data this september 1. lower and slower. morgan stanley looks for minimal inflation. they agreed to disagree with the vice-chairman. this is "bloomberg surveillance ," live from our world headquarters in new york. what an august it was. i'm tom keene. join to me, vonnie quinn. direct from jackson hole, the former governor of the bank of israel as well. tom: jacob frenkel, the former governor of the bank of israel, truly one of the world's leading academics on foreign exchange, economics. right now, a busy morning. let's have our top headlines with vonnie quinn. vonnie: it was the worst month for u.s. stocks and more than three years, and it looks like the slump will keep going. the dow and the s&p 500 lost 6%. the news from china did not help.

chinese factory activity fell to the lowest level in three years. that reinforced concerns that china pot slow down is getting worst during -- is getting worse. futures in new york have fallen as much as 4% today. they had risen 27% in the three days through yesterday. to build obama wants new coast guard icebreaker that could operate year-round in the polar region. the president will pose that today in alaska, part of a three-day trip. focusday mr. obama's was on climate change. he says it will define the century more than any other challenge. president obama: human activity is disrupting the climate. climate is that changing faster than our efforts to a dress it. vonnie: temperatures in alaska

have risen twice as fast as global averages. apple tv may be going hollywood. bloomberg news is reporting entertainment executives holding talks about exclusive shows for apple tv. -- appled allow apple is planning a live tv service. in tennis, serena williams' first round match of the u.s. open was little more than a warm-up. she won eight straight games before her opponent quit in the second set. williams is trying to become the first woman to win all four grand slam tournaments since 2008. 27 minutes on the court. tom: hot and humid. vonnie: she wanted to get it done. tom: a great moment, the u.s. open, in new york city. i want to plow through this and get onto our esteemed guest this morning.

we were forced to bring in mike regan, supposedly here in 15 minutes. 1.1260.lar screen, please. chinese equities again, 4.6% off the 3% yesterday. call it seven percent or 8% yesterday. some good news, and it is called america. this is auto sales. we will see this later as we dash to september. this is the average length of car ownership in america. 71 months. i had no idea. up againstautifully that 17 million unit down. we have really come back nicely. news.s one of the good within the gloom of the markets and the volatility will be cars. vonnie: and you have labor day

weekend to consider. tom: this morning it is ugly and it gives a summit to talk about in the final week of the summer. u.s. equities south, chinese equities less self. elga bartsch of global economics at morgan stanley, and extremes esteemed career. we will speak to her about ellen zentner's important call on american inflation. but first, a market that the fed cannot ignore. we cannot ignore michael regan. it never gets dull. the way i look at it, volatility has been trapped in this bottle all year, and someone broke the bottle about two weeks ago. it is going to take its way -- it is going to take a while to work its way through the system. the plunges we saw now started at 7:30 last night even before the china data came out.

the asian markets open low and the futures followed, and it has gone do south since then. tom: ic strategists adjusting, adam -- i see strategists adjusting, adam parker, morgan stanley. are you seeing a lot of recalibration? or four i believe three have come down. the mean has not changed that much. they are still expecting about a 12% gain through the end of the year to about 2200 in the s&p. tom: let's look at the dow. the dow jones industrial average, one measurement there. , there it is. we wonder about the retest looking at a daily basis. vonnie: we are looking at the first day of september. any precedents to look at? michael: when you have a really weak august, it is not uncommon to have a week september. the big question is, will those

flows -- will those lows last? in the coming days that will be the interesting level to see about. tom: let's begin our conversation with elder march on the markets, a prism of economics. correlations really matter. how correlated are the markets with the mediocrity of the i thinkconomy? elga: the markets are in a bearish mode. tom: you are on speaking terms with adam parker? elliott: iamb m. elga: i a we concluded that the global economy, the global cycle is still on track. it is still ok, still in an upswing. it might be a disappointing one, but it is still an upswing. vonnie: economists still see a september, butn

you are saying december. elga: yes, and we are knowledge inc. the risk, but we're still sticking to december. that,: what would change friday's jobs report, for example? el greco i do not think this is enough for us to change. vonnie: what are you looking for on friday? elga: to be honest, i would need to check. tom: that is a really important point. she is not up to speed with the latest the counting by -- the latest being counting by her colleague, ellen zentner. but you are up to speed with, out into 2016, she recalibrate's back to december, but your shop has already's -- has always taken -- you have been more cautious and the markets are almost catching up with morgan stanley. why is that? lga: we spend a lot of time

together to figure out these causes. with the latest focus update that we publish today, we took on board the benchmark revisions that came through in the u.s. and we lowered our u.s. growth forecast. too is stanley fischer optimistic after jackson hole and his previous interviews? fed -- obviously with the public face and public responsibility, are the cheering the economy forward? elga: no, but they did not have the opportunity yet to take those benchmark provisions on board. i think all lies this week are on the ecb, the first major central bank -- i think all eyes this week on the ecb, the first major central bank to do this. vonnie: at what point does the market --

michael: i think she is right that the one less data point is not going to move the needle too much, but obviously a big surprise one way or the other could spook investors. at some point, stock investors are going to start taking good news for good news again and not focus on the fed so much. many different opinions. we have had a lovely four-day bounce. maybe opec has stepped in. how do you adjust? ga: we want to be consistent with central banks, and that means we have built in a nice upward slope, but we make no explicit assumptions around oil. tom: it sounds like a nice -- like a less dramatic call. nymex down $.93 right now. vonnie: michael, we have seen the vix come down 28, but it is still elevated. michael: especially considering what it was before.

elevated off the highs we saw last week, but still elevated compared to recent industry for sure. tom: i look at the markets, and i guess it is a summer week, but it sure doesn't feel like one. it is amazing. is there a lack of liquidity? those have not been coming in as fast and furious as you would see in the fall or the spring. vonnie: you made a good point this morning about how next week is still almost summer. tom: it has shifted over. elga, i don't know what it is like in europe, but it has shifted in america the monday following or into the next week. vonnie: the european model, maybe. tom: i am going to take the month of august off next year. michael regan, thank you, as always.

dow futures, -327. let's go to our twitter question of the day. what a response. will september retest august lows? we are in september. ♪ see you in september stay with us. "bloomberg surveillance." ♪

tom: there are two ways to measure copper. one is out of london, what in his out of -- one is out of chicago. 232. descends, an important industrial metal, as we see out of china. here is vonnie quinn. vonnie: the latest batch of hillary clinton e-mails shows

she and her staff were wary of security issues. more than 7000 more pages of e-mails were released. many are concerned with protecting sensitive information. more than 2500 were withheld because they are now considered classified. many are being reviewed because she used a private server instead of the government system. samsung has come out of the challenge to the apple watch. it will allow for smart car keys devices.e control home users will also be up to send text messages from their wrists. and marissa mayer is expected twin girls. she wrote on her blog that they are expected to arrive in december. just as she did with her son three years ago, she will take limited time off and work throughout. u.s. automakers will reveal a sales tally today. in august without a labor day weekend. we are still looking for

annualized sales of 7.3 million dollars. joining us now, jamie butters. thank you for joining us. what should we look to in terms of the august sales? we are going to see 7.3 million hopefully? you mentioned the labor day holiday and all the sales that go through that weekend eating pushed into september instead of august. so every major automaker is reporting a decrease from last august. kind of the big one to watch is fiat chrysler because they have been on a roll for more than five years. they have had a few close calls a couple of times where they have been down, declines that were predicted by the analysts. we will see if they can hold on. maybe they had a strong last weekend and are able to keep their streak going, but they are pushing close to 5.5 years. we will see. it could come to an end, but they have done a lot to rebuild that company.

an end,if they came to it would likely because we do not have a labor day at the same time we did last year. that can mean a humongous september, then. jamie: yes, september should be a very big month. a much bigger september this year, whereas last year august was big. september was the payback. one analyst said he is not panicking about general motors and ford. is detroit panicking? jamie: no, not at all. gm and ford, if you talk to them, their shareholders may be differently -- may feel differently, but the companies are feeling good about their north american businesses. trucks are doing well. ford is getting to full speed on the aluminum bodied f-150, and they are selling really well. tom: what about europe and broader asia with the dynamics we see in the markets? jamie: europe continues to be a challenge, although it seems to

have come off its bottoms. the big concern now is china and south america. gm and ford have both invested heavily in china and continue to invest heavily in china. it is g.m.'s biggest market, as it is for volkswagen. we really do not know what is going on with the economy there, so they are very grateful for what is going on here at home in the u.s. where they are selling trucks and making money, but south america is causing a lot of headaches and china is a big concern, less so in the short term than in the median and long-term. is it going to be a profitable market? vonnie: give us an update on how gm is cost-cutting. how is that going? jamie: they are plugging along. their new products are an opportunity for savings. maryborough's background -- mary barra focuses a lot of things on how they can save

money, a lot of things they cannot see. so as they come up with the malibu, the camaro, presumably they will find some savings underneath. us: elga bartsch is with from morgan stanley. autos are so important to a nation's prestige and confidence . are there too many autos in the world today? is there too much manufacturing? so.: i don't think there is still a large desire for mobility, but it is interesting to see that the young generations are less keen than older generations to actually buy their own car. they go into sharing schemes or just to medicate with their friends via electronic media. tom: i think it is a general change -- a generational change coming up. interesting. hour, j.p. morgan chase international, jacob frenkel will join us.

he is just back from jackson hole. we will speak with dr. frankel about any other topics, including the ghosts of 1998. this is "bloomberg surveillance ." ♪

morning, everyone. coming up, we will take a dive into renminbi and yuan and we will look at the morgan stanley outlook. first, appreciation for the last few days. so much for the collar depreciation angle. that has not worked out. right now, the morning must-read. justin fox at bloomberg view hit the ball out of the park.

this is absolute must-read. cannot say enough about it. think of reinhardt and rogoff. of the barge is with us -- elga bartsch is with us from morgan stanley. is this time different? elga: it is. it has shifted in asia and to some extent in the u.s.. is that relation of catherine mann and her trade economics of 20 years ago -- is that this function -- is that dysfunction broken? ga: instead of exports,

you are seeing foreign affiliates. that is one major change. then we have a major shift in what is happening with oil related trading, given the revolution in the u.s. vonnie: so it is hardly cyclical, i think you are saying. elga: it is structural and cyclical. tom: how does that play out politically? we go into autumn -- i think of the migrants, and we will talk about this in a minute -- the dynamics of trade is a social calm. that has been assumed for 500, 600, 700 years, haven't they e -- hasn't it? elga: the more important social gains are really the capital flows, because if the capital , let's say ane emerging market, you can quickly build a capital flow there and the people do not need -- tom: from "the washington post"

yesterday -- capital flows really matter. seeing we are always that we are obviously seen huge capital flows in the market now, but is it a temporary thing? elga: we think it is a temporary thing, but there are still some hurdles we need to get across. so there is a structural adjustment phase for emerging markets, but now there are cyclical headwinds per one is the fact that china is still slowing down. we are looking to the first -- where is china's gdp? elga: china's gdp is likely to slow down a little bit. we are a little bit more cautious than we were, but not much. tom: i know economics never talks to foreign exchange. hans redeker on weaker emerging markets. it is extraordinary. singlehere is new term

-- there is near-term cyclical challenge that i was talking about. of the barge is with us -- bartsch is--elga with us. we'll september retest those late august lows? stay with us. "bloomberg surveillance." good morning. ♪

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five-zero, 50 level. we are trying to get back to an average vix. let's go to top headlines with vonnie quinn. vonnie: u.s. stocks happen to that-- have not had this of a month in three years. it looks like it will get worse. the s&p 500 and the dow fell 6% in august. the news from china did not help. the official measure of chinese factory activity fell to the lowest level in three years. that has reinforced concerns that china slowdown is getting worse. oil has not written like this in 25 years. it looks like the rally is over. oil fell 4% in new york today. it fell 27% in the past three days, the most since 1990. oil spiked yesterday on speculation opec might coordinate with other nations on price, but analysts said that was nothing new. at the top spot in an iowa poll.

carson.ed with ben of the monmouth university poll. carly fiorina is third at 10%. rick perry's campaign is fading fast in the state that votes first during the primaries. ciscois teaming up with to try to expand business sales. apple wants to make its iphones and ipads work better with opera networks that use cisco's equipment. -- with corporate networks that use cisco equipment. and ibm setr apple aside a three have been decade-long rivalry to create business software for apple devices. nikki coplan has been named the -- she iscan-american

at the new york stock exchange and spoke with stephanie ruhle. >> we all wake up every morning and have to work our butts off to get to this point, and that is what this new ad is showing. it shows all that it takes to , theup a person like me success that it takes to get there. vonnie: misty copeland rang the bell yesterday -- the opening bell yesterday. a huge plus for the summer for the american ballet theatre. u.s. futures are weaker this morning. london, tweeting out -- nick is in beijing, riveted to chinese markets. is this the markets ahead of the economics, or are chinese markets now driving lower economic prices?

nick: we have just had such bad data over the last few months. the thing that is most concerning to me about this latest data, the pmi being down, is that the government has done so much in the last few months. how many times have they cut interest rates, eased banks reserve requirements, and it still does not seem to be working. pmi is a key gauge, a bellwether for the economy, contracting again, so it is a pretty big deal. tom: how is the banking system doing? it seems day after day tumult has to affect the big banks. nick: it is a bit of a black hole. we know from their earnings reports that earnings were largely flat, and the big number for them is nonperforming loans. they report nonperforming loans less than 2%, but they are very strong -- there are very strong indications that nonperforming lows are rising, so again, a bit

of a red flag for the banking sector. interesting, we are at 49.7 for the pmi, not that far into contraction territory, but it seems to have so much of an impact. any anticipation that the pboc might do something else in the near future? nick: everyone expects that they are not done with interest rate cuts, and more will come in the next couple of months. you look at interest rates in china, higher than 4%. compare that to the u.s. there is quite a bit that they can do to loosen up interest rates. they also have a lot of other options in terms of freeing up money that the banks can use now. right now they are required to hold a ton. 18% of their assets that they are not allowed to use. so there is a lot the pboc can do. it is just a question of when they will pull out the big guns again. tom: thank you for that update from beijing. the various stock markets

continuing to drift lower in china. this is important. morgan stanley economists suggest we will see lower and slower across the mediocrity call the global economy. elga bartsch is cohead of economics at morgan stanley and has run their european shop for years. she sees minimal inflation in the u.s., clearly a conundrum for vice chair fisher -- for vice chair stanley fischer. you guys argue like cats and dogs, and you do not come to a consensus or one view. there is a number of nuances within it. how much is everybody on the same page in your new economic outlook? we have spent in a norm us amount of time to debate it internally, and i think with the baseline calling that the economy is ok -- yes, the economy is disappointing, but

that's yes, the recovery is disappointing, but it is continuing. the gradual return of inflation to central-bank targets over the next 12 to 18 months is still what everybody is expecting. but that puts us at odds with markets, which are pricing in, in europe, much lower inflation rates for late 2016. within you see this ellen zentner's inflation or almost disinflation, a call for something that does not work? elga: i think there were a number of really interesting papers saying that the top academics are trying to grapple with the international influences with pricing behavior in the u.s. and also exchange rate movements, but also the way in which credit constraints are affecting firms' pricing

behaviors. the exciting thing about our jobs is that we learn something new every day about the changing structure in the economy. tom: but we end the summer with the inflation in japan revisited, further disinflation, and zentner is calling way below 2% inflation. all the conversation at the ecb, will it be about europe flows, the greek election coming up, or other global problems we are seeing? elga: i think the ecb as before will be rather rubbish in town. they have stress they will do -- rather dovish. surprise,have a major the recovery being derailed globally, or we see a unwanted tightening in europe. neither of which we are seeing. outlook,our economic

your distinctive call is they will underperform consensus. why is that? elga: because the consensus is still too optimistic, in part because not every forecaster has adjusted their forecast yet. they will only do that next week. she usually takes six weeks off. are you most focused on in terms of being wary of in this economy? elga: away from greece, which is a complete case of its own. the country where watching his germany because germany is a bellwether for the global business cycle. it is much more oriented in trade toward countries outside europe. exposedpanies are very to what is happening in emerging markets, and it has a much -- a specialization into the capital goods industry. tom: i want to get an update on a call that morgan stanley made

from at least three years ago, the idea that grexit -- much more the idea of a central europe, germany, the netherlands , and such, that it would remain strong and maybe they would leave the european experiment. can you reaffirm that, that you look for a core europe that will remain singular five or 10 years from now? elga: as i said earlier, we continue to learn on our jobs. we now are very worried about grexit, so now grexit is our base case, and that is in view of the latest political stances that we saw coming out of the syriza government that just stepped out, and also concerns around the election that is being held. tom: you are an expert on germany. what will a stronger euro do with grexit on the german economy? elga: the problem with grexit on

the german economy on the strength of the euro is not so much for german industry. if anything, you need to be worried about financial instability and what that does to an economy that regularly explores about 7% or 8% of gdp as capital. tom: i know you have to get to tuesday meetings. of the barch, cohead of economics at morgan stanley. coming up, a single best chart to get you ready for jacob frenkel. we are going to look at the ambiguity of the strong dollar, and it is the stronger through the market tumult of august. you need to stay with us. futures -41, dow futures -327. from new york city, "bloomberg surveillance." ♪

tom: good morning, everyone. on economics, finance, investment, international relations, throw those into a soup, stir it at 475. vonnie news yesterday, -- you nailed this on opec -- will opec step in here? it is $50 a barrel -- and create a bid? we will see. we will talk about europe through this on the dollar because oil and the dollar are

linked at the hip. our single best chart is about the dollar. dominant. a 2015 strong dollar has the look and feel of the late 1990's dollar, and that is our single best chart. jacob frenkel is coming up in the next hour on this ambiguity. that stronger dollar. bring the chart back up again. there it is. vonnie: the trade in the real dollar is giving an idea of some of the way things -- tom: it is a very different than what wall street and traders use. but what i would say is that we are halfway there, back to that 1990's dollar with no apparent end insight. vonnie: exactly, and oil prices pretty much deflated at this

point. tom: you wonder what oil is going to do after four days up. we have a commodities chart as well. some of this is linked to the dollar, maybe more than we would expect. the bloomberg commodities index is very good math. we are thrilled with the underlying theory behind this index, and even with the four-day surge in oil, this is an ugly chart. i know you were going to talk about this editorial in the next hour as well. vonnie: exactly. we are seeing all sorts of commodities, everything except gold, down today. brazilian real weaker as well. at,thing americans look australian dollar really wants to retest weakness. that is speaking to the urgency nick wadhams give us in beijing. vonnie: you mentioned the australian dollar.

seeing it weaker by about half a percent. the reserve bank of australia is deciding not to make any changes today. tom: we will replay that chart with dr. frenkel in our next hour. we have some really interesting photos today to begin september. number let's start with 3,000 of protesters gathering for two days income while of ,mport -- of kuala lumpur demanding the resignation of the prime minister. received 700 million u.s. dollars in a private bank account from u.s. funds. tom: my take on this is that it really bears watching. singapore is a nation with its own calculus, and the idea here is real political instability between warring major parties. vonnie: and the equivalent of

700 million u.s. dollars is nothing to sniff at. can reallyshirts you see from far away, and it really makes an impression. tom: next photo. vonnie: the pacific ocean has three major hurricanes at the same time at the moment, for the first time in recorded history for the area. hurricane g is then, then ignacio, kilo. this is a photo from space. tom: i have never seen that, a hat trick of hurricanes in the pacific versus the atlantic. you really wonder what is going to happen in september in the united states. a decade after katrina, you just wonder if we are due this year. frome: it is amazing how

space they look so different and so beautiful, and how they turn into such nasty weather events. number one top photo, the u.n. says the temple of bell in syria has been destroyed. there is destruction of the main holding and the columns near it. for almost 2000 years the temple has been considered the most important temple for syria. isis blew it up. isis has been very disingenuous, saying that they are not touching the ancient buildings and the ancient temples. tom: why? have you read a good article on why? vonnie: i am not sure it is very thought-out. -- it depends on the allegiance. tom: tragic.

i want to say stupid, but maybe that is not the right word. let me look at the twitter question as well. will september retest august lows? the basic question, and certainly we have had a heated response. dow futures, -324. stay with us. "bloomberg surveillance." ♪

tom: good morning, everyone. onoomberg surveillance" economics and finance. we will do that with jacob frenkel in the next hour. what a time to speak with the former governor of the bank of israel. we will speak about the ghosts of 1998. let's get to top headlines with vonnie quinn. vonnie: thank you so much, tom. one of the worst years ever for greenlight capital's david einhorn is not getting any better. it is down 14% for the year. in a conference call last month, david einhorn says he's not -- he does not expect to do well. workersis scaling back hours through the company says it affects only a few stores.

spokeswoman says walmart is patting its bottom line at the expense of employees. a judge will call the final play to end the tom brady case. a federal court session yesterday settled nothing, so a judge says he will rule this week. case over football tampering in the nfl has lasted seven months. very concerned that he was wearing the same blue suit into the hearing. tom: i think this has become more than just about football and the amount of oxygen in it. this has become an important television, media, and sports story, going way beyond the original tom brady in the blue suit. vonnie: and fantasy drafts are getting underway, so it is important that the judge comes up with a decision. we have been watching this and talking about it at meetings

westantly through today decided to actually address it with hans nichols per it hundreds of refugees, many yesterday and early today. police had been allowing travel on international rail. hungarian authorities are now stopping trains from leaving budapest's main train terminal in an effort to prevent migrants from using it to leave for austria and germany. yesterday called for it you states to take a united stance on the migration crisis. hans nichols is in berlin. are we talking about a few hundred people arriving in berlin, making an impression in the city? munich is where everyone came in last night. there are about five trains coming in. they started from the humvee gary and border and went straight through -- they started from the hungarian border and went straight through austria. there is a perception that there are jobs here. to give you a sense in berlin how acute the crisis is, they

are talking about an additional 400 classes for children of refugee families. onyou want the discussions build more tense or build more schools? what germany is talking about is building more schools to have a longer-term integration process. vonnie: there has long been a history of refugees fleeting -- fleeing to europe and there being ultimately problems with france. outside paris there were huge camps for a long time during the iraq war. what will germany due to be up to handle this many migrants? and what about the other countries? hans: germany will not be able to handle all of the migrants if all projections bear out. be 800,000re will asylum applications here. take a look at a map for 2014. this shows you how overwhelmed germany has been. sweden has been bringing in a lot, too, but germany has been

taking in most of these. these are asylum applications for most of this year. germany is way out ahead. this is where they want to come. tom: why is this happening now? this has been around for years and years. i go back to the turks taking over budapestking in the 1550 area. why now? hans: at the same time as syrian refugees coming in, this protocol called dublin ii. arrive, they should be immediately sort of process. that has not been happening. it has been happening is a lot of transit going back and forth. the system is broken. angela merkel is trying to fix it or she did not get much support earlier today. it is a challenging situation. tom: hans, thank you so much. hans nichols in berlin. we need a forex report to get

you prepared for jacob frenkel. you want appreciates, as it has through the week. yen, 120.06. stay with us. ♪ . .

>> this is "bloomberg surveillance." tom: this morning, u.s. equity

august lows, the china stock market descends. in the data dependent said, we receive key economic data, and the dollar has defended this hour. jacob frenkel with jpmorgan international. good morning, everyone. this is "bloomberg surveillance." we are live from our world headquarters in new york. tuesday, september 1, i am tom keene. joining me vonnie quinn. as we going to september, there is a lot going on. futures -- we will get to that. there is a lot going on. let's get you great on our top headlines. here is vonnie. vonnie: futures indicating shares of be lower at today's open. that will extend the gloom trend. dow and s&p each lost 6% last month. the latest in china is not

helping. it is the latest sign of weakness in the country's massive economy. oil's three-day rally going up in smoke. in august.rose the worst monthly gain since may. president obama wants to make sure america has a major role in the rapidly changing arctic. more icebreakers for the coast guard. russia, china, and other nations are moving quickly as melting ice opens up the region. climate change is the focus of three-day alaska trip. he says america has the means to slow global warming. president obama: the united states recognizes our role in creating this problem, and we embrace solving it. we have the means through scientific imagination and technological innovation to avoid irreparable harm. vonnie: average temperatures in

alaska are rising at double the world right. -- rate. apple is going hollywood. apple is talking about producing shows, giving apple premium content. the company is expected to unveil a new version of a set-top box next week. and serena williams, 27 minutes -- 27 minutes, not even a half hour. she won eight straight games, and her opponent withdrew with an injury. i would have as well. she is the first woman in seven years to win all four grand slam tournaments. tom: and greater new york city, one of our best times of the year. a little bit muggy to start the 70's. let me look at the data check right now. equities, bonds, currencies, commodities. let's get through this quickly. the euro $1.1270. so much for parity. rumor speculation of maybe a will tell.ec -- time

volatility continues. the stock market indicates a modest lunch. yields risk-on. oil is higher for shorter. jacob frenkel is chairman at jpmorgan international. he is the former governor of the bank of israel and has provided original and a seminal research on for exchange. with us as well, michael regan. let me get to michael regan to explain this new bout of volatility this morning. is there a why to be down this morning? michael: once you have volatility, it is hard to put it back in a bottle. it is important to point out that futures can sometimes give you a false signal, a head fake. that said, when you look at a super cell like this, it is hard to imagine a cash open -- headlines,seball david einhorn having a struggling year and struggling

month. how much of this is not what people want to do but they are forced to do? michael: i think there is a lot of that. portfolios target a certain amount of volatility, and when you see swings like this, they are trading off of signals that are not necessarily fundamental at all, rejiggering their portfolios. tom: the principal, former central banker, person-to-person, markets do not matter. janet yellen is in a tough position, isn't she? she has a public persona. there are things she is not a lot to say. or you ever worried about the markets as governor of the bank of israel? jacob: of course. worried in the sense of looking for information that markets can policymaking, but let's face it, the federal reserve or any central bank does not look at any specific number in order to set the policy. they would rather look at an assessment. tom: my assessments, vonnie,

this morning as the brazilian real with a new record weakness. vonnie: do central bankers look at all market equally, or did a discount equity markets in favor upon markets and currency markets? jacob: no, they look at the overall picture. where will gdp go? where will inflation go? where will unemployment go? where will labor markets go? and the rest of the world i can help us -- the answer is recession. recently, whether it is in china, commodities -- how poorlyl regan, are the markets right now -- you have got fancy bloomberg functions that your desk. do you really have eight screens? screens.e has got nw he uses a launchpad. [laughter] twitter.vonnie's tom: yeah. are we correlated this tuesday morning? michael: obviously china will

become very correlated to the u.s. get back to summing you said about einhorn being down 5%. he beat the market last month. hedge funds actually are -- this economy, you know, hedge funds come back. markets are correlated, but there is an opportunity if you are an active manager, everyone retired and passive funds. this is the big test of active managing -- can you -- tom: i want to rip up the script right now with michael regan. would you suggest, dr. frenkel, that opec decided to put a bid underneath oil? jacob: i am not sure, and i'm not familiar with this kind of issue, but it is important to note that at the end of the day, prices are determined by

long-term supply and demand continuation of your you can manipulate it time to time, you can put a stop to supply or increase supply, but by and large, the viewpoint of what we are seeing recently as markets are globalized, one part of the world is showing the other part , and it isd important to identify cause and effect immediately. tom: would you suggest opec is not as powerful as the lessons learned from 1986? jacob: of course because there are so many more suppliers, so many substitutes that are there, so the entire area -- as a result of competition --is much more competitive. tonie: michael, i was going ask you about the pmi out of china this morning. so ite in just under 50, is just an contraction territory. it seems to have an impact on germany, france, the other markets, consequently here in the u.s. why such an impact? michael: it is surprising

because it was under 50, so that indicates it is shrinking, however, it hit the estimates right at the nose. how they have a surprise is it to anyone, i'm not really sure, but the futures market was before that data came out, and korea has very poor exports data. it all ties back together. obviously, people probably anticipated these numbers to be weak and sold ahead of it, but futures trading the u.s. -- like affect, it is not necessarily indicative of people looking at value. it is hedging instruments and that sort of thing. tom: the cacophony of august and as we set ourselves up for autumn, i think metta mudguard hit the ball out of the park. we have seen the new mediocre -- i think madame lagarde hit it out of the park. we've seen the new mediocre. jacob: some of it is for

cyclical reasons, some of it is because of what the fed has done in the past. before the crisis, it was completely non-sustainable. tom: ok. when did you first meet stan fischer? jacob: we were both of the university of chicago in 1969. tom: just a few years ago. you are with him in jackson hole. you are old best buds. give us the front runner on stan fischer. does he really believe we can get back to the 2% level? jacob: the best way to interpret is to read what he says i'm not a mindreader -- tom: you are so smooth. i can make no news out of him. [laughter] mindreader, but i am a text reader, and the text was very clear, what the fed official said. vonnie: 40% thinks there will be

a september rate hike. do you agree? jacob: with a longer-term perspective, i really would be advised to 2017. with the rate raised in september, who cares? that is from the fundamental point. , and the markets care reason is that indeed rates need to rise, they need to rise because they have been in the wrong place for the longer-term perspective. renkel, we continue with michael regan. will september retests august lows? stay with us. "bloomberg surveillance." ♪

tom: good morning, everyone. nymex, american crude, that is $48.13 a barrel. brent crude almost $53 a barrel. vonnie: tom, i am looking at an editorial in the "financial times" about the commodity super cycle, and it is entitled "why the commodity super cycle was a myth."

we have dr. jacob frenkel with us, former governor of the bank of israel. jacob: the world is not running out of resources. as long as there are innovations and technologies that are withoutnew approaches using less intensive commodities maybe or more intensive, depending on prices, then it will work itself through. the most important element today that the developments in commodity markets -- is in china. china's growth is reduced, china's economic strategy recognizes that they need to move to what they call the new normal, namely more services and

less manufacturing. vonnie: and they're doing that with the devaluation of the yuan and so forth. it seems to be flailing at this point. jacob: to begin with, in order to assess china, you really need to have a medium-term perspective. it is not a one-chart event. -- one-shot event. moved toward services, they move the way from the traditional services. the future is huge. 50% of their population is in the rural area. tom: can we just rip up the show today and go to six hours with you? are you doing anything before lunch? [laughs] jacob frenkel with us of

jpmorgan international. we will continue our discussion on many topics, including jacob at textlooking back books from the university of chicago. our twitter question of the day is market centric. we to be with futures -37. will september retest august lows? we need to hear from you @bsurveillance. we are with jacob frenkel. this is "bloomberg surveillance." good morning. ♪

tom: good morning, everyone. "bloomberg surveillance." where are we the september 1. 16,005 is not 18,000. just a cup of coffee ago, it was 18,000 forever. what an august it was. let's look at headlines for september 1. vonnie: hillary clinton's e-mails showed she and her staffers were wary of security issues. ofr 7000 more e-mails

pages were released. 25 were withheld because they are now considered classified. e-mails are being reviewed because she was using a private server instead of a government system. samsung is challenging apple with a new smart watch called the gear s2. users can send texts or make mobile payments from their wrists. it can also be used with remote control home devices. eo mercer mayerriss mayeryahoo!'s ceo marissa is expecting twins in december. those are your top headlines. congratulations. tom: yeah, twins? she has no idea what she is in for. of the let's look at one great, great stories in investment management. that would be alliance capital and sanford bernstein.

long ago and far away, global wall street took the month of august off. those days are over. the new reality for management of money is 24/7 vigilance of active managers compete. peter cross-ice chairman and chief executive officer at av alliancebernstein. through a x a and insurance business, how is active management going to compete with the success of low-key passive managers? peter: at the end of the day, how does the investor do after fees? we think that in active management, you can earn more money after fees, so typically a function -- vonnie: give us a little beat because of course he would say that.

peter: exactly i would say that. why do i think that? a large amount of data that is used to describe why an active management underperforms is actually missing the point. that data does not exclude or identify managers who control capacity and managers who have high active shares. vonnie: it is a question of audience, too, isn't it ? if you have a certain amount to invest and you are a retail investor, you want to not lose a ton of money, but in active management, you are not quite so sure. peter: i do not know that is accurate. if you look at managers who actually concentrate their high active have shares and also controller capacity, we think there is a much higher probability. by: dr. frankel with us chicago. frenkel with us. dr. peter lynch's arch phrase,

the idea of owning too much stuff. ultimate active value, instead of owning 500 in d? index fun very: peter lynch made a good point. nobody owns all of the stocks in the market because you cannot possibly research them all, so active managers try to own a small segment of the market, but they have a lot of conviction. tom: how do they become successful enough to change the tide of a public move toward passive management. peter: passive managers or a passive management is just one manager. nobody would say i will put all of my money in one manager. that would be risky. when you put money in passive, you are putting it in one manager, they do only one thing. vonnie: how are you guys doing at alliancebernstein? is it better in the downmarket? peter: listen, active management is going to perform when stocks act differently between each

other, and that is what we are seeing today, and we have seen that for the past year. in fact, what our active managers are doing is outperforming run out. -- right now. tom: there is a lot of research pushing against you. autumn, ando the asset managers look at the tumult in the market, is the tumult your friend? peter: volatility is absolutely our friend. the theory, which of course relates to capital market theory and diversification, are important. that may not cut the opportunity for the manager. it may make it better. asset management does not create any research, it just owns stocks in the relative proportion that exists at av or drives allocation the market is active manager. have come down to

become closer to what john vogel revolutionized at vanguard. peter: active manager fees have come down, but there are other spaces that investors are not questioning. there was another segment earlier where you were talking about hedge funds. hedge funds are active managers. hedge funds are concentrated managers. they use leverage your we are happy investing in private equities. vonnie: do you see the trend toward active etf's? peter: active etf's are a style of passive investing. they have certain rules that they follow. currently the sec is not comfortable allowing active managers to use etf's without disclosing all of their positions, and generally active managers do not want to do that. tom: peter kraus, thank you very much, with a alliancebernstein. we continue with jacob frenkel of jpmorgan international. alan rustin of deutsche bank

will be with bloomberg television in the 11:00 hour. that important conversation as brazil goes out to record weakness. stay with us from new york city, "bloomberg surveillance." ♪

tom: good morning, everyone. futures -36. i have to put my glasses on to look at the bloomberg terminal, and it is a sporty september 1 market. let's get to top headlines. start theptember will way august ended with stocks

slipping. futures indicate shares obese slightly lower. the dow and s&p each lost 6% in august. the latest news from china is not helping. it fell to the lowest level in three years, the latest sign of weakness in the country's massive economy. oil rally in 25 years suddenly stopped short. the price of crude in new york is lower today. it has risen 27% in the last three days. he rally was sparked by speculation opec nations may work together on oil prices. the first time, donald trump is sharing the top spot and iowa poll. trump and voters find tied with retired narrow surgeon ben carson. each get 23% in the poll. carly fiorina is third at 10%. meanwhile, rick perry's campaign is fading fast. he now only has one paid staff member in iowa.

apple is teaming up with cisco to try to expand business sales. apple wants its ipass to work better with corporate equipment. >> this is a very strategic partnership, unlike anything either company has ever done before. it is a joint development project to work together to really change the way that people were. we think we can uniquely designed together, and no one else can do that. vonnie: misty copeland's on a roll, the first african-american principal dancer for the ballet theater, and she has also made her broadway debut. she is featured in a commercial for under armour. she discusses it with bloomberg 's stephanie ruhle. misty: we have to wake up and work our butts off. that is what this ad is showing.

it shows what success -- what it takes to get there. theie: copeland rang opening bell as part of a promotion for the sporting-goods maker. those are the top headline. tom: let's go to the bloomberg terminal right now with jake jacob frenkel of jpmorgan international. fresh food as an historic measure. over 10, 15 years, the abrupt shift of abenomics, and this is the chitchat of jackson hole. how rapidly a good bout of inflation can drift away. why does the drift away? why does an impulse just evaporate over a given number of weeks? jacob: abenomics was a three-legged stool. monetary policy led by kuroda was extremely expensive, and

indeed liquidity is being injected. tom: up we go. jacob: and optimism, etc., etc. but when it came to the third leg, which is the structural ministerhe prime promised in the beginning, this is now lagging behind, and this means the stool is not going to be stable. tom: this goes back to the previous hour, elga bartsch of morgan stanley saying less inflation out there. this is the arch question, jacob. can central bankers manipulate price increase? can they do that? jacob: manipulation has a normative connotation. can central banks' policy impact on prices? very much so, and yes, the main mechanism by which prices go up is through monetary policy. now, what we have had recently

in the united states, for example, how come prices are not going up so much with so much liquidity? because so much liquidity was injected in the economic system that it was that merited through wasfinancial -- that it diverted through the financial system. tom: do you agree with paul krugman that we need a more effective fiscal stimulus? vonnie: that would be the third here, right? jacob: no, the answer is not increasing government. tom: i just want to get you going here. jacob: you are getting me going. [laughter] what that means is everyone is chasing after hyield. if you are chasing after yield, you are looking for activities that are more risky. there are distortions any system. financialto the markets, reinvestment, that is

why it is so important that the fed finds its way. tom: jacob frenkel with us, fired up this morning. let me do a data check him a fired up data check, futures negative 38. vonnie: this is "bloomberg surveillance." i am vonnie quinn along with tom keene. it has been a test in emerging markets as china tries to slow down in a currency regime change theater brazilian real seeing fresh weakness of the country slides into recession. jacob frenkel, chairman of j.p. morgan chase, former governor of the bank of israel, is with us. where will we see devaluations? will of the a domino effect -- will it be a domino effect? jacob: financial markets are global, and when there is an understanding that some countries are more stable than others, and people want to invest in the united states because some other countries are

certainess stable, less about the future, then we will see the u.s. dollar strengthen. the u.s. dollar strengthens, it is relative to the other countries. what we have seen recently primarily is a new safer haven. vonnie: will we see more recession? jacob: we are always going to see more crises. vonnie: but i mean in the immediate term in the emerging markets. jacob: well, emerging markets are not monolithic. what we see today, especially because of the falling commodity prices recently, is that those countries that have not diversified their productive capabilities are now suffering because they are very concentrated in this commodity or that commodity, and in this particular context where so many commodities were demanded by china, when china's growth is reduced, and when china's shifts

from production to services, this is where the demand for commodities all over the world will be. tom: jacob, when i see brazilian emerging-market collapse, i want to know what you are advising mr. dimon. is this an america essendon's where we project out through this mediocrity, this mediocre growth, or is this a time for u.s. financial systems to pull themselves into america? which is it? jacob: destiny is up the world will remain globalized. therefore when it comes to j.p. to be a very global financial institution, they are all over the world and in good times and bad times. a unimportant point, is when it comes to policymaking is that intod countries must work

that versification. tom: and russia, i will rip up the script, that is a massive mistake in russia. jacob: it is russia, kazakhstan, too much oil, and they thought they were getting discovered oil. tom: do you see a policy mechanism to assist mr. putin into greater diversification? where is the policy construct forward to help mr. putin? jacob: mr. putin must help themselves first and foremost, and only then help will come from the rest of the world. the issue is that too much of too many countries have asked ?hemselves -- how can i be safe from travel? tom: these are the ghosts of 1998. vonnie: how do you see it play out? will it play out through currencies? will we see a collapse in government bonds? jacob: 1998, 1997, the asian

crisis, and 98, russia defaults, emerging markets crisis,. . had some important, good consequences. many of the emerging markets, and particularly latin america and also in the asian region, have improved their policymaking. their fiscal situation is so much better, but we should also recognize that when you speak there aren america, the better countries in the worst countries. and i feel that today markets are much better judges about what constitutes good policy and bad policy. whatever venezuela will do now with oil will not save these bad policies. tom: all right, jacob frenkel with us with jpmorgan international. our twitter question of the day,

we continue this discussion of economics with dr. frenkel. will september retest august lows? we are humbled by the many responses. thank you. this is "bloomberg surveillance" from new york city. september. where did august go? ♪

tom: good morning. what is not in the news? gold, $1142. 1, make it a $114 little south of there this morning. what a special treat to have jacob frenkel with us, the great academic. assemble for exchange work years ago. -- seminal for exchange work years ago. michael french has been a guest over the years on "bloomberg surveillance." now at new york university, legendary in his harvard dissertation on education, an idea. a cottagelly owns industry on risk and how we think about risk-taking as part of his nobel award, i would suggest. dr. frenkel, tell me about what central banks have learned about risk. there were a lot of ugly lessons the last few years. jacob: indeed.

for a long time, it was thought that if you focus on price stability. achieve price stability, you are home free. i think what we're seeing, the does notbility i ensure there will be no crisis, and that is why most of the central banks have changed their focus now to have two objectives -- price stability and financial stability. ensuring price stability and financial stability, that is the best way that you can continue to sustain economic growth. but for this, you need to be of course independent. tom: the art question, and this goes back to ben bernanke's work, we need to protect the banks, we need financial security within our financial system. a lot of americans would say that helps the fat cats in manhattan like jacob frenkel, like tom keene, like vonnie quinn, but it does not benefit most of society. how do we benefit society if we

are bailing out the banks in crisis? jacob: the best way to benefit society is to ensure sustained economic growth, and rather than going into polemic, we need to ask -- each part of the economy, including the financial sector, what can it contribute to economic growth if it creates a system in which there is remediation in the system, that savers can save, and resources are directed toward investment? that is the best way for economic growth. vonnie: speaking of which, where youields going -- where do see yields going? jacob: there is no question that we are in a situation where yields are too low. they are in a nonsustainable way, and it is costly. everyone says -- why should low interest rates be a problem?

after all, who does not like low interest rates? investor,l you, as an as someone who allocates resources, you ask where is the best way that they can allocate my resources. if interest rates are too low, i will look for other yields, which means i will take more risk. it has to be properly price, however? tom: we will come back. jacob frenkel with us from jpmorgan international. coming up, the president is in alaska. ♪

tom: good morning, everyone. "bloomberg surveillance." tom keene, vonnie quinn jury let's get right to headlines with vonnie quinn. vonnie: a bombing suspect is under arrest after taiwanese police got him at the cambodian border. he could be seen at the security footage. the explosion at the bangkok shrine killed 20 people. walmart is expected to cut hours to cut costs. they said a few stores assigned more hours than excited, but a union spokesperson said walmart is patting the bottom line at the expense of employees. and the tom brady case -- a federal court session today settled nothing. the judge says he will rule this week.

thepatriots quarterback and nfl football tampering has lasted several months. vonnie: and the season beckons. it will be interesting to see where this goes. we get the federal reserve meeting -- and the season beckons. it will be interesting to see where this goes. vonnie: and then we will get the federal reserve meeting. studying microeconomics, well known by anyone who went to chicago. we go back to early milton friedman. jacob frenkel cut his teeth at chicago and has gone on two important duties in global economics as many look for a new new in our models and theories, governor frenkel says we will forget about it. michael spence, even robert mundell, when he to go back to our original text books. everyone is looking for a new new in economics or is it out there? started,en the crisis

everyone understood that some new economic policies needed to be introduced. qe2, and before too long, there was the question of -- are we in a detour for a new pair time? the longer the -- a new paradigm? the longer the detour took place, the longer it stuck. i strongly believe as long as you are on the shoulder of the old one, what does it mean? many of the basic truisms of the old textbooks are still extremely critical, very important. do not throw them away. they will be very useful before too long. tom: going back to hitpps in 1939, the banking system on the real economy. having modern theories thrown the real economy out with the bathwater? jacob: i hope not because we are

now worried about how do we get out of this month and some people say let's do another cutie -- tom: qe 4. jacob: in europe, every successful qe has diminishing returns. they begin well, excellent -- vonnie: many would say -- so what? so diminishing returns, the population in europe -- jacob: not really because of the end of the day, you have to exit , and when you exit, the deeper you dig, the longer and the more you need to exit. debt is accumulations. still in europe, there is a lot of debt. if you look at the leverage ratios in europe, there is still a long way to go. tom: did you ever have to prepare the nation of israel for a rate increase? jacob: unfortunately, when i started, inflation was extremely high. tom: so you were bringing it down.

jacob: i had to bring inflation down, and the only way i could do that was by raising rates. tom: you explain what is holding the fed back of a modest list off the zero bound just to get back to some form of normality. what would be the worst outcome of that? the economy isf not prepared for it, and if somehow it will be interpreted in fragility, then it will not be healthy. if you listen to stanley fischer speak in jackson hole, from all the mentioned, we are getting ready. the growth of gdp is recovering. even inflation starts raising its head. even employment is falling. tom: then why are we debating this issue? this is not any textbooks you or i read. why are we even have the debate? jacob: i think the fed is

looking at the picture, and i will not be surprised if september, maximum a little later, rates will be raised. let's emphasize what is the important point. we are not talking about one step -- we about part of a journey. so when they raise the rates, it should be understood that it is the beginning of a journey of raising rates, not in a germanic way, in a very measured way, slow way, but a consistent way. now that rates are so close to zero, the idea is to finish it within another year or two or even three and comeback to normalization feared for the fed, normalization does not mean one action. vonnie: did you say september, dr. frenkel? jacob: i said september, i said december, i said many months. tom: you are such a central banker. do you want to say may? jacob: i want to see what will

happen on friday. it will give you some indication on the state of the labor market. and the fed was very explicit when it said we need to see improvements, and it has improved! tom: do you suggest that as the vector happens and we become measured in our rate increase that we are going to a new lower terminal rate? jacob: well, i believe we will have successfully growing rate, it is seen, if properly and explain properly, it should be viewed as good news in the u.s. and in the world been verye fed has prudent, and it will not raise rates unless siblings the -- unless it believes the economy is robust. my god, it should be viewed as good news. right, dr. frenkel, tom has to leave us. tom: i have to go to radio. a twitter asked

question, and dr. frenkel is sticking around to help us with the answers the twitter question -- will september retest august lows? here is the first answer we chose -- yes, tapering reprises torterly earnings a 0% rates, will only get a so far. fundamentals are poor. would you agree? jacob: i think in the medium-term, the recovery is taking place. vonnie: but you are a little concerned, i can tell. jacob: because i don't believe that we need to come with judgment on a month by month basis. the question is a trend, and the trend i believe is in the medium term, the u.s. is recovering. vonnie: second answer -- very likely. the bounce to the upside is very quick with no improvement, if it drops even lower. our third answer, and things to only if for tweeting -- september sobriety can confound -- only a september of

sobriety can confirm the reality surrounding fundamentals. reactions need to be economically true and fair. u.s. market open will obviously be on my radar in the immediate term. where oil is today a something i am particularly watching. it will have an impact on the dollar. u.s. automakers reporting august sales this morning. we know there is one day left. we will keep an eye on those, particularly gm sales. president obama is in alaska today. bloomberg's phil mattingly joins us now from washington, d.c. the president has been making a tour to alaska. what in particular is he concentrating on today? phil: the focus of this trip, the white house has said, is climate change. they want to amplify their issues, and they think alaska is a great way to do that.

today, one key issue is one that is undercover by everyone, and that is with the retreat of arctic sea ice, there has been a mass shift when it comes to shipping, tourism, and mineral resources that are available there. other countries have started to move in, most notably russia. u.s. lawmakers have said for a number of months, even years, the u.s. coast guard in the region is severely lacking. today, the obama administration is going to announce that they will need the shipment of a heavy-duty icebreaker to that region. are fully only two functional. compare that to russia -- they have 41. the u.s. is going to make a push forward right now to try to restock there for the coast guard. vonnie: it will be economic in terms of shipping. phil: that is one of the big concerns. there are a lot of questions about who controls the issues, whether it is open sea, open markets. if the u.s. lags in its posture, russia will be able to move in at a bigger face. vonnie: phil mattingly in washington, d.c. thank you.

"bloomberg surveillance" on radio continues. "market makers" on bloomberg television continues. our thanks to dr. jacob frenkel. ♪

erik: good morning, everybody.

maybe not such a good morning. "market makers" on bloomberg television. stephanie ruhle is out. let's show you what is anotherg, with futures big down day for u.s. stocks. death features down by more than 300 point here the s&p 500 futures down a full three percentage points. that is after a month of august. at of china overnight, three-year low. growing concerns that global growth is slowing and that is why you see stocks globally falla in europe. let's check in with matt miller. michael regan also here. and from london, a special appearance, jonathan ferro, let's start withou