrated. michael: i love james sweeney and i think he is complete . -- completely right. tom: how do you stanch their

fears over deflation? michael: go back to ben bernanke's speech in 2002 when he talks about what deflation is. you're not seeing any of the things ben bernanke would've told you to look for in 2002. at the very worst to have issue of -- you would have been in a pre-deflation moment. brendan: rocker rajaram, in or out? michael: oh, india's off. brendan: can tracking be environmentally friendly? that is a debate at the municipal and state level in the u.s. this is "bloomberg surveillance" on bloomberg television and radio.

tom: we are watching a lot of things this morning. u.s. 10-year. german 10-year just under 1%. also very important is our morning must read. here is brendan greeley. brendan: i picked up "the wall street journal's" editorial about obama's latest move, they call it obama's latest iraq escalation. apache helicopters won't provide air cover, there won't be

additional special forces to connect night raids against high-value targets. the highest-ranking u.s. military officer will remain a mere two-star general. not at all surprising that they are skeptical, but it is a read on what the debate is now after this announcement. we have chief washington correspondent peter cook in the bureau. from your read in the days since the announcement, what is the conversation like in d.c.? peter: the question is is this enough among congressional republicans come and the question among democrats is is this perhaps too much. there are concerns on both sides of the political fence. i've got some sound from john boehner, house speaker talking about the president's latest move. rep. boehner: it is a step in the right direction, but as the president admitted the other day, he has no strategy to win. this is another tactical move. peter: the response from the administration is that this is a

move that will, for one, perhaps get the sunni tribes in an province more involved in the fight against the islamic state. that is a critical goal of the administration. it did not go as far as some of the president's critics would like but the administration pointed we want iraqis leading this fight. that is why they are not taking the steps "the wall street journal" outlined today. brendan: what approval does he need to go to congress? are there bills pending that may affect the decisions? peter: the debate on capital lost in for the authorization for use of military force to take on the islamic state. the president sent his proposal month ago and it has been totally stalled out in congress. there is an effort for a new authorization for use of military force, one that might draw more bipartisan support. it comes from tim kaine democrat and jeff flake republican from arizona. that is installed in the foreign relations committee. they are operating under pre-existing authorities from the previous authorization. tom: we got you have you more on

this developing story. we have a wonderful treat for you. i speak to him in davos every year. michael porter in new york city. michael porter on oil and gas on fracking, and michael porter on america's need for a business that is competitive. funny-- funny quinn, brendan greeley, and tom keene.

tom: good morning, everyone. futures flat. let's get back to our top headlines. here is vonnie quinn. vonnie: the world bank's joining the call for caution on interest rates. the bank's chief economist says u.s. economic gauges are mixed. the military fund issued a similar warning last week. the kaiser rates policy could hurt emerging markets. apple is giving iphone users the power to block ads.

the feature is part of its new phone operating system. it will be available for safari browsers and block pop-ups on new sites. the system will be launched this fall. jpmorgan's chief snaps back at a leading critic of the banking and distribute jamie dimon says he does not know if elizabeth warren understands the banking system. she says the claim thanks should have been -- time banks should have been broken up after the financial crisis. brendan: fracking is the technology that has the saudis scared but here at home it is a county by county fine. michael porter of harvard business school is the man returned to to understand how competitiveness happens from among a number of other things. dr. porter you have put out a report on fracking. help us untangle this as we figure it out state-by-state city by city.

what is the right way to think about this decision? michael p.: it is interesting that fracking is become a dirty word or swear word in america. and yet fracking is a remarkable innovation that has allowed the united states to actually achieve a substantial advantage in energy energy costs, cost of electricity, cost of natural gas. it is the single biggest driver of where our economic growth right now. yet communities are fighting it. the reasons are there is a very political debate about the environmental impacts and implications. we did this report to sort out what is really going on here. brendan: click the oil and gas industry be more transparent about what they are doing in order to assuage these concerns? michael p.: we think so. this study was done with boston consulting group. we did it as a partnership with hbs to try to understand this issue. the industry is making a lot of

progress. the environmental issues are being improved and improved, but the industry has been very un transparent. they have been taking on these communities and advocating their cause. i think they made a problem worse. tom: one of the advantages you have is a double degree in entering from princeton in aerospace and mechanic -- in engineering from princeton in aerospace and mechanical engineering. is it valid science, and will not cause earthquakes in oklahoma? michael p.: there is very significant environmental impacts that happened -- water seismic, and others. if you look at the data, you look at the progress they are working on the progress is substantial and we can make more. what is really important is you can reduce those risks, reduce the water issue, produce those glaring issues at very low costs. brendan: what are the risks? how do we quantify them?

michael p.: there is a whole variety of risks. water risks come where there is a lot of water used in this process, and the question is are we going to believe that water and issues with injecting that water into the ground. that is what caused the earthquakes. there's issues of chemicals issues of land -- tom: we are going to have a seven richter earthquake in new york state. the sidebar in new york state is interesting in that they basically said there is no science, we don't know what is going on so we will stop doing. brendan: that is the european approach. this is what is fascinating about american and european competitiveness. europeans say you have to prove there is no harm before we do it. americans say we have to prove there is harm before we stop you. michael p.: the industry was in denial on the earthquakes. they said, oh, there's no earthquakes. there are earthquakes. the data is overwhelming.

we know why they happen, it is the injection wells. when you do those wells near a fault, you have an earthquake. if you stay away, you don't. we can solve the problem but we are having such a politicized debate that we are not moving ahead. this is the biggest economic opportunity that america has for the foreseeable future. this is what is driving whatever little economic growth we have. we have got to work through a win-win pathway, where we get the economic benefit while dealing with the legitimate environmental issues. brendan: to get the legitimate environmental issues right, what is the proper role of the state and federal government? michael p.: well, i think they are moving. most states highly regulated this. the regular standards are getting better and better. there is cross-state collaboration to make the standards most effective and up-to-date. state has gaps to fill. the biggest issues not -- is not

regulation compliance. states are struggling with making sure that the industry operators are following the rules. it turns out a lot of the people have tremendous records. it tends to be the little guys that are not so -- tom: so, quickly, professor porter, a barrier of entry to the department of energy? tell them to go away? michael p.: not go away, tom but we need to approach this the right way. we are paralyzed on making progress on the most important issues we face on tax policy trade policy, immigration policy . we are having the same problem on energy. it is our biggest advantage. it is historic. but yet we are having a big fight across the stakeholders rather than getting together and figuring out how to solve these problems. and they can be solved. tom: michael porter with us from harvard. brendan: vonnie calls it ideas

tom calls it adidas. i'm in the middle. billion-dollar deal with the nba. this is "bloomberg surveillance ."

tom: good morning, everyone. "bloomberg surveillance." tom keene, brendan greeley, vonnie quinn. one of the great revelations this morning, the stunning is that new zealand will cut interest rates. if you look 10 years, it is what you would expect. very flat, stable. new zealand kiwi strength

against australia. this huge move, brendan of stronger new zealand dollar. forget about it, we will reduce rates, we are done with inflation. challenge by china as well. brendan: we think of australia and new zealand out of habit as different places but they are very different economies. australia is linked at the hip to china. is yuan is a completely different economy and they don't have the resources that australia -- new zealand is a company different economy and they don't have the resources that australia has think about the industry that drove the "lord of the rings" movies. tom: this goes back to the overstatements by south korea the virus, dairy prices, paul legitimate questions. this is accommodation of abenomics and the china slowdown. brendan: i was hoping we could get to the point that the small country dominates global sailing. unbelievably good sailors. tom: i was going to get that in

as well. let's get to our top headlines. here is vonnie quinn. vonnie: the greek prime minister is hoping to end the deadlock over bailout funds. late-night meetings in brussels with leaders of germany and france. creditors want greece to reform its economy but one quick official says the company wants a nine-month bailout extension. they will hold talks with the head of the european commission. china's former security chief is going to prison for life. he was sentenced today after a secret trial. he is the highest-ranking official prosecuted in the country's corruption crackdown. he was convicted of receiving bribes, abusing his power, and leaking state secrets. a longtime twitter investor made a news just hours before the company's annual meeting last week. he urged twitter to broaden its appeal with their products. and told bloomberg's emily chang that google, mike is up, or facebook -- google, microsoft

facebook should go for twitter. >> they should explain to the shareholders why they paid a lot of money for it and it wouldach of those companies without blowing up something as they have. emily: what about apple? chris: i don't think apple cares. vonnie: you can watch the entire interview tonight at 7:30 eastern on bloomberg tv. j.crew is shaking things up after a disciplining first quarter sales. the head of women's design is being replaced and 175 jobs are being cut. j.crew sales in the first three month of the year fell one and 5%. and it was only -- more than 5%. it was only an activision name but the u.s. still be the world's top soccer team. germany was missing several key players. brendan: i hear they are resting several key players, but i just looked at the roster, they have -- tom: yeah, yeah, yeah. brendan: this was a real win.

this is about economics and here is why. the former german midfielder now coach of the u.s. team, he is applying the german -- tom: ok, is this a fifa game? brendan: yes. tom: this is what fifa wants. this is the best thing for fifa. brendan: i will tell you why fifa can get away with as much as it has for his long as it did, because people love this. i love this. i am deeply sad i missed this game yesterday because this is amazing. tom: the only reason i'm watching is because the red sox or less. michael porter, would you get off your but and fix the boston red sox? disgrace to harvard on both sides of the charles river. michael p.: i'm actually very close to the team and it didn't turn out the way we planned. tom: very good. [laughter] same thing with fifa, didn't turn out the way we plan. brendan: but when you look back to the world cup win, it is not

just about soccer, it is about germany's plan to make better soccer players. 10 years ago they carried it out faithfully. the u.s. is following that plan. tom: you see how he just picks up when we talk soccer? vonnie: he does. tom: let's do a data check. currencies, commodities -- could literally do an hour data check there are so many subtleties this money. some real interest rate movements worldwide. we see that with the new zealand and korean rate cuts. those are surprises. vix, 13.22 after that bang of recovery in equities. the 30-year bond, 3.21%. the german yield at 1%. 10-year yield, 2.48%. really begin to show not a tantrum, but just the weight of an elevated yield environment. you heard the asset management

make clear earlier that this is much and do about nothing. deflation worries just aren't valid as well. brendan: this is "bloomberg surveillance." i am brendan greeley, with tom keene. tom: we need to turn to michael porter. nike has just aced out adidas to dress lebron and company. it is a common sense to do list, simpler taxes and the like. michael porter is with harvard university. that barely describes his contribution to how we think about how we do business. the rumor is that harvard is it within the commonwealth of massachusetts, and michael porter starts with doing what is good, the ancient english term back to 1330, doing what is right for the commons. what is jamie dimon or the president of chevron what do

they have to do to benefit the commons? michael p.: well, every business benefits from a set of shared assets and resources and those start with the skills of the workforce. every business can contribute to that. every one can contribute to the still-building process -- tom: bringing it back to the nba and the metaphor, boy, is their labor focus. you know who all the labor is. brendan: if you want to talk about competitiveness, i would look to the sports leagues in europe. u.s. had this dominance of nike and adidas, and then you all of a sudden have these smaller american companies -- under armour, warrior -- breaking into the english premier league. that to me is more interesting because they determine who gets the reforms team by team rather than this massive approach in the u.s. i would argue that is american competitiveness. michael p.: that is a sign of what is good in america in terms of the strengths. we are innovative.

and fracking incredible technology, american innovation. but we have problems we have allowed to creep up. brendan: what is the commons argument we apply to fracking? how do you frame that for people saying that this is something we need to protect? michael p.: first of all, we have to recognize that there is no trade-off between growing our economic opportunity through energy and treating the environment well. we can do both. we need to get our house in order. we need to get the right structure in place. this is very important -- there is no conflict between moving to clean energy and low carbon and renewables and fracking. many environmentalists are saying that if we start down the path natural gas, we will somehow not get to renewables. we can't get to renewables without natural gas. tom: when you look at all of this -- i look at the nike return over the last 10 years. 18.6% shareholder return.

how are we within our business environment -- let's take nike, adidas, big duopoly, battling -- how do we balance shareholder rights with the right of labor or, for that matter, the right of the public? michael p.: the big challenge we have in america right now is the average worker isn't doing well. the average worker has much less opportunity, wages are slow, job growth is slow we keep revising our economic forecasts down. that finally starts with skills. it starts with middle skills. non-phd or computer science degree, but the ability to do context work that requires training. we're losing the race to raise the skills of our workforce. we have a whole array of other weaknesses we have allowed to develop. but the wonderful thing about energy is it is creating a big advantage for america, it is creating a lot of jobs. and it is also creating jobs

that don't require a phd, they don't require advanced training. vonnie: so how do we get retrained to work in this industry if you want to? michael p.: well the industry and government have started a whole array of new programs to fill these gaps. these are wonderful jobs. two times the average wage are being generated in this field. you need a lot of -- a combination of some academic training but a lot of in practice training, a partnership programs, work-study programs. tom: very quickly, what has been the response of big oil to your fracking report? michael p.: well, the leading companies in the industry are understanding that we are on the path to low carbon and we are on the path to dealing with these environmental issues. you probably heard a six-figure european welcome news came out a week ago and said we are for -- tom: ok, we will have to leave

it there. michael porter, lovely to see you. see you in switzerland. brendan: the commodity super cycle. brazil and australia next.

tom: good morning, everyone. "bloomberg surveillance." futures flat now. brendan: chevron $20 billion

coming second-largest oil producer in the u.s. erik schatzker visited the headquarters in california six weeks ago and spoke to ceo john watson. the most recent news about chevron is the difficulties they have had with the bigfoot platform out in the gulf. how does that tie into their global strategy? erik: the gulf is super important to their strategy because chevron plays a long-term gain. john watson is sitting there watching prices at the current level and feeling remarkably calm about it. because two reasons -- he knows that fractures are under pressure and chevron will get another opportunity -- at least another bite, if you will, of the shale apple. they have landed to take advantage of the same technology that trackers -- trackers use -- brendan: so they will not step in and by a fracker.

erik: they are developing 2 million acres in the permian basin. and then of course, they are long-term players. have big reserves in places like the gulf. i wanted to hear john watson talking about his vision for the future of energy. john: it is hard to convey the scope and scale of the energy system that is been built in the last 50 years. it is not one or the other. what has been gradually realized is just as our energy system is very diverse, so will be the players in the business. and there is a role for major oil companies. there is a role for national oil companies. erik: that is really why he is calm and collected about all of this. he believes oil and gas are here to stay. not going to be enough energy from solar and wind. is it enough oil from shale plays to replace big oil like chevron or bp or shell.

brendan: which leaves us in the gulf and the technological platforms but when did he say that the price of oil would be worth again? erik: they will not lose money at $60 a barrel. chevron had to suspend its share buybacks and cover capital spending by $5 billion. tom: within your research on this, what is the difference between chevron and exxon? erik: chevron is more oil-weighted. bigger retail, gasoline distribution business. more on the chemicals and midstream side. chevron has done well up to now for the past several years because there was more oil and gas. for example, chevron gets two thirds of its output from oil. total production. the other third for the most part being natural gas. the other guys are more like 50-50.

oil prices need to go up for them to enjoy that same advantage. tom:brendan: 7:00 p.m. eastern, erik schatzker rolls up his sleeves and takes a look at chevron, including a long conversation with ceo john watson. also on "market makers" today michelle peluso joins at 8:00 a.m. eastern. until then, this is still "bloomberg surveillance."

tom: tom keene, brendan greeley, and with us for the top headlines, vonnie quinn. vonnie: the international energy agency says iraq, saudi arabia and united arab emirates pumped record amounts of crude last month. richard branson is announcing maternity leave of up to a year with full pay at the virgin group, but there is a catch. it is only for virgin management. 140 of virgin group's 50,000 employees are eligible. a baseball star gets his money's worth as he is tossed from again. cory hunter blew up over a strike call last night and

through a big-league tantrum. he threw his elbow pads and yanked off his shirt and tossed that too. what would he have done if he had one? tom: it is a great tradition. you see less of it today than you used to. brendan: i think he had a contract with whoever supplied the undershirt and needed to show it. tom: we will talk to menu weaver of the baltimore orioles to understand arguing and home plate. we have seen this retreat. yields move higher. central-bank parlor game continues. all of this is a backup for the simple fact that michael disagrees with consensus. forget about deflation fears. he says things are simply not as bad within the great reflation trade. he is with marketfield asset management and joins us on commodities.

oil up, oil down. are you willing to be constructive on commodities as everyone else runs? michael s.: i put oil on one side but the more interesting question is what might be happening with some of the industrial metals which had the overproduction cycle. i think the great question is how sensitive are industrial medal cyclist going to be too chinese monetary policy? that has the potential to be the game changer. i think chinese liquidity is very, very closely linked. tom: i will go with you on that. the bloomberg blended commodity index, the gloom of the moment. you are pushing against that because industrial metals seem to be better. more china be benefited by renminbi appreciation or, excuse me, appreciation? michael s.: no, renminbi looks

to be stable against the dollar. the chinese have radically cut the cost of the bank capital within the financial system and overtime, that will spread into the true cost of capital for chinese corporations. they also change the direction of liquidity. liquidity was getting tighter and tighter and tighter. you have reasonable credit data coming out earlier this morning. the tightness of\\ with a much bigger collapse in commodity price -- tom: they did their own austerity. michael s.: they had a boom they needed to get their hands around. brendan: the thing i'm tried to understand about chinese that you have two different trends at the same time. it has regular tory policy as it tries to rein in the local entities that have seen tremendous growth in credit as well. how does it do both at the same time, walking and chewing gum?

michael s.: you can't. you have to decide if you want to be too tight or too loose. they said they would rather be too tight then to lose. they started to panic when they saw how bad things were getting in the mower distressed portions of the economy. once the central bank makes that switch from wanting to be too tight to being prepared to be too loose, that is the game changer. you wait for central banks to change the direction of monetary policy. vonnie: what kind of growth numbers are we looking after china? michael s.: the actual economic data will continue to get worse. it takes time for loosened honestly policy to turn into economic activity. financial markets are much, much more sensitive to it. you saw what happened to the domestic equity market. if the tightness was one of the big issues for industrial commodities over the last three years, the listening has the potential to be a big deal. brendan: we immediately launched

into an in discussion of china. is china the only story and commodities? michael s.: no, i think japan has the potential to be a bigger consumer. the u.s. would be a much more normal consumer of commodities. but i do think that chinese monetary policy has been the big change over the last six months. i think it is the change -- tom: should the chinese markets involved in the msci index? i think the coverage has been somewhat superficial. you are an expert on this. do they destabilize trust in the emerging market indices monday bring the roulette wheel into the next -- when they bring the roulette wheel into the index? michael s.: the discussion is taking place on the back of this crazy move by the market but the indexes need to find a way to be representative of global economic activity or emerging market activity. it is somewhat perverse that china is excluded. i think msci understands that and they have not found the right mechanism to do it. tom: do you link u.s. equities

with the bond gyrations we see? michael s.: i think if the income sectors start to collapse it spreads into the general equity market. right now the u.s. equity market seems -- it is much more bottom-up driven. dominated by things like health care and technology which has become big multiple expansion stories. at some point, if you started to see panic redemptions it jumps into equities. tom: michael, thank you so much particularly on reflation. i forget, what has been a twitter question? vonnie: it has been centralizing for the past two hours. -- central banking for the past two hours. brendan: is india attached to this global banking this is system? michael s.: it is making its own decisions. the vast majority of global

central banks is citi got part of this deflation story or hitting the panic button at the same time. vonnie: second answer -- best guess is the bank of russia and the people's bank of china. possibly within the next week. michael s.: no, i think if you look at what tribal has done, it is collapsed and is going sideways. the chinese -- tom: the shanghai libor index, you're report, -90-day rate -- does that signal a lack of liquidity in the system? michael s.: no we have access broad money right now. you have moved from a time when the central bank balance sheets have exploded into a more interesting period where growth around the world is starting to accelerate. tom: are you going to critically see that in china as well? michael s.: i think it will stabilize. fairly stable around 10%. vonnie: last answer of the day and thanks to everybody for writing --the next on the chemical to the microphones. tom: oh, very nice -- the next

one that can make it to the mark fronts. tom: oh, very nice. people in the market, maybe not so much fun, but the interest rate move we have seen is a many-parted interest rate move. germany is separate from the u.s. and you have the correlations here that can't be ignored. i love that michael is pushing against consensus. vonnie: i will be looking at retail sales because traders have been looking up as number all week. we will have to see if the consumer is doing any bit better. tom: michael mckee putting a huge weight on this one. vonnie: it's a big one. topline number of 1.2% and the number we are looking for is .5%. brendan: i will shamelessly plug my alma mater, "businessweek." they have been issued this week devoted to code including the headline design to trigger the pleasure centers of the editors at "businessweek." what happens when an google

executive creates a school system? you cannot build schools fast enough in san francisco. he is doing data collection on the way kids learn in schools, tracking them with cameras. not real classrooms in the way we think about them. that to me is fascinating, and terrifying. vonnie: almost like a charter school, only a special kind of charter school. brendan: a charter school with extra data. tom: can you parachute in the new york city math curriculum? brendan: no one. do you know what is taking place in education right now? i got a text from my wife. when you watch online, you can share prices instead of ads, when you watch this show online. my daughter has learned what a share prices. five years old. she pointed out that microsoft and pfizer are up. give her 20 years and she will be managing your money. tom: she will be working for michael. we will continue.

don't forget, erik schatzker's special tonight on chevron. you can see that on bloomberg television worldwide. stay with us on television and radio.

announcer: live from bloomberg headquarters in new york. this is "market makers," with erik schatzker and stephanie ruhle. stephanie: good morning. this is "market makers pickup i am stephanie well at 8:00 a.m. erik: i am erik schatzker.

greece uncertainty means opportunities for some investors. stephanie: uncertainty over at j.crew. the retailer is cutting jobs and checking up management. erik: bloomberg businessweek has devoted to the culture of the people who make code. if you do not know code, here is a story that could help your career. that is what is coming. you know what else is new? can i see your folder for a second? stephanie: my notes folder? erik: folks, this is 70's folder and this is my folder. stephanie: clearly, it is in turn season at bloomberg. this is a reminder that we need to pay attention to our notes. i love it. beautiful. i will ignore the fact that my name is spelled wrong. it's ok. erik: