dissent. , wethe elephant in the room consider the return of a strong dollar reality. good morning, everyone. this is "bloomberg surveillance ," live from our world headquarters in new york. it is tuesday, september 15. i'm tom keene, with brendan greeley. ,rendan: the thing to look at thatim levy is the face international investors see. they have tremendous benefit. groupk at that interest and say that is where the interest is going to stop. tom: it was a surprise to see it, they be a touch of desperation as well. right now our top headlines. here is ramy inocencio. ramy: good morning, everyone. japan's central-bank is betting the economy will turn around without any more stimulus. they have decided against more

easing, even after the economy shrank last quarter. it is up to prime minister shinzo abe to do something to boost what appears to be a lackluster recovery. in july, production and household spending fell. this comes a day before the federal reserve policymakers begin a two-day meeting, where whether or not to raise interest rate for the first time in nine years. brazil's finance minister wants to save almost $7 billion next year by cutting social programs and capping salaries of government workers. the budget also calls for higher taxes, including a new one on financial transactions. officials are trying to close a budget gap and avoid downgrades. says it is's regime restarted its nuclear reactor and is ready to use nuclear weapons against the u.s. at any

time or a yesterday north korea said it is preparing to launch a long-range rocket. both the u.s. and south korea warned that would be a violation of a yuan resolution against ballistic missile tests. you are watching live pictures now -- soldiers and police sealed off the border with serbia. the intercepted more than 9000 people trying to cross illegally . germany and other countries have tightened their borders to do with the flood of refugees from syria and africa. blew afootball, atlanta 17-point lead and then came back to beat philadelphia. two touchdowns. game for coacht dan flynn. tom: i did not know there were two games now. i am out of touch with monday night football. brendan: we are sleeping by that

point. all my friends from atlanta have been waiting their entire lives for a team that matters. and they win. tom: congratulations to the nfl on 50 years. let's do a data check. equities, bonds, currencies, commodities. not much going on. maybe pre-fed quiet. let's go to the second screen, where there is some news as well. we look at the brazilian real. 3.81. a stronger real yesterday. the indonesian rupee is just flat out ugly with emerging-market weakness. let's look at the key control group on the bloomberg terminal. autoss retail sales, ex -- it is called the control group, and up we go. here, this is that

consumption gap that is missing. robert burke was with us yesterday on luxury. brendan: here is what i want to know about this chart. obviously we see the gap. this is what the recession wrought. is the slope here the same as it is? it is not just a gap. tom: did you study logarithms on vacation? brendan: i did. tom: the slope matters here. it is a little bit less slope here. brendan: do we have a bug that reads, slope matters? i had no idea. tom: there is the bloomberg terminal on a long chart. it is tuesday -- on a log chart. it is tuesday. the decision is hinged on domestic data like retail sales, but on key international events. we begin an international

"surveillance" with david woo, the idea of a pending strong dollar signaling disinflation in america. will janet yellen be overcome by international events? as you know, ethan harris and chief economists are calling for a hike this week by the fed. if they dot the risk not -- international events are overtaking u.s. fundamentals here, especially what is happening in china. if they were to hike the september, i think it will be a mistake. tom: what did you learn from the bank of japan today? the bank of japan is important. why is it important, and what does their decision mean for chair yellen? david: i spent three days last week in tokyo, and the sentiment among my clients in tokyo was very depressing.

growth waster gdp negative. this quarter it loosely gdp is going to contract again. years afteran two japan printed more money and with the yen going down 50%, japan is already in a technical recession. one is that tell you about -- what does that tell you about qe? brendan: the same thing is happening in india, which is the central bank is forcing the government to act. david: the problem with japan is also a lack of instruments at this point. b's, butld buy more jg be that would destroy the market. brendan: wheat keep talking about monetary policy tools. -- whenan knees is not

japan needs is not monetary policy tools but structural reform. david: if the japanese are watching what is happening in hungary,austria, and this is why the big story in japan remains robotics. they believe they are going to solve this immigration product -- this immigration problem by putting driverless cars on the road and having robot nannies and robot nurses. respectful disagreement that you have with your colleague ethan harris -- when in meetings together, how do you good buys them on these international events that come over to janet yellen and stan fischer gekko how does fall -- foldorld world? ethan harris'

david marco: if you look at the market, outside the world, -- not beene fed has volume us about international except for stan fischer, but the only speaking, thing else i would say is right now the markets are present only hike this week, this will be the first time in 20 years the fed is hiking rates without the market having priced 100% at the start of a hiking cycle. this will be a big surprise for the market. fed has been planning for the last 22 years to prepare the market for this eventuality. brendan: why do they need to pay attention to the rest of the world? david: because the u.s. gdp. is only 15% of global from that point of view, that is

the reality. tom: we are thrilled to have david woo with us. gideon rose will join us in the next hour. coming up, china stocks continue their dissent overnight. we look at emerging markets, the ,ew mediocre, with david woo here on "bloomberg surveillance ." stay with us. ♪

tom: good morning, everyone. "bloomberg surveillance." made -- i had a suit made three buildings over from the little red skyscraper across the harbor. brendan: does it still fit? tom: no, it doesn't.

thank you. it is like a trophy in my closet. let's go to my top headlines with ramy inocencio. ramy: bmw's chief executive collapses. -- the-old harold program 49-year-old harold kruger fainted. he said he was exhausted after returning from extensive overseas travel. themberg news reports german bank may eliminate 8000 jobs, in addition to selling a consumer banking unit which employs 15,000 people. deutsche bank is likely to make a final decision next month. flash flooding has killed eight people in a utah-arizona border town. five others are missing. a wall of water washed away two vehicles carrying 16 women and children. community thata

serves as home base to warren jeffs. deutsche post that may spin off the echo brendan: this is a change in strategy. they had acquired an earlier in the 2000's as an idea of expanding their consumer footprint. tom: jpmorgan or citigroup do not -- they are not that equivalent. brendan: you might think of bank of america. there is nothing that has both the current consumer footprint and the international ambitions that deutsche bank does. tom: there we are on gdp. brendan: the shanghai composite is down 3.5% on the day. as usual, when it happens, we are joined by enda curran from hong kong. let's look at today. is this new bad news or no new good news? enda: may be no new good news.

it all comes back to the economy. there is a growing sense among china watchers that we have five interest rate cuts since november plus a slew of measures going,to get the economy especially at the state and provincial level. but the economy is not showing traction yet. not starting new feedback. there is a separate debate that isnese stock market affecting the economy. brendan: is there a sense that the people's bank of china actually has a tool left that they are waiting to employ? is happening right now is very complicated in china. they are trying to stimulate growth through the people's bank of china, and they can cut rates if they need to. they are trying stimulus on a similar thing, but they are also trying to shore up the yuan, intervene with the stock market,

and push through reforms to try to get the economy going. it is a much bigger picture than just interest rate cuts in china right now. froman: we have david woo bank of america with a. he will throw you question as well. david: what do you think about the sentiment on the ground? last week when the shanghai composite was about to go below 3000, we did not see the central bank intervene. flirting with the 3000 level, do you think intervention is about to kick in? enda: there is no sense here that the shanghai has hit bottom yet, that the chinese intervention program has ended yet. there is a wider feeling that the overall sentiment in china remains quite fragile. of capital in terms outflow and what china is having

to do on the yuan and the currency side of things. there is no feeling that china's economy is turning a corner, unless some of the infrastructure spending kicks in. maybe then they might call a bottom on the shanghai. brendan: we will likely come to you again this week. oo, and it was talking about a capital flight out of china. what is this fear that they may -- that that may turn into a flood? david: chinese nationals have overtaken canadian nationals as the largest buyers and commercial real estate in the united states. how do these chinese people put down $10 million or $20 million in new york city? i have no idea. where there is a will, there is a way. tom: right now we have breaking news on this theme of china.

this is the regulatory body from the chinese equity markets, and there is a probe beginning. sitik securities on their ceo. this is something you can go with with a new autonomy. what is the prescription you would recommend to china to get a grasp on the macro while they deal with the micro events? -- the firstey thing when i get up in the morning is look at where is your dollar trading at. these days there is only one number i'm interested in, which is the seven-day repo rate. which is the benchmark interest rate in china. the seven-day repo rate today is hardly where it was three months ago. tom: this is critical, this

observation, within their contrived libor rate. legitimate institutions, or are they a house of cards for beijing? david: the point is the seven-day repo rate, shockingly, has not come down the last three months, even though the stock market has come down 40% and they have cut interest rates twice. they are not intervening in the fx market. they would be draining liquidity out of the system. what does that tell you, the price they are paying for the renminbi stability? they need to -- tom: this is a restrictive policy of china. does that folder over to a restrictive policy within the united states? is janet yellen dealing with an internationally imputed restriction on top of her dovish comments? david: absolutely there it is

china sold $150 billion of dollar-rending be -- absolutely. ofchina sold $150 billion dollar-renminbi over the next month -- china is over much pressure last month. tom: when we come back with david on this, you heard a window on how the pros look at a short-term market of overnight and seven-day paper. we will continue this discussion with mr. woo. in the next hour, we look at international relations in the united kingdom and all of europe. gideon rose and daniel yergin will be with us. you will see that only on "bloomberg surveillance." ♪

tom: good morning, everyone. quiet markets. in london, less than quiet as a politics is front and center. in the next hour, daniel yergin on the new commanding heights from london. the view across the thames. wire, atthis is policy bloomberg news, my former editor at "business week." planalks about jeb bush's to get rid of the tax rate on debt. we had david woo with us. we are talking politics but not really talking politics. we are talking basic market economics. what happens if corporations no longer have this tax benefit that pushes them toward debt instead of equity? david: they probably are going

it is going to offset the impact of low interest rates that result in qe. recently we see a lot of companies issue a lot of debt and engage in buying back stocks. not ironically, it tends to depress spending because bond investors. i think from that point of view going the other way, it might bring back some of the animal spirit that we need. brendan: paula dwyer's point was that if you are an economist, things settle in the long term. in the short-term, what kind of effect will that have? david: it could be a little bit of a lower hang for the stock market. pretty short-lived. unfortunately, with a gun to our head, had to study maglione and miller's

theorem. it is always very important. what are the ramifications of all that u.s. money abroad, and how should it be moved back to the united states? david: one of the big important japanese investors said to me zero interest rates in japan have become counterproductive because it means investors want stocks to behave like bonds. honda, why toyota and even though the yen has gone down 50%, did not increase production by cutting market share. tom: is that a reason for janet yellen to raise rates? to get us off the zero bounds? that: there is no question low-interest rates -- we are getting to a point that it is no longer doing much good for the world economy. tom: let's ask the question that ken rogoff and william bauder

were asked -- and william poynter were asked. i don't think china can cut rates while the fed is trying to hike rates. think china is more desperate to cut rates than the fed is desperate. i think it will be very difficult. brendan: we have to go to break. coming up, the world's biggest car show kicks off in frankfurt today. we are talking to the chairman of peugeot. carlos tavares. this is "bloomberg surveillance ." ♪

tom: refugees to america. who would you like to listen to? how about michael chertoff, the former homeland secretary. he will join us in the 9:00 hour. yes, we will the dress refugees

coming to america. let's get to our top headlines. here is ramy inocencio. ramy: north korea has a warming -- a warning to the u.s. regime says it is ready to go ahead with a long-range rocket test. it could violate you and resolution against north korea. the central bank in japan is counting for a resumption and growth to jumpstart inflation. the bank of japan has decided not to add more stimulus through the head of the boj says there is a gradual recovery in the economy. a day before place federal reserve policymakers begin their own meeting to decide whether to raise interest rates for the first time in nine years. in australia, malcolm turnbull was sworn in as the country's

sixth prime minister in eight years. he is a former oldman sachs executive who is pledging to revitalize an economy hurt by the slowdown in china. the u.s. politics, bernie sanders has appeared at a place not known for hosting democratic presidential hopefuls. liberty university, the christian evangelical college in virginia. he admitted that he and the crowd disagreed on gay marriage and abortion, but he said that should not end their discussion. there are other issues out there that are of enormous consequence to our country, and in fact to the entire world, then maybe, just maybe we do not disagree on. ramy: his biggest applause came when he referred

to liberty university as having a proud religious tradition. >> it has been an honor being your host. applause] ramy: djokovic won three of this year's grand slams. brendan: i am amazed by that bernie sanders story. that is a smart move going to liberty university. i am amazed by that. tom: i know donald trump was in texas yesterday with a huge turnout at the american airlines arena. biggest car world's show kicks off in frankfurt today, and our international

correspondent, hans nichols, is at the event, standing by with the chairman of peugeot. hans, over to you. hans: i am joined by carlos tavares, the chairman of peugeot. i want to chart -- i want to talk cars, and i want to talk macro. when i think peugeot, i think about driving from paris to terror on -- to tehran. what are the opportunities? carlos: the first thing we have our brand.ided is thise going to kick off new partnership with this one in tehran. other brands and theation -- and citroen,

discussion is still open because those discussions are reasonably long. arefrench car companies criticizing the iranian society for the fact that they let the country do international sanctions, and now it is quite a difficult process to bring it back to the market. but still, it is progressing, and we have several opportunities. your partner, could you be replaced by a renault? carlos: that is open for discussion. hans: when you look at the open market in iran, how big is it and when can you start selling? carlos: we are going to start selling premium cars in iran very soon. we should never forget that on the iranian roads, we have 6 million units in operation, and we are committed to that market

and we are committed to those , not only to service their cars, but also to bring brand-new technologies to the market, and brand-new products. we believe we will of course find the appropriate partner. we are eager to benefit some of this. china is 1.5al for million units by 2020. are you backing away from that? carlos: not at all. we know the growth in the chinese market is going to happen. the recession rate of china is 1/6 of other areas of the world, which means that the growth will continue, but with some bumps in the road. but ultimately the growth will be back.

hans: so china is a bump in the road. describe brazil. carlos: we are talking about the fundamentals of the countries in terms of stability, it in terms of governance stability. we are concerned about latin america. a realeager to see economic policy that will give stability for operators like ourselves to do our jobs. hans: we will bring it down to the u.s. where we have a federal reserve decision coming, a potential rate hike on thursday. what will that do for auto sales? stage, we ares not selling cars in north america, but we are selling cars around the world, in china, latin america, and russia. whatever the decision that is

taken, it should not affect the rest of the world economy. it is reasonable to recognize that the health of the u.s. aonomy has now reached threshold, and from there, things should happen, but at the same time we should expect that in north america would not affect the rest of the world. the consequences may be even -- hans: behind us we have the 308, the gti version. describe for me where peugeot is now quickly. ago, -- withinrs two years time, thanks to the commitment and the collective discipline of our people, we have finished this turnaround. we have demonstrated that we significant cash flow and

we are back in the black. that is great news for psa. hans: we are going to do our own little road trip, go from paris tehran, and -- to we're going to kidnap tom keene along the way. europe, staying in turning from business to politics, the migrant crisis continues. hungary has cut off access. these are live pictures right now, i believe at the hunk border, the border between hungary and serbia -- at the hungarian border, the border between hungary and serbia. "his is "bloomberg surveillance on bloomberg television. ♪

brendan: those are crowds in serbia, looking in the european union, and that is the border to hungary, which has been closed off. we have found a list of routes to europe. if you cannot get through hungary, they can go through the eastern border. there are a lot of ways to get into europe. germany believes it will see one million new refugees this year.

there are many sound moral reasons to do this. there are also other reasons. that is the subject of today's "single best chart." jeff black forwarded this to me. on long-term contributions to german growth from migrants. what you're looking at is unfilled job vacancies. 20% of germany's workforce is over 65. tom: in america, we do not know that. that is what you witnessed if you are living in germany, the dp pulling of germany. brendan: germany also got a bump the balkan wars from people who moved to germany, and also people from eastern germany who moved into western germany. if you cannot do it through productivity and capital formation, you can do it through migration. david: in theory, brendan is

right. but europe has a terrible record in terms of integrating into prince -- integrating immigrants. basically the unemployment rate among refugees, asylum seekers, is around 75%. i think right now perhaps all these people pouring into europe may in the short-term boost the economy. but by the long-term challenge, it is going to be huge. is it possible to draw a distinction among european countries? germany has a history with integrating its turkish minority from the 50 -- from the 1950's. france has less of a reputation of being able to do that. unless germany is about to embark on a massive peopleructure project, could be slotted into jobs for a quickly.

tom: we all know the phrase euro-sclerosis. but here we are with a tepid nominal gdp. can refugees actually help? david: i think they are on the margin. the government will have to spend a bit more money to process these people, but in the medium-term, i am more worried about the fact that the schengen -- it will be difficult for these countries to cross each other. tom: does the united kingdom eu, with jeremy corbyn and the rest of it? the refugee crisis, from that point of view, it will strengthen the -- brendan: jeremy corbyn has said he is unconditionally for eu. 's point, let's bring that chart back. you are absolutely right that you cannot just immediately slot people into unfilled vacancies.

there are differences between the unfilled vacancies in germany and the ones in japan. in japan they need service level jobs, construction workers. in germany, it is more skilled technical jobs that are going unfilled. you cannot just take a person and put them into an empty job. go to top photos per here is ramy inocencio, and this is a link to the migrant crisis. ramy: the number three top photo -- this is u.k. prime minister david cameron, who traveled to a camp, a refugee camp that has or so.ugees and 90 tents that is a mile from the syrian border. david cameron is asking the eu to focus on helping refugees with aid. tom: this goes to all european leaders, just making at up --

just making it update by day as they go. brendan: david cameron has urged that europe, if it wants to help by going to europe instead of making these dangerous crossings. it is all politics. ramy: the number two photo in the united states -- a little bit lighter. claiming a a bear little bit of pizza. it made its way into a colorado pizzeria yesterday, found a shelf in the back, and decided to take a nap. the bear saw an open door into the pizza place. colorado wildlife was called and they found the bear cub sound asleep. brendan: this was a funny joke until it turns out that the bear was malnourished. ramy: the number one top photo at the is two kayakers san juan island in washington

state. they found themselves in the middle of a group of killer whales. they paddled out in the morning, spotted the mammals swimming in front of them, and there you go. they appeared right in front of them. it startled them. they believe there were about 30 killer whales or so in that group. such a cool close-up experience. tom: is it smart to do that? brendan: yes. killer whales do not attack kayakers. they attack people when they for months atosed a time. sorry, that was an editorial. i apologize. this has been a lifelong remove andine, to charter a boat sail around that area. it is just gorgeous. tom: ok. "surveillance." brendan: what you guys missed was tom's look of skepticism, sympathy for bears.

stay with us, please. from new york city, "bloomberg surveillance." ♪

tom: good morning, everyone. $11.02 per ounce. brazil open stronger yesterday. who knows where that will go, off the major fiscal announcement we saw off the recess -- off the recess administration? programan important note. this is not 6:00 a.m., it is 6:00 p.m. tomorrow night. bloomberg radio and television worldwide. dalio,rsation with ray michael mckee and myself. thrilled to bring you ray dalia. it is beyond sold out. onre looking forward to that bloomberg television tomorrow night at 6:00 p.m.. here is ramy inocencio. ramy: a u.s. official is

confirming russia's arms buildup at a syrian air base. the bases is near a town on syria's mediterranean coast. u.s. intelligence says russia sent artillery units and seven tanks there. y will be used to fight the islamic state. beneficial says hundreds of russian troops are already at the site. in germany, the interior minister is calling for financial sanctions to be imposed on eu countries refusing to take in refugees. the eu has not been able to agree on a plan to force countries to take in a share of the hundreds of thousands who are seeking asylum and waiting at the borders. apple music has not turned out to be a spotify killer. the world's largest subscription music service -- spotify has 20

million users who pay a fee starting at $10 a month. apple is using -- apple is offering a free 10 month trial. tom: let's look at the dollar right now. we will do that with david woo of merrill lynch. at the end of the day, it is the comfort of knowing our dollar is their dollar. david woo has studied the ad and ebb and flow. at the end of the day, it overcomes all. that? david: the u.s. can get away with policies that nother country can. when the fed was doing qe for five years, other countries might have been brought under the crisis. but the u.s. was able to recover

from this. there is a bifurcation of the dollar. the dollar is doing well against eu currencies and commodity currencies. the problem is as china devalues, china slows. to the extent that it will lead the fed to hike more slowly, this is not good news against the euro. three ore is the yen, five years from now? david: if anything, the yen will be stronger. going into tomorrow, if the fed hikes rates, the yen will be stronger because the stock market goes down. tom: the differential between you at bank of america merrill is a and goldman sachs weaker yen through some form of abenomics. to the extent that the u.s. until now is willing to accept further yen weakness -- those days are coming to an end.

this is my point. you know, david will, that this is not solved by economists. manufacturers in detroit or by the state department, isn't it? david: absolutely. especially with donald trump and about japan taking jobs away from the u.s. tom: have you been advising mr. trump on economic policy? david: not yet. brendan: you talk about trump and rubio to some extent. it is a great pass time, to predict our own decline. does anything threaten, anywhere in the future, this exorbitant privilege? david: not really. in a very enviable position that nobody else is in right now. the question is, can the u.s. decouple from the rest of the world as the rest of the world slows?

the dollar and the renminbi remain the two strongest currencies in the world. the question is, how much longer does the u.s. finds a strong currency desirable? brendan: the currency war works better for us than anybody else. tom: until. to our viewers who do not understand reflation versus thattion, what is the trip turns us from a benevolent strong dollar into a struggle -- into a troubled strong dollar? renminbi will devalue. my prediction is that the bigger story in the next six months is acceleration in the renminbi devaluation. that will compete -- that will create competitive evaluation throughout the world. tom: david woo, thank you so

much. we have calculus into the 6:00 hour. we will have calculus on thursday. janet yellen will speak, 2:00 p.m. kathleen hays, michael mckee, and myself. the fed decides. stay with us. ♪

>> this is "bloomberg surveillance."

tom: janet yellen must consider . in this hour, daniel yergin and gideon rose. and adjusting to the new mediocre and we consider how jeremy corbin may tear down the commanding heights of england. this is bloomberg "surveillance" this tuesday, september 15th. joining me is brennan and this is beyond the borders. >> it is but also the problem is european. we've heard that from so many different politicians if hungary cuts off entrance there's ways to get in. it doesn't make ate lesser problem. tom: right now to our top headlines.

here's ramy inocencio. randy: the bank of japan decided not to expand its stimulus program even though the economy shh rank last quarter. if a u.s. rate increase makes u.s. markets vol tile again. the break with the prime minister who wants to jump start economy again. all this comes just a day before federal reserve policymakers starts two days of meetings. they could decide raise interest rates for the fist time in nine years. the finance minister wants to save almost $7 million by slashing depoth programs and capping salaries. brazil's credit rating fell back into junk status after investment grade. and two counties where migrants

have poured into the country means soldiers could be deployed and most refugees are fleeing syria's civil war. and more tough talk today. kim jong inning says the country started the main nuclear reactor and is saying it's preparing to launch a scientific satellite into orbit and they say that could be a cover. and a baptism of fire for a new nfl coach dan quinn won his first game but it was not easy. his falcons blew a seven-point lead but came back for a two-point win over philadelphia. tom: it begins. football. it begins. i actually watched a fair amount. the equities bonds currency and

it's a janet yellen data check really getting quiet as we move to thursday. you get the idea, nymex crude. rebounding off a challenging day yesterday. it was 30 glorious years and for the united kidnapping dom the far left of your socialism is once again a tangible reality. they prided themselves on not reading newspaper it's and a in the words hose of daniel yergin's classic study the left sought to detail and control the commanding heights of the national economies. this morning daniel yergin is vice chairman of i.a.s. and gideon rose of the county critical on relations. i want to go to a classic quote.

what you sent me cracked me up. here's a quote from the classic. bor our politicians who took power in the late weeks of world war ii were determined to build what they called the new jerusalem. they would make government the protector all across europe. the berny sanders doonled trump of the united states. >> at least after world war ii they were allianced and going to be partnered with the united states. these guys don't like the united states. they like chavez and puttin'. israel of the new the united states? >> there's nowhere with all of the u. doment create the new jerusalem they are talking

about it would just trune economy. tom: can you perceive thatcher's united kingdom? daniel: i think this isolates the left of the party. it would be disastrous for him. tom: gideon rose you focus on obama. focus on what you've learned at c.f.r. in the last threw e three days about the new jer reduce lesm. gideon: i can't imagine and if i were torii, i would be grinning like the which he iser cat right now. >> what have they been not paying attention to for the last 12 years? >> that you need to have globalization and distribution of its fruits. the problem is our right is concerned with growth and our

left is concerned with re-distribution and no one is concerned with balancing the two proper limit >> on the right you have these centrist parties. >> i think the center right parties what, they are in many cases are responding to is the reaction against the e.u. and against state and now we see headlines saying the u.s. filed know what to do with refugees. this is a totally unplanned situation. it's not a surprise we didn't know what to do but it's attacking the new burdens of europe and how do we announce middle east that would be a source of stability. >> yes. and to sort of let refugees in drip-by-drip-by-drip. they did not expect a torrent. gideon rose, there's this idea that a new europe can be

forged. is there any new idea of europe possible in the next 10 years? >> the history of europe has been what drives ultimately into greater -- one hopes that continues now but it's really hard to see. we've got the crisis and as a way to resolve it, >> and it does come atop the ethnic tensions and the budget taxpayer problems are there. >> let's -- daniel yergin do you just stume market disruption because of these social forces? daniel: i think it's notthat, look at the trade numbers and ewhat's happened in china. we have a commodity index number that's down 45%.

tom: see how he got that in? a shame les plug. [bell] daniel: it's down 45% from last year. tom: brennan we saw that last year. >> we talk about the commodities cycle but right now it looks like a china supercycle. >> yes, and the news keeps being that china is having a bigger problem in terms of adjusting. >> with china's current economic weakness who in washington is chuckling? >> well, first we were worried about china being too strong and now we are worried about china being too weak. talking about oil prices. i think the fact is that you don't have to worry about china dominating the world as much but now you have to worry about

the chinese leadership getting really scared about maintaining its position. tom: the end of your book "commanding heights" how many years have i opinion asking for a revised edition? >> 13 years now. tom: within that is the elebration of the end of capitalism? when you see the australian prime minister abdicating by force. how do we get back to the excitement of the end of your book? daniel: well we see brazil and os that now we are finding the tough going and turns out that a lot of people are dependant on china and chinese economic growth wrath irthan their own -- >> is capitalism in danger?

daniel: no. i actually think of his other book "the pride" is -- gideon: i mean what is fracking other than market forces coming up with a response by providing new ways of finding energy that's really cheap. tom: we will go on a quest for further conversation. coming up on "bloomberg surveillance" this morning an important conversation with michael chertoff. yes we will speak to the former homeland security about my deprants in america. with jurgen and rose this is "surveillance" this morning. ♪

tom: good morning, everyone. we're "bloomberg surveillance." th the morning mustry, mr. trode in "the new york times," america's great the most dangerous point in the arc of the power is when its a ji of the nation is passed but that's where trump's america is which is really, really great. roger cohen diving into american politics.

what a frackchouse state on donald trump and berny sanders and the pole airty i mean the middle is left out. >> i think they are slightly different. gideon: trump is really more of a clown show that the point. tom: but he speaks for an america that's disenfranchised. gideon: i think this is people ultimately hurt by a hollowing out of america and them outside of washington and they are not being served well by their government. tom: you discovered this across the path of -- from my grandfather's age of a businessman going washington what's the success of non-experienced politicians in providing executive services to the nation? daniel: well we have had arnold

schwarzenegger as an example and another died shortly after a campaign and sort of came and went. this is of course something new because it combines a celebrity engine that projects him out there. he was 42. it was in 1987 when he wrote "the art of the deal" and it was on the best seller list. >> herbert hoover a celebrated engineer. tom: before his presidency he had some administrate i skills in the government at least. -- ut as did kwon says, tom: do you assume gedeon that the primary process provides a leavening force to this or polarization? deon: well, the early stages provide polarization then in an actual reality show on the republican show on the other

side and each one of getting voted off and by the time it gets down to the last few you will have a more serious conversation. >> yes. the bold reality shows we are looking into a hall of mirrors. the world's biggest car show kicks off. stephen winkalman knicks. this is "bloomberg surveillance." good morning. ♪

tom: good morning. i'm excited. hope you are as well. that's not a typo. 6:00 p.m. ray dal i don't know with michael mckeon and myself. with a conversation about broader issues affecting the future of america. really looking forward to that tomorrow night at 6:00 p.m. with our headlines here's ramy inocencio. ramy: at least eight people are

missing and water slept away two advance carrying women and children and three people did survive the advance were washed several hundred yards downstream. it happened in a community that served azarenka base for a polygamist sect for warren jeff. bloomberg news reports the federal bank is -- in addition for sealing consumer unit that sells about -- employeing -- and news conference becomes anything but when the b.m.w. chief executive collapses. a company official says he is now ok. he said he wasn't feeling well after returning from an extensive overseas trip. >> more than 200 swreeks are make their debut. our honest nick silence there

standing by if lamborghini's chief executive, hans? hans: i am joined by stan verrett. sir, by stephen winkleman, sir, you have your pulse on so many billionaires and in so many ways you know what they want to do more than others. are they buying so many of your zphars >> it's going to be a record year for lamborghini. and there's always the light ahead. globally we can be happy, because we are trying to be very soipt that this is not going to affect the global -- >> so the slowdown in china is not affecting your sales? >> we already failed years ago and we are stable now because also we have new cars snepping and this is an advantage for us

in a weak market like the chinese market but we also have to say we have other markets which are much stronger and offsetting the things we have today. >> it -- what do you expect u.s. sales to be for 2016? fan: last year we had 260 cards and we will outbeat this in the year 2015. ans: by how much 100 cars? stephan: we have to keep the bar high for our people, because it's something you dream about. for it to be something which is very rare in the market. hans: so a car like this is aspirational so you need to keep demand high by keeping the

supply low? what would be in store for you in 2015? >> around 16 cars that are an s.u.v. would be ideal. hans: what's going to make me jump to buy a lamb bore by the any to -- buy a lamborghini to asically go pick up groceries. stephan: we had the first luxury s.u.v. so we are preparing the ground years over years to be reventive and a hird model to give company and hans: we wish you luck wand that we send it back to new york. we see expensive cars across this show and the pace are not

slowing down at least according to this guy. tom? tom: it's a little bit in the economy and there's finally restructuring in their re-manufacturing. >> we talked to the head of peugeot looking at the iranin' market as a source of growth. we are talking about the billionaires who buy the lamborghinis. does it matter to talk about billionaires? >> it does partly because as that regular economy is not doing so well the top 2 s&p. it has to be legitimate for the majority not just for the winners at the top and the lamborghinis are -- the more they see the top getting lamborghinis and the mom getting screwed, it -- >> how do you respond to the

fact that it's just a 00-year-old thing about feeding the rich. >> it doesn't benefit the ordinary person as well as the guys at the top. democracy only became compatible after the depression when people realized no, you need to spread the wealth and distribute things to have growth that is broad based. >> he is ripping apart his white shirt showing his ronald regan from another time and space. he is the ronald regan kennedy, isn't it? >> daniel: yes. but he did address taxes stabbed budget and did much they basis for economic growth. tom: you really wonder about the tax reform act of 1986 and

how we actually had legislation done by legislatetures. we will talk to michael chertoff on russia and syria. stay with us. "bloomberg surveillance." ♪

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get better internet installed on your schedule. comcast business. built for business. tom: it is a beautiful shot the view of the temperatures river. on a glomy day. that's almost always true across the millennial bridge. we welcome you steeped in an amazing political economy right now with us gideon rose and daniel yergin.

right now our top headlines here's ramy inocencio. ramy: good morning everyone. north korea is warning the u.s. , he stays main reactor is being re-started and is also set toe launch a u.n. rocket. north korea says it is a scientific test. with the possibility of a u.s. interest rate, the bank of japan decided not to expand its rogram even though economy's economy shh rank and u.s. rate increase makes global market it's vol tile again. a break with the prime minister who wants to jump-start the economy. the yen has dropped % since japan boosted stimulus all this comes a day before the federal

policymakers start two days of meetings and malcolm turn bull prime rn in today as minister. the economy is being hurt by the slowdown in china and turn bull is expected to be more moderate on climate change and same-sex marriage. berny sanders appeared at a place, liberty university the evangelical christian college in virginia. sanders admitted he and the crowd disagreed on gay marriage and abortion but says that should not end their discussion. >> there are other issues out there that are of enormous consequence to our country and in fact to the entire world. that maybe, just maybe we do not disagree on. >> sanders, biggest applause

came when he praised liberty for being a proudly religious institution. and novak djokovic was unpopular with most of the owd cheering for roger federer but cheered when he was on the colbert show. >> ladies and gentlemen, it has been an honor being your host. ahh! [applause] >> let's do this. >> djokovic told colbert as a champion he wins a trophy and gets free refills at theaters. tom: for those of you worldwide midtown manhattan everyone stays in the hotels right around the world headquarters and great to see people exceptionally healthy. >> like our tom keene, gluten-free.

tom: let's go look at a gluten-free chart. this is x gas x building and the rest. up, up, we go and there's a modest slowdown here an then we get it going again brendan but there's this gap of consumption. this gap of consumption. >> there is. as we were talking about there's a gap but also the changing of a slope. we would be wrong to not ask this question. are we looking at a different kind of growth than economy has enjoyed further 20th century? >> i think so. we are looking at lower growth and vitalety to it. we have some sector that are doing well but a lot that are feeling the pressure. > for the indefinite future? daniel: well, the indefinite

future is hard to tell but i think we're in a difficult thing and the united states will not be immune to this downturn. tom: gideon rose, we talked about this yesterday. what i see is a deprind towards downsizing and j. crew and saara improving down that speaks to a whole body of americans not living the dream we were 10 years ago. gideon: people are worrying that the dream won't continue but this goes back to what we talked to. in the long run capitalism especially democratic capitalism has continuously found sources of renewal. and i think it's a lagging indicator wrath err than a leading indicator. technology continues forward if a new source of positive development surges forward. >> but we have this overcompliant society and we

need to allow room for an entrepreneurial energy. tom: and of course gideon rose moving forward to the new optimism needed. our optimism is a data check needed for 41 barrels. >> this is "bloomberg surveillance" i'm brendan with "surveillance." the white house starts to say the word history as in only history will be able to tell you how right i am right now. did gideon rose, what will the world look like when donald rump inherits the world in 2017? gideon: bite your tongue although i do say every president always says i will look with ther in hindsight. i think that's going to be true presidency ma's

because avoiding war and bad mistakes and keeping the country relatively on track tends to make you look better against others that can be more satisfying to be active in the short run. he leaves the country in a better off situation than it was when he came in and we were in the middle of wars family and crisis and though there have been mistakes along the way although it doesn't feel that way in the broad spectrum our foreign policy is in a more rebust situation than it was seven years ago. >> the essay which opened the issue which is barack obama has a conservative small seed and temper appellant. is that something that's possible with this party? >> yes. gideon: he is very cautious about how he goes about implementing things so for example he might want to have a

sort of revolutionary foreign policy but he hasn't actually been revolutionary and has been cautious about getting involved in things and willing to be patient and create situations nd work on the site less time. stabilize one particular aspect and create conditions in which the situation can get better over time, that's not a bad poirblings i think. >> re-joineder to this essay had him defending barack obama's foreign policy in which he basically said barack obama has been terrible at dealing with our allies and re-assuring them and particularly looking at the gulf states my thought is do we need these allies? are they particularly helping us right now? >> you will say what's the alternative? and you look at iraq and

afghanistan who are the strong allies of the united states that the point of time? gedeon makes about the caution but we have two big problems. the relations with russia are getting worse. russia's a very important player and the whole vacuum that now exists in the middle east. tom: david wooden in our next hour mentioned this offcamera the idea of russia assisting assaad? syria, this is basically 48 hours old. daniel: but this can be overplayed. tom: but what about ukraine? gideon: the united states didn't have a security guarantee for the ukraine and the united states has been blamed for its sanctions there and the russia is going to be ore sanctioned than u.s.

gideon: puts also interesting to see who is showing up to buy arms. and i think partly what put season doing in going into syria is you're going to have deal with assaad. tom: should the united states of america deal with assaad? gideon: i think he is there in some fashion and this crisis is getting worse and it's a crisis now for europe so there has to be a way to find some way to stabilize it and who is the victor in all this? iciss. -- isis. daniel: turkey? russia? gideon: the gulf countries. tom: daniel yergin and gideon rose with us. we are thrilled to bring them to you in this most interesting week. i will be real blunt. this is the price of two or

three martinis. get the physical description. this is single best magazine to make your kids smarter. subscribe today. ♪

tom: good morning, everyone.

bloomberg "surveillance" another 2:00 pnl thursday, janet: and the fed decide what a debate it is. kathleen hays, michael mckeon and myself will bring you some perspective with some ezz seemed to guests and i know mike mckeon really focused look at that "a fed decides" on thursday. right now market movers here's ramy inocencio. my: right now i'm looking at cheniere energy. it's up in the premarket a little more than 2%. rns out icahn is raising his take in cheniere energy inc. of course everyone knows icahn is also at-bat whimsical hershel life and -- tom: i've read very little into this other than what a poe

layerty between mr. chain nose and mr. icahn. moving petroleum around and what the united states is going to do with our oil policy. ramy: yes yahoo in the premarket price is down about 3/4 of a percent. the c.e.o. is one of mercya myers east' picks. tom: is even leaving? >> the bigger news right there is that we are really talking bout the value of alibaba. think of yahoo as a holding stock for alley ba bat. so if they are sping it off, 's much weaker than -- and alibaba is -- tom: can que can we take avenual victory lap here?

we have shown a pre-skepticism rom pre-i.p.o. it's been sport really. still, alibaba, the chart is a little bit painful. mean, ramy. ramy: the issue has always been can a country restricted in a chinese restricted stpwhernt the as soon as far we think has been a resounding, no. alibaba is a bet on the actually alibaba's share price has been trading elow its i.p.o. price since -- >> i'm not an investment strategist. tom: there we do.

would you own more shares in jeremy core bit? gideon: one thing this is going to go down as is a new emergence of new classes in decline ultimately will be significant. >> coming up c.e.o.'s michael bentley. we will continue to talk about alibaba. ♪

tom: good morning, everyone. "bloomberg surveillance." tom keene and brendan green. with a hook at our headlines, here's ramy inocencio. ramy: at a syrian air base, bases near a town of syrian med rainian coast. heyen sent artillery and tanks by russia. they say they will prop up the struggling regime of syrian president assad and sent housing to accommodate 1,500 people. hungary declared a state of emergency in two counties near serbia where my grants have

poured in meaning soldiers could flank the border. and spot five says reports of its debt at the hands of apple music are premature. the world's largest subscription streaming music server, spot five has 20 million users who pay at least $10 a month. those are your headlines. tom: thank you a call to new sobriety when barrels of oil moved from $180 to $160 when adjusting for rising global wealth we are back to the humbling moment of 1986 when opec was flat on its back. no one better to speak to on this than daniel yergin. let me talk first dr. yergin about the calls for $20 oil. you said years ago to me, tom, we will see $40 oil.

everybody thought you were nuts and we have now gone literally past that. gideon: i think that will happen only in a world of -- reflecting the fact that there's a lot of oil out there and that the market is just not in balance. tom: if you parachute into opec, what would be your message? gideon: message is the world is very different from what they thought it was going to be and it's out of balance and this is going to continue for a while. in fact it would be a message to all oil exporting countries that you've got change your mindset. tom: is that because technology has usurped the technology of -- gideon: yes. it's transformed and people dismiss fracking and shale oil

as a bubble that was going to go away but it's almost doubled u.s. oil production since 2008. this has been a huge influrks the market was not prepared for. the fact raq and -- hat $70% at a -- in the u.s. >> economies find a way to get it together. who is the next cartel in oil? gideon: i think we are going to see a lot of not only happening in the u.s. but a lot of these big, mega billion dollar projects that are going to be built and come online have been postponed or cans 8d. that is going to rebalance the market. >> so we are going to have a market price? gideon: a market price and

perhaps a large oil producer in the middle east will once again start to manage its production but right now it's going from into shale, the re-entry the -- he goes across the desert and ends up at the british consulate and allenby and the rest of them, they are ignoring them and doing macroevents. what are the macroevents where state departments' foreign policy is going to tell the oil market what to do? is it russia? daniel: it's almost worse it's almost the decline on oil prices and demands going on are going to have geo political consequences. i don't think it's not inappropriate toe point out in of these states that have been bolsteredably the high irmarkets and although no one wants to have things rapidly

shift the decline in oil ultimately will benefit the forces of liberalization and democracy and popular government. is as u agree with gedeon was talking was how our n 2008 has shifted and the domestic gas and shale oil and now many exreans reporting distress because these expenditures are not happening. >> if you say saudi, he will say lawrence. daniel: lawrence saudi. is that a movie he likes? we may be going back to a reference in which it's -- the center of soil no longer in the gulf. tom: at the end of the movie lawrence goes mental and puts his hand across the map which i

personally saw at the war museum in england. employeeo politics you serps -- daniel: and they have a video you can see it on the internet where we are going to doo away with the state -- tom: but what does allenby do with isis? the answer is nothing. ours up until now do not know what to do with this new force. daniel: what it really wants to do is overturn state of very sy. that's a very big mac crowe story and something we are going to see play out in a variety of ways over the next few decades. >> for get norway. what of the non-norway states has done the best sat adapting to the new price of snoil daniel: i think everybody is in the states and raising their price level. looks like metroplex was going

has it by -- while norway adjusted well. malaysia was on that list but they are now having controversies. >> amazing how many countries we thought were doing the best at diversifying. daniel: mexico has done a very good job of that. tom: to our foreign affairs magazine domestic products, daniel yergin what would be your -- for economic policy with the inequalities we have which on edwards idea of two americas, what's your prescription to heal a nation? >> i think we have to free up the economy so it's not so rdened by pressures from

different regulations. it's a much more compliant economy than it was years ago and you pay a price in terms of economic growth. >> but what does that mean? what regulations are we willing to get rid of? daniel: well, i think that's a long list but if you talk to a board of a company they say they just do compliance anymore. hat this sort of regulatory -- what's the sflution add more penalties. >> you can put both sides of the aisle on it and tax reform, infrastructure investment, there's a role for a leaner but more constructive government in a way that i think we are not really actually seeing. gideon: the right wants to get rid of it entirely and the left ants to clamp down hard. gideon: i've never heard an adequate defense from the left of what regulation should be

and how we should approach it. gideon: there are various ways o stride public goods and in retrospect there should be should have been more. tom: thank you so much for coming and what a wonderful privilege to have both of you. gideon rose and daniel yergin with you. brandon, let's move forward to an incredibly busy week. we have the fed meeting at 2:00 p.m. and tomorrow forgetting about the ray del i don't know event at 6:00 p.m. tomorrow we get to drive the whole conversation i would suggest what we didn't talk enough about today was brazil and the new austerity moment. >> i think what we shall going to find out next is that he had his plan and does the other have his power within brazil to carry it out? tom: there we are international economics and we will bring it up to the american economics. the optimism of u.b.s., we are

thrilled to bring you drew mad dis and another of u.b.s. they are the most optimistic on the american experiment. we continue on radio and tv. "bloomberg surveillance." ♪

>> good morning. is an eat ticket ride. it china gets hammered again. u.s. futures are unchanged. anniversary. are we set up yet? -- are we fed up yet? china got hammered today, down three and a half percent -- 3.5%. hang sign followed along off of 50 points, half a percent. just's, isit is not a central bank week. the bank of japan's turn. they punted no additional stimulus. in europe, that led to a fall at the open that has since reversed. markets, much higher right now. the taxes up by seven points.

stock 600 is higher by just a point on the day. in the u.s., unchanged for futures. we wait on the fed. futures unchanged. we will call it unchanged on a percentage basis. nasdaq futures unchanged as well. not much going on in the bond market. , 2.8%. note yield today.some economic data retail sales for the month of august, out at 8:30 washington time and that will be a key number for people to trade on. we will see how the back-to-school session went. it is not just us. central bank week. maybe the boj is the template

for us. inflation is at zero. more than a third of the theomists we surveyed said bank of japan will raise its cutie at the october 30 meeting. d.lot of talk about the fed the real is down after walking levy proposed tax increases designed to close the budget gap to protect the zillow from credit downgrades. -- protect brazil from credit downgrades. germany's version of leading indicators fell for its sixth month. inopean car sales rose 12% august, the second fastest gain this year. there are concerns about the currency. concerns about the fact that the currency is not keeping people

from buying cars. a lot of questions about the impact of currencies on international trade. we have stephan seelig with us now. the undersecretary for international trade at the commerce department. we welcome him to the studio. thank you for being with us. i know there is a lot going on in international trade. i know you will tell me what the dollar's level should be is a function of the treasury department, not the commerce department. the business of promoting how do youal trade, help american businesses in that situation? >> there are a host of things we should be doing. the top of the list is working to get the transpacific partnership finalized. this will be a world-class trade agreement with 12 of the

fastest-growing countries in the world. this is important in this time when multinational companies and u.s. companies are facing headwind from the strong dollar. is the offset from lower tariffs enough to overcome headwinds from stronger currency ? there are a host of barriers trade agreements deal with. it's hard to say whether we will offset the strength of the dollar. it will put the wind at the back of u.s. companies that are trying to take advantage of global opportunities. with most of the middle class are merging in those economies where that's really customers are and that is where u.s. companies have to be focused. rightl: where is the tpp now, they seem to hit a wall. mr. selig: we had serious meetings in maui.

hopefully we are at the final stage today. in any deal, -- i was on wall street as a dealmaker, always the most difficult are left to the end to negotiate. hopefully we will get there in the short-term. we have to do a remote with the commerce department in maui. you bring such a wonderful resume of clear thinking. part of that is trust. what is our level of trust with our relationships abroad now in trade negotiations? mr. selig: one of the things i would say, it is a tale of many different cities. the trust we have with trading partners will vary across the globe. it does strike me like in any

business deal come up deals get done --, business deals get done with there are opportunities for both sides of the deal. it is less about trust and more about the economic realities facing the world. if you look at what's going on in the market today, many of the issues you talk about this morning where you have issues in , this israzil, china going to force countries to have to be global in nature. tom: secretary clinton, coining the phrase fair trade. how do you define fair trade? is giving fair trade u.s. companies the opportunity to compete on a level playing field. u.s. companies by and large produce the best goods and services in the world and when given the opportunity to compete on a level playing field we get more than our fair share. tom: we saw that with the export import bank among others.

60 some odd other countries in the world have this sort of export promotion capability. why wouldn't we want the u.s. company field to compete fairly? tom: i understand you are coming from wall street. howdy respond nonspecifically to donald trump but how do you respond to a broad body of americans who feel we are not getting a fair shake in our international relations? mr. selig: that is one of the things we are try to do the commerce department and one of the purposes of these trade agreements we're working on. for u.s. companies to be successful, we will have to engage in the global economy. that's were growth is, that's where the markets are. we need to give u.s. companies everything they need to compete effectively. tom: you see that with the excitement of india.

the rupee is challenged. michael: you are starting a u.s. india economic series of summits on a regular basis as you hold with china? mr. selig: that's right. we have our first strategic and commercial dialogue with the governments of india and the united states which is intended to be the signature annual forum between our countries to discuss strategic, commercial, and economic issues. this will be the first such meeting. in 2010 there was the strategic dialogue that was inaugurated. last year, prime minister modi and president obama added the commercial component. that at the core of the relationship between the u.s. and the government of india are economic and commercial issues. on.ael: dan yergin was just

a great portion of his book is devoted to the india in economy and how the government tried to hold the commanding heights. have things changed enough that it is worthwhile to get involved with india now? are american businesses welcome? mr. selig: they have made steady progress for sure. i was just in new delhi and mumbai. there's a lot more to do. issues you are hearing from u.s. businesses are around taxes, infrastructure, regulatory bottlenecks and generally the ease of doing business. those are not just issues u.s. companies are facing. their issues indian companies will have to address if they want to be successful. tom: february maui surveillance. mr. selig: i will book your ticket. tom: we will let bloomberg took the ticket. michael: all sides in this radio studio with us.

bloomberg surveillance this morning. accounting text advisory during times of growth, or economic uncertainty, your business needs cone resnick. futures flat. screenan amazingly quiet today as we begin on a tuesday to look forward to the fed coverage on thursday. thursday, we will give you perspective on the fed decision. ♪

tom: good morning. topt now, we need our headlines. could shedche bank 23,000 employees or nearly 20,000 -- nearly 20% of its workforce. this happening under a reorganization. if the filled, that would leave the german bank with about 75,000 full-time staffers. nicholas comfort is in frankfurt on the line. what is the reaction on the ground?

nicholas: the shares reacted positively because people thought the first sign of delivering on cost cuts. when i speak to investors, the thing that is on their minds today has been whether we can get more granularity on this. if it is a big number and just a flash in the pan. ramy: in terms of the granularity, where with these layoffs happen? have the we don't exact details as of yet. but we do know is it will be principally in the back office. with deutsche bank saying they will be cutting access -- -- when?ssets, we know we don't have exact details on that. generally at european banks in the past when we have had job

cut plans, it has been quite frontloaded. in the first year or 18 months is when most of the jobs go. beyond that, maybe it takes longer in different jurisdictions. i would be expecting in the course of next year. ramy: what is deutsche bank now? we used to describe it as a global investment bank with a retail footprint in germany. nicholas: good question. paper that by description. it is a global universal bank. europe possibly as investment bank -- europe's biggest investment bank by personal revenue. germany, india, spain, and

italy, postbank is one part of that operation. generally targeted toward slightly less affluent clients. too have a deutsche bank account somewhere i forgot to close. coming up tomorrow on bloomberg surveillance, conversation with ray dalio.

tom: we say good morning to "bloomberg surveillance." welcome to all of you. joining us now live in the studio, here is bill maloney. bill: in europe markets are mixed with france, germany, and italy going to -- posting oddest gains. on the economic front, retail sales estimate .3%. empire manufacturing -.5%.

at 915, industrial production. -- at 9:15, industrial production. analyst dayard begins at 1:30 eastern. upgrades and downgrades this morning. international paper and sealed air cut to neutral. dr. pharma cut to neutral. those shares fell 37%. fresh market upgrade to buy at jefferies. tom: thanks so much. breaking news over your bloomberg terminal. make of thet to economy? the cw survey fell for a six-month yet european car sales rose 12% in august.

u.s. consumer sentiment fell but car sales hit a 10 year high of 17.8 million. what matters more? what people say or what they do? matt miller is with someone who may have a thought on that, michael winkler. matt: thanks. this is one brand that he one-run's -- that he runs that does not rely too much on consumer sentiment. the first one, we are happy to deliver to the queen of england who owns a big property in scotland and decided to test drive it a few weeks ago. she will now use it for her hunting expeditions. scotland.owns she can afford it. it is the most expenses -- expensive suvs. -- zero to 6068

in four seconds. 87 miles per 1 hour. matt: once you have got your options in, you're looking at about 300 grand -- $300,000? mr. winkler: you can certainly option it up. obviously not everybody is going to do that. most of our customers on six to eight cars on average. all of them have one or two suvs in the garage already. .his is the bentley of suvs it gives him a chance to replace one of the other ones. matt: for now you have first mover advantage because there are no competing suvs on this level. mr. winkler: we are excited.

this car represents first for us . the first suv bentley has ever made. the first suv in the ultraluxury space. it combines all the features you expect from a bentley. handcrafted luxury on the interior and ultimate performance. matt: how do you market a product like this? polo matches and yacht races? mr. winkler: you create exposure at those sorts of events. it is essentially one-on-one marketing with the people you know have the affinity and can afford these products. matt: you will be making $5,000 for full production -- you'll be making 5000 at full production. we generally get about a third of worldwide production for the u.s. matt: that almost doubles your production. that really adds a lot of volume to sales. mr. winkler: bentley worldwide sales between 11000 and 12,000

cars per year. adds a fourth platform to the product range and allows the business to stand on a broader footing. matt: you are going to have a configurator app. i know i spent a lot of time on these things. is the person who pulled the trigger on event take a going to be messing around on an app to design it? mr. winkler: it is very exclusive. it offers a number of options to auction the car off. over 90 colors available for the car so it gives you an opportunity to play and figure the car the way you wanted. matt: we are hearing orders already meet supply. mr. winkler: we have strong interest in re-think the vent ntaga, -- we think the ve

we will think -- we will have the first couple of months covered. matt: what color would you like yours in? michael: i will take black. tom: i like the bronze. michael: tom keene will take the bronze if you can bear to part with -- tom: i will not sell the rambler. michael: you and the queen. the nash can be your hunting car. tom: i have the of noxious prince charles boots i can wear. i can drive down to columbus circle to the whole foods in my bentley. michael: putting the groceries in. 10 year yield, 2.17%. retail sales coming out. maybe the last data dependent

moment for a fed looking to thursday. , 2:00en hays and myself p.m. thursday with michael mckee in washington. good morning. ♪

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comcast business. built for business. tand that's what we're doings to chat xfinity.rself, we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20. it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. >> is bloomberg surveillance and here are your top headlines. flash flooding has killed at least eight people in a utah arizona border town. five others are missing. a wall of water washed away two vehicles carrying 16 women and children. it happened in a community that serves as a home-based forlorn

just. two wildfires have killed more than that destroyed more than 700 homes. one person has been killed. 23,000 people have been forced out of their homes. target is taking on amazon when it comes to same-day delivery of grocery and household items. they are delivering up with a delivery -- they are teaming up with a delivery startup. ever, tacost time bell will have alcohol on the menu in the united states. the chain will open a location in chicago next week that serves wine, beer, sangria, and frozen mixed drinks. it'll will also open in san francisco later this month. look at let's take a what is going on in the markets. there.f unchanged 10 year yield barely down.

here is what you should be paying attention to. up 3.5%. good morning. tom: good morning everyone. michael mckee. what do we have? michael: economic indicators provided by commonwealth financial network. letters go to the retail sales numbers. >> retail sales of his weaker than or cast rising 2.4% in august. economists at the looking for a 3.4% gain. july hire. excluding autos also less than forecast in august. july revised higher.

one more reportedly about. federal reserve bank of new york original manufacturing and empire state index weaker than forecasted -14.7. let's go back to new york. brandon: the retail sales control number is the one we watch every month. it is a more than forecast -- up more than forecast. the month of july was revised higher. retail sales -- the part that goes into gdp much stronger than had been forecasted overall. retail sales are a bit lower. american consumers still on the job, we salute you for your back-to-school shopping. tom: i agree. a movement in the two-year yield of 7.298. it makes a big deal. this is this conundrum of decent

american autonomy against everything else we see. the indonesian or brazil. michael: i am looking at the breakdown here. one of the reasons that the headline number held down, got prices fell during the month, the closing stores were up. general merchandise up. tom: we get a massive revision in the control group statistically. massive. michael: yes. it double plays in the month of july. a strong report in august. we should mention essentially the way retail sales work, we collect data all month that they get most of it in the first part which is why you gave your revisions because you have the second part of the month when you get the next report. a good number. looks like it will be a good number going into september as well. a lot of stuff. empire manufacturing number not so good. 14.7.

as we keep pointing out, it does not bear a little resemblance to the national manufacturing numbers. industrial production at 915. tom: the t-mobile phone line, scott brown with raymond james. does this amend what we will see in the thursday fed meeting? scott: probably not. the fed pays a lot of attention to economic information, not necessarily the hard economic data reports we get with the anecdotal information we get from around the country.we get a mix bag. the price drop for gas prices has been beneficial for consumers. the strong dollar has been a negative for u.s. exporters. we are mixed signs outside of auto production. they have been strong. we will get numbers later that we should see a mixed bag. tom: that is an important question. how do you weigh immediate

retail sales with quarterly industrial production cap utilization kind of statistics? i know they are monthly but it is taken as more of a gdp like number. which is more important to janet yellen? scott: this is the fed's dilemma. the economy is not booming across the board. there will always be weaker sectors and others and you have to balance that out. for the fed, they will be focusing on inflation pressures going forward. we don't see a lot of inflation pressures. the will probably not be a hurry to raise rates. the other big factor is the job market. it is great that people have jobs, but eventually you make it to a point where things tighten and you will see wage pressures which will pass through. we are still a long way from that. policy right now is extremely accommodative. even after the first few rate hikes, the policy will be very

accommodative. the fed not really looking to hit the brakes here. just beginning to start to take pedal.t off the gas emerging economies in global volatility pedal. is likely to lead them to delay this week. >> you are making the same point stanley fischer made where we go from altra accommodative to only supremely accommodative. when you look at these numbers, the fed mandate is the u.s. economy. this does not suggest the u.s. economy is in trouble, does it? scott: certainly not in any stretch of the imagination. we are nowhere near a recession right now. we are adding jobs at a very good clip. things might have slowed down the server you are still talking about 2.5 million jobs per year which is a strong pace. it is an unsustainable pace over

the long-term so the fed is looking at where the economy will be 12 to 18 months from now. they don't really have to hit the brakes. much dr.k you so brown. michael, would you please explain where the debate is of heardg -- versus what we which is that is nuts do not raise until there is a vector, until a measure trajectory is advised. michael: they feel inflation is -- we are in a deflationary period. in tells us inflation can excellently quickly. tom: if the empire number a big deal? michael: no. it is not a big deal. we have almost no change in futures after the retail sales report. there was an interesting comment that suspense is replaced trading. tom: i will go with that.

yeah. i want to show the bloomberg terminal. too.es are up >> it is time for a morning must-read from bloomberg views editorial board. basically challenging california to put its money where its mouth is. there is a simpler way to do it. impose a price on every ton of carbon released into the atmosphere and let the market handle the rest. something we were talking about earlier that we have a regulatory society here, but with a very simple way to do it which is introducing market. >> my question is whether there is a political will. there might be one in california.

let us say we expand the nation. in the geotechnical congress, nothing will happen, especially when you are labeled as the tax. brandon: the french have instituted a carbon tax but then they give everyone a rebate. it does not go into the general fund. you cannot call something a tax and get it passed in congress. this is the ina that what we end up with is more cumbersome regulations, which is the only option the obama administration has instead of a very simple straightforward market mechanism.any time you talk to an economist about this they say there is one answer to the problem, a carbon tax. because it is called a tax, it is like the economic and that they are not wanting to speak its name. randy: we are going to switch on over to alcohol. coming up, the whiskey wars. we look at the battle between bourbon, scott, and irish whiskey. this is "bloomberg surveillance"

on bloomberg television, bloomberg radio, as well as streaming on your tablet, phone. do not go away. ♪

>> markets are quiet this morning. time for a morning pick me up. we turn to brendan greeley.

dan: 2.5 million cases of high-end premium irish whiskey. but that is not the whole story. at 500hiskey has grown and 5%. -- 505%. you have been following this for two decades. every whiskey is a story. what is the story you are selling in america? >> we are the leading independent irish whiskey maker. we are within the category that has been a gateway for new consumers to get into. what we are trying to do is do something a little different. brednan: you are trying to say irish whiskey is more than jamison. jack: yes. it has dominated the last 20 years. like any category, people are looking for choice.

we are at the early choice of segmentation. people asking what else can irish whiskey be and that is wha will recommend. brednan: you are talking about a distillery that used to be the only independent distillery and island. there are now plans for close to 20 new distilleries. how does that change your work? jack: i think it is good. if people can produce different styles of whiskey that complement the big brands and give it that choice for consumers to discover something new. there are nine distilleries. they changed from four to nine since 2012. there are still -- there is still a lot of room to grow. i was living in hong kong for the past four years and was introduced to a few. how do you think those compared ? jack: i think they are a good

cross between scottish and irish. what is interesting is people more interested in what is in the bottle. they are open for trying whiskey from all over the world. randy: there is a bloomberg news article about how japan's single malt surpassed -- jack: we are trying our best. we launched our irish single moalt . we're trying to bring our flavor to be able to stand. brednan: why take a bottle of irish whiskey and added to your collection? jack: i think it is something that is an interesting specialty you can introduce to your friends. people's perception of irish whiskey has been more of that of landed and approachable. there are very unique flavors out there.

randy: think you very much. interesting stuff to talk about, especially early in the morning. coming up later on "bloomberg surveillance" michael joins us in the next hour. do not go away. ♪

tom: good morning everyone. "bloomberg surveillance." we have an important interview coming up on lehman brothers on this anniversary. we will get to that any moment. "bloomberg surveillance" this morning is brought to you by invesco. your alternative questions can be sent in. we thank them for their support this morning. we look at a viewer quiet -- at a quiet screen. it was not like that right? michael: now it was not. everything central base have done since lehman brothers filed for bankruptcy, still struggling

to get some traction. and very strong case is made that it is time for the fed to raise rates. you suggest all the global debt that we have now in the wake of the lehman brothers and the great recession has merely pawned future growth. we have not deleveraged or clear the markets. >> absolutely. has hasst part is it created an almost parallel society where the financial but theve done well whole strategy from the federal reserve and other central bank ever to support 20% of the economy. they provided 90% of all credit and 100% of all political capital to these 20%. the problem with that is that the industry itself, the big

corporations create merely 15% of all jobs and 0% of all productivity. on the other side of the economy, 80% of the 15% of the credit, and 0% in terms of capital. those sectors are what create productivity and growth. reason we are in this dismal growth scenario is we sort of created a deficit on growth and we fill it up with debt. on the other side of the coin is the fact that the productivity since 2005 coinciding with lehman's bankruptcy has been almost half what it was prior to the lehman incident. tom: seeing where we are seven years on, and i don't tell that with a feeling deutsche bank may 20000 and 25,000 for the people.

where will the lehman brothers banking the five years from now? where do you perceive taking will be five yearswhere will ths banking on? steen: is a great question. i think we have a clear sense of where we are going in terms of the banking system. oo big to fail banks are now under restrictive capital requirement where we basically have gone from lehman having 30 or 40 times the leverage on the balance sheet to the big banks having a maximum of 10 times leverage. we have less recycling of capital from the surplus current account countries like the todle east and china benefiting the u.s. and european fixed income market. what we are seeing in the banking system is there are less funds to be recycled and less to be managed. the payment structure, the aret, the bread and butter under attack. so far, the very low prices of

money credit, and that access to borrowing zero and depositing at 25 basin points -- basis points has been helping the banks mitigate this. they need to go back to the 3-6-3 model. you take a deposit of three amended out as six and you get three. tom: the heart of the matter in that model is you have to do that by raising rates off the zero bound. know what is there that. steen: absolutely. i agree. michael: what we had this morning is a third of economists surveyed say the bank of japan will cut rates again or add another round of stimulus at the october meeting. they do nothing this month and the focus will be on the october meeting. the european central bank will add more stimulus ahead. you are arguing this is exactly the wrong thing to do. steen: yes because we know we

will result no change. that is stronger dollar, weaker commodity prices, with her exporting -- weaker exporting. let me go back to your own point. i think it is important for everyone to understand there is not just one equilibrium in terms of credit. there are several. my argument is if you raise interest rates by 100 or 150 basis points in one go, the credit market will clear better in terms of these abilities to allocate across the capital. why? not on thet is marginal cost in the productivity on investment. raising the cost of capital will make it more transparent. it will get the credit used to flow. tom:raising the cost of capitall i will agree with that

except we have clearly been proven seven years on politically impossible to do that. when you see the latest events, brazil imploding, a changing of the guard within conservative australia, all the ballet of china and europe. i will agree with that the only release valve seems to be the currency market. how do you perceive that will work out other than a euro back 2.82 and a superstrong dollar? steen: none of this will help what we are discussing because you clearly understand where we need to get going is the ability to have pastorates in terms of an economic environment. and a lot of what is going on in the world today is a mental state of alertness. we are constantly in an emergency status. crying will constantly slows the senses of the investors. would have to remember the expected return in equity, in fixing for the next five years mathematically is exactly zero.

that is why it will change. until now, we have excess return in an ability to leverage the meager return we had. now that the leverage of the world is coming down on the volatility of access and the market is increasing. at the same time, the central banks with the federal reserve is now starting to realize and even publicly acknowledging that the support for the economy for raising the a lower interest rate is negative and not positive. we are seeing a gradual change. i have we with that. -- i agree with that. let us assume that the euro goes to 80 or the dollar gets stronger, there is one thing that is a guarantee and that is that we have a global recession. michael: you're arguing volatility suggests we are running out of time. steen: absolutely. the volatility increases by a number of reasons in terms of the marketplace because the risk management is a very flawed tool

to deal with. also because the market capabilities with the banks, the banks on the smallest amount of corporate paper in terms of the balance sheet. there is an inability of people -- itnsact under an is making transactions are extensive. the volatilities we find at the end of the cycle is nothing to be feared. tom: the beginning of something new is the outcome seven years on from lehman. seven years forward what we saw in the 30's was consolidations within finance with fewer banks and fewer brokerages and fewer world-class business programs early in the morning on television and radio. michael: brendan: when he won -- michael: we need one. when he bloomberg obviously. tom: good. steen: i think the banking

system you have in the next 10 years is when we will recognize from going up. it is the 3-6-3 model. there will be more m&a shops. there will be more people driven a partnership with a butter own money into play. on the regulatory side, they are not going to be a freebie in terms of a ceo and not having to sign any papers which people have tried to do in a long time. this is all an improvement. we are deconstructing the supermarket into retail boutique like businesses where everyone whatoviding and giving they are marginally best dance that of having a supermarket that sells crabby stuff. michael: face for being with us this morning. 3-6-3 maybe with lower potential growth will be 2-4-2. all it is seven years on. let us start with that. michael: and we are nowhere,

people would argue. tom: that was wonderful. stay with us. another hour of "bloomberg surveillance." good morning. ♪

>> this is "surveillance." good morning.

we welcome you this morning. michael mckee and tom keene on bloomberg television. and bloomberg radio. a lot going on, interesting itversations coming up over the secretary of homeland security and the chairman this morning. meeting, wethe fed have degrees it brought to buy interactive brokers affects 2015 award for the best retail for treating. these it i be at a ab ir.com/forax. we thank interactive brokers for their support. 11984 and iter, really gets my attention. the bank of japan quiet overnight with their decision. 11985. turning 11303 and the

blend is expressed in the dollar showing the turning u.s. dollar. brazilian real is weaker after the austerity announcement last night with the burst look at that spot market for the brazilian currency. 3.88 tod to remind you, a strong 3.81 and we come back to 3.6. it is a churn but a chart with an amazing new slope out of brazil. we will have much more on that i'm sure. atht now, we need to look the equity markets. here is david wilson. start witht as well the stock, action your energy. r i love it. david: up 1.5%. carl icahn increased his stake in that natural gas exporter to 9.6% from 8.2%. he is the near largest shareholder. he is going after short seller

jim chanos who told cnbc last week he is betting against the company. fiat chrysler up 3%. theirto union extended current four-year contract as they pursue a new agreement. the existing accord was set to expire at midnight. 1.5 percent and named as a top tech at rbc capital markets. thatwere concerned weakness in latin america had been overblown and it generated 60% of their sales last quarter, down from 23% one year ago. the broadcaster a great to buy the tv and radio station of closely held shares communication for 442 $.5 million. it will add to their cash flow right away. the drug maker is up 5% and said a treatment that reverses the effects of the blood thinner so well to meant all the goals during the final stages study. here in national paper down, 1.5% and they were neutral from

merrill lynch and roanoke up 1%, they were raised to buy from neutral at citigroup, making the same change to buy from neutral on teradyne, and that stock is is up 3%,d fitbit they received their equivalent of a vibrating of the new coverage and the firm calling fit's growth ridiculously fast. the company has been hurt by fitbit -- weight watchers. cap 7.5%. the provider of weight loss programs -- tom: so you double-barreled fitbit with weight watchers? david: just for you. n's was set the whole to buy from steeple. tom: thank you. michael, an important guest. michael: it seems like there is always something with the global economy. there have been economic threats

and security threats with ukraine, russia, etc. really quite on that front right now, that it is a calm before the storm or is it not? the second united states secretary of homeland security is the cofounder and executive chairman of the risk management and security consulting company chertoff group and he joins us now, secretary, thank you. my question is -- is this the calm before the storm? is there of blacks on out there on the security side i could upset the global economy as we have seen over the past couple of years? secretary: actually, i would say there is no calm, and the storm is gathering force. i think what we are seeing in the ukraine is an evolution to what they described as the conflict which is an ongoing low-level intensity conflict that does not resolve itself but does not necessarily spike into something that is war. in the meantime, we see the

russians getting more engaged in syria, far from being helpful partners in resolving the situation. they are doubling down with and airly troops assets. that is going to exacerbate the refugee situation which is going to put more stress on europe. it will also create more problems in the region. i think the storm is gathering force and i am pretty pessimistic. tom: you are an incredibly important voice for refugees and i believe your mother was a ago.t attendant many years you know what it is like in your family knows what it is like to shop at the border and ask for entry into the united states of america, certainly back one or two generations. a few clues in wayne to americans this morning it there is a direct -- would you please explain to americans of this morning that there is a threat to seriously produce bringing in a few isis numbers -- is that legitimate concern for public officials?

it is a concern. i think we do have an obligation, along with the rest of the world, to deal with genuine refugees, people fleeing persecution and violence. not people looking for economic opportunity. we have to just open the doors without vetting the people coming in. the reality is we have a good job in keeping out operatives from other parts of the world that may want to commit terrorist acts and we want to admit more refugees but to do so in a way that continues to assure that we will not admit dangerous people. when i was secretary, we have instances where we had to bring refugees and but we major defect them carefully. tom: how do you do that? michael: in the midst of the chaos? tom: michael, what is the actual process that builds trust in america for the goodwill of bringing a refugees?

secretary: first, you have to start the process as early as possible and that means ideally you would do it in place where in the perimeter of syria who are now waiting for some kind of refuge. it means interviewing, using whatever databases are available to see if there are connections between people that were looking at and people who might be dangerous. some of it is just the field that experienced agents have when they talk to somebody about what their true intentions are. it is not a froufrou scheme, but it does mean you have to do in the violation rather than willy-nilly letting everybody in. then the emphasized that the best way to do this is literally in the region, to set up a process there. what you are dealing with now is really a disaster group which is presented with people who are now i think taylor and of having migrated and there really is no time to vet them and that means hers.ody except

the people who are paying smugglers suffer and the countries trying to evaluate is coming into not have adequate opportunity to do so, so we have got to move the process to an earlier stage in the journey that many of these refugees are taking. michael: it reminds you of the boat lift from cuba to the united states where we ended up with a whole lot of undesirable people in the country because we were not able to screen them in the beginning. secretary chertoff: that is partly an analogy, of course, the air force, before castro deliberately sent people from the jails -- michael: doing not think maybe the terrorist organizations are sending people in the crowds? secretary chertoff: it is certainly a risk. it is not hard to conceive that a terrorist group like isis or a similar group would see an opportunity in the flow of people to insert some operatives. in fact, there was a story in "the washington post" today about somebody who was one of the refugees in europe who was

talking about how he liked living under isis in syria, so that is a very real risk. a small minority, but we have to pay attention. tom: i know that wikipedia has the boat lift it at 124,000 entrances spread over seven months. a substantial number. michael: in the early 1980's. the europeans are already there, so is it too late now? obviously, they can move everything to the middle east again, but with already the people on the cotton, is it too late? secretary chertoff: they are facing a situation where they have tens of thousands, if not hundreds of thousands of people who have arrived, many of whom do not have a clear destination. au are beginning to see position of internal border controls and that is a sign of how fraud the situation has become in choosing and managing the flow. they are way late in getting ahead of this problem.

this is an issue that should have been dealt with like creating safe havens in syria and iraq and countries on the peripheral and by beginning process in there. now they are facing this issue on the back fence. with ushael turn off and we will come back to continue our discussion with the head of the church up group. wanted to talk about actual political solutions in syria which has percolated. to get about the gathering storm and see how he sees that playing out. i should mention, tom, we are starting to see a real bid to futures. they are starting to get some out to two with s&p 500 index features of five points. ♪

tom: good morning. we need a top headlines and here is rendon. pastan: consumers may look the turmoil. retail sales rose for the second month in a row and the increase was .204%, just below estimates and july's increase was upwards. meanwhile, manufacturing for second straight month reflects decline in orders and employment in factories in new york and southern connecticut and new jersey. they have struggled with the stronger dollar weaker demand overseas.

call this twitter's contribution to the political controversy, but they will unveil a told that will allow anyone in the u.s. to make a political donation through a tweet. they are teaming up with square, jack dorsey is the ceo and also the interim chief executive at twitter. the major averages snapped the two-day winning streak with the nasdaq, still in the green for september. ramy joins me with a look at notable tech movers. ramy: three movers for you guys. first one is good that. it good growth is "ridiculously asked," according to brad erickson. it is up by more than 4%. braddock's initiated coverage of the health stock with a price target of $47. he noted on the potential downside that they could be competition coming from apple, only if they get into the -- the fitness rate directly.

we have 10 by ratings, one cell, and moving on. world, theyhe music are raising their price target to $19 from $17, saying the music service is the only service with a daily pass option you can subscribe to. pandora market shares are up .7 of 1% and they think the daily feature could help push and current -- current subscriptions. apple, ubs analyst stephen bit of the bridge is like an apple's new trade in plan on the old iphones. he says that could encourage customers to trade in their thees more often, changing annual upgrade processing to something that is really more of an annuity. apple's plan does matchup with the prices at the con carrier plans like at&t and verizon. apple is that it's highest since august 18. pulling back up over the past month. brendan: is that what i go do? is that my job now? coming up on bloomberg's

"surveillance," julian emmanuel tomorrow from ubs at 6:00 a.m. eastern. i will be there and a lot to talk about. we won't have information about the fed, but it will be what we are asking. this is bloomberg's "surveillance" on bloomberg television, radio, streaming on bloomberg.com, your tablet and good morning. ♪

tom: good morning. michael mckee and tom keene. we welcome all of you as we had the economic data come out and yields are decidedly higher this morning. like a mckee, the two year yield .7419 is a at the cusp of the breakout to a new high. michael: people reacting positively to the retail sales report or figuring hawkish lee. productionial

numbers is not good, manufacturing down .5% and industrial capacity falls back. tom: i thought a conversation ertoff wasel chrtof riveting. michael: he was the second homeland security opposite and he is now chairman of the chertoff group and was -- i want to follow up by what do started telling us which was the gathering storm of their and you've been pessimistic as thele try to plan out coming months. how do you see something unfolding? what is the gathering storm and how does it manifest itself? secretary chertoff: i think it manifest in various ways. first of all, i think europe is under real stress, not just economiccaused by the issues with greece, but now the pressure of migrants which is actually creating a division within the european union. she also see the rise of political groups on the right and left that are more extreme

in their views. i think it will put a lot of pressure on the e.u. and they will need to do some soul-searching about how to reconfigure themselves in a world in which it looks like there is unprecedented pressure. i also think vladimir putin will notoit this because it is an accident, in my view, that he is taking steps in syria that will promote more migration. i think that is one area where we will see real tension. of course, in the region itself there is no prospect of an end to the conflict in syria and iraq in the new feature. we do need to get more involved in shaping the outcome. how do we get more involved in shaping the outcome? we don't really have a place in the refugee crisis and it seems that right now the russian confrontation is limited to europe. actually, wertoff: may face the russian

confrontation in syria. one of the things i think we should have done and can still do is create safe havens in syria where some of the population can reside with the relative degree of security without being victims of barrel bombs and other kinds of atrocities committed by kaiser side. the challenge there is you have to have an air cap and you have to put some more resources on the ground. the latest move by vladimir putin to put people into the theater, suggested he might be pushing back against that. i thought the sick taping, there was no way for hope of stability in the country and that will promote more migration and a darker outcome. tom: our security as a nation, we face immense challenges as our second and -- second head of homeland, are the challenges radically different now than what you faced for how we moved on to the same discussion as we had in those 2007, 2008 years? secretary chertoff: i think they

are somewhat different. -- of the last rings we are one of the last things a contest was to build a security architecture that reduces the risk of another massive 9/11 type attack. we are now moving to what i call ,he jihadists and 2.0 or 3.0 lone wolf attacks, more widely distributed small scale attacks. that is what you see isis and i now al qaeda trying to encourage that in the united states. those are not necessarily on the scale of 9/11, but they may be more frequent and they will put some of our local law enforcement. the other major change is the rise of cyber threats. they have intensified over the last several years and could begin to move from effective data to actually disrupting or destroying some of our critical infrastructure. michael: it would be remiss if i did not ask about china. he comes into the white house amid increasing tensions over cyber threats, cyber warfare.

the south china sea, how do you see china playing up from a security perspective? secretary chertoff: obviously, the cyber issue has been one that has been much talked about. we saw some major intrusions, one for government personal database and went into the health care company in i advised by folks who are knowledgeable that are probably attributable to china. it looks as if they are building a database of americans that they can use for the own intelligence purposes. at the same time, their economy is under stress and part of what they are doing is closing the door a little bit to u.s. investment there. the question is, how do we alance our desire to have china that can be a contributor to the world economy but also make sure that they play by the rules? i think the administration has talked about something that could be bible is beginning to use trade sanctions -- could be valuable as a to use trade sanctions that could benefit from stealing intellectual

property. sanctioning them for violating rules actually might have some impact. much more to talk about. we need to have you back soon. thank you so much, the former secretary of homeland security. mike, i had a list of 50 questions. michael: it is a big world. tom: it is a big world out there. michael: not to mention the gathering storm. tom: that is gloomy. that is really quite something. screen a more optimistic on the bloomberg terminal. and theyutures up 46 yields were higher. it is unambiguous on the side of economic data we got. higher yields. michael: a bit surprising given the weakness in industrial production. bloomberg analysis of retail wees is the last pop before see a decline, the tempest, they say, given the turmoil we have

seen over the last month. tom: let's continue. mike mckee and tom keene on investment and finance. on bloomberg television, bloomberg radio, this is bloomberg's "surveillance." ♪

michael: cash ramy: good morning. this is bloomberg's "surveillance pick a your your top headlines -- a people dead and seven missing from flash flooding on the arizona utah border. police say the fans were washed several hundred yards downstream.

it happened in the community -- served as a base for hungary declared a state of emergency in two counties near circular migrants toward him. soldiers could be deployed along the border. austria said they could shoot -- could soon run short of housing for refugees. the bmw spokesman for the company's ceo is ok after collapsing during a news conference. kruger-old harold fainted onstage at the frankfurt motor show. he said he had not been feeling well. your top stories. here's brendan greeley with another check. brendan: a look at what is going on as we wait for the next two days for janet yellen to do something. futures are up five points, not a whole lot of movement. look at yields. yields are up, possibly a good consumer sentiment. except as well. we are playing the waiting game. tom: good morning, everyone.

bloomberg's "surveillance." michael mckee and tom keene. we have the markets open for you. we go into the opening and futures are six and opening bell. brought to you by sei, today's competitive marketplace, requires asset managers to become more into transforming your business with the global platform and sei c.com/imagine. we will dive into brazil. we begin with tracy howell the way of bloomberg's market. absolutely stunning to see the about-face with the crisis. the eight back to stronger to 380 six.k in my right, tracy, a complete capitulation of the rousseff regime? tracy: that's one way to characterize it. we are seeing strength across

the board. a little bit of strength, mostly people to having backed fed interest rate hikes. tom: give us the backdrop. gabriel will jump in with the michael mckee in the second, give us the backdrop on how it falls in the united states. it does not affect janet yellen it?hina does, does tracy: i think that is fair to say but we know janet yellen is keeping a close eye on the u.s. dollar relative to a whole host of other currencies. i'm sure figures in there somewhere. tom: we have a wonderful guest of poodles of experience. she speaks eight languages. she is like walking was at the stone. michael: may break get it to do some ukrainian. dondeictorino tech -- bibloitecca? that's all i learned. michael: he wants to know what

the library is. , you say there is such a debt overhang? >> the most important thing is how the risk has shifted from the sovereign side as it used to be in the late 1990's, now to the corporate side. what has happened since the crisis as the developed world was at the leveraging, after the 2000, that was in emerging markets actually started levering up, it was really since 2008. now that we are at the peak of the credit cycle, how is that deleveraging going to take place? michael: and they're loaded with dollars. gabriella: exactly. most of it is local currency, but there has been an increase in external debt, so u.s. dollar denominated debt. as we see currencies depreciate meaningfully, how would these companies going to be able to service the u.s. dollar debt? it becomes a lover difficult for them to do so. tracy: a lot of that emerging market dollar denominated debt has also made its way into the u.s. bond in the disease -- indices. ways?n what

tracy: things like the berkeley high yield index. if you look at the percentage of emerging markets and those of disease, it is shot up over the past five or six years. a lot of people think that the u.s. high yield index from barclays, they think it has nothing do with e.m. but there are dollar-denominated lines. the ways you saw this was currency movement. of the london desk, future is that you see currency adjustment as the only outcome 4 a.m. -- as em? gabriella: that is the first step but we need to see emergingl reform from markets comes up currency depreciation is a necessary first step. you had gotten currencies way overvalued over the past few years to where it was not sustainable, not compatible with actual domestic fundamentals and now you are seeing those excesses unwind. certainalthy to a

extent for emerging markets but what you need to see right now is a lot of more meaningful medium-term changes. tom: somebody asked me last night, what is the adjacency affected the collapse of result? what does it -- of brazil? what does it mean for other nations? risk, forthe brazil quite some time, has been interpreted mostly about not only the collapse in domestic prices, a lot of it is idiosyncratic domestic concerns specific to brazil, so what is comforting is the fact that the market is pricing in a lot more risk for brazil compared to its latin american peers, which you think is justified to the extent that so much of the domestic issues in brazil is specific to that country and is not shared by the likes of chile, mexico, colombia, peru which are in better structural shape when it comes -- and like michael: not a lot of contagion?

gabriella: exactly. even since the downgrade last gappers so, if you look at spreads, market risk of potential default, brazil has already been trading at elevated levels for couple of years now all the rest of latin america is much below level meaning the market is understanding that they are in a different position. limited contagion risk. michael: how afraid surely be of emerging markets overhanging as janet yellen and company get together? tracy: i think the problem with the story is intended to creep into areas of the market that you would not necessarily expect . we talk about dollar denominated funds, corporate em has been attacking cheap dollars for years now to load up on debt and leverage, but there are other ways that story has manifested itself as well. in china, we have a lot of corporate to it wrote in dollars and then invest in local currency assets and it sort of is a giant carry trade.

the problem is the dollar strengthened and the em currencies get weaker and all these things start to get pushed out of the system. it is difficult to engage how pervasive this is. tom: i agree, but very quickly, if i look at currency movement as the solution for any given em country, let's speak of brazil, i know that helps domestic manufactures, etc., etc. but what we are searching for is that we hear from bill rhodes from carl weinberger or from that matter christine lagarde in measured order the workout, whether it is europe or brazil. do you see those institutions in place to come to the aid of brazil when real hits for or 4.20? f: i would say they don't need that necessary external help whether it is or imf or whatever. what it really means is progress when it comes on the domestic tont, so when it comes

actual fiscal austerity and fixing the budget, that is what we think brazil needs, that domestic institutional reform and progress. not necessarily -- i would say that sometimes we hear the world bank and imf say that maybe the fed should lay off raising rates or little bit longer. that is not necessarily going to help result. what will help brazil is the institutional reform on the domestic side, whether the fed hikes or not is irrelevant in that perspective. michael: that raises the question, tracy, the best thing for the site is to rip the mandate. we're talking to jacobson earlier and to start deleveraging and get it underway. it might be painful -- tom: and that is the question of the last 48 hours. michael: after lehman brothers, where are we? tracy: absolutely. there was a question about if ledfed is becoming a market agency.

i went to. your attention to a blogger came up with an interesting point this morning and in the last 20 years, the fed has never tied with al qaeda and the futures market to a 70% chance of the way type. the fed and futures market to a 70% chance of hike. tom: the market is not there. that's all there is to it. tracy: the fed has experience of 1994 with the raised rates unexpectedly and sparked a huge bond sale and they don't want to repeat that. tom: people like ken rochus are not there. they are certainly not calling for one and done. michael: you have the economists on wall street suggesting that we aren't there and half of them think it will happen. i'm not sure it is 90-94. how fast they would raise rates was part of that. gabriella, tracy, thank you

so much as always. up 42 on the dow jones. and yields driving are two point 20% on a 10 year yield, 2.74 .74%. ♪

tom: good morning. the brazilian real healthy .85,

weaker after last night's big announcement. let's go to brendan greeley. are in the radio studio talking to gabriela santos a jpmorgan about the finance of brazil. result that will come up right now, we are going to go to juliet in sao paulo to talk about the politics of brazil. billions of dollars in cuts announced yesterday by joaquim levy in a press conference. julia, you are reading the morning papers, does rousseff's government have the strength to vy's reforms. julia: that is the biggest question. need to see how they will implement everything they announced. to be approved by congress and we're talking about a president that has a percent approval ratings, so a very, very fragile -- 8% approval

ratings, so a very, very fragile system and that is the big question. ramy: i have a question deeper into politics. after these proposals, and they go through the legislature, brazil opposition did not want the return of the banking transaction tax that happened in august and that is back on the table at 0.2% rate, will that survive and what else will survive? what do you think will not have the support? julia: that is the biggest question at this point. that was on the cover of every newspaper this morning. the leader of the lower house already said it is unlikely to go through. like you said, the government did circulate trying to revive that before the presented a budget deficit and it was met with so much rejection that they presented a budget with a $30 billion deficit. michael -- seem like theys were trying to do anything they could to get to some kind of primary budget surplus. tore are 7 billion in cuts

government wages, but then there was $20 billion in cuts to things that are incredibly important for development, sanitation, broadband rollout, why was it so hard to find cuts somewhere else that would not have affected development? in a tough spot right now because we are in such a deep recession. what they have been saying is they cannot really cut and this was a response s&p 500 which downgraded brazil to the lowest rate last week, so they have scrambled and had meetings all over the weekend to try and come up with something which the senate leader called better than nothing. [laughter] that's what they have at this point. brendan: is the legislators by theoo distracted carwash scandal to get anything done? been a bigas problem. a lot of big-name politicians are involved, both the leader of the senate and the lower house have been mentioned in the

probe, so that has eroded a lot of political support for rousseff and it is a distraction that keeps coming, every week something new, every day, we just do not know what will happen with that and how far it will go. the latest out of brazil. stay with bloomberg as we have account on to janet yellen's decision. that is at 2:00 p.m. on thursday and we will bring you insight and analysis on the fed all week . stay with bloomberg's "surveillance." ♪ ♪

tom: good morning. " on at's "surveillance bloomberg television, radio, and in new york city. lots to talk about, in particular in international relations. by llp, wrecks among the top grade forensic accounting firms in new york by the new york law journal for the fifth year in a row, visit mar x.com. we have been talking about the emerging markets of gabriela santos. global: she is a financial strategist for jpmorgan and we are talking about the impact of the fed on emerging markets and it was to be a case as you go back to john

conolly's old line about it is our dollar but your problem, if the fed moves, who blows up and to withstand the pressure? gabriela: we think the dollar is the fundamental transition mechanism of the fed raising rates to emerging markets. in the past, it has not always happened that the fed raises with the dollar, but it seems to be what we are seeing. we see risk on the corporate side, as we were talking about, so it is much more perhaps the companies that have local revenue and have the need to service all of that u.s. dollar external debt that they piled on over the past few years. we are more concerned on the company by company basis, especially as you get into the high-yield emerging-market companies that may be finding it hard to service debt but it has shifted to the sovereign side to the corporate side. not 1997, 1998s but for individual companies a good? cabriolet: exactly and the question is how systemic are those companies to the

particular local economies? tom: i don't want to catch you blind come up when you see intonation and turkish lira just every day unlawful, is that discrete to those countries or does it have systemic effects? cabriolet: we are more concerned about the em countries that have piled on a lot of private credit and those tend to be a lot of emerging asian countries comes of indonesia is one of them but also malaysia, thailand, korea, taiwan. tom: korea you would put in that group? gabriela: korea as well. you have the percentage credit of gdp china, surprisingly. it is a lot of emerging asia which concerns us in terms of private credit buildup. aboutl: to even talk africa in this conversation on debate so far behind it will not matter? gabriela: we talk about south africa and south africa does tend to be considered one of the more vulnerable emerging countries.

in has developed quite a large current account deficit, so it does need a lot of that point in float to continuing finance and their growth. south africa does factor in quite prominently. tom: thank you so much for joining today. i've got good news and bad news. he is out of is the hospital and the bad news is he had the strength to show up today. we would usually start with important sec matters and jeb bush is next plan in that, but arthur, i do think it is finally important to go back to november 19, 1978 which is when the quarterback named joe pulled off what we observed sunday with the new york football giants. explain to our global audience how unique that opening game was for the giants. arthur: the giant bonehead aired on the part of the coach and quarterback and it was

absolutely incredibly where with the clock running out. if eli manning had merely sat eat up theprayer to clock, the giants would have won. tom: you take it back to a dirty a perspective, back to joke a sergeant. arthur: joe will rest in the mind giant followers forever. do this job to the who and he fumbled to larry scored a touchdown in the giants lost. forget it. that is history. today, it is eli manning the dense. michael: that is the great thing about a team that has been around forever, tradition. of tradition in

time, but seven years, arthur, since lehman brothers collapsed and set us on this path we're talking about now. do you think it was a mistake to let them go? arthur: yes. i do think it was with the perspective of seven years forward. unfortunately, we do not have that perspective at the time of the incident. would that have avoided the collapse that we suffered? i don't think so. i think that was coming anyway. it may not have happened the day after lehman brothers, but it would have happened. of what hasterms happened since then, we talked with steve j consent of sack so bank earlier and he makes the point that we did not get enough deleveraging of the great recession. the central banks intervened too

much to prop up economies and that we are going to pay for it now and one reason we cannot get growth. arthur: i don't think so. i think at that point in time, decisions were made on a moment by moment basis. and that action was taken to avoid the catastrophic meltdown which we did avoid. whether excesses, probably. did they did the right thing? , think, god, we had people in the position of taking risk at that point. the secretary of the treasury, of course, in that regard. tom: only to be clear that this was not on your watch, back in 2004, simon johnson writing this up nicely, the sec allowed companies to take on more upon lehman brothers on the leverage that did them in. seven years on, arthur levitt, is the suitable solution less leverage -- is the simple

solution less leverage? in the number of critics in washington and around the nation, is just too much leverage for people who always gets caught on the wrong side of the train? arthur: i don't think so. i think it depends upon a particular point in time and ability to adjust leverage. too much leverage at one point in time clearly is the case and at another, it might be too little leverage, so there is no formula that you can answer to how much leverage. i think leverage and to do away with all leverage would be an economic catastrophe and a mistake. michael: let me ask about that just a point tracy was making about what larry summers said today about how the fed has always guided the markets. guided the futures market to at least the 70% certainty that we will have a great move. in this case, there is not that built in. our markets that vulnerable that

onthe fed should move thursday, we are going to see any kind of violent reaction? arthur: i don't think so. i think this has been discounted and discounted and discounted. with a be a momentary reaction? probably, but i think in terms of looking for a two day or a five day period of time, this will be a non-event. how many times can you predict a rate rise and not have it resonate? some momentary action, but in terms of long-term implications, i would completely discount that. left,e have 10 seconds falcons. [laughter] the giants have to regain their start stride. all we are getting e-mails

over the world about the giants. arthur levitt, thank you so much. and formerce" chairman of the securities, and giant chairman. we have a lot of fun. on brady and television worldwide, we love to bust arthur's chops. it is a lot of fun. mike mckee never gets busting chops. michael: he would never do that. what an interesting show it has been today. we say thank you to our guests. it was really quite interesting and carol on bloomberg radio will move things forward. i know on bloomberg television coming up asng" well. the dow jones up 54 points and 23 .52. the 10 year yield is higher yields, the theme this 1, 2 .21%

and the janet yellen vocus on .7419. we are produced by richard truman, justin lowe, and boating, good morning. ♪

>> welcome to "bloomberg market day." to the fed meeting continues. we will see how nervous it makes

the markets. pope francis has been critical of capitalism but some on wall street hope to win him over when week.its the u.s. next high and stores had been down in the dumps, but product earnings could upper sides of a luxury rebound. earnings could offer sides of the luxury rebound. scarlet: good morning. i am scarlet fu and we are 30 minutes into the start of the u.s. trading day with stocks rising in the early going chair with seven out of 10 industry groups by a by energy shares up right better than 1%. you can see that in europe. stocks recovered from early losses but asia closed down sadly, up right .3 of 1%. treasuries, prices falling and results in higher yields. all of this coming before