the modest announcement in san francisco, the unspoken. can this reinvigorate ipad sales? and a conversation with bill priest, the king of cash flow. good morning, everyone. this is "bloomberg surveillance ," live from our headquarters in new york. i'm tom keene. with me, michael mckee. michael, the two-year yield, does that signal that janet yellen has to act? michael: if the fed were going to raise rates -- that is not seem to be the market perception. other factors seem to be at work. tom: 93 degrees yesterday. it was a good time to get a cold. michael: only you could do that. the markets are better. that is a good thing. tom: let's get top headlines with ramy inocencio. ro globale is a

stock to talk about. japan's prime minister, shinzo -- pledged to lower corporate tax rates. the shenzhen composite index rose more than 3%. that is its second gain in a row. indicate u.s. stocks will open higher. s&p 500 closed that more than 2% yesterday. europe is being told it is time to act, and governments must take in 160,000 refugees from northern africa and the middle east. european commission president jean-claude juncker urge to the continent to share the burden. he spoke to the european union in france. >> all of us should remember that europe is a continent where nearly everyone has at one time been a refugee. our common history is marked by millions of europeans fleeing

from religious, political persecution, from oppression. ramy: he did not use the word quotas, but he said it must be compulsory. there has been a shakeup at united airlines. ceo just my sick and two other officials are out. it has to do with a federal investigation into ties with the port of new york and new jersey restart aited money-losing flight to the chairman's home in south carolina in exchange for political favors. its, apple will unveil latest iphone today in san francisco. the device is expected to have a body similar to that of the iphone sex and the iphone six plus. there will be an upgraded -- of the iphone six and the iphone six plus.

at the u.s. open, top seed serena williams advanced to the semifinals by beating her sister, venus, but she needed three sets to do it. match,won last night's 6-2, 6-1, 6-3. those are your top headlines. tom: a lot of fun last night. with pami was talking shriver yesterday, the hall of fame tennis player. she said it is remarkable because not only are they at the top of their game, but they are among the oldest players there. tom: let me do a data check. lots of green on the screen. futures continue the advance, much of that coming off that -- that relief rally in asia. the 10-year old, 2.22%. churning, 45.78, doing better than 20 minutes ago.

on to the next screen. down towarding back the average of the last two decades. -- one where we set the point, the brazilian real did not have a good afternoon it will be3.80 two interesting to see where that is, when they begin trading this morning. a survey shows good news on the american labor economy. here is the last bout of good news. we are way up beyond that in terms of the desire to find jobs. michael: we have a lot more job openings than we have ever had. economy gets bigger, so that is not a surprise. right here isews where separation starts. there are a lot more job openings than people losing their jobs, telling you the economy is much better. it is two months delayed, so it tells you what has happened.

you see that reflected in the payrolls reports. tom: can we drive under 5% unemployment? michael: sure. forecasts are we will reach that by the end of the year, well under 5% into 2016. we will slow down job creation, but we will get below 5%. .om: amazing times we are in in the past 48 hours, the character of the cape has been changed -- maybe i should say, the screen on my bloomberg has changed. joining us this my, citi private bank global chief investment strategist stephen whiting. but first we go to enda curran in hong kong. is there a wise to the list in japan in the recovery in china? enda: it all goes back to china. it was feeling in japan that there were fears of a hard

landing in china. people say if china continues to remain calm, japan's rally will remain sustainable. it is not that china's economy has turned a corner here. overnightthe report of a 55% chance of a global recession in the coming years main in china -- made in china. tom: how was that received in hong kong? enda: some people say it is doom and gloom, that china is headed for a hard landing. as the economy transformed from an old growth model to a new growth model, what cities have shown a spotlight on is a reminder that china is clearly the world's -- it is a key

importer of goods all around the world. other economies around the world from brazil to australia will pose a real and present danger to global growth. michael: the real question is are we going to see more stimulus from the chinese? there were hints overnight of that, also hints of a tax cut maybe in japan. central banks, governments -- are they still driving in asia? we are seeing stimulus rollout in high and i and -- in thailand come in indonesia. china is coming together with more fiscal spending, especially on the low growth side to get infrastructure going. they hope infrastructure spending will kick in in the fourth quarter and give their economy a read up -- a rev up here it tom: enda curran, thank

you. with us this money, stephen wieting. gecko you interpret this i do not want you to say bull market, bear market, but this has to be confidence building for corporations worldwide. stephen: it was a panic selloff, and if you think about where the roots were, that is the real severe worsening that came when china freed its currency, it weekend, and there was some competitive devaluation. but there has been no follow-through. in some respects, there has been a replay. most of what you have seen is the same slowdown since 2011. so ultimately i think we had a growth panic. there are longer-term worries, as you just heard from the report. but the idea that we suddenly have had a new collapse is misplaced three michael: is it, though, a matter of central

banks and governments propping up markets again? we had the overnight talks in japan and we saw the markets grow up -- we saw the markets go up. ven: government in china has been a failure on the up and down side of this. this is not something that has instilled confidence. the overall impact of monetary easing around the world, it was an issue that will come home to roost. the idea that we are deeply in of feara quarter point in the united states. there was tremendous stimulus 08 to 2013. it is really about the extent of the stimulus earlier, what labor markets are tightening. to rip up theg script here. you were with citibank.

could you tell our global audience who professor bauder is withhy the world stops him? their original economists that have forecast user activated that may be different. this is about his point of view. tom: it is, but he comes out of the london school of economics with a certain take, whether it is grexit in europe or china. mention hisa curran work at citigroup? what is the distinction of him versus other economists? steven: it is certainly a bold view of the challenges facing a world economy. it is important to note that what he is talking about is economies operating below potential. is the lump out buiter. pay a lot of

attention to what he has to say. somebody else people pay a lot of attention to is tim cook. both enthusiasts and inventors -- investors are watching apple today. what to expect, next. this is bloomberg surveillance, streaming on your tablet, your phone, and bloomberg.com. ♪

tom: good morning, everyone. let's get right to our top headlines. here is ramy inocencio. ramy: good morning, everyone. senate leaders are fighting over whether democrats can prevent an up or down vote on the iran nuclear agreement. are enough to block

a republican resolution if they all stick together. the house begins debating the measure today. the kentucky county clerk who would not issue marriage licenses to same-sex couples returns to work this week, but kim davis is not saying whether she will keep trying to block those licenses. she is free after being jailed for five days for defying a court order. republican presidential candidate mike huckabee is backing her. i have already told her that if somebody needs to go to jail, i will go are here placed. and i mean that, the cousin i am tired of watching people harassed because they believe something of their faith. we cannot criminalize the christian faith or anybody's faith in this country. issuingvis says licenses to gay couples violates her christian faith. vegas, and engine on

a british airways jet caught fire. while the plane was prepared to take off. passengers escaped on emergency chutes, and at least 14 people suffered minor injuries. the plane was a boeing 777. those are your top headlines. back to you. michael: it is no longer they must have company for investors. apple shares are down 12% over the past six months, but it still makes the must-have products -- tom is holding one in his hand. of seven children's iphones are broken in the past hour. michael: amazing. he is camped out in front of an apple store. that is what they do when there is a new product. butler covers apple products for bloomberg television. we get a larger ipad and some version of apple tv. what is going to be most important to investors today?

tom's kids aside. john: that is a great question, mike. if you look at what an iphone is and what it means to apple, it is a huge percent of avenue -- it is a huge percent of revenue. with an iphone six upgrade, the large screen, they achieved over 55% growth over the last three quarters. michael: with a refresh, with an s version. john: they do a generational upgrade every two years. featureen they do a upgrade. apple, in my view, is sorely lacking in their camera technology, so it is big to get them hopefully to a 12 megapixel camera. tom: it has a better camera this time around? john: that is the hope. i think they will. tom: what is fascinating about this whole thing is we have all been suckered into the whole apple ecosystem. what is the state of the apple

ecosystem as we go into the holiday system -- into the holiday season? john: i think the apple ecosystem is fine. apple music is great. i have it myself. tom: will apple tv be like apple music? john: that is my hope and that is their future. investors, including myself, will be looking at apple tv. that is the hardware platform upon which they are going to build the software platform down apple tv which is the streaming service. i have said for years now, apple's future lies in content. tv, but the on a that, they pretty much have -- michael: from what we understand, they do not have a streaming service ready to go, but they will open up apple tv to apps. will developers come up with

apps for people who will buy this box? john: apple tv will have a very smart remote, so with remote, you will have siri on it. i like the idea. tom: siri? michael: i guess they can play games, too? this will put them in competition with microsoft. closer.ey are moving the gaming business is huge, by the way. tom: gaming at all that -- i just want to know -- they have $.37 on the dollar. maybe they go down to $.34 on the dollar. that is amazing for a company of this scale. do you margin -- do you market in margin erosion? relative toket in apple. it is not bad. with a guy like tim cook behind the wheel, his background in operations and supply

management, i think they can do a good job on the margin front. that is my hope. tom: do the old phones have a used value? bmw's.hey are like they retain their value over time. kids, it is like a bmw. trey that puppy in. john butler, thank you so much. in our next hour with all the corporate news we have on yahoo!, and of course united airlines. us.iam janeway will join the perfect time to talk to him. michael mckee and tom keene. "bloomberg surveillance." good morning. ♪

tom: good morning, everyone.

"bloomberg surveillance peter: tom keene and michael --"bloomberg surveillance." tom keene and michael mckee. michael: the new ceo of yours airlines, taking over for jeff ek, who resigned yesterday. here is a story from "the wall street journal." michael: it is going to be a tough job. joining us now, airline analyst

george ferguson on the phone. that is a very tough, long-to-do list. what does he have to do first? the merger has not worked very well so far, so it is going to be a priority. the interesting thing, though, he he really has no experience running airline -- running airline. he has to run the network and figure out what is going on and figure out what direction to take the company. theael: do we have any idea scandal that forced smisek to leave, what that will do to the company? george: so far there are no financial implications, but the investigation is ongoing. we are all trying to figure out if there will be some sort of financial cost to this

investigation, but right now it does not seem so. tom: is there a best practice model for united airlines? is there another air carrier getting a big merger right? george: american has been a better job getting their merger correct read i think delta has done a better job. united has probably done the worst compared to either of the other two for a better model. tom: what do you do to do that? two-do list, as michael mckee mentioned, how does an executive create a good merger? george: there are obviously a lot of details the go into a good merger, so my guess would be he needs to get on the ground, talk to employees about things that are creating problems. clearly it looks like i.t. at united is really struggling, and that will be an area of focus. tom: george ferguson, thank you

so much. we will have much more on this throughout the day, one of the major carriers in the nation really into malt right now -- right now.umult scott galloway will join us from new york university, a perfect apple kind of day to speak with mr. galloway about the mother of all brands this decade, apple computers. scott galloway and bill janeway in the next hour. stay with us. this is "bloomberg surveillance ." ♪

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. later today, with all due respect -- but no malley, the governor of maryland.

-- martin o'malley, the governor of maryland. "all duemalley, with respect." ramy: stocks are rallying around the world today, and asia live the way. in japan, the nikkei rose 7.7%. that is the most in almost seven years. japan's prime minister, shinzo abe, promised to lower the corporate tax rate. in china, the finance ministry also promised to reduce companies' tax burdens. rose 3%, itsindex second game in a row. u.s. stocks are shown to open higher. hillary clinton has changed course on a controversy over her private e-mail server or the democratic presidential front-runner had resisted apologizing for using private e-mail while secretary of state. that changed yesterday in this interview with abc news. hillary clinton: as i look act at it now, i should have used

two accounts, one for personal, one for work-related e-mails. that was a mistake. i am sorry about that. i take responsibility. and i'm trying to be as transparent as it possibly can. show a number of polls majority of americans do not find clinton honest and trustworthy. shares of yahoo! are falling in premarket trading. the irs will not rule in advance on yahoo!'s plans to spin off its alibaba steak without incurring taxes. the comedy may proceed with the transaction anyway. -- the company may proceed with the transaction anyway. netflix is expanding in asia. the company will offer streaming video in hong kong, taiwan, singapore, and south korea early next year. last week netflix began service in -- stephen colbert is not a

conceited conservative pundit. he just played one on tv. but no longer. he debuted on cbs last night as himself on "the late show." forhen colbert: thank you joining me for my first episode of "the late show starring stephen colbert." you are witnessing television history. like most history, it is not on the history channel. tom: he is drop -- trapping the character he played on comedy central. stephen colbert says he is my old character but with millions. those are your top headlines. tom: you wonder, where will they be in six months? he has such big shoes to fill. times": "the new york says that he is not succeeding david letterman so much as he is succeeding himself.

tom: let's get back to the markets and the higher interest rates. the interest rates do creep up. is that two-year yield a four-year high. , with wieting celebrates citi private bank. what does this likely market vigilantes saying to janet yellen, let's go, now is the time? steven: i am afraid it is straddling action that -- between what could come and what might not come. it does not suggest all of the upward pressure we would get. if this were an uninterrupted, even modest tightening cycle. the federal funds futures rate, they are straddling between go or not go. there has not been clarity on near-term action or the

trajectory. tom: where is probabilities right now, mike mckee? michael: we are starting to get into the range of market perception, rather than being buffeted by headlines. move.: but that means a something has to happen at the end of next week when the fed press release and a press conference there, you will move one way or the other because 30% is not a typical placing for action on the part of the fed. michael: the interesting thing i have seen is that people are looking at this as the start of the fed tightening cycle, and they have hearkened back to 1994 or even 2004. the fed says over and over again it ain't like that, we are not going to go very high, we might be one and done for a while. the turnover rate will be low, but people do not seem to buy that. steven: if that means into the early part of next year, fine, but the fed has no history of --

michael: even if it is 1%. even if it is 1% for the cycle, the 2-year note has a little bit of pricing. be a remarkably shallow tightening cycle. tom: why is this happening now? -- thereapan and china is almost a dysfunctional feel to it. one day, terrible. next day, great. part of thehe united states, you have to go to the fact that this has been five years where the unemployment rate has fallen 1% per year. if you look at employment growth, five years in a sense of 200,000 per month, and labor force growth of 75,000 per month. so employment demand is growing 2.5 times faster than supply. this is unsustainable. a couple years out, i think the unemployment rate will bottom in the united states, below 4%. there is no immaculate slowdown

and rebalancing of supply and demand in the labor markets. that does not happen in the u.s. uissebring up the euro-swiss chart. this was frank is just creeping back up -- the swiss franc is just creeping back up. aen that is beginning to show green on the screen feel. theael: we are getting to point where people expect the fed to do something, but do they have to do anything? there is no inflation. at 5.1 percent we should be seeing something if this was going to be a normal cycle. steven: it is remarkably low inflation, and i will allow the fed to do as a plans, and that is very little. the inactivity of the u.s. -- china is having these very modest adjustments to its currency over 10 years. this has created some financial instabilities by the fact there has been no cyclical movement in

interest rates. it is quite a quandary to have exceptionally low inflation but have the trajectory. in a few years height -- in a few years' time, it will be unsustainable. china has 10.5% retail sales growth. imports are falling 14%. for the emerging world, they are looking at china. their experience with china is a recession already. we have to look at the fact that the fed is now moving in a changing environment where there are a number of emerging markets . commodity exporters are under tremendous pressure. michael: one thing we get with low interest rates is a lot of car sales are at coming up, toyota may be getting ready to get rid of the nash rambler. finally unveiling its first since 2009. this is "bloomberg surveillance

," on bloomberg television, streaming on your tablet, phone, bloomberg.com, and in your car, too. ♪

tom: good morning, everyone. 1.70 one after a

big surge in asia, and particularly in japan, our single best chart today. here is michael mckee. goodbye, study, hello, sleek. toyota unveils a new sexed up version of the prius. sales have fallen precipitously in recent years. ofer, fancier versions companies like tesla. falling gas prices have made it a less compelling buy, and that is why toyota's stock price is a less compelling buy. is it still about the sheet-metal? matt miller joins us. you have had a chance to take a look at the car. you have not driven when yet, but i imagine the experience has not changed a whole lot. i get the impression you will not be first in line. matt: it is supposed to be a sportier car, more fun to drive.

they have painted it read for the internet launch, so read is the color of fast, right? asis not the same thing the tesla. tesla is a luxury car with a battery. it is a very different proposition. the toyota prius is about saving gas, it is about miles per gallon. it is about making a statement that you are someone who wants to be green. michael: that was cool. is that marketing campaign out the window? matt: i am sure it is still cool in a lot of pockets in the world. so thanlyn, maybe more on the upper east side. in california, maybe more so than in new york. in 2009 it was among the top three sellers in the world. focus, the toyota prius.

it has been huge. the problem is obviously gas prices being the lowest that they have been. that does not help boost sales of a 50-mile-per-gallon econobox. they make money on this because they sell at a huge bulk, and they make more money now because they are saving 20% on the production costs. this is the first car toyota is using with its new structure where its shares -- where it is sharing platform with other cars. tom: is the battery in a toyota prius the same as in a tesla? matt: it is much smaller and lighter. the tesla is all driven by the battery. the toyota prius is more of a gas engine with a battery backup. than more of the gas electric. it is not a plug-in car, necessarily. you can buy plug-in versions,

but the main cellar is not. tom: you mentioned that they sold a lot of these, the top three selling cars in the world. how important is it that this new version sells? important, but if you look at a chart, it used to make up the bulk of their hybrids. in 2009 it does not, then it was half of their hybrids in 2011, and now it is a quarter of their hybrids. , and iwas in one wants still cannot get onto the -- michael: you are holding on to the nash? tom: the chains on the nash get it done every time. michael: nothing like the slush coming up through the floor board. tom: it comes right through. let's go to top photos right now. ramy has this for us. ramy: the number three top photo

is about a very big guest for brunch. safari int at a zimbabwe. these tourists had an unexpected visitor for a meal. michael: he just sits there. over not justed one of those guests, but two of those guests. the family thinks it was because of the elephant's bad eyesight. it looks like it could have been much worse than that. maybe it was because the elephant was hungry and they were eating brunch out in the open. by the stuff,ed the lack of respect for wildlife. i just do not get it. unbelievable. amy: number two top photos -- gigantic sandstorm in the middle east. cyprus, allia,

engulfed in the sandstorm. it made its way west from iraq. at least eight people have been killed. tom: the tens of thousands of refugees camped out in the elements. there was amazing coverage on this last night. serious -- even syria's government stopped its airstrikes. tom: huge geography on that. what else? ramy: a beautiful one. we had out to space. nasa posco scene he space craft 's pasini-- nasa aircraft captures photos of saturn. ssini was about 600,000

miles from saturn, showing you how big saturn i it has been exploring the planet for the past decade. tom: i love the black and white. ok. that was outstanding. we could do photos all day with ramy inocencio. we have a real treat for you. next, bill priest will join us. that does not begin to describe how changed the dialogue and the use of cash and cash flow. william priest, with us next. stay with us. "bloomberg surveillance." ♪

tom: good morning, everyone. "bloomberg surveillance." let's get right to top headlines with ramy inocencio. ramy: good morning. citigroup warns the next global recession may be made in china. chance of some form of a worldwide recession in the next couple of years, according to one study. the bank says it will because by falling demand from emerging markets, especially china.

intel is ending its longtime sponsorship of a prestigious high school science and math competition. over the years, the science talent search has produced eight nobel prize winners, along with other award-winning scientists. the contest is looking for a new sponsor. witnessedo has sweeping historic events makes history herself. queen elizabeth becomes britain's longest-serving monarch. there is a new portrait photo of her taken by paul mccartney's daughter, mary. by mr. david cameron says millions will celebrate. she is 89 years old and has rained for 63 years and seven months, longer than her great, great grandmother, queen victoria. tom: i just saw for the 14th time the madness of king george, 1788, 1800 england. salute her

reign. hand of theking the first minister of scotland is really something. symbolism there for all of you in the united kingdom. we need to recalibrate on the theme of the moment. as it has been since 2009, you know all boats have risen. william priest is arguably our use oft practitioner of cash. his concept of shareholder yield worked in a great bull market and it will work with interest rates rising as well. he makes pretty much an annual visit with us. , year over year. i wait for the royal to check to come in. have you been surprised of the success of the concept, use of cash? it turned out to be a

hugely successful concept. arguably, the particular product that was effective in that book is going from -- going to $22 billion today. it has sold on five continents. bad the idea is that it is to give cash to shareholders. agreeing with-- you that that is wrong. william: we live in a world where 2% is the new 4%. the chances of global growth being in real terms 4% is a myth in my view. you simply do not have the demography or the productivity to do that. world, the investment opportunities are less than they would have been in 4%. so the key is, if you can recover your cost of capital and then some, you should reinvest. if you cannot do that, give the money back. that is real stewardship of capital. in this we have been

long period where you can go out and borrow the money. that is changing. it is changing slightly. you can still go out and borrow a lot of money and do deals or you can buy back stock. an excellent example of one who actually took the capital, borrow the money, and acquired is dan heard. likee surface, it looked there wasn't a norma's premium they paid for paul, -- like there was an enormous premium they paid for it. 9%y thought they could earn on paul overtime. point gapa 700 basis over their marginal cost of capital. tom: let's bring up an observation from you, which is why people often flunk a cfa exam. folks, on cash flow, bill priest.

tom: say what? william: absolutely. there was a case written by william trainer in netting 83. -- in 1983. it shows a successful growth rate in earnings. the individual who buys the case survives, is challenged a year later, it and says how did the company go broke with these metrics? literally, the company ran out of cash. the story behind the story is that it was an entity that basically sold chicken. when you put up the chicken stand across from them, they assumed they had a life of 10 years. cash is gone. tom: steve wieting of citigroup, how do you filter lord priest's knowledge? this is how you value

companies. the income that they derive for end owners, this is the way we want to look at markets. unfortunately, despite all these distortions, we probably have not gone that far off. it is setting a course that you have a lower expected rate of return. tom: is ibm financial engineering or is it the correct use of cash? william: 70% financial engineering. priest, thank you so much. i cannot say enough about bill priest's book, folks. steven wieting, thank you so much as well, with citi private bank. let me do a forex report. it is the calmest day on the markets in a month, which is a good thing. there is the brazilian real. we will watch them open at 3.82. michael mckeon, tom keene.

we look at apple with steve galloway and bill janeway. stay with us. worldwide, this is "bloomberg surveillance." ♪

>> this is "bloomberg surveillance." tom: japan equity surges, janet yellen will begin to raise rates. tim cook and apple, although make modest announcements in san francisco. can business reinvigorate ipad sales? from its peak,wn yahoo! gets a public rebuke from the internal revenue service. good morning, everyone. this is "bloomberg surveillance." it is wednesday, september 9. i'm tom keene. joining me, michael mckee. larissa meyer, it never gets easy for her. michael: you wonder why she took the job in the first place. tom: look at the chart. plan.l: this was the big this was what was going to save the company and now it is in question. tom: we will have coverage this esteemedith our

guests. now, our top headlines. >> japan's benchmark index is leading a global equity rally. the surge started after the japanese prime minister pledged to lower the corporate tax rate. the chinese finance ministry is promising to reduce corporate taxes. the shenzhen composite rose for a second session. u.s. futures are pointing to a higher open. the s&p 500 gained more than 2% yesterday. european governments are being urged to take in 160,000 refugees from africa and the middle east. the president of the european commission told parliament today that it is time for them to share the burden. >> all of us, we should well remember that this is a continent. everyone at some time has been a refugee. history is marked by

millions of europeans fleeing from religious or political persecution. for war. from dictatorship. germany's prime minister says that next year's budget must be billion to$6.7 support the refugees. right now there is someone new at the controls of united airlines. that is oscar moon you as. right now you're looking at the former chief executive, who is out. the chinon -- changes come during an investigation of the carrier. federal authorities are looking into their relationship with the public transportation agency in new york and new jersey. apple will unveil its latest phone today. the case is expected to be similar to that of the iphone six and iphone six plus. it will also have an upgraded camera and processor. they may also introduce an ipad

with a bigger screen. a royal who has witnessed sweeping historic events makes history herself. queen elizabeth today becomes britain's longest-serving monarch. you are looking at some live shots right now. for the occasion there is a new portrait of her taken by mary mccartney. millions was -- millions will celebrate. andhas rained for 63 years seven months. longer than her great, great grandmother, queen victoria. tom: and wonderful that she went to edinburgh. taking it back to 1707, the symbolism is a huge deal, her visit to scotland. michael: it was pointed out that her great-great-grandmother continued to live a long, healthy life for many years, as she has. she could go on. the queen mother, her mother, went to about 100. tom: 101. there we go. bill janeway, royalist. [laughter]

we will do a royal check for the rand mother of boy george. the future is up 21. the 10 year in oil, churning pretty darn good here. as summer ends there is a constructive tone to margaret's money as free business is getting done. will be joined by scott galloway, marketing professor at nyu stern. and pincus will comment on the queens rain. first, a touch on the markets and a simply -- why did this happen? why are we seeing a two day or three day risk on rally? >> look, a. of stability -- period of stability is on us. the chinese premier told investors that china's economy is in a good spot, there's nothing to really worry about, he talked down concerns about chinese currency as well, sending a positive message that

markets are seizing on. as we prepare for the leadership's visit to washington in the coming weeks, what is the tone about america in hong kong and beijing? >> it is all about china. it will be great optics as he tours around america. on the agenda will of course before and security and politics, but also the yuan. the message that china delivered to america, there will be a portion of that included in the currency basket, there will be plenty to chew on in that meeting. tom: very good. thank you so much from hong kong this morning. we have wonderful guests this morning. we will address apple and yahoo! . scott galloway is with us from new york university. perfectly timed, bill janeway is with us. everything in this market has been cheap money, cheap money. is it going to end?

>> of course it's going to end. flow valued at a rate that reflects the risks of living in the kind of world that we live in whether is probably at least as much risk on as there is risk off -- rather risk on as risk off, investors fleeing risk, that will again assert itself. from the unicorn private equity bubble going on in silicon valley across the board. tom: you are teaching unicorn 302 this term, is it just going to continue on? everything that we see in silicon valley associated with this odd word? >> we have something new among the unicorns. the top three have brought this business model to bear that is leveraging other peoples. we have never seen anything like this. airbus. sneaking up on

it has hard issues around capitalism in its current form being good or bad. tom: how do you view it? >> gosh, this is a company that is effectively revolutionizing -- this is not a private car company. ,t is the vascular solutions the last mile for global business. it is valued off the revenues. the valuation, as travis says, the market listens. michael: bill, when someone comes to you and says they have an idea that is like uber, how do you evaluate people who think , as scott says, this is the solution? bill: there are two ways to invest before they go public, at which point you get a market test on what travis thinks it is worth and people are willing to pay. spray and pray. a little bit of money across the

board. scott is absolutely correct. this is a new business model that represents the maturation -- digitalness it economy. the lack of friction in using i.t. to conduct transactions. second, the other is if you try to come in late, you will be chasing a shooting star. there will be some survivors. just as amazon emerged from pets.comubble, while did not. there will be losses. the biggest issue to me about the uber kind of evaluation is that you have investment institutions paying premium values without liquidity. without liquidity. you buy into the ipo, you can change her mind. to allw do you respond of this happy talk with alibaba being down 35% from its peak? someone is taking huge losses on

recent yahoo! price performances. you know the names better than me. scott, is there a tech bubble to burst given all of this enthusiasm? tom: well -- scott: well, uber is easy to understand. allie baba is hard to understand. can you explain it? tom: i can't. scott: i am a fan of good corporate governments. -- governance. you can ask -- do i even own anything here? as the company gets a price premium for some for city, typically that's why you get up discount on a conglomerate. alibaba is the conglomerate of conglomerates. and an insider controlled one that has conducted many transactions within the u.s., u.k. western tradition, would be considered pretty far away from anything representing decent corporate governance. michael: let me get you quickly on the record.

pets.com had a great story when it first came out. when you look at these and say it's a good thing for uber, what could go wrong? it never had a great story. michael: investors bought it, though. [laughter] that's what put them in business. scott: you know what? opia.d a company to pet pets.com never made any sense. smarthis is a conversation. haven't done this in a while. we need to look at yahoo!. overnight they got a public rebuke from the irs. coming up, scott galloway on yahoo!. stay with us.

tom: good morning, everyone. green on the screen. that is a decidedly higher yield in the last three days, affording into -- folding to our morning must-read. comments fromre fed officials, but lots from people on the sidelines, including martin wolf, writing today in "the financial times." good reason to start a tightening cycle right now and when it does art rates

will not reach previous cyclical highs. our world is not normal. get used to it." arguing that the fed should sit on its hands right now. tom: what i heated debate. we are eight days away. eight days away. the debate never ends. the market does not make it easier. the last two days we have seen stocks go up. what are they thinking? tom: we have an investment angle with scott galloway and bill janeway. bill, do you know what the risk-free rate is? bill: typically it is supposed to be the treasury bill rate, maybe going out to the 10 year. the risk-free rate is, however, obviously a function at the shortest end of quantitative easing in europe and the u.s.. the issue though, which i think is really interesting, while the risk-free short rate, which is

supposed to be the anchor, that has come so far down. but the hurdle rate for corporate investing hasn't moved that much. you know? the kind of stuff that's taught at stern about the weighted average cost of capital, where equity volatility dominates the risk-free rate and the actual borrowing rate with volatility , then you are going to see the threshold for corporate investing stay very high. up that it isback a little bit above its historical average. that's the point. short-term rates are below the historical average. is it important for the fed to move, or do they sit? think the quantitative easing and the minimal interest rate has done very little to

drive corporate investing. this is where finance. meets market reality. industrial and investment reality. pushing on a string, no one likes to use that phrase anymore . the fed and the european central bank had done a phenomenal job of pushing on the string, but there is something to be said for the old keynesian notion of demand. we will come back to look at the demand of technology and apple. in our next hour. david stockman. good morning. ♪

in the pulse of the real estate worldwide. from zillow, the chief executive officer at 2 p.m. this afternoon on "market day." good morning, everyone. right to our top headlines. are debatingders whether democrats can prevent an up or down vote on the iran nuclear deal.

a republicanck resolution disapproving it. predicts that there is more than an even chance of a global recession. the banks chief economist says that sliding demand from china markets ismerging the problem. the analysis puts the odds of a worldwide recession over the next couple of years at 55%. at least 14 passengers hospitalized after an airliner caught fire on a las vegas runway. 777ngine on the boeing corrupted yesterday. the british airways was headed for london. witnesses say the fire was so hot, the windows of the jet melted. tom: great evacuation. i mean, i don't know the details. seven people injured? >> more than a dozen, actually. michael: props to the for -- flight crew, though. tom: yahoo!, the sop opera --

soap opera continues. michael: no one is saying yahoo! this morning. not getting a letter from the irs is worse. they said they will not rule in advance on whether her plan for a tax-free spinoff on the stake in alibaba is legal, casting doubt on how and when they will be able to monetize their stake in alibaba, casting doubt on the value of yahoo!. scott galloway, bill janeway, still with us. melissa meyer -- marissa mayer's mayera lot -- marissa staked a lot on this. scott: they haven't said that you are not getting in. they said that they are not willing at this point? michael: it cuts the premium, but it does not mean you

wouldn't buy it. bill: it is incredibly complicated. even if you are spinning off a fullbore operating business, not an investment decision, it's very complicated. the rules are very, very -- it's not so much that they are vague, so much more that they are based on precedents that all have their own specific context. so, when they shifted this, what yahoo! was trying to do with an operating business -- they were going to own $23 billion in shares and say it was like spinning off a subsidiary? got to believe that that will be subject to a lot. tom: i saw three different interpretations of this story today that were all good. the distinction is -- how does yahoo! responded to not getting the private letter ruling? very bright about the uncertainty involved. what does yahoo! do next? michael: the board is apparently

going to continue its efforts to follow through with the spinoff, but as an investor, scott, do you go into this with the enthusiasm that you had before? i don't. i think she is the most overpaid ceo in history right now. tom: what if the rest of yahoo! decides there down from the june peak? scott: you are one thing, you're are the most trafficked website in the world, which you should be able to monetize. they have a ton of eyeballs that you should be able to turn into money. but you brought the right point. the company's core business is in decline. the ceo has made some of the worst acquisitions in the history of tech. senior-level hires that have cost an excess of $100 million in some instances. this -- this is going to fill up might inbox this morning, if she had not announced that she was pregnant with twins, she would not have been kept in.

tom: you are willing to say this? scott: she got a reprieve from death row that she is pregnant with twins. i realize how awful that sounds, but she is going to go down as the most overpaid ceo in history. tom: where is her board, then, with her bold statements? where is the yahoo! board? this is what you are expert at. bill: -- scott: so far the board lesson in poor corporate governance in a game where you they can't shoot straight. it's been somewhere between five and seven ceos in the last five years. tom: jump in here. >> i'm enthralled by this conversation. the statements about marissa overpaidng the most ceo is something your inbox will fill up about. looking ahead, where do you think she needs to go with yahoo!? scott: i think that they should have been sold a long

time ago. and be it could be sold in someone else's hands. rather than focusing on the business of search and portal play, it should be sold to microsoft. we should put a bullet in its head. time to euthanize this thing. someone, sooner or later, whether it's a stockholder or someone who receives the shares of alibaba, someone is going to pay taxes on it. there is a $10 million tax on this. isl: the value in the spin that it gives investors an underlying choice. michael: you are waiting on the spin it this point or you would be getting out? there is going to be a tax to pay. tom: we will continue with this. scott, bill, some real statements on yahoo!. coming up, a political tack.

the governor of florida saying that jeb bush has a plan, i believe that it's different from mr. trumps as well. on the other side of the fence, martin o'malley, tonight, with all due respect at 5 p.m.. this is "bloomberg surveillance." ♪

tom: good morning, everyone. "bloomberg surveillance there, let's get to our top headlines. >> stocks rallying around the world, the japan -- japanese benchmark rose 7.7%.

andchinese federal ministry u.s. stocks will open higher. the s&p 500 gained more than 2% yesterday. in politics hillary clinton said she is sorry for using a private e-mail server watch it was secretary of state. that is a change, of course, until an interview yesterday with abc she had declined to apologize about the controversial arrangement. looking -- clinton: i should have used two accounts. that was a mistake and i'm sorry about that, i take responsibility and i am trying to be as transparent as i possibly can. >> her work and personal messages were mingled on the

server. the fbi is investigating whether classified information was compromised. apple will unveil its latest phone today in san francisco. the case is expected to be similar today to the iphone six and six plus. -- included be camera with a processor and an ipad with a bigger screen, expected. stephen colbert is not a conceited conservative pundit, he just played one on tv, but a longer. hey deep that she debuted last night on "the late show." night on "thelast late show." colbert: you are all witnessing television history. like most history, it's not on the history channel. >> he takes over the show that david letterman hosted for 22 years and dropping the character that he played on comedy central. between appearances by jeb bush,

jon stewart, and george clooney, there were plenty of donald trump jokes. colbert says that he is "my old character with millions." tom: going on to debate the touches of organic chemistry and third best thermodynamics, we need to do a log chart this morning, the y axis is a fancy logarithmic chart, they teach university and this is intel back 30 years. this is the room in semi bill's bowtie is spinning, as mine is. the gordon moore award at the intel science fair will not begin out? this is sacrilege. this is the passing of the torch. once upon a time it was the westinghouse science search. they were a great technology leader for 80 years. your chart shows us, 20 years.

now it's time for the next generation. my bet is on google. tom: scott galloway, who will the initiative in science? who is the kind of company that could step in here? scott: you are absolutely right. google is the obvious one. as they jockey back-and-forth, where does facebook fit into this debate right now? they have been out front and we have been watching them all year . they are jen or miss compared to facebook. zuckerberg can try to preempt google because he is very good at getting a little bit ahead of the curve in terms of establishing that this is the face of the new digital economy, and it will be fun to see them duking it out, you might see microsoft as an exercise trying to rebrand itself. i like that idea.

microsoft putting in the new store, where i think offend the was before. scott: i think that google is leaking value to facebook. one core basically brand that's doing very well. facebook, best acquisitions in technology. 20% of mobile time is on facebook. what is 20% of the mobile world? usagetire world of mobile went public, what would that be worth? facebook is going to be the most valuable company in the world that has any correlation with those people. facebook is more successful than god, allah, communism, capitalism. nothing has ever been as successful in history. next week, god, allah, and capitalism. [laughter]

galloway is just fired up today. let me do a data check here. equities bond, currency commodities, the future is up 21. oil, worth watching with a modest bid over the last three days. rent, what is texas 2520? here's a question for you, right -- ronald reagan redux, jeb bush announcing a plan to get to 4% growth. a tax overhaul that looks a lot like reagan in 1986. he'll mattingly joins us from washington. cut corporate gains and corporate taxes and lower the number of brackets to three sounding very familiar. >> you wants to appeal to a lot of the people who not only like those whod, but idolized reagan. simplification is key.

that is reducing it from three to seven. the key component is on the corporate side, slashing the rate of 35% to 20%. there is a reason why he needs to appeal to business here. donald trump has really thrown everything on its head when it comes to tax proposals. there is a willingness to attack the capital gains tax, the carried interest loophole as it is often referred to has push republicans off balance a bit. as such jeb bush has made it very clear this morning that he is attacking k street lobbyists and loopholes in his tax plan. one of the key components, one of the things he is attacking is carried interest. that is a new thing for republicans and something you would not necessarily except from -- expect from jeb bush. how much support is there from republicans in doing

the kinds of things that he is talking about? >> raised eyebrows on this kind of thing. this is always been a nonstarter for republicans. if you look at the way that trump's message has resonated on particularly, democrats appear to always be on the right side of this debate when it comes to carried interest. riskis not exactly a huge for jeb bush, particularly because of the other components to the plan. building on that news is at tech summit, with leaders like tim cook, microsoft, and others being hosted by china. how big of a shock is an american tech summit involving the chinese to washington? >> administrative officials are not happy about it. let's track it back a bit, tom. had hisen xi jinping

first visit to the united states, president obama made it very clear that tiger attacks and ciber spin coming from china were a major problem for the u.s.. after that meeting there was a brief reduction and it went up again. the justice department brought charges against liberation army members for cyber espionage and after that, attacks started to reduce again. china is trying to get an edge in front of that visit. thank you so much there from washington. we are thrilled to have scott galloway with us. once in all that's once and for all, tell me how big of a deal is a threat to china in art -- a threat from china to our digital world? a-scott: gosh, that's good question. i think that when it comes to cyber espionage we are the muhammad ali of this form of warfare.

the government officials that ideal with strike me as exceptionally competent. anyone that wants to step into the ring with us for a fight around cyber espionage is going to walk away bloody. there is another angle. the entire angle of countries catching up to the technological frontier has begun by stealing intellectual property. we did it to the british. then the japanese and british did it to us. china is doing it to everybody. the difference here, this is significant, this is not, if you free market theft of intellectual property. this is a large-scale, well coordinated targeted and focused national policy. that's what makes it politically problematic. tom: politically problematic is that two out of seven people in my family have had their iphones break in the last few days. coming up, the big apple event is today.

we will try to give you an intelligent conversation on this today on the technology, innovation, and financial of apple. we will do that next. ♪

tom: good morning, everyone.

"bloomberg surveillance," on international relations. it is truly a story of global international relations changing by the day. a diverse group of refugees and economic migrants want to change their lives. they are coming to europe. hans nichols is in berlin and joins us with an update. i was really quite taken on how this story had fallen off the american newspapers. bring us up-to-date on what's happened. hans: the most important political development is that denmark is having their own issue. the government may -- if not collapse, there are stresses in denmark because of the transitory refugees and migrants that want to get this -- get to sweden. the biggest development is that the european commission andident has given his plan that number is either a lowball figure or a short-term fix. if you look at the numbers and

the acceleration of the numbers of refugees trying to enter europe in the last four days, 160,000 is not going to come anywhere close to it. one has agreed to that number. the only way that can be real is if they are dealing with the refugees that are in hungary and greece right now in this short-term settlement program. no one is dealing with the numbers honestly, let alone the cost. tom: you are so good at looking at each parliament one by one, whatever the legislative body is. which legislative body will hans nichols pay attention to? hans: you don't even want to look at those yet, just type majorities in denmark. we still need to hear from the leaders. weigh in first. then we will see if we can get

agreement and then it will go to the parliaments. on the dishonesty on the numbers, the new number that merkel's government is talking about, if you take what they were expecting, 800,000, take the cost of that purpose i'm seeker, right there you are at 10 billion. already merkel's government, getting a great deal of praise for dealing with his head on, their numbers are far short. the number itself is not necessarily being accurate in terms of the total cost that this will wind up costing the german state. the people will not immediately get jobs, etc., what kind of reception will this get among the people of europe? the leaders might say the right things, but they need support. hans: everyone is waiting for the backlash. the countries where the leaders are out front, they are waiting for the backlash. we have seen a little bit of that in the christian democratic party in the south, bavaria.

they have voiced their concerns, but there will be more of that and i expect that that is another round of this story. hans nichols, thank you so much. next, one of our most controversial guests, david stockman, joining us on janet yellen and, for that matter, ben bernanke and alan greenspan and william chesney martin. david stockman on your federal reserve. stay with us.

what a morning. we are thrilled at you are with us. it is easy, even when it comes to remail -- retail. >> retail cutbacks are coming at macy's. the company will close up to 40 departments doors early next year, about 5% of their chain, but they are planning to open six more of their discounts this -- discount outlets called macy's backstage. intel will now no longer support the science talent search, which has produced eight nobel prize winners since 1942. they have offered no reason for that decision.

if it is a day in the life of a royal, queen elizabeth presiding at the opening of a scottish train line. but the day is a milestone, she is britain's longest-serving mark -- monarch. she has rained for 63 years and seven months. her great, great-grandmother, queen victoria. congratulations to her. tom: i happen to be reading late 17th century english history right now by chance and there were times when it was not as calm as it is now. november was not all that comparable folks in scotland. the the move from charles second and onto james, qun and and all of that, day to day you did not know what they were going to do. it is a different tone. we need to look at apple right now. a big deal today, cory johnson

in san francisco, we'll be with us this morning. the fourth quarter is upon us, time for apple to trot out more products for my household to buy. it's all part of the apple ecosystem. william janeway hasn't ecosystem that starts with his fountain in hook, line,ll and apple tv as well. it is about the ecosystem being a home run, isn't it? how many tech companies can come out and raise the price of the product? the iphone is the only product in history that has expanded its mature margins. years ago there was a mystery on how they would do abroad, but the answer has been better than good. sell more going to

iphones in china next year than the u.s.. this is truly a global brand. what nation has apple map become the ultimate luxury brand? michael: we know that tim cook is going to say -- and just one more thing -- that's what he does. they don't seem to be offering anything with apple tv that you are not getting from netflix or the other providers. is how much of apple tv going to be that important? scott: look at how much innovation has happened around your tv. absolutely zero. it takes me one hour to find out where breaking bad is playing on my phone -- on my tv. tv has been such a wasteland of innovation. apple is the one to liberate it. i think we are all waiting because so far apple tv has been a bit of a disappointment.

if you call up the screen it looks like a cable network with icons. tol: what's more, you try program it in any way, you have to move the cursor across, but there is something else that apple needs to address. , there'll wes nine will is talk out in the valley that they've got it in once upon a time the line on apple was -- it just works. 's broke of on's iphone this week? the operating system and the mac os is the -- beginning to become a little windows like. how much stuff on your phone is you?frozen, close down on it's not quite the blue screen of death, but they've got to address the underlying functional robustness of that platform. the software platform. it's not fancy. it's not sexy consumer luxury.

tom: i'm on periscope now. this stuff did not exist 24 months ago. let me quickly ask you guys about the big ipad, the thing off to the side in the announcement. one reason the ipad is not successful is because everyone who wants one, has one, can they sell it to business? it is probably a niche, small business market. what is impressive is there willingness to cannibalize themselves. i think that the ipad is going away because the mac look is getting smaller and better and the iphones are getting so much bigger. basically the ipad has nowhere to hide. it will go away but quite frankly i don't think that it matters. computers are great. tom is holding an iphone six.

this thing basically said -- i've got an idea, take the wind out of the sails of samsung. this is an incredible product. boring? just an iteration? tom: in your experience how do you respond to the fact that they cannot move the needle? bill: it is an issue in that is where china becomes important. the television market, i agree with you, the big-screen integration is a big problem. if they can deal with that effectively? but the incumbents there are dealing with -- you are getting into the cable companies. the u.s. has done a remarkable job of establishing an embedded duopoly in what in the rest of the world is a much more open market. the same thing is true in mobile. no other country in the world where mobile is completely dominated by two players. everywhere else it is much more open and there are layers of openness. apple, google, facebook, they

are riding on top of infrastructure that is embedded in very conservative monopolies with great lobbies. five --s has been fabulous, anytime you're here we got to have you on. what will you be listening for in san francisco? siri. they teased us with i'm curious what they will say about that. that is a big and hard problem. the hard problem. because it is not about speech recognition, it is about understanding what you mean. that is really hard. tom: do you use it, michael mckee? i use it and i'm like, are you kidding? bill: full disclosure, i'm still on the board of nuance meet -- nuance communication. i have the little new mac look. scott: a break -- breakthrough that nobody talks about.

tom: this goes back to the processor speed. scott: light, great screen, it's a fantastic roddick. a march to one dollar trillion, here we come. the play against that in britain is the source of the technology design. i'm going to talk about apple. siri, tell me, what can tim cook say today that will raise their stock price? the stock is down 12% over the last six months. will the new products announced today change the investors mind about what the project is worth? >> u.s. futures are up by about 1% right now. this could be the indication for a second day in a row for gains. there it is, and informed

conversation on this. look at the foreign exchange with the same kind of good news that you see in equities and even commodities, beleaguered as they are, are getting a bit. but where you really see it, two-year.n that u.s. to me the agenda item is for it to break out above 0.80. tom: how much of it -- michael: how much of it is people going to bet on the fed and how much of it is people betting on stocks? tom: excuse me, i'm gasping. michael: you are so excited. tom: over the two year yield. but i do think it is a two-year -- a big deal to see it rounded up to 3% as well. gentlemen, thank you. i want to get both of you back your together. i want to say thank you to all of you for putting up with my modest cold this morning.

we are going to continue for another two hours on radio on "bloomberg surveillance." radio and television as well. howard johnson will join us later. good morning. ♪

>> this is "bloomberg surveillance." michael: welcome to "bloomberg surveillance." hints of stimulus out there from central banks. they are giving us a signal and the markets are making noise. good morning, it's 8:00 on what he. i'm michael mckee. this is bloomberg surveillance. tom keene and i are going to kick us to the next few hours with everything you need to know and we start by watching asia this morning. asiants in japan sending markets higher. japan's he's the biggest percentage increase for the since 2008. 7.7% coming on the back of a 2.3% increase for the shanghai composite, which has affected stocks all around the world. the stock 600 in europe is up 2.4%. up 1.8%.n germany, set up for another day of rally, evening out futures right now, , 184 points, 1%

with a 1.2% gain for nasdaq many 100's. nasdaq will survey be affected by apple this afternoon, their announcement of new product. other news that we are watching in therning, no increase stock price for yahoo! today. hammered overnight as the irs says they will not preclear the plan for a tax-free spinoff of their $23 billion in alibaba holdings. also a rough morning for united airlines. a new ceo, the previous ousted yesterday. poor performance and a federal investigation into ties to the port authority of new york and new jersey. longer the must-have company for investors. shares down 12% over the past six months, but it still makes must-have products. people already camping at apple

stores ahead of today's new product announcement. you have got to be lining up for tickets for the women's final at the u.s. open. serena williams beat her sister last night. venus was probably the last one who could have stopped serena from completing the first grand 1988.ince steffi graf in we will look forward to that this weekend. united airlines getting a lot of attention. the company with a lot of problems. oscar munoz taking over at tough time. jeff's might ousted yesterday along with two of his lieutenants. in part because of an investigation into what may have been an improper relationship with the port authority of new york and new jersey. david kochan's ski broke that story originally. he joins us now. exactly, did the folks at united airlines do that would lead to his ouster?

david: the question now is whether there is going to be some criminal liability. he met with the port authority when chris christie took over. talk abouto different projects they wanted approval for an out of the blue at a dinner meeting in manhattan david samson said -- you know, i this inke you to revive south carolina, i have a weekend home out there. against that backdrop there were all sorts of negotiations for port authority money and approvals. fbi and the u.s. attorney's office are looking to see whether that was an extortion or whether united crossed the line and got something in return, in which case it could be some sort of bribe. at this point there is no indication that there are criminal charges imminent.

the fact that the internal investigation has found -- tom: david, terrific work in breaking the story. you are on our financial crimes team. no one has been charged with anything. authorityout the port of new york, new jersey, everyone else. jfk.ow it as the owners of there a relationship? >> they do a huge amount of business. as a regulator, they can control all kinds of things. flight fees, gate assignments. they wanted to build a new for the least they were

trying to negotiate at the time. tom: are you willing to say to your work in reporting this caused this resignation with a $5 million parachute? david: i think the federal investigation is what caused it. there was negotiation in the detail. i think that's the backdrop. tom: david, thank you so much. again, mike, i guess the summary here is that he resigned. he did get an almost $5

million golden parachute. can i resigned today? [laughter] michael: exactly. munoz resigned yesterday, the stock is down 6/10 of 1% in market trading. not a huge move yet. coast-to-coast, boston, san francisco, thrilled you are with us. surveillance brought by cohen resnick. county tax advisory change can impact your business. see how the experts at resnick can help you navigate these complexities. the amount of mail that trails david stockman's something -- people here that you are coming on in my inbox goes boom. an e-mail from

janet yellen saying that you are on today. i want to go to the heart of the matter, you are arguably the harshest critic of the fed. maybe dr. paul is in there as well. i want you to justify why you are a critic, given so many other people giving them high marks for their behavior. not through all that for most of this crisis. their fundamental function is insert -- interest rate pegging in the money market. that is instrumentally wrong, doesn't work and has disastrous unintended consequences. the money market is where positions are financed day in and day out. when you deny price discovery in the market, when you peg the rate or the cost for 80 months running, there is a massive

subsidy to speculation that does not -- tom: but david, if we get a jeff lacher trajectory back to normal , will you reduce your criticism of the institution? take it back to 1%? david: 1% is still a rounding error. i would be happy if they allow it to move up. not peg the money market rate. that is a false function. it does not work in a report -- in a world that's drowning in debt. the only reason to peg the market at zero is if you are trying to encourage business and households to borrow. businesses in america have all the debt that they will ever need and they are spending it to buy back their own stock. households are at peak debt. they cannot borrow more of they want to. the only thing that zero interest rates do is create a tremendous subsidy or incentive

for wall street to gamble more and more recklessly with more you have sortel: of got a reputation for outspokenness on this issue but half the people on wall street agree with what you are saying. is it that interest rates are still too low or is it that the idea of the federal reserve itself you object to? i object to the idea pegging interest rates they in and day out, abolishing the free market of money and making it -- michael: what is the alternative? wasd: the way that the fed originally set up, a standby source of liquidity at the market rate and a penalty spread over what the market was. there was no indication that they should peg the interest rate at these low rates. there was no mandate that they should micromanage the gdp and

all the components thereof. theeed to get back to version that was lost decades ago. tom: we will get back with david stockman. for those of you on radio and television worldwide, here is a new york event that you need to know about. we arell be on radio ,oing to do this next wednesday conversation our with ray dalia. ♪

tom: good morning, everyone. this is "bloomberg surveillance." right now we need to go to julie hyman for futures and focus. julie: it is time for futures and focus. we are looking at copper futures this morning, little changed after recording the biggest rally in two years yesterday

battered by months of indications that chinese demand had peaked, it got a welcome reprieve on thursday -- tuesday sinceures surge the most 2013. here to discuss more, chris kirsch, joining us from out in chicago at the cme. so, we had this bounce for copper and the other commodities as well, does it have legs? it looks like it is at least continuing today. chris: copper does have legs based on the area to the downside. there are three major things that came out the tell me the traders should continue on the bullish trend for copper. the first thing is that we had the glencore shutdown of two african mines. 2.2% of global volume as far as copper production is concerned. number two, numbers came out the copper, smooth line copper pipe, the inventories in china have

subsided and are actually going to be importing some. imports have not decreased at all with the copper smooth line. number three, most importantly, that technical breakout. we saw a 240 resistance on the move up that we've reached above for the first time since july 20. that was a huge technical breakout and we are out of the range, a lot of things pointing to the upside. julie: would you go out right long on copper? chris: i would not. i would go with a shop limit the low the 240 mark in the range where it was trading last week i would not want any part of it that as long as it is above 240, i'm staying long. julie: coming up, tom and mike

will speak with shannon croft about apple's big event today. this is "bloomberg surveillance ." streaming on your tablet, phone, and on bloomberg.com. apple shares are higher in the premarket. ♪

tom: joining us live in the studio for today's morning call, from the first word breaking news desk, here is ill maloney. bill: the nikkei gained 7.7 percent, the most since 2008. hong kong gained 4.1%. shanghai raised 2.3%.

a pledge follow-through on corporate tax cuts, even with a near 8% move the nikkei removes -- remains below the moving average. european markets are also higher based on the 2% gains in france and spain, spilling over to the u.s. without peters higher and the s&p gaining 19 with futures rising 50. by00, jolting job openings 5.3 million. in other news, the apple event begins at 1 p.m., plunging 80% after failed late stage trials with jim chanos taking a new energyosition in share down 3%. regarding earnings this morning, chief reviews above estimates, cps was in line with fairchild cutting reviews. upgrades and downgrades this morning at bank of america, goldman sachs raising to buy versus neutral, suntrust raised to buy at the price target of 52 with domino's pizza raised to

buy at goldman sachs with sienna raised to outperform at rbc. tom? tom: bill maloney, thank you so much. you can type squawk go on your bloomberg to hear it. i'm pleased to announce that we are up to three of seven iphones michael: in my house. michael:tom: odd that that would happen. tom:three of seven. michael: on a day that tim cook would announce new iphones? tom: it's new. david stockman is with us. you are the former director of the budget office. i know that this is too easy, to throw up congress and let you whack it across the net, but one of the things that the fed has to consider as they decide what to do is whether or not we have

a government shutdown at the end of the month. gone 11.5 months of the fiscal year and the next budget, they have not even voted on a single bill yet. what is going on down there? david: that is part of -- par for the course. really it is none of the business of the fed whether there is a shutdown or not. michael: well, they have to examine the potential damage to the economy syria -- economy. certainly the last time these guys did this, there was. tom: it's short-term -- david: it's short-term, it's fleeting. you cannot they's monetary policy on maneuvers happening in any given day, week, or month. 80 months into given interest rates, december, we have the jobs report on friday. the unemployment rate, imperfect as it is, came in at 5.1%, smack data in the center of the full employment range that the fed has put out.

it is in the lowest quintile, tom, of unemployment rates in the last 45 years. in other words there have been 530 five job reports and less than 100 of them have had an unemployment rate of 5.1 or lower. are effectively in the end zone and these clowns are sitting there debating whether or not we can let the rate go above zero. tom: i might point out that you were one of the clowns once. when david was younger he was with a gentleman called ronald reagan working with real challenges at that time. michael mckee, brief our audience forward to the key question for mr. stockman. can jeb bush redux ronald reagan? michael: that was kind of fascinating, he's come out with a plan to reduce the number of tax brackets to three, sounding remarkably like the old and days. david: we've had plans like that the greatest ever,

cutting all the rates across the board with the top rate on 28% on everything. dividends, capital gains, wage income and bonuses. that was a level playing field. in the 25 years since then we have are treated in one direction after another as a result of the lobbies and the k street process. i don't think that that is likely to change. but the real issue today is not whether the corporate rate whether wehanged or have fewer brackets for the income tax. what we need is to get a central bank under control that allows wall street to discover prices based on supply and demand. tom: martin will flat-out disagree with you. , he saidthis earlier that if we raise rates there are great consequences to the world economy and u.s. economy. where is he wrong? david: he has been wrong

completely on everything for the last 25 years, so i would not be surprised if the died in the wool keynesian said that. they have been pegging rates at practically 04 years now and it has created distortions. why do you think that there is a dollar trillion in denominations? -- $8 trillion in denominations? tom: you have spoken to mr. trump? david: i have not done that, but he is shaking things up and that is what we need. the republican party has lost its way. it gives wonderful speeches -- you can see donald trump providing leadership to the gop establishment david: at the republican convention? think that'son't possible. he's way off the deep end on immigration, building a wall on the border, and a lot of the ham-handed approach is he's taken.

approaches he's taken. but at least he's not the republican establishment carrying on the same old thing. tom: ok, never enough time. don't be a stranger. david stockman. stay with us, "bloomberg surveillance." good morning. ♪

is "bloomberg surveillance." your top headlines, jeb bush has come out with what he calls a simple, fair, and clear tax plan. the republican presidential the tax planlined

in today's "washington journal." cutants a clear tax rate with a personal bracket cut from seven to three. shares of yahoo! falling in premarket trading right now. the irs will not rule in advance on their plan to spin off their alibaba stake without incurring taxes. the company may proceed with the transaction anyway. the stake is valued at about $23 billion. cutbacks are on the way at the nation's largest department store chain. macy's will close as many as 40 underperforming stores early next year. terry lundgren is experimenting with low-priced outlets and wants to improve the company's online sales. those are your top headlines. futuresata check on this morning, an extension of the rally from yesterday continuing overnight in asia.

we will look at that and a moment, the 10 year yield at its highest in foreign half weeks as investors feel reassured coming back to risk with the euro falling a little bit. the surprise report will be tomorrow, not today, as it is typically. i mentioned that rally in asia, withse docs higher, along the nikkei. let's get back to tom and mike in the studio. -- michael: good morning, everyone. when it's time to change the conversation, talk to your broker dear the -- dealer that is ready to listen. no indicators at 8:30 this morning. this is the quiet week after the jobs numbers. but we do have the jolting job opening numbers coming out at 10:00. you are likely to do a spread chart. i can say that on the bloomberg at. there is a spread chart that

shows you the number of job openings versus the number of people who have lost their jobs. that makes a big difference. tom: there we are. we needning, everyone coverage of apple and we need it smart. first, shannon cross joins us. what is the linkage of a new , with theirby margins. how do all of these new products full over three months and six months down the road? shannon: typically when they launch new products there will be a lower margin with the costco down in the components and you start to see a substantial boost to margins. is an s launch and

not a new form factor, they tend to have higher gross margins than when they launch the sick. it will be a better margin profile. also joining us here, cory johnson. he is at the apple event. i know that you model these stocks. yes, the margins may be improved , but investors don't seem to care about that right now. the stock is down about 16% since april. i'm wondering if a new product launch and improved margin will be enough to turn around sentiment or if there is something else missing. context is very important here. much bigger product launch that typically. maybe they are making up for the

lack of excitement around these products, but the way that apple has launched their last one is different than in the past. when steve jobs launches new products, particularly iphones, they will be launched in the united states and slowly add geography. this was an aggressive launch where the last iphone was launched in the u.s., yes, but quickly launched in china and throughout asia. for two quarters you had a full launch in china so that china became so important. and the problem with apple and .he comparisons are very tough michael: is tim cook going to present things as more than marginal additions to the bottom line?

cory: expectations on growth for smartphones are down to 2%. we have seen the expectations of iphone growth worldwide shrinking dramatically according to those predictions. in that context a much slower growing iphone world. apple is trying to match the fantastic comparison numbers from one year ago and the bar is quite high for the announcement today. michael: cory johnson will be with us all morning and he will be reporting all day long on the new product launch from apple. tom: with us well, shannon cross , cross research. we have seen this before. angst about new products, is this just a redux four and we will all be laughing in three months?

shannon: assuming that they can get production up, we think that this could be up year-over-year and we think that there is opportunity in japan. the supply chain is positive on japan coming out of apple. what is their market share dynamic versus competitors? they are just winning every day, right? michael: -- shannon: they are shares against samsung. the golden child over there is certainly on the high-end and it is very interesting because when you talk to the companies apple is selling and everyone else is under pressure. htc just got pulled out of the index because they are under so much pressure. tom: ok. 130 to 105. i have to pay for three new iphones today. by the time we are done today, it will be for iphones.

buy, hold, sell? shannon: buy in for the end of the year and then we have to wait and see what comes. you have got basically 50 million to 20 million new lp's being added every month in china. opportunity there. at some point it is going to be tough on a year-over-year basis. shannon cross on the t-mobile phone line, switching your business to the un-carrier today. we have seen this today -- before. i'm so worried about apple. michael: we will see that after the announcement. if the and lists are right, you can make a lot of money because is 85.ce target you're looking at a $32 price increase. yield, 2.22%,ar

west texas a little bit red. 49 49. brent crude, 4908 as well. yen, showing a massive churn there. dollar canada, 14248. time for your morning must read. my pick is coming from "the new york times." tom friedman writing about , and, borders, dorms refugees. he says he does not just think about high walls on borders, but also "a retractable dome over the country and for good measure we should mind the harbors." you you know he is totally serious. but he wants to get to the point of the matter that it is so ludicrous that we are talking about walls across the border from canada and mexico, why not make it worse? that said, of course, this is

against the lens of what is happening in europe. julie: it is and the rizal a lot of talk about the poorest this of our borders, which many see as a real problem. whether you are just talking up april migrating over the border, smuggling of illegal items, etc., or terrorism, even, going across the border. >> donald trump and jeb bush being the most recent people talking about that. looking over at what is happening in europe, the european union has said that the entire block of nations needs to take in 160,000 refugees are migrant. -- or migrants. thomas friedman says that in floodto halt this refugee or go could build a wall in.

julie: let's keep it there. coming up, tom and mike are talking about how to crack the high-yield bond market. you are watching "bloomberg surveillance." ♪

tom: good morning, everyone. we welcome all of you right now. need headlines. >> good morning, everyone. citigroup warning that the next global recession may be made in china. there may be a new chance of worldwide recession in the next couple of years. the bank says that it will because by falling demand from emerging markets, especially china. energy prices are surging coast-to-coast because people are just blasting their air conditioners to fight what may be the hottest september and's 2005. the cost of power in the new york market soared almost 150% from last friday. california surfer chain quiksilver has filed for bankruptcy protection. the company plans to turn control over to oaktree capital. quicksilver has been losing customers to fast fashion week to -- retailers like h&m.

those are your top headlines. julie: i feel like i need to do to hang 10 symbol. or maybe like a rest in peace symbol. let's take it the movers -- take a look at the movers this morning. ,ooking at the big picture yesterday's rally was the second best day for stocks that we have seen this year. in terms of the movers we have been watching we are talking a alibaba aftero! they failed to get a ruling from the irs after their proposed tax-free spinoff of those shares. yahoo!, moving lower on those shares. looking to the analyst commentary many of them have been saying that they have been taking yahoo! at its word. they might still complete the spinoff that the irs does not necessarily mean that they can do this in a tax-free way.

it is just that they have created uncertainty in most analysts are saying that this creates near-term uncertainty around the stock. oppenheimer,rning, initiating coverage. outperforming the rating and the price target of $340. the analyst there says that the underlying question the tesla is how do you define what the company is jan the clear prospect of it beyond the carmaker. oppenheimer says that it is a transformative battery-powered product company. finally, we have got goldman sachs morning. a 20% upside with the bank of america analysts listing a number of different reasons. michael carrier calls it an attractive valuation with mostly favorable capital markets

outlooks. he says that in the near term talks goldman also has a strong skill set in innovation and technology with good risk management. again, he says the third quarter could be week. not just for goldman, but for the rest of the banks. that goldman still has longer-term upside. now, coming up on bloomberg television, looking ahead to the 2:00 p.m. our, the ceo of zillow , you are watching "bloomberg surveillance." ♪

everyone.morning, "berg surveillance" on radio television say goodbye to the traditional alternatives as part of modern portfolios. learn more at invesco.com. dalia is a legend. dalio dalia oh -- ray is a legend. people pass around his research. we are going to be speaking with

him next wednesday, september 16, you and i. you hear us on the radio, watch us on tv, now you can see us in person talking with ray dalio in bribery, new york. if you would like to watch us in person, you e-mail drusso @bloomberg.net. if you cannot make it in person, listen and watch on wednesday, september 16, 6 p.m. the wisdom of ray dalio. tom: i stand corrected if it does not turn out, but this has been a record response. i'm getting e-mails from europe over -- where is this? of course, you can watch on bloomberg television and listen on radio at 6 p.m. live that evening, "surveillance primetime." michael: those folks are gracious hosts. you will really enjoy it. tom: they are.

-- this will not be, what should we do with the euro, what do you think about china -- it will be a much more broader and bigger conversation. michael: can you lend me a billion dollars. tom: right. bring in arguably the most important voice on fixed income. . martin fritchman -- fixed income theory. , good to have you here. give us an up rate on your thermometer of default. you have been quiet for a couple of years. do you maintain calm? seem like aoes not crisis, exactly, but we have reached a significant point in that the market, by my analysis, is expecting a default rate of 4.8% over the next few months.

first of all, that's a very significant divergence from the movies forecast from the same time and it is also above the long run average. when will the next default wave begin? within this mathematics, is at all one high-yield market or is oil so messed up that it is a two-part market? it really is separate. i would broaden that to commodities. mining and metals are also very depressed. those industries have distressed thats in those sub indexes are spread over the treasuries of 1000 basis points or more, indicating a high probability of default.

50%, sectors are at 40%, discussed the bonds trading at the stress levels and default rates in the double digits. those are basically viewed as being in recession already. indicating an expected default rate the moody's model. you are the guy to ask. the banks are all going to be looking at oil company balance sheet at the end of october. it is a semiannual thing that they do in terms of extending credit to these overleveraged companies. how bad is it going to be? martin: it's not being captured so much by the underlying

moody's forecast. the hedges on the energy prices are going to start rolling off. it will be a double whammy. tom: i go to amy stone's work for barons. the back-and-forth between you and jeff, you are in two different worlds. he has a view on the yield, you have a different view. what is the differential between what you are thinking and what he is thinking? martin: his record speaks for itself. when rates rise, when the fed starts to move, you have this immediate reaction that is negative. the 12 month response historically has not been all that bad. i think a lot of the difference has been the time frame and the type of portfolio he is running

is appropriate for him to focus on short run developments. michael: the high yield spread has widened. more see it blowout even if the fed moves? has that priced it in? martin: it is a question of the disruption that occurs. it's widely expected that this will come as a surprise nobody in the sense that they will exactly -- that they will raise rates and when, depending on how well they raise the message before it happens, we could have some short-term disruption. needs to-term spread widen fundamentally, still not wide enough, but that is despite a widening of up to 200 basis points over the last year. michael: 282 right now. tom: how exposed is retail to a

coming debacle? you work at the highest levels of sophistication in the industry. your work at the cfa institute is legendary. for the average person who is told to go into bonds and was told -- this has really worked out -- how exposed are they right now? martin: if they are in longer-term bonds, there is the deal of exposure. that is where you of course have the greatest sensitivity to rates. , working in job wealth management, we manage portfolios for individuals. they are not bond portfolios, they are income portfolios. securities preferred , there are high-yield bonds in them, but you have to have a diversified portfolio with different types of assets that produce income but behave differently. is dividend growth of proxy

for a yield? i would differentiate between yield and growth as a way of offsetting inflation over time. we do have a component of dividend growth stocks in their. they are not the stocks with the highest dividends, the stocks about to cut dividends, but the ones that have a good record of increasing dividends with prospects that continue to do that, so it is important to have a component of that. inflation works like compound interest. it builds up and you lose a lot of purchasing power over time. tom: as a follow-up to what we said earlier, people put a lot of money into funds and etf's over the years. is there a problem lurking in those with those default rates in that if you are getting one that is broad you are getting high-yield bonds that may blow up and maybe your portfolio

manager is not really focused on it? the premise of high-yield investment is expecting default with the risk spread out widely enough that you will net a higher return than you will with high-quality bonds. they are not new or different in that since. there is that exposure. one of the risks that people do not take into account enough is the losses that occur prior to default. there are funds that have an almost flawless record of avoiding default, but they have suffered a big part of the principal loss that occurs between the time that the bond comes to power. 10 seconds, where does the 10 year yield settle out? we don't get active 4%. i would expect getting up to 3% or little more. it's likely the rise in

short-term rates will outpace it. martin, we greatly appreciate his attendance today. television, radio, worldwide. stay with us, good morning. ♪

matt: it is 9:00 here in new york city, 2:00 p.m. in london. welcome. ♪

erik: good morning from bloomberg world headquarters here in midtown manhattan. i'm erik schatzker p we are less than 30 minutes away from the market opening. for u.s. stocks yesterday and is shaping up to be another big day. the dow futures shaping up to be 100 points. of a globalxtension rally that began yesterday and continues overnight. europe right now, this is the stoxx 600 up 2.5 percentage points. overnight in japan, and extraordinary short covering .ally drew the mek 225 up chinese shares also rallied. as investors embraced risk once again, they are shedding their appetite for the safest of all assets, and that would he treasuries. w