? commodities weaker as well this morning. this week, will oil find in bid? and the iran deal will not stop the spread of nuclear weapons. richard haass on the council of foreign relations. this is "bloomberg surveillance ," live from our world headquarters in new york. it is a busy monday, july 27. i'm tom keene with vonnie quinn and brendan greeley. brendan, what are you focused on this morning? brendan: here is what is significant. the shanghai composite has dropped more than that china's index. the industrials are suffering more right now than the smaller companies that were suffering in the drop for. tom: many of them down as much as 10% this morning. we will go to jon ferro in asia and moments. here's vonnie quinn. vonnie: we begin with china. the benchmark shanghai composite index fell more than 8%. the growing concern that a

three-week rally sparked by unprecedented government intervention cannot be sustained. the chinese government has allowed more than 1400 companies to quit trading. it has banned major shareholders from selling their stakes. president obama has become the first u.s. leader to visit ethiopia. he arrived in addis ababa last night. he will talk with several african leaders about the civil war in south sudan. earlier, he wrapped up his trip to kenya with a call to end corruption. president obama: too often, in kenya as in other places corruption is tolerated because that is how things have always been. here in kenya it is time to change habits and decisively break that cycle because corruption holds back every aspect of economic and civil life. it is an anchor that weighs you down and prevents you from achieving what you could. vonnie: the president urged

kenya to treat women better and improve education and welfare. 13 major u.s. corporations will invest at least 140 billion dollars to reduce carbon footprints. the companies include apple berkshire hathaway. to out the white house -- today at the white house they will agree to cut water use. there is a big takeover in the health care industry. israeli drugmaker teva pharmaceuticals has agreed to buy the generic drug business from our again at a little over $40 billion in cash and stock. at the same time teva is withdrawing its bid for another drugmaker, my land. three of the four inductees made their living -- to the baseball hall of fame -- martinez is the

second dominican player to enter the hall. tom: that is the only legitimate hall, the only legitimate vote. it was magical as a kid to go there. i hear it has gotten a little touristy. there we are in cooperstown. congratulations. we have an important data check right now, markets beginning to move and clients to glance it is a mix. futures at negative six. oil cannot find a bid. nymex, west texas intermediate for 7.85. -- 47.85. this is important. the china route is 7%, rounded up. gold is doing very well versus oil this morning.

i would not want to point out as we speak, the ruble threatened, 60 per dollar. that is a huge deal. this is from bob sinche. this is what he does. out of the blue the other day on "surveillance," he talked about the mexican peso and what it means for manufacturing in mexico. this is the forever strong renminbi. you have the u.s. dollar strong against the peso and all of a sudden bob sinche is saying manufacturing in mexico is the place to be. brendan: there is a quiet shift toward manufacturing in mexico. mexico sends more car parts to america than america sends to itself. tom: that would be true. the backstory, there is so much going on this summer. i missed mexican peso

dramatically weakening in the last few weeks. china is where we need to go this morning. there is a decline, a plunge. many stocks down 10%. jon ferro is in london. what is the immediate knockdown effect that you see? jon: not clear. very isolated. you see a pullback in europe but a big move like a .48% -- like 8.48% in china. this is a manipulative marketing that ipl's have been suspended. they even put in a financing vehicle. tom: the russian ruble goes back out to 60, which is a bit of attention for mr. putin and russia. i am not saying that is because of china, but there seems to be a swirl of dysfunctional moments in markets in the last four or

five days. jon: there does, and that comes from the commodity space. it has been that route in commodity, a pullback in brent, wti in the bear market. there is more downward pressure on crude, and the commodity currency is getting whacked off the back of that. brendan: you have been awake longer than we have. is this damage contained within china, within asia? we do not see a lot of movement in the nikkei. is it anywhere else in asia? jon: the hang seng inchon: -- the hang seng in hong kong. when you look at the disorderly market route, and then the orderly flow down in the actual economy, the consensus view is that this market route will not spill out over. the consensus view is being challenged by some. in the hard data the overall

wealth effect might be lower in china, but we still do not know the consequences of the psychology on the chinese consumer from here. tom: here is the russian ruble which in moments has weakened dramatically. this intraday chart goes back to thursday. the message is simple. there is a route in chinese equities, but it has ramifications across china. a wonderful china watcher with smartpros for years is thai way. thrilled to have you with us, from hong kong this morning. how would you presume the government will react to this new bout of equity week to see echo >> thank you for having me on today. i think it is likely to react to the market. they have been rolling out various measures in the past few weeks to stabilize come but the

reality is that they cannot control the market as they would like. meanwhile investors are selling into the rallies. tom: what his plan b? if we look at the market rolling over, both on the 200 day average, it is not the normal start mucker -- the normal stock market. what will be the reaction to the july a low? tai: i think what is the most likely scenario is that they will need to let investors play it out. i suspect they may retest the july 8 low once more. i would not be surprised if we break it. very strong rallies, november and december of last year. it has been unprecedented in terms of momentum. but when it corrects, when the investors run for the exits, it

will create a stampede. that is exactly what we are staying at what we are seeing right now despite the best efforts of authorities. brendan: because this includes the larger chinese industrials is it more indicative of trends in the underlying economy? tai: there is very little help from the economy. we been telling investors last year that the market rallied mainly by liquidity, and that is not corporate fundamentals. until we since of stabilization in the macro thinker, or corporate earnings, it is going to be a very volatile market with long-term investor themes in this china market. tom: tai hui, thank you very much. we heard don at isi last week say the 7% is complete and total

fiction. richard haass is with us this morning. you were just in china three cups of coffee ago right? what did you observe of this government responding to the horrific downturn we saw overnight? this is different this time versus the recent downturns. richard: so much of the legitimacy of the communist party and the government more broadly in china depends on what thing -- delivering ever higher levels of economic growth and improving standards of living. those days are over. so where does this party get its legitimacy? the answer is they cannot figure it out. the markets cannot work. these are broadly anticipated markets. they have a real problem on their hands and they do not know what to do. that is why you see massive intervention. this is a serious political problem. you have written the higher markets and said invest here it.

tom: is this a discrete thing with the wall around it? brendan: you say their legitimacy rests on 7% growth. what do their interventions in the equity markets have to do with underlying growth? richard: first of all, there is not 7% growth. this shows that the stock markets have become broad markets. it is not just elites investing in them. a lot of chinese people are investing in them and they are worried that this will contribute to greater political tightness. this is the nightmare scenario for the chinese leadership. the economy slows, markets fall and you have political and popular push back. vonnie: many are starting to say that we need -- that stocks are overvalued. is this something that can be contained? richard: eye and not smart enough to say that this

can be contained, but they have got to be nervous about it. they have tied themselves to it. they have tried to get the benefit of an up market and they want to avoid the political cost of a down market. tom: 54.07 on brent. i do not buy the idea that this is contained. we see a lot of other market action as well. let's look at our twitter question of the morning. a nice response. thank you so much. the china slide for real this time. the chart we showed earlier, we are coming up again on the moving average and it shows the fragility that we see in the various chinese indexes. stay with us through the morning. vonnie quinn and brendan greeley. this is "bloomberg surveillance ." good morning. ♪

tom: good morning, everyone.

"bloomberg surveillance." we're watching brent crude trying to get to 53 right now. here's vonnie quinn with top headlines. vonnie: after five weeks of summer, this year's wire fires -- this year's wildfires are worse than all of 2014. california is the hardest hit with four. one of them is dangerous to homes outside sacramento. nearly 9000 square miles has been scorched more than three times last year's total. ubs says second-quarter profits rose 63%, beating estimates thanks to lower costs and increasing equity trading. and "antman" was the winner at the box office, the latest movie from marvel studios. in second place, adam sandler's

new film "pixels." it took in $24 million, well below expectations. those are your top headlines. i have still not seen either. brendan: have you played donkey kong? was that part of your youth? vonnie: i did. brendan: $40.5 billion is what teva pharmaceuticals is offering for the generic drug business of allergan. ed you did not get to have a weekend. our condolences. what is driving activity right now? what is driving growth in the generics market? ed: we are seeing huge murders in this space at the moment, and this is the latest megadeal to hit the sector. there is a consolidation play across the generic space.

scale begets more growth and gets you much more efficiency. brendan: is this lower margins in driving consolidation, or is there real possibility of growth in the future that is being chased? ed: it is having the distribution with which to put these products. the actual products -- if you can bring down costs by having an existing distribution market -- obviously, as you go forward, as you are bigger you can buy more of these companies. brendan: teva has that. they have the existing relationship with cvs. vonnie: does this mean that my land that's -- that mylan is making a bid for para go? ed: teva had this existing

hotspot, and these companies loathe each other. mylan had a premium with shares, but they have come down 12% already. which means that mylan's bid for para go is less. brendan: teva is an israeli company, but mckesson supplies u.s. pharmacies, and cardinal health cvs. are we looking at a story that is in part the affordable care act in the u.s.? ed: it is certainly part of it. just company's israeli by tax code, listed in israel, but it has a huge presence in the u.s. tom: thank you so much. in the next hour peter will join us from citigroup.

much more than that, one of the top fiscal economists will speak about the narrow budget deficit. also, peter orszag on climate change. stay with us. "bloomberg surveillance." ♪

tom: i believe -- i am not sure -- that three days in a row of 90 degrees is called a heat wave in new york city. we will see that later this week. this morning is lovely, but then it gets hot. "bloomberg surveillance." let's get to an important morning must-read. brendan: peter orszag will join us in the next hour but we will preview something he wrote in

bloomberg "view." he writes -- brendan: we have richard haass here from the council of foreign relations, ambassador from the real world to the court of "surveillance." why can't we get this done? why can't all economists say the best measure is a tax on carbon? richard: you cannot get it done not because there is not so much agreement on the science, it is simply because of the discrepancies between and among the world economies. trying to get a one-size-fits-all system is too hard. peter is on to something smart. even the scientists who cannot agree, can you get some

catastrophic climate insurance? even if the climate change is a hoax, are there still some things that make sense to do that are not that expensive? brendan: i hear a shift on rhetoric to this word "insurance." why is that so important? richard: because you cannot get an a sense -- because you cannot get a consensus on what is happening. but you can get a forum. we are only five months away from the big conference in paris. this will influence the thinking. tom: how far apart are the europeans and americans? to me it is like the grand canyon. richard: we are more apart on the rhetoric than we are on performance. if you look at copenhagen years ago, the united states has done well because of greater fuel efficiency, but we are apart on policy and rhetoric. brendan: the white house has some companies to talk about

committing to combating climate change. this is mostly windowdressing, it seems like, from what i have read. ge and a couple of other companies will be there. what diplomatically in your world has to be done to prepare for those talks? richard: countries have to get serious about national programs. they will not be anything like a global carbon tax or cap and trade. there will not be a global top-down answer in paris. there will be the cumulative total of national bottom-up programs, like the united states will do this. this is a lot about china and india. 40% of the world. if neither china nor india. serious national programs global efforts on china's -- on climate change will be obliterated. brendan: what can be done to affect change in these two countries? richard: can we adopt -- can we

help them adopt trajectories that are beneficial? by 2030 they have said they will cap emissions, but we do not know at what level. so we have to get china to move with specificity, get india to move somewhere, and that means to help with the development but in a responsible way. tom: we have a plunge with brent crude 50.80. in the next hour, on china peter orszag, most importantly on the nation's budget. peter orszag in this 7:00 hour. this is "bloomberg surveillance ." ♪

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all of taylor swift's music videos interviews, and more. xfinity is the destination for all things taylor swift. this is a great place to work. not because they have yoga meetings and a juice bar. because they're getting comcast business internet. comcast business offers convenient installation appointments that work around your schedule. and it takes- done. - about an hour. get reliable internet that's up to five times faster than dsl from the phone company. call 800-501-6000 to switch today. perks are nice. but the best thing you can give your business is comcast business. comcast business. built for business. tom: good morning, everyone. "bloomberg surveillance." let's get to top headlines with vonnie quinn. vonnie: in china, the benchmark stock index fell by the most in eight years. the shanghai composite lost 8%.

china's government has been propping up stocks with an president and measures the last few weeks. trading in more than 1400 companies has been halted. major shareholders are banned from selling their stakes. the senate has advanced a proposal to -- it is due to part of legislation to advance highways and mass transit for three years. house highways bill does not include the export-import a proposal. donald trump is still leading the republican presidential pack. new surveys by cnn and zogby show him ahead of jeb bush and scott walker. the numbers will come into play soon. only 10 of the 16 candidates will qualify for a televised debate, and trump will use polls to choose.

federal safety regulators have imposed their biggest fine ever on an automator. chrysler has agreed to pay for failing to -- fiat chrysler has been fined up -- plus, it will buy back vehicles with defective transmissions. >> there is no way to defend what fiat chrysler was doing, and whether it is a matter of commission or omission, the reality is consumers were not protected in this situation. vonnie: fiat chrysler says it will improve and will reestablish trust consumers place in the company. and chris froome of great

britain has won the tour de france for the second time in three years. he ended up winning by a little more than one minute. it covers 2000 miles in three weeks and comes down to one minute. in the mountains. tom: we're waiting on a press conference from the president in ethiopia. he has moved from kenya to ethiopia. we will bring that to you in a number of minutes. brendan: we have richard haass with us from the council on foreign relations. i want to read you something from "bloomberg view." " brendan: noah feldman referring to the turkish airstrikes 16 positions over the weekend. this isis not have a good long game?

richard: i think the piece by n oah is a little bit wishful thinking. isis has a dilemma -- do you work on the quality of life? you can run a place, root out corruption. or do you continue to spread around the middle east? my hunches they will try to continue to spread. they put a lot of pressure on saudi arabia, given that you want to ultimately get to mecca. i do not think they will be self-contained. i also do not see evidence that the arab countries are serious about taking on isis on the ground. it is one thing for people to attack them from the air. you will not defeat isis from the air. brendan: do you see it as encouraging that they have joined the fight? richard: only mildly in the case of turkey. it is less against isis and more

against the kurds. what you will likely see is the revival of civil war or civil start -- or civil strife within turkey. the government has broken the cease-fire with the kurdish militias. this is dangerous. brendan: is any sunni government in the middle east capable of inserting ground troops that would have an effect? richard: i have been calling for a multinational force. ground forces -- jordan have some -- jordan has some, some others do but they are more concerned with keeping them at home. at the moment i do not think isis faces a serious challenge on the ground. tom: the president is in addis ababa, in ethiopia. why doesn't he make a road trip and go to and kara -- to ankara? just go up there and knock on the doors of our allies. isn't that the polite thing to do? richard: he has his hands full where he is.

he is working on a message about governance no corruption. second of all these countries, many places are divided. if he'll about a third muslim, two thirds christian -- ethiopia is about a third muslim, two thirds christian. we're seeing elements of africa in places like somalia. the president is trying to address the spread. tom: how do we have a coherent foreign policy to these very nationalities and their mixed religions within their nations? it feels like -- thomas jefferson and the barbary pirates. brendan: the shores of tripoli we call that. richard: you have to make these societies less vulnerable

professionalize their military and police forces. nigeria is probably the single biggest problem of this sort in all of africa. brendan: what are our allies -- what our allies in the middle east respond differently to a different commander-in-chief? richard: there is not a lot of confidence. disagreement with iran has exacerbated. sunni concerns with saudi arabia and the uae. i think there is confidence in the united states and barack obama, but i would not exaggerated here it. brendan: coming up how much different countries are skimping on their r&d budget. that is the subject of today's single best chart. it is "bloomberg surveillance" on bloomberg television. good morning. ♪

tom: good morning, everyone. the president in ethiopia. he will comment soon with the prime minister of ethiopia. we will bring that to you when we see it in a few moments. let's get to our single best chart. here is brendan greeley. brendan: new recommendations from scientific advisors to the you when

-- to the u.n. here's what we're looking at. public spending on r&d. it should be 3.5%. the completely arbitrary number made up by a commission for the u.n.. israel on top, finland, south korea, sweden, japan. the global average well above 2%. the u.s. above 5% -- above 2.5%. richard haass, is the number on public spending significant? richard: i would want to see trends. it is interesting that israel is able to be at the top of the pile. what i do not think these numbers include his private spending. if you added up what corporations are doing in silicon valley, the drug companies, that might be as much or more, eagle of -- equal or greater significance. brendan: if we look at the

biggest technological challenge, is public spending on r&d necessary? richard: it is one of the elements. dealing with certain problems with sequestration with coal -- it is on a scale, that you probably need public money rather than private. the answer is yes, some of the things will take public money. vonnie: 3.5 percent is allocated. do you allocate some of that 3.5% public money to an enigmatic -- to -- brennan go there are some things that pharmaceutical companies stand to make no money on, the work on ebola for last year, for example. part of the problem is that it is not just what is spent but

how it is spent. you need to commit to a five or 10 year program so that the money can actually have an effect. richard: that is one of the laws of spending. almost more important always than spending is how you spend it -- and that is true in health care, education, r&d. it is not particularly significant. brendan: let's stay in the u.s. for a second. do you see any possibility with any sense coming to how we spend? is a small improvement possible? richard: probably not. the sequester is dumb public policy, because it does not distinguish between various items off the table. the national institutes of health get hammered. that cannot be good. it is anecdotal, not statistical. brendan: great to talk to you but it is a little depressing. vonnie: let's have a look at top

photos today. our number three top photo -- in las vegas saturday afternoon the pact 14 for -- the packed 14th floor of the pool deck of a building caught fire. no one was burned, but two people were treated for smoke inhalation. brendan: are fake palm trees flammable? i guess so. vonnie: i wonder how many floors are there. that is number 14. number two top photo -- almost 1900 competed in the -- in a swimming race. they started on istanbul and swim four miles. richard: just four miles?

brendan: the chesapeake bay race is seven miles. come on, people. vonnie: the winning time was one hour, one minute, 21 seconds. our number one top photo -- president obama made history when he became the first sitting u.s. president to visit kenya. he took it to the next level by becoming the first u.s. president to bust a move on the kenyan dance floor. during a dinner at nairobi's state saturday night, he joined the band in performing a traditional kenyan dance. before dinner, it he come then -- he condemned kenya' policy on homosexuality. brendan: there are some that he never knew who just showed up to the dinner. vonnie: it looks like the knock arena -- like the mac arena.

tom: we are awaiting the president's press conference in ethiopia, a very different ethiopia from what we have learned with nine ethnic regions , and we will bring you the comments of the president and prime minister of ethiopia. let's look at our twitter question of the day. thank you for the immediate response. on china is the china slide for real this time? you have to wonder going back to the july 8 lows. brent crude is plunging down a full dollar. european brent crude 53.61 right now. "bloomberg surveillance stay with us. -- stay with us. "bloomberg surveillance." ♪

tom: good morning, everyone. "bloomberg surveillance." the president and the prime minister of ethiopia -- he is now speaking. he is a civil engineer at a university in the pacific. the president is addressing the sensitivities of ethiopia's

morning. let's get to top headlines right now. here is vonnie quinn. vonnie: greece is set to begin talks with creditors this week on a new bailout agreement. alexis tsipras is running out of cash. the ims, there's the imf, ecb, and european commission have agreed to lend $94 billion but at is only that but that is only if greece agrees to top austerity measures. more than 100 west by stores will begin selling the apple watch on friday. fox sports is making a bet on fantasy sports. "the new york times" says $300 million is being added in new investment. half of that will come from fox sports, which will take an 11% stake. the nhl and major league soccer are also investing. draft kings is definitely on the

rise. tom: that is a big deal, right? brendan: i understand it is important, but i have not been there yet. tom: right now, a press conference with the prime minister of ethiopia, any feel be a in ethiopia removed from what i knew as a child. richard haass, with the council of foreign relations -- the common theme is ethnic divide and a straight rhythm -- a straight religion divide. religion plays into it. how does the u.s., a relatively non-religious sect society address ethiopic and iran, and for that matter, israel?

richard: you have multiethnic societies, multi-religion societies, and the rest, as is ours. at deal is that they work. and that major degree of tolerance legal protections, professional policing, economics assess, and so forth. i think the real question for a lot of these places is whether the current maps, which often did not reflect local realities, can survive. it is quite possible that before too many more decades in the 21st century are done, we will have maps that will be -- tom: very different. richard: heterogeneous countries that will be one-dimensional. tom: i think we all have an understanding of what we do in england, the united kingdom. what does the state department do in ethiopia? richard: in places like ethiopia, you have a lot of work on good governance, economic development, and all sorts of

u.s. agencies. you think of and the seas now as the state department but i would think the majority represent also it of u.s. agencies from law enforcement to intelligence types to treasury and other places. business promotion, commerce. that is what embassies are. they are platforms for the full reflection of the u.s. government. brendan: president obama was in kenya to praise the tech center -- the tech sector of nairobi. can the u.s. do anything to be a part of african growth? richard: a lot of people think african growth will be exciting given the demographics. a couple of years ago when i rented to a friend who ran in -- who runs one of the private equity company's, they were establishing their first one in africa. that is a signal that we are increasing these places.

the more the chinese are there there is the anti-chinese push back. sure, the high-tech people are going to be much more interested in what the united states is offering. the idea that china has rolled up africa is silly and it is wrong. vonnie: should president obama have gone to places like nigeria? richard: it is not either/or. we had a lot of officials go to nigeria. it is important because there are so many success stories that are possible out of the 50 odd countries there. you have a degree of good governance and democracy and markets. it is important to go to some of these places. in ethiopia up to recently, you had close to double-digit growth. it is important to celebrate the experiments in africa that are working. nigeria is the biggest problem, as is south africa.

these are the country -- these other countries really matter. tom: your book is on strength of domestic economy. right now we have a global economy that does not look so good. you look through every paper this morning and it is story after story of economic challenge. how can the u.s. help these nations? richard: our own growth is still much less than it should be, so that would be a start. global trade agreements would obviously be a big deal. getting tpp past would be a start. another transatlantic agreement would be a pretty good start. they have got to help themselves also. the idea of what we can do to help, they have got to create legal situations security get rid of some of the corruption and create a place that they become magnets for american investment. brendan: anticorruption is such

a huge challenge, that there are no good answers to be talked about in kenya. this is one of the biggest problems in development, joe. -- in development, toe. -- in development, period. tom: on to ethiopia this morning. is he a lame-duck foreign policy echo i am not there yet. he had a heckuva run here. richard: the next couple of months around will be the center of debate. we will see how it works out. he has some pacific trade agreement. second term presidents have more freedom of action in foreign policy than they do domestic. tom: this is the first president

, under a much better guys to -- vonnie: it goes to brendan's point about china, because china has been investing in foreign markets for decades. richard: tying up a lot of commodities and so forth. vonnie: why the reluctance to invest in africa? richard: a lot of companies said you do not have the workforce and the stability. tom: congratulations on jim joining you at cfr. thank you so much. let's look at the foreign exchange market. i'm looking at wrubel getting out there -- at the wrubel getting out there, 59.10. you can see that.

notice the peso. it is 16.25. thanks to bob sinche are hitting me over the head with a two by four on the mexican peso. stay with us, peter orszag next on "bloomberg surveillance."

announcer: this is "bloomberg surveillance." tom: china's stock markets

reverse. they truly plunge. after china down almost 10%. commodities weaken this morning particularly brent crude. this week, will oil find a bed? and the debt and the deficit are improving. congress should not take a victory lap for a, everyone. this is "bloomberg surveillance " live from our world headquarters in new york. it is monday, july 27. tom keene with brendan greeley and vonnie quinn. vonnie: we start in china. investors worldwide are wondering how far the damage could read after chinese stocks suffered their worst day in eight years. the shanghai composite index fell more than 8%. it was concerned a three-week rally propped up why government intervention cannot last. earlier this morning, counsel and foreign relations president

richard haass described the magnitude of the problem. and the chinese government says more than -- band more than 1400 companies from trading. president obama focused on security and human rights today on his historic trip to ethiopia. the civil war and south -- in south sudan and neighboring areas was a major topic. we are looking live at a press conference that is ongoing. the second major stop in the president's africa trip. before he left kenya, he called for an end to corruption. president obama: too often correction is tolerated because that is how things have been done. it is time to change habits in kenya and break that cycle. because corruption holds back every aspect of economic and civil life. it is an anchor that weighs you

down and prevents you from achieving what you could. vonnie: that was the president in kenya. mr. obama is the first sitting president to visit ethiopia africa's second-most populous country. corporate giants aren't bowing -- are vowing to help the environment and backing it with cash. $140 million will be spent in new investments to shrink their carbon footprints -- among them apple, coleman sacks, and berkshire hathaway. they will cut emissions and water use and support environmental companies. teva is buying allergan's generic drug unit for $40 billion. teva is the world's largest maker of generics. teva is dropping its bid for mylan. pictures -- pitchers were

joined in cooperstown for the induction into the baseball hall of fame. pedro martinez is the second dominican to enter. tom: randy johnson, when he threw the ball, his hand was halfway to home plate already. brendan: when you are thinking about particularly this class, it depends on where your affections are. are they with the 1990's braves? are they with the 2000 red sox? brendan: all four -- tom: all four deserve it to say the least. futures worsen negative six, now -10. there is a weight to the market led by brent crude 53.76 on brent crude. we need to make you smarter with a brief on china.

a decline, it plunge. chinese equities. our guest is with bloomberg intelligence and joins us now on the bigger picture. it is the second time down. they learned something on july 8. how will china react after the experience of the stormy july? jim: it is really interesting. you know all the measures put in place to arrest the fall. what was interesting on the heels of july 8 and the rally that we saw was a really would have led to so much of the state -- it really was not leading to the state support mechanisms as it was really the small stocks coming back to life. the frenetic fervor that we his seen before the correction -- there was not a straw that came out to break the camel's back, but the interesting thing was, everything fell, not just small caps or certain industries.

it was a very broad-based today. tom: discern the difference between the shanghai mainland intercedes in hong kong -- mainline indices in hong kong. tim: it is one of these dislocations we have been trying to focus attention on, and there are a lot of ways you can think about it. if you look at the shanghai composite on a forward earnings basis, you are talking something on the order of 14, 15 multiple on earnings. if you look at a large group of blue chips that trade in hong kong similar companies in many cases. you are talking nine times earnings. there is a large divergence, even on the dual listed stocks that trade in both places. we will see whether this correction in the ongoing focus

from a global attention perspective actually sheds some attention on the value that is far greater if you think about just multiples. they are in hong kong even with china listed companies. brendan: earlier you said it was a general selloff, not just in the small caps. does that take this selloff and linking it closer to the actual chinese economy? tim: that is still one of those imponderable questions. the market has been disconnected from underlying economic fundamentals. that is not just this year's rally. it is a long history of chinese stock activity. at the same time, you do have to -- you think about that. the consumer wealth is locked up in property, locked up in bank deposits. it is not in the equity market. but there is a lot of cross

holding that happens across corporate in china, and therefore a drop in equity prices especially sustained, will impact corporate profitability where it bolstered it in the first quarter. the same thing happened for gdp. the financial sector generated positive gdp in the first quarter. at this point that activity will lesson in the second. it is not underlying business and the consumer, it is different impact. tom: tim craighead, thank you so much, with bloomberg intelligence. the company line is that there is in equity. reader or zag's and has had lots of economic study on the challenges that are out there bank. -- that are out there. let's begin with china. i would think at the london school of economics you would be at the london metals change.

how do blue commodities become important? peter: the important thing is not that how many people own stock, but i was in beijing before the decline in single -- and senior government officials were almost showing off. it was taken as a symbol, and that is the issue. does it indict the chinese leadership and then whose confidence. tom: where is christine lagarde's new mediocre? peter: are not growing rapidly. another important point to come back to -- i heard talked earlier about 3%, 4% 5%. we are not going to grow at that historic rate because the population is down so much. brendan: you say the chinese government pointed to with

pride. it was not just an accident. >> it was moving toward a market-based economy. vonnie: this would not necessarily be called a failure -- an embarrassment, yes, but maybe not a failure. the shenzhen is up 52%. this is a major experiment. >> i agree with all that. it is only the symbolism. it is only if people lose confidence in the direction the company with -- the country was going because this was touted as a symbol of ongoing progress. brendan: richard haass said that the chinese government problem is linked to 7% growth. do you see that authority risk at all for now? peter: the chinese will continue to undergo a substantial transformation from 7% to 8%

growth down to 5% or 6% growth as they hit the middle income track. it was inevitable. the question is how well they manage it, and that is the key point. tom: peter orszag is with us for the hour. our twitter question of the morning -- it drives forward the story of china. israel single -- it is real simple. many china quality stocks down 10%. "is the china slide for real this time? what a difference from july 8." good morning. ♪

tom: good morning, everyone. the president parsing levels of terrorism in have forgot -- in africa, stepping across the niceties of ethiopia, visiting ethiopia. he is there bank with their prime minister this morning. he begins q&a mostly on domestic affairs. this is with the prime minister of ethiopia. let's turn to peter orszag's

wheel out tax cuts always paying for themselves. that is republican received wisdom. hillary clinton pushes back with ideas on tax policy that emphasize the time function that holding investments longer is better. years ago, spending eight days a week on tax policy at the brookings institution as well. nobody is against what secretary clinton is talking about, which is a smarter taxation of gains in investment. peter: it is better to encourage long-term investment. by all accounts, this will have a marginal effect. it will affect the timing of how various capital gains are held as opposed to dramatically transforming macroeconomics.

tom: is it looked at as childish almost between democrats and republicans, or is there a level of cystic asian of sophistication? peter: it is hard to have a discussion when you say the sky is blue and they are saying it is yellow. brendan: do you see growth -- why not just take capital gates -- capital gains rates and waits -- and raise them for wages? peter: every proposal has distortions that can have unintended consequences, but i think the bottom line comes back to the point i made earlier -- you do not get that much traction on the real economy. brendan: any different from wages? peter: there is some evidence that there is a difference. i would not want to exaggerated

too much. the empirical evidence suggests moving capital gains tax around does not affect the capital that much. tom: coming up, a warming lannett with some pushback on that idea. peter orszag weighs in on climate change on "bloomberg surveillance." stay with us. ♪

tom: i want to make clear this morning, we have a real deterioration in the markets. we started out negative five negative six, we are now -12. the sector is ugly. brent crude is blowing through 54.5370. gold giving us something to watch in the next hour. here are top headlines with vonnie quinn. vonnie: after five weeks of

summer, while fighters -- wildfires are already worse this year than in 2014. california alone has four. one of them is affecting homes near sacramento. nearly 9500 square miles are scorched, more than twice last year's total. ubs reports the income for managing funds for the wealthy more than doubled. and "antman" stands taller than adam sandler over the weekend. "pixels" the new phone from sony, fell short of expectations with $24 million. brendan: i watched the trailer of the adam sandler movie, but

it is aimed squarely at me. i am the target demographic at 44 years old, and i do not see myself watching it. today executives from 13 major u.s. companies will announce $140 billion in investments to decrease their carbon footprint. they will announce this at an event. john kerry. peter orszag wrote a terrifying article about the risks that come with climate change. it's interesting that they are meeting with the secretary of state and not the president. his diplomacy up to the task of doing something about climate change? peter: it is a crucial part. one of the key features is it is global. a ton of carbon dioxide in china is equivalent for the global atmosphere image in here, and only a subset of countries acted. the problem is you would not make much progress. brendan: so what is to be done?

what leverage can we -- peter: it is not complicated, folks. we need to impose a price on carbon, either through a tax or a cap and trade system. if you do not do that, you will not get the type of innovation and behavioral change. tom: you have been a washington watcher of this for decades. when do we see the shift, even a dialogue? peter: especially our democracy we do not deal well with gradual, long-term problems. we deal with crises -- not particularly well, but that is what we deal with. this affects way out in the future and it is hard to motivate action today for some theoretical impact in decades. brendan: it looks like a broader problem than washington. when we look at a tax on carbon infrastructure spending, and the most efficient economic solution

intact at the pump. why can no one owns the word "tax"? peter: this is the fundamental problem. things do require paying for them. on infrastructure it is shocking, we are talking about china. a typical chinese family -- even though the per capita income is much lower than bere than in the united states. if you are not willing to fund improvements, they will not happen. brendan: is infrastructure caught up in the culture wars here in america? peter: both sides wants them but the problem is neither side wants to play for them. tom: what is the best practice on climate change? auction theory, tax on carbon. there are all kinds of microeconomic theories.

is there a peter orszag method to orrin hatch that they could agree on? peter: the single best approach is a carbon tax, and the second is a safety valve that has additional setup -- the key thing is to get that price -- tom: if we look at the bank of new zealand or the norwegian bank, central bank practices where is climate change? peter: carbon is priced and europe is an example. they set up a cap and trade system with such a jealous bank amounts -- the problem here is the where we frame this is we expect the impact will be x. instead, the problem is you have a big fat tail of -- a big fat

pail of climate disaster. there is an 11% chance of 11 degrees change globally. when they do the damage estimates, they do not even go that far. they are already in disaster sewn -- in disaster zone and 11%. tom: are there new capitulations ? what was it, the pacific ocean off ecuador -- it is a big red blot of warmer temperatures. peter: there are various effects. the problem is we're not actually acting aggressively enough. by the time the flood starts, it is too late. tom: it is biblical. it is a biblical "surveillance." brendan: coming up, can america

modernize its import -- its airports? la guardia -- whatever. this is "bloomberg surveillance ." we will be back. ♪

tom: good morning. crude at $54 a barrel. i guess my attention. top headlines get my attention. here is vonnie quinn. vonnie: president obama focused on security and human rights on his historic trip to ethiopia. president obama is the first

sitting president to visit ethiopia, africa second-most populous country. the neighboring war in south sudan is a worry for ethiopia but al-shabaab is a bigger threat. >> ethiopia faces serious threat to its contribution to the african mission in somalia reduces al-shabaab control. as yesterday noted the bombing in mogadishu reminds us that terrorist groups like al-shabaab offered nothing but death and destruction and have to be stopped. vonnie: is a live images of the president speaking right now in ethiopia. it is the second stop on his african trip after his visit to kenya. his father is from there. the china stock market seeing its worst day in eight years. the shanghai composite lost more than 8% after the three-week rally spurred by the government. trading has been halted and major shareholders are for bit

and from selling mistakes. and the export import break is headed to the house. it is attached to the huge highway bill to the houston's rotation bill does not back the export import bank. some republicans opposed the bank, which helps overseas countries by u.s. products. the funding for highways bills months out friday. donald trump still leads the republican presidential packet just turn of the 16 candidates so far will qualify for a televised debate august 6. fox will choose to use polls in order to choose those 10. only for her 69 days to election 2016. fiat chrysler is facing the biggest fine ever imposed on an automaker. regulators have put a $5 million -- a bona fide million-dollar

u.s. friendly. they have to buy back more than 11 million vehicles with effective suspensions if consumers do not want to fix them. yeah chrysler is trying to improve its handling of recalls reestablish trust with customers. and great britain is the tour de france champion for the second time. the grueling race covers more than 6000 miles over three weeks. those of the top headlines for -- those are the top headlines. tom: we are giving a different perspectives. china market plunge overnight. it is not about the equity markets. it is about the entire monetary and fiscal system. he is fall this for years and now joins us. i look at this as a fixed and manage currency. how do you look at the banking system that surrounds the stock

market debacle? is there a legitimate banking system? carl: there is a banking system and it was more legitimate than 10 or 15 years ago. private banking has me know if there's a much bigger part of the economy now. state-owned banks are much smaller part. there is a part of these financial system in china that will be heard by this stock market decline. tom: can you link this to other global downtrends that we have seen, particularly commodities? carl: i cannot link the chinese stock markets to pretty much anything can it is pretty much in my view a technical market. i sent you a technical chart this morning and you have to look at markets where there are not any fundamentals. it is not a history of financing capital investment by issuing new shares in china. much more dependent on bank lending than they are on capital markets. you have a huge demand for stocks.

this people did not have any place else to put their money. is no alternative for people to flee. you have a crapshoot in this market and i do not think i can link it to anything. i also think that there is a small percentage of people in china who are actually engaged in stocks. i do not think it is going to kill the economy either. brendan: by inflating its equity market, has the chinese government achieved any policy goals? carl: i do not think so. what they want the stock market to do is not cause any trouble. as long as it does not cause trouble, they are happy to tolerate it. the real business policy in china is diverting investment toward long-term policy goals. that is what public policy is all about. as long as everything stays stable, i think the government is happy with the stock market. tom: karl, thank you. carl weinberg with high frequency economics. it was pretty calm when i walked in the door this morning could

-10 on the futures. i do not want to overprice the flight in quality. crude oil done a good 1.1% as well. prince crude $53.71 a barrel. brendan: this is "bloomberg surveillance or." ramy is at laguardia airport could nothing airport. nothing ever good happens at laguardia. are you in trouble? do need to send a car? rtamy: looking ahead after announcement from joe biden and andrew cuomo maybe people will be breathing a sigh of relief and more efficiency at laguardia airport. later today, we are expecting major infrastructure announcement at 2:30 p.m. over in manhattan.

one is that basically la guardia is going to get a massive overhaul to the tune of about $4 billion. right now, i'm standing at the central terminal the. this is going to get a new redesigned. there's going to be a new air train as well as high-speed ferries as well as a new hotel here. tom: which taxpayer is going to enjoy paying for all this? ramy: that is a good question. new york's laguardia as well as jfk a new work liberty are all managed by the port authority. presumably, you're looking at new york as well as new jersey taxpayers putting this bill. $4 billion -- the breakdown there is that $3.6 billion is going straight to this terminal. another 400 million is going to the design of it. it is being led by a consortium of 12 countries, led by a swedish group as well as a canadian operator based out of vancouver. and a lot of people looking ahead to this.

with that said, we actually have to think vice president joe biden for shining the spotlight on this. last year in february, he famously said some words comparing this in a not so happy with. let's take a listen. >> if i blindfolded someone and took them to 2:00 in the morning at the airport in hong kong and said, word you think you are? they say, this must be america. this is a modern airport. if i took them blonde folded -- blindfolded to laguardia, and asked where they are, they would think it was a third world country. ramy: i have to say that in hong kong it is a beautiful beautiful, amazing efficient airport. coming back here, i do understand that went vice president biden said this is part of the third world country here. a lot of people are looking ahead and will be so much happier once again fall to grow.

we are starting construction to start in the early part of 2016 according to bloomberg reporting back in may. brendan: thanks. we have peter orszag on the desperate there is a thomas friedman argument saying that you can judge the quality of a nation by the quality of its airports. when you look at laguardia, and you agree with that argument? peter: we clearly need to improve that airport. across the country, we can do a lot better. there are 170 bridges in new york city that are 100 years old. the key question is what we were discussing before -- art user fees the most efficient way to pay for infrastructure? we should have played someone to way that that airport when it is really crowded. they should pay a lot more when there are no other planes that want to lead at the same time. it helps to sort things out more effectively. same things on highways. the hamilton project put forward an interesting idea.

why did we not have a gas price that reduces the swinging oil prices? it's bigger when gas prices are low and smaller when gas prices are high. it makes a lot of sense. brendan: you talk about the boring work of fixing bridges and roads. this is the vice president's passion project of laguardia. our nice airports with anything more than national pride? peter: it is worth more than national pride with the time and efficiency of getting out of the airport. it even comes back to climate change. the less efficient your airport is, the more time planes are circling. that also has a mission consequences. vonnie: i want to know where the ferry is going to go. tom: the marine shuttle is better than it was three years ago. joe biden is correct three years ago, i can say that. let me do that twitter question this morning. this is on china with markets.

features at -11. is the china slide for real this time? we can see it within u.s. futures this morning. "bloomberg surveillance" -- good morning. ♪

tom: good morning, everyone.

vonnie quinn in brendan greeley with me this morning. brendan: the housing market is irrational. that is what robert wrote in "the new york times" this weekend. you may want to buy a house if you love it and can't afford it. the market is not efficient enough for that. stephanie ruhle is very efficient. you are talking today to -- who are you talking to? stephanie: we are speaking to a specialist who will break down the highest of the high end. here we are in july and we are talking about the hamptons home. living north of the highway, no big deal. they are happy to drop 15 million bucks it live 14 minutes from the beach. not so much. we are seeing a real slowdown. median prices are down. it is taking a lot longer to sell properties. it is very similar to new york city where there is so much new development. that 1% is just getting so rich

that they will buy anything and everything at any given cost. that is not really the case. vonnie: there was a report in bloomberg recently in greenwich happening. those people do not want to live outside the town in mega mansions. it want to live in the town in congress. stephanie: there you have appeared. town flight downtown l.a. in new york and london -- people decided they want to be in urban centers. international buyers are happy to pay up to live on central park south fifth avenue. as far as living out in the hamptons, are people going to spend huge amounts of money for that? that number 1% are deeply invested in the market. a year ago, they said all i need to be as long and strong. that is not the case anymore. tom: uber --you cannot get it in east tangents. that is hilarious. now what? brendan: we have peter

orszag with us. we're looking at the hands of the as well as greenwich. of these markets divorced -- are these markets divorced from the rest of the country? peter: pretty much. it is the basic supply and demand. as tons and tons of new very high and construction goes up, we see more off. tom: you worked with stephanie and her group in the hamptons. [laughter] stephanie: excuse me. there no hamptons here my friend. tom: are america is one model or one beltre or -- bell curve? brendan: your jersey shore, right? stephanie: my three children move to long island memorial day. there is a helicopter that plans on taking benefit -- taking me

there. [laughter] tom: are we to wo americas? peter: i'm not sure ift. i have to jump into brendan: -- i have jump in. jonathan miller joins "market makers." good morning. ♪

tom: good morning. futures at -10. let's get to the top headlines right now. brendan:vonnie: talks are beginning between debt ridden greece and its creditors. european neighbors are agreeing to lend up to 94 billion u.s. dollars, but only if greece puts tough new austerity measures in place. best buy wants to take a bite out of apple's success. more than 100 stores will start stocking apple watches at the end of next week. as of now they have only been available in apple stores. are the rich getting richer new ? new figures say yes.

the top billionaires are worth more than pastors. bill gates still tops the list. tom: we have peter orszag with us for the hour. it is time for the summer budget quiz. all this medicare, medicaid, social security -- security at jelly stone park. they make up the bulk of the federal budget. then there is everything else. everything else is ugly. it's an amazing observation that are discretionary budget is on its way down to 2%. peter orszag is a ceo and omd on the nation's budget. i has a mix of news here right now. can we with a better economy go to a budget surplus? peter: it's always possible. the is a huge amount of uncertainty in the forecast. i would not bet on it. tom: if it was feasible? peter: if you get some revenue

pickup, it's possible. tom: this is like state department? peter: state department, fbi, epa, nih -- all that stuff. what is happening is that the typical budgetary game of trying to squeeze that to make the total numbers look better has been taken to an extreme. but half we are on at this point is either deeply misleading or highly problematic if we do follow it. tom: is this bipartisan? peter: yeah, both sides have bought into it. they bought into a path that won't work. republicans would like to take that further. brendan: everybody's plan looks 10 years out. is there a better way to do this? can we make small fixes? peter: here is the irony of all this. we are slashing that part of the budget. meanwhile, the long-term budget outlook has improved dramatically. the debt to gdp ratio for 2040

has fallen in half since 2010 because of lower health care costs. tom: if we look at the budget deficit, we are at 10%. we are now under 3% deficit to gdp. everybody is lining up. let us discuss. peter orszag is advising donald trump on budget economics. peter: oh boy. [laughter] there is a hypothetical that i would never think before. [laughter] tom: if you were to advise the front runner for the republican party on the best conservative budget practices, where would you start? peter: look, two things. one is that both sides agree including the republicans, that we could do a much better job on the tax side. tax reform is hard to do. the second thing we need to do is double down on the trends in health care to really reinforce this growth. tom: why can't president trump collett mr. cook saying you have

100 jillion dollars abroad? you have allegories and all them -- get those guys in a room, take the key out of the door and say fix corporate taxes. peter: the problem is not the analyst. the reason the corporate tax code is riddled with loopholes is that it benefits these company. when you take them away, that company does not like it. brendan: they tried this for years ago. they can panel congress -- imp anel congress. epeter: everyone is a fan of tax reforms as long as it does not take away their code. brendan: most sides aren't much more agreement and politicians in general. there are comments on the one hand. peter: we disagree, too. the disagreements in general -- the fringes -- there is much

more agreement there. again, every ceo will say that they are in favor of corporate tax reform. when you dig down into it, they cannot be in favor of corporate tax reform that raises the effective tax rate. tom: an idea that is percolating is that the tax increases that the obama administration put in have been a windfall of tax receipts. we brought in a lot more money than we thought with the recovering economy. will there be a to debate to pay back some of the tax increases that we saw? peter: that depends on what will happen election. the only way we get big movement one way or the other given at this point in a polarized country is whether one party or the other wins the trifecta of the presidency, the house, and the senate. the only way to see significant tax reduction is that repelled inskeep the senate, keep the house, and when the white house. if there is a split, there will be so much directional move. tom: is gridlock good?

peter: gridlock works as long as you don't have to deal with anything. if inertia works for you, that's terrific. the problem is when we had to do big things. we were talking about climate change before. gridlock is terrible for that. tom: you just described the boston red sox. [laughter] brendan: it is so infuriating that the game theory of politics right now is that there is no incentive for anybody to do anything unless they can have everything. peter: at the national level. at the state and local level, there is a lot more movement. i agree. brendan: with lab is doing the best work? peter: here in new york city we have been doing a lot. across the nation if you go to the governors and mayors, they are trying tons of things to pay for success. they are trying new ways of reducing incarceration. lots of extreme going on across the country which is excited at the national level, it is frustrating. tom: we have to twitter questions. they are on china. vonnie: is the china slide for

real? the first response we chose -- china's huge stocks slide is for real and can have financial repercussions for u.s. commodities. commodity prices are down. our second answer -- thanks to everybody for e-mailing it. these are symptoms of the real problems that china has been and will cause more pain while growth stalls. tom: carl weinberg was more optimistic. i don't know. vonnie: here's another answer. it is only as real as the chinese government wants it to be. tom: peter orszag like that answer. [laughter] tom: is that a separation other major banks and government? is that too loaded a question? peter: no. one of the things that the peterson institute research has shown is that the private sector is much larger a shared than the chinese economy today that you

would've thought was the case 25 years ago, including the banking sector. vonnie: it is time for our agenda. i'm going to be sticking with china all day long. see what kind of contagion impacts we are seeing with stocks lower in germany and futures lower here. good luck to the yen, too. tom: there it is. you wonder if we get to the july 8 love that we saw in the chinese market. i look at the commodities on what we saw on thursday. we saw a little bit of a gold plus on friday afternoon, but peter orszag again oil falling again. i look at the dollar as one indication. the second derivative of weakness -- i think we have never seen it. peter: it's commodities. brendan: i'm looking at the dance of negotiations around climate change. looking towards paris in the fall. we see today that you have the

searching companies meeting at the white house with john kerry, talking about $140 billion in spending. that to me feels like window dressing. peter orszag, do you have any hope for something positive in the fall? peter: it is possible. the u.s. and chinese agreements that were brokered over the past year or so -- that is a hopeful sign for the paris talks. i do not want to count on it. brendan: a hopeful sign. start paying a premium on the effective policy against climate change. tom: thank you so much. we graciously appreciated. -- greatly appreciate it. we are in a depreciating market. features down -11. gold is giving way terrific friday gains. it jumped $10, editing away a little bit. oil really having much more of a

difficult go of it. brent crude down $.89 right now. we continue on bloomberg radio. neil done a will join us among others. "market makers" continues on bloomberg television. good morning. ♪

>> live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. stephanie: good monday morning.

erik schatzker on vacation. i have got a very special partner. matt: i am matt miller and i will be here all week. stephanie: i said to let's get it started in he said, let's greece this take. i do not like that expression. matt: mark crumpton, that is his expression. stephanie: a world of pain this moniker china's shanghai composite down. we will watch that asked we move the opening bell and just 90 minutes. i do not think we'll see green anytime soon. matt: a $40 billion deal this morning. and a site that brings business travelers to their knees laguardia airport