>> britain signals deflation for the first time -- second time -- janet yellen confronts lower for longer forever. sab miller is being bought and the u.s. banker may take the top job. good morning, this is bloomberg surveillance, live from london. i'm here with tom keene.

+++ >> pretty bad. imf world bank, not many phones. -- not many planes. tom: we have news right now, this does continue on, we are now indicating challenges. german confidence is actually very very low. emerging markets and also because of the influence that russia is having in the middle east. expecting 6.5. tom: you see that in futures as well. you see it in yields.

breaking also getting news from volkswagen, so they are progressing $1 billion a year. tom: vonnie quinn is in new york. vonnie: good morning. there has never been anything like this in the brewing industry. sab miller is being bought by ab inbev. one out of every three beers sold will come from one company. in china, imports are now on the longest losing streak, they fell for the 11th month in a row. plus, domestic demand in china has been falling. there are reports that russia's embassy has been hit by fire.

a russian news agency says there was damage but no injury. there is report of russian military action in syria. a newrland is imposing leverage ratio on the company's biggest bank. they will have to have capital equal to 5% of total assets. has easier terms. berkeley is searching for the ceo and it has led to another u.s. investment banker. former jpmorgan banker jeff isly is now -- just daily now favored to be the ceo. back to you in london. tom: thank you. let's look at equities bonds. we have seen a major change here in the markets this morning. -11, -10.e

seen a jump on interest rates in the last two days. doing an american data check in london, that is strange. churning, your is see it much more in the red, but showing the euro-dollar 1.13. we are the correlation of some fix --allenges with the vi yesterday in the u.s., we sawx. oil give way. it is now $50 a barrel. there is so much to catch up on here. most of the markets are links to economic eight. >> this means two things. it you willbly,

probably have to wait to raise interest rates, and it also means that the u.k. is not growing as we thought it was. tom: we do need to speak to a guest who is better than good on economic growth. better than good on economic inflation. he won the nobel prize for humility. [laughter] >> let's bringing the expert of a professor and welcome christopher p cerritos -- christopher is a rights. it is still unclear as to whether this is brought in by energy or whether this is something more worrying that is underlined the fact that we haven't had inflation. to worryer: i used

about inflation, but i'm not really worried about it anymore. it is lower than the target rates, i think that is what the central banks should try to get to, 2%, sooner than they are doing now, especially the european bank. generally, they don't seem concerned. -- they needtion burdening with responsibilities and bring it over to government. while robert spoke about this years ago at the london school of economics. where is the will for some form of constructed stimulus? way, we are in a worse than that. had we had done it six months ago or a year ago, i would say

we did need stimulus, but the central bank works hard and pushed as much as they could, it as much as they should have done, but they didn't. so now we are in a position with mostloyment with industrial countries in the world that we shouldn't push it anymore now. let me bring up a chart on u.k. inflation. let's show the rate of change. it is down below the zero level going back to 1988. this makes david blanchflower look good. it makes a lot of economists who are not inflation-istas look good. this may be the wake-up call, right?

when you look at growth and you look at the markets, there were some of the markets that were third checks in terms of balances, and because of all this qe the market hasn't been at this third check. so maybe when you look at the lack of inflation, it means the government needs to do something more. christopher: whether we like it or not, markets will be rising tightly. talk whenduring this suddenly government came in and they're losing policy, there will be confusion in the market. we don't know if this is a trend to yet, i doubt it is a trend. management versus pushing the economy quickly. expectations,age

within the economic model that you and many others use, is that model broken? do we have to go to a different equation or reaction function to jumpstart what society wants? christopher: i wouldn't say the model is broken. the model does need to be extended to bring in more emerging markets, they have become much more important than they used to be. two financial factors, which we learned at the last -- tom: we learned a lot about the financial factors in the model. do you know where the risk-free rate is right now? francine: is there a risk-free

rate? at the moment? news is that the u.s. treasury is positive this morning. are you concerned about a policy mistake? we do see so much risk out here and the imf -- people were nervous. policyre nervous about mistakes and emerging markets, a lot of debt issued to china that we don't know what it will become, what makes you nervous? i am nervous about policy mistakes, i'm saying that is maybe why it is time to lose the policy now. that our economy, especially in the u.s. and the couldour economy stabilize close to zero inflation, qe and unemployment

rates are high, let's wait. in the european central bank, i would continue qe. three hoursd spend with this professor, but let's go back to oil and the animal spirit of the moment. we have a wonderful surveillance for you today. theing us in a moment is chief strategist stephanie flanders. and david folkerts-landau is with us later. from lender with -- from london with vonnie quinn. this is bloomberg surveillance. ♪

tom: i am trying to stay abreast of what is going on in new york. all i know is that mr. utley state in the dugout last night. of course the grievous injury to the shortstop is galvanizing new york. vonnie quinn is there with the business flash. debt indell will add to order to take over emc. as part of $867 billion agreement, they will put in $3 billion in equity, and management will put in $1 billion. another sign of a slowdown in china. since 2012.ate the chinese government has caught a tax on car purchases to

revive the market. anheuser-busch in bath has agreed to buy sab miller. they rejected several earlier offers. one out of every three beers sold globally will come from one company. francine, back to you in london. welcome andrew holland. great to have you on the program. when you look at this deal, this does make sense. did they overpay for it? andrew: i don't think they did, no. i think most of us who have been writing about this have been 43-45 pounds as the likely share, and we have come in at 44 pounds. that is a reasonable price. it goes to regulatory

and shareholders, it looks like shareholders are on board. regulation? you have to big antitrust issues in the u.s. and china. there is a mechanism which will sort that out, which will enable course to enable control for the jb, they are the only realistic buyer of that. out, ies sort itself make it sound easy but it i'm sure will be reasonably straightforward. how, at a premium, is this transaction? we estimated it down at 17.2. a staple or discretionary item? andrew: it is a staple.

[laughter] tom: most consumers would agree. range: we have had a wide , the deals between 15 and 17 times, those have been emerging market overly deals, so thinking about mexico. tom: i just don't get it. that is the big regulator he issue. you will not have budweiser miller in the same portfolio. course -- too to coors. tom: what are your favorite beers? christopher: not those. something with more punch. thinking this go

sour. christopher: a real ale from a good english pub. if you go back to the debt is huge, it could be as high as $70 billion. andrew: yes, it is. the banks love lending to this industry. , it allins are high stacks up. tom: it is a slow in rate debt? is that going to kill them down the road? andrew: probably not. i think initially it will be a with whatthen judging happened with anheuser-busch in 2008-2009, they will be looking to refinance. that weld you advise

have to make this to survive, i might being too cynical? the executives in this will make themselves very wealthy. we saw this earlier, we just have combinations. he is speechless. francine: what tom is trying to -- but we are m&a not sure it is for the right reasons. should we be worried that we have big groups coming together at this time when we may see higher interest rates? you should worry about the macro environment and , more of theeneral corporate moves without worrying

about -- you should be looking beyond the short-term. christopher pissarides, thank you so much. and andrew holland on the beer transaction of the moment. boggle the mind. tomorrow, one of the great optimists will join us. he has been a persistent euro optimist. he does reassert that in his weekend note. from london in new york, this is bloomberg surveillance. ♪

francine: welcome back, this is and iterg surveillance" is time for the morning must-read. tom: we have a very special guest next hour and we have the nobel laureate christopher pissarides with us now. this is from julie folkers lend out. from david folkerts-landau. he will be with us in the next hour. ors crisis could be smooth it could be associated with three current financial crisis is. during this transition, the

magnitude of net capital outflows from the periphery will continue to depress real interest rates in industrial countries at every phrase of the business cycle. that is talking about money flowing out and importing deflation into the economy. we have seen that space and by chance we are having david folkerts-landau with us today with the morning must-read, by chance. looks -- theit fact that they have been part of the imf, they think they are growth, they are convening conferences, they do talk about it. it shows they do want to get closer to the core of financial

services. however, there is a lot of work to be done in china. ,t is controlled by the state most of them are state they are building and getting huge portfolios. all of those things -- tom: let's continue this discussion with christopher pissarides coming up in the next hour. coming up we will have david folkerts-landau with us. this is a rare moment. we are glad to have him. stay with us from london. ♪

francine: this is "bloomberg surveillance," iamb here with tom keene. let's get to vonnie quinn in new york. record we do have a

breaking deal in the beer industry. ab inbev has agreed to buy sab $106 billion. sab miller projected several earlier offers from ab inbev. hillary clinton faces off against another democratic contender tonight. she will be center stage in las vegas where cnn will hold the debate. face off against bernie sanders, three others will be looking for a breakout moment. webb andmalley, jim lincoln chafee. debate,contentious nearly two thirds of those -- iranvoted for supreme leaders says the leaders.is up to

-- protests are spreading across turkey after the bombings. security measures were inadequate. the original death toll was 100, but it could rise. turkey will hold parliamentary elections in three weeks. back to you in london. tom: we see the markets move a little bit, i noticed the real correlation is only in the interest rate market. and five basis points from the joy of the past couple of days. francine: mario draghi has really been saying -- we don't need that at all. tom: here is what you need to about our next guest. she survived being a speechwriter for lawrence summers. wrotenie flanders

verbiage for the resident of harvard, she has moved on to an acclaimed career in his this jpmorgan,is now with she is a chief strategist -- but there it is. the u.k. data. for someone like me to see negative inflation is a wow moment. what is the significance of what we have observed this morning. stephanie: it tells us that we have been around zero for several months, just as we have in the states. us that the emerging market worries and the falling commodity prices over the last few months, it has had an effect on global inflation. it is pushing down inflation. deflation ining the u.k.. what is interesting, and you will have noticed this, it is the contrast between the

domestic pricing in the u.k. versus the u.s.. be u.k. looks like it may the only country in this crisis that has managed to generate some of its own deflationary pressure. nothing too dramatic, but sharper than we have seen in the u.s., and that is something to look at. fuel is down. closing prices were also down. the service sector was up a touch. what does that mean, are we thinking at the middle of next year? or does it push back behind even further? stephanie: we did have a long time when we did have above they lookedtion, through that and it was helpful in some ways for the u.k. to have some inflation in the post crisis time. now we have the opposite when we whenve some domestic --

wages are picking up at the same time when we are importing disinflation. they will want to look through it. is coming with growth productivity at last, so we could argue that if you have labor costs for companies not going up, that gives a little bit more room. background, -- of jpmorgan, mike you for only suggest that this could lead to a new interest rate, does that order on -- we are at 2%. stephanie: that is one of the key things that the u.k. with some extra growth, they have to theed growth similar u.s.. we do have more inflation in the growth. people might worry about the

eurozone. because they have low nominal gdp. tom: there is no street i have laston in the u.k. in the three days that isn't a construction street. francine: you are right, but a lot of the time that is because the work has been delayed. tom: from the 14th century? [laughter] overall, there is a lot of foreign money coming into this. rest just london with the of the u.k. flat on its back? stephanie: if you look at delayed market growth in liverpool and manchester, we did talk about the north powerhouse, but there is a feeling of greater optimism in other parts of the u.k., not everywhere. i do see commercial property can't who now think you make money in london because the market has gone up so much, going to shopping centers in

yorkshire and things like that. francine: should the bank of england look through? christopher: i think so. the worst thing would be to raise rates and then realized it was a mistake. i think they should wait and i what with stephanie that should worry them more is what is happening with wages. but productivity is back, that is good news. christopher: it has been doing small wiggles in the u.k. for the last seven years. it may be down next month. we have to wait and see. productivity hasn't really risen at all since 2008. tom: we make the statement that banker ofen is the the world. do you see any correlation of the interest rate?

stephanie: remember, he tried to have socialism in one country. could make a stronger case in the u.k. for a year,ise going into next i think a world in which the fed has put off having a rate rise -- if we were there next year, it would be hard for the u.k. to go at that alone. the bank of japan might be loosening more. what we saw in lima is that your former employer saw stagnation. i'm sorry, but the data doesn't show that, but they do tend towards -- we do see central bank governors or finance ministers, a lot of them are saying that it will be painful but they do want the interest rate hike to happen. stephanie: a lot of them are saying it is hanging over us,

and they want us to go for it. but you make a good point that not a single central market bank has managed to make a rate hike stick since 2011. , theoyal bank of australia royal bank of canada, none of managed to raise rates and not reverse themselves. that is a heavy burden. tom: stephanie flanders is with us and christopher pissarides as well. week, thisater this is 6:00 new york time. to talk about the overlays in economic and financial system. vonnie quinn is in new york. this is "bloomberg surveillance." ♪

francine: this is "bloomberg surveillance," iamb here with tom keene. the pound is at the weakest level since may. deflation is under 0%. tom: this is stunning data this morning. francine: what does it mean for the bank of england? delay, delay, delay. we have two main stories. and leverage ratios in switzerland. >> yes, they are two separate stories speaking to the same thing. we have a regulator that doesn't want a repeat of dealing out

barclays, wen at have a bank with an identity crisis. what do we look like and what kind of person do we need to lead the bank? it looks like they may have found their man. francine: they are looking at a former investment banker from jpmorgan. guy, andhad a retail they said he couldn't do the job he goes he doesn't do investment banking. >> is maybe a lot more about mood and culture. turned off bye where you came from and what he did, but you had another guy who tried to change the culture. at the very top of the bank at our clays, i spoke to john mcfarlane the day he was fired and he wanted someone quicker and more aggressive. taley.at guy may be jes s tom: buried in this is a market

move. you drink the under the table at a local pub. >> apple juice. -- up forore has sale. this is a fire sale. >> you have to think about this. they are traitors. they sold their company at the top of the market. assets of whatll could be at the bottom of the market. tom: they have got to be going, it is our time. >> there are a lot of people who say that -- tom: i was pretending to be jon ferro and say, folks, what you everyonew is that -- is saying, $20 a ton for copper. mean ton say ton they

ne. >> the camera men are offended. they are having a london metals exchange thing. is the gloomiest week since the financial crisis. i think a lot of people would say that. francine: we did have a couple of names for people who were interested. there are people interested. assets,u want to buy you take a multi-globe -- at some point, they are going to grow. if you want to buy assets, this is the best time, they are cheap now. francine: it all goes down to -- a lot of people think they are in the position to expand, so now is the best time to do it. it is the worst time to be static. tom: is that your furry in the parking lot? to get me in ag

lot of trouble. [laughter] or its 20, we are in trouble. you so much, greatly appreciated. nextine: coming up in the hour, hans redeker joins us. surveillance"berg streaming on bloomberg television. ♪

tom: good morning everyone, this is "bloomberg surveillance", i am here with francine and vonnie quinn. this is our business flash. vonnie: hedge fund manager is heading for the exit -- they will tell clients that it is liquidating. the fund is down 17% this year. clients have been fleeing.

u.s. homebuilders are being hurt by a shortage of construction workers. residential building is now at the highest level in eight years. 700,000e are almost construction workers fewer to handle the load. and it is the end of an era at playboy. they will stop publishing pictures of naked women. these circulation was at 6 million in 1975, it is now at 800,000. questionasking the the if you take out nudity, it will cost less. media andto digital the battles i have at home over all of this stuff -- vonnie: do we really want to hear about this stuff? [laughter] tom: the internet has leveled everything. back home we were out behind -- garage -- i have nowhere to go.

the hr line is flashing up top. circulation for playboy has dropped to 800,000. they had to do something. less nudity. tom: it was a few years ago. francine: i think we should get the markets. tom: vonnie quinn, thank you so much. we have embarrassed tom keene. back to our guest, stephanie flanders, she is the chief market strategist and professor christopher pissarides. stephanie, let's start off with you. off tof the discussion the sidelines was about saudi arabia.

andil continues to drop, you look at the budget in saudi arabia, this is a possible hotspot in the markets? you are seeing this across the world. countries are grappling with whether this is a new paradigm for energy and what the implication is. we are going to see prices more around this level versus the $100 per barrel that we did see. i think we probably wouldn't focus so much on saudi arabia. i would say this is a global situation. we are reaching be like at the end of the tunnel, are we starting to see the end of the price fall. he would always expect to see the demand response to the fall in the oil price to take a while. so you didn't see the consumption in the u.s. immediately jump that. citizen, youu.s.

are happy you are spending less on gas, but are you suddenly going to drive further? but you do, next time you buy a car, you do get back to a gas guzzling truck. auto sales have never been higher than in the last few months. globally, if you apply that idea, there will be a response that we have seen by buyers. in saudi arabia, you think you have to ride this through. tom: professor, i was quite taken about how you place oil front and center. why is that? christopher: because of the impact that it has on emerging markets. , it produces and also because, i don't think the problem is the oversupply from the countries in the middle east. i think it is the unconventional sources of oil. -- the move shale

towards more environment that is sources, exceeding the prices of oil. 60, because that is the price of extracting it. , even beforeosts you do the investments, it costs even less. so $60 might be optimistic. tom: that is a stunning number. if we can't get there, how does that adjust the oil economy? is, the production has to come down with a vengeance. stephanie: we have seen that to some degree. but if you go back to the 1980's 1990's,od part of the this is not something, the

,upply side is unprecedented but as a price level, it is not something that if it starts going well below where we are start to say, this is fundamentally changing. but this is not the level. francine: in the past, we had oil sharks. too low, investment comes back so sharply, then we are not extracting stuff out of the ground. is there a concern that it then shoots back up to $100? stephanie: it is deeply typical. -- deeply cyclical. you could see over extended movement in one direction and then the other. christopher is talking about -- in thewant to show here final moments that we have, economic growth.

proxy, -- is. as a in a gradual decline. can it go further? where we are going with nominal gdp, it is not a good outcome. it hasn't been good. i think it will get better, but much more slowly. essentially, the economy growth is driven by consumption spending. tom: a moment of joy there. christopher: exactly. you need more confidence with that. eventually, you need more technology. but we are talking about the price of oil not having much impact in the united states. it does have an impact on consumption, and that is why we are seeing growth in the united states. they are spending on other

things, not oil. it is going to come back to growth, but we are not going to see the interest rates -- tom: which goes back to the terminal value. thank you so much, stephanie flanders and christopher pissarides with the london school of economics. we will continue the coverage deflationthe rise of in the united kingdom. david folkerts-landau will be with us in the next hour. we are in london with bloomberg surveillance." ♪

tom: britain signals deflation for only the second time since

1960. yellen --ruggie, and hi, and yellen. beer is profitable. dell takes on texas sized debt. they were decades up front on your financial crisis. in this hour, the conversation with david folkerts-landau. this is "bloomberg surveillance ," live from our headquarters in london. it is tuesday, october 13. i am tom keene, with francine lacqua. francine: great to have you. tom: inflation or lack of inflation, the story this morning is truly historic. francine: they cannot get this policy wrong.

tom: there is a raging debate about the future of britain in europe. economics folds into that debate. francine: i hope to get our guest host to answer that. greathis is going to be a hour. right now we need to get to the first word to ask bloomberg in new york. vonnie: adrian beltre's its bid abn death must pay -- a.b. in the -- china's slowdown are in their deepest slumps for six years. -- isic demand is to dropping. import prices did weigh on the data. -- switzerland is

imposing a new leverage ratio on its biggest banks. bloomberg news is reporting the major swiss banks must hold 5% of assets. credit suisse and ubs are on easier terms. the u.s. has similar requirements. barclays search for a ceo leads to another american investment banker. just baileyws says is the leading candidate. last american to run the british bank, robert diamond, resigned resigned under pressure three years ago. tom: it is interesting, off yesterday's oil move. euro-dollar gets my attention with a 1.13.

nowhere near the parity call that has embarrassed. crude -- andnd brent crude down there it equities do not play. they have not correlated with interest rates for the last few days. the vix under the 20 average. the dow not near 18,000, but we will take it. and you might notice, francine, dollar renminbi, it is a stronger renminbi. they continue to manipulate off that evaluation. francine: we are definitely in a risk-off move. every day where worrying about china. it is a tricky time to be a trader because you are in a risk-on, risk-off mood. fund shutting

down shows you how difficult it is to manipulate. francine: that is one of our -- tom: the chinese renminbi going back 10 years, sets up right now our esteemed guest. we are thrilled to bring you this morning david folkerts-landau, the global economist at deutsche bank. that barely scratched his ability to carve out the egos of deutsche bank investment research as he has done over the years. i want to go back this morning to a quiet speech in the basement of our headquarters here a good nine years ago, when thomas mayer stood up. it is shocking to look back at how accurate thomas mayer was over the challenges of europe. what did your team, thomas mayer, mr. hooper, see that gekko this quieting of g -- see then?

this quieting of gdp? david: thanks, tom, pleasure to be here. we devoted significant resources to the call. our view, together with some of the american academics, was that the eurozone would have a hard time sustaining itself unless you saw a convergence of fiscal policy, and more importantly competitiveness. we had one country that we saw was doing very well with the 2010 reforms coming in. that would create a lot of tension inside, and we could not quite see how that would get resolved. , but then skeptical what we did not see that made it worse was the massive accumulation of foreign debt. can you say it has cleared?

david: it has not. the problem is still there. one of our most important calls was that during the intense crisis we decided that it was going to hold together, not on economic grounds but on political grounds. it was clear to me, talking to people in berlin and elsewhere, there was the political will. tom: it is so important to hear the same from axel weber of the political will to keep the experiment together. david: from an economic point of view, purely from an economic point of view, it does not make that much sense. it is a political issue. the decision has been made, which we must respect and support. but the economics of it are very difficult.

francine: they are trying to make this great financial experiment work, and i guess my concern is currency. because we're talking about this euro is risk-off mode, the only one that is rising exactly at a time when the ecb keeps saying they can do more qe. this is dangerous. i am actually less concerned about that. that is a temporary phenomenon. i am much more concerned about the reforms they should have the reforms that should have been made have not been made. spain has gone through with some reforms. david: and portugal has, too, and so has greece. tension is there, and the contradiction is that when you have a central bank the bears all the burdens -- you have been way out front

with this need for financial restructuring. which institution leads provides -- besides chancellor merkel? david: the convention has been made -- the conviction has been made that there is a hidden sort of way of pushing it out. that would be expensive. probably as much as 5000 euros, but it will be done. the decision has been made to hold it together, and that they will do. but i would think you would take in terms of decades to get the political conversion in order to be able to make proper decisions on fiscal policy and things like that. it would be very expensive to get there. tom: what do you see in terms of the political party?

francine: we're talking about the probable timeline. the markets are going one way, qe is going one way. matteo renzi has done more reforms in the last 18 months then we have had in the last 20 years. reforms, especially if they are structural, take a long time. and we need to get used to it and push through but without expecting too much. david: you have to be very careful when you talk about reforms. the roof government on the ground. if you take a taxi in rome, you see the same restrictions as to who can get an medallion and a price charge -- reforms are easy to talk about, but it is very hard to get down in actual regulations that work. tom: i came over -- it was great. i came over on economy out on the wing. when you look at the currency

market. mohamed el-erian suggests that we would have to have some sort of separate currency of some form for greece. do you agree that they have to have a currency regime that allows them to move on? david: i strongly disagree. i believe the european elite, the european governments have implicitly made the decision to support greece to write down their debt, and that overtime they will come up with further transfer payments to make it work. tom: david folkerts-landau is this hour. coming up, from morgan stanley, hans redeker will joins us -- will join us. somebody people for looking for euro parity. it has not happened. francine lacqua and tom keene. we are in london. vonnie quinn is in new york. mrs. bloomberg surveillance. good morning. ♪

tom: good morning, everyone. "bloomberg surveillance," from london, and a beautiful new york city this morning. here is vonnie quinn from new york. vonnie: taking on $50 billion more in debt to take over dnc. money to takein over the data company. the deal is worth $67 billion. chinese economic slowdown is affecting car shoppers. auto sales have risen at the slowest rate since 2012. they are off about 6%. the government tried to boost sales by putting a tax on car purchases.

it is miller time for anheuser-busch inbev. they have agreed to buy sab miller. a.b.inbev must pay if regulators stop the deal. tom: very good. thank you so much. right now the single best chart. this is a great chart to do. david folkerts-landau -- this is body of research that has become iconic with the international economics. dooley, david folkerts-landau, and garber nailed it. the optimists were flat out wrong and we have enjoyed the outcome in the conundrum of negative interest rates. in the blinders to expert. -- in the blinders textbook.

it would focus landau, were you surprised to see the drive below zero? david: not really. though when you actually see it, the answer is yes. ughs]cine la tom: there is a negative force of inertial interest rates that has about outcome -- the has a bad outcome. david: but not as fundamentally bad as commentators make it out to be. i believe it is temporary, that growth will pick up, and over the next years we will see to it that interest rates, nominal rates will rise and real rates will become positive again. but it puts very much the question on the table for the fed decision to postpone rates this long was the right one.

there is such strong negative impact that they should have gone earlier and not worry too much about how close we were. that is what we take away from that. to that point, mario draghi keeps saying that they can adjust the size and the composition of the qe program, but our markets -- but our markets taking it seriously ec?o david: he has the power to lower the composite rate from -20 two -50. he has the power to do all of that. we do take it very seriously. you make a mistake if you do not take the central bank seriously. tom: what is so important about deutsche bank economics is the herding of cats that you have done. when you talk about the tensions within your confidence call,

where is that debate? -- i: we have had a view was recruited from the imf. if you get the actual story right in broad outlines, the market strategy will follow. you have to have a view as to where the world is going, where monetary policy is going. if you get that basically right, the rest will follow. tom: is bill gross correct that financial repression, the correction is five or 10 years long? david: i do. francine: i was at the imf bank meetings in lima, and people were saying i do not know why we are so obsessed with the month at where the fed will hike rates. we are in a spin, and is it counterproductive to get the macroeconomics right? david: when you ask around about investing,why argue the answer is not because demand is not there.

the answer is very much because of the uncertainty. you have this constant charity that you have this constant chatter. -- you have this constant chatter. buiteritically, willem says stay here, where the fed is, where the boe is, and do not raise rates until you see growth. others say make one interest rate move and say you are going to get there. david: i disagree with phil about her. to say that is fundamentally wrong. tom: should they raise the rates in december than? david: they should have raised it already. central banks make mistakes. if you go back to 1925, back

with the gold standard, a huge mistake. we should not be afraid to say that central banks make mistakes. this has been a fundamental mistake. they should have gone significantly before to remove the uncertainty, to allow capex to develop. tom: when do we see dooley, folkerts-landau publishing at? francine: we need a year. david: not so soon. tom: coming up in the next hour, important conversation with someone who is part of the fabric of american politics three john taft will join us. he will speak about the investing public at this time of zero bounds. stay with us. this is "bloomberg surveillance ." good morning. ♪

tom: good tuesday morning, everyone. from london and from new york. looking at the markets that moved abruptly off british inflation or non-inflation data. by now features negative eight, we are -12. native 10 on the s&p futures. a celebratory morning must-read. here is vonnie quinn in new york. : reprinted in project syndicate today, it was in project syndicate from 2013 when he brought how this book. his argument is that rich

nations should maybe stop helping poor nations with aid and do other things to make global progress work. he writes -- vonnie: he is suggesting free-trade and incentives for , but not giving a percentage of your budget to the work. tom: i'm glad you brought that up this morning. david voelker -- david folkerts-landau is with us this morning. the angus deaton morning must-read is on the state of capitalism. what is that state given the new

low rate regime we are in right now? david: capitalism by and large is healthy. now and going forward. but there are some issues, and income distribution is an issue. we have seen worsening of the numbers, but it is very hard to find the right kind of measures to deal with that without introducing tremendous distortions. the analysis we have seen of it is fundamentally flawed. whatit does forget is that is reported in capitalist economies most is risk-taking. risk-taking in terms of startups, in terms of other things. tom: i don't know how you get to risk-taking with no risk-free rate. vonnie: we spoke to -- we spoke to christine

lagarde last week. when asked what she would do to help over companies -- to help poorer countries is to include, not exclude, and educate girls. tom: the idea is the animal spirit of nominal gdp. what is nominal gdp in the united kingdom right now? ?hree francine: know, two and something. back -- david: and you look at what happened in the poorer countries, supporting the regime and policy that has not worked very well. tom: eric nielsen later this week. "bloomberg surveillanc♪

i just had a horrible nightmare. my company's entire network went down, and i was home in bed, unaware. but that would never happen. comcast business monitors my company's network 24 hours a day and calls and e-mails me if something, like this scary storm, takes it offline. so i can rest easy. what. you don't have a desk bed? don't be left in the dark. get proactive alerts 24/7. comcast business. built for business. tom: good morning, everyone. pickmberg surveillance p o up here is vonnie quinn. vonnie: it is a record-breaking

deal. anheuser-busch inbev has agreed to buy sab miller for 106 billion dollars. previous offers were turned down. the combined company would produce one beer out of every three sold worldwide. the deal must be okayed by regulators. hillary clinton will face bernie sanders and her other rivals for the first time tonight. the democratic presidential s will face off in las vegas. they will be joined by martin o'malley and jim webb and lincoln chafee. cnn. airing on iran's parliament passed the nuclear deal with the west after a contentious debate and newly nto thirds of those prese voted for it. iran's supreme leader says the decision is up to parliament. those are the latest headlines. tom, back to you in london. tom: david folkerts-landau is with us from deutsche bank.

to be kind, he is the head of economic research, including having michael spencer in asia. in now david folkerts-landau china. does china have the institutions to work through the always, ever-present, trilemma that is out there. david: the facilitation of the pboc is extraordinary. definitely on par with some of the central banks i see around europe. from that point of view, policies very much carefully thought through. tom: everybody has been wrong on hard landing for years. of the seen devaluation headlines, depreciation, and the need for appreciation. what does china signal with the

you want? david: that is a temporary thing. over the long term, the currency will have to appreciate further slowly, and the reason is every industrialist who has made 50 million in his backyard producing gadgets, he wants that to be located outside china. flow is going to produce continued downward pressure on the r&b. -- on the r&d. there are regulations and rules to moderate that. the longer-term pressure is down. francine: the question is whether the pboc can handle what is happening. what i worry about is default, bad loans, and whether there is a credit crunch. tom: this is a question that has been -- david: it is a question that has been put to us since 2001.

the story was, having enough rules in play, the foreign exchange markets stabilized, and they do. the same applies now. they have the tools, they can moderate the liberalization of the financial sector and do with the shadow bank system, and they can moderate -- ableine: if they have been to do this since 2001, why have we seen bad loans increase? we have better reporting. a grossrted number is underestimation. it is more like 14% or 15%, but it is still very doable. tom: if i look at the dysfunction that is out there bank. stephen roach wrote about this. -- the way the united states and china are

linked together is in a harmful way. should americans fear and emergent china? david: i don't think so. we buy their goods and they by our t-bills. that is going to go on for a while. it is strongly interdependent on the geopolitical side. you have a new country emerging on the global scene. you cannot say that we do not want you here, so you have to give them more space and more room. that can be worked out. francine: will it be worked out in a sustainable manner? tom: neil ferguson was with us in our previous hour with his wonderful book on kissinger. francine: and when the president comes to the u.s., he still only wants to speak to kissinger. we need a better statesman. david: can it be worked out? one would hope so.

tom: you are leaving us in one minute. i want to bringing this back to a european discussion without speaking specifically about the challenges at deutsche bank. do we clear the european banking system? we have seen it in the u.s., less so in europe. david: europe has an additional problem. there is a significant amount of regulatory zeal going on, the rules that we have to play by. the first thing should be to re-examine some of that and to think in terms of the speed at which things are being implemented. and the capital requirements. they are all good things by themselves, but they are something that has to be moderated. that is an important thing. as i said earlier, the difficulty with having a banking system the way it is in europe, the poses for growth, is quite

substantial. saying,handlers are tom, get him off the set. david folkerts-landau is going on to his next meeting. francine: it was great. stanley., morgan hans record joins us. this is "bloomberg surveillance ," airing on your tv, your phone, and bloomberg.com. we are back in two minutes. ♪

tom: good morning, everyone. "bloomberg surveillance."

tom keene and francine lacqua in london, vonnie quinn in new york. we look at the economics of the day. hans redeker joins us. i want to get right to the idea that everyone was wrong on euro. there was not a consensus, but many people falling for parity a number of months ago. that has been turned on its head in the last number of days. what is your euro call 12 months out? hans: as the long-term outlook for the euro is still the bearish one, i think about the time sequence. you need to know what is driving the market right now. what we are looking at is the ability of europe to export capital. verye seen that being a big theme in the fourth quarter and the first quarter of this year. 1.05.raws the euro out to current countse

up out of europe, which is the extent of 2.2%, that that is having a big impact on the valuation of the euro. if you ask me what is happening within the next few weeks and maybe months, i stay with my opinion that the euro is going to move higher, and you need significant action through the european central bank to reverse it. tom: exactly. we moved to a balance sheet analysis of surplus. are the banks ready to do that, or our political institutions to the ecb, the bank of england, to the fed -- two they have to react to the minutia in the news moment by moment? hans: the exchange rates are in the context of what boosts for central banks. it is clear to me that the fed -- then it is about the deflation risk for the central bank.

inflation rates are coming down. the deflation risk in europe -- the central bank, what is going to be the outcome on their plates for the next few months? we should not forget that in the next few months you will have significant bass effects kicking in at the euro. the inflation rate is going to move higher. noticed that european , holdings were rising strongly in the fourth quarter and the first quarter of this year. holdingseuropean banks , it is not accelerating as much as it should be to do business with euro weakness. that is the reason the euro goes up. the inability of european export capital. what does the ecb need to do? do they need to expand stimulus now to make sure that euro does not go too high? i was at a press conference in

was sayingr. draghi once again they have two left that they can still disposed the that that they can still dispose of -- that they can still dispose of. the question you have to ask in the context of slowly improving inflation rates is, there is a lot of desire to maneuver. aboveuro-dollar trading 1.17, maybe that is something to put into play. but didn't mr. draghi say recently that quantitative of the the recent steps american variable, that translates to mean that there is no need to do something more in the short-term. i think that the markets are going to pick up, and they are going to test mr. draghi. they will take the euro-dollar higher. tom: thanks so much. hans read occur, with morgan stanley this more -- hans or

s redeker hans ar with morgan stanley. there was more tengion there that was visible, is that true? francine: it was difficult to russian invasion in syria down the line, and there was the tension of saying the ecb is saying that they are there, they can do more. they can tweak the stimulus, the types of assets it can buy. but the markets one action. they do not believe mr. draghi like they did two years ago when he said that he would do whatever it takes. classic texts the with ken rogoff as well. we get started on our photos of the day. here is vonnie quinn. vonnie: it is our top photos. the commander of the

international space station, scott kelly, has tweeted out 17 photos he took of australia from space. it is like a treasure hunt, figuring out where each photo was taken. orbits thetation earth every 90 minutes. tom: that is gorgeous. vonnie: it looks like an eye. tom: that looks like northern afghanistan. vonnie: i want to know what focus he is using. let's move on. in full swing in the states, meaning foliage. beauty ofhe absolute the changing colors and landscapes. i would not even though the colors in that photo. there must be hundreds of names of colors in that photo. tom: you cannot begin to estimate how important the fall season it is to most people in

new hampshire and vermont and maine as well. hundreds of thousands come up to see the colors. and it migrates down. it gets to new york about december 5. vonnie: if we are lucky. that's move on to our top photo. yesterday, queen elizabeth hosted a reception at buckingham palace, mainly for the rugby world cup teams. alongside prince harry, prince philip, and her daughter, princess and. anne.ncess they were from all over the world. the queen chatted with 20 team captains and their head coaches and presented a special participation metal. prince harry is actually -- is actually the honorary head of rugby in england. tom: we have breaking news. johnson & johnson doing what you do with cash if you are not

michael dell and two beer companies mating. you are deploying cash to shareholders. with a goodwith j&j amount of money going to share buyback. millionat the $10 number right now. much more on that through the day. it shows the ebb and flow of what to do with cash, some companies taking on more debt as well. to keep you abreast of what i will be doing in london in the next week with francine, john norman will join us thursday. really looking forward to that. stephanie flanders was with us earlier today, and her colleague john norman later this week. this is "bloomberg surveillance ." good morning. ♪

tom: good morning, everyone. "bloomberg surveillance." johnson & johnson not part of the forex report. we will get to that in a moment.

euro-dollar churns. yen insurance. sterling was really interesting. to get to sterling, it dropped like a rock after a disinflation report going back to 1960. sterling, 150 240. a bit weaker this morning. dollar renminbi showing strength over the last number of days as well. that is our foreign exchange report this morning. businesso go to our desk in new york city. here is vonnie quinn. vonnie: vladimir putin is issuing a strong defense of his economic policy. russia past president says he believes the peak of the nation's crisis has passed. he is calling the policy of the country's central-bank coherent and responsible. a leading hedge fund manager is out the door.

bloomberg news says the company is liquidating the macro business run by michael malone across -- by michael malone gratz -- by michael noble . and a production copies running with paramount pictures to make a movie about the volkswagen emissions cheating scandal. it did not take them too long to get around to that. that is the latest business flash in london. tom: on the american political scene, it is the gop, gop, gop. phil mattingly is in las vegas as we look at a democratic debate. what a radical difference to see tonight. what will you be looking for? phil: policy. this is going to be the main difference between the 10 candidates on the stage and the

five candidates on the stage, three who really matter. there are policy differences striking where hillary clinton, martin o'malley, and bernie sanders all set. this will be a policy debate. thisw you are tired of election already, but when it comes to policy, this will peak your interest to little bit. tom: where does bernie sanders come in? donald trump gets all the outlier focus. mr. sanders has a good amount of information as well. what will he try to advance and assert tonight? very that he is a different democratic candidate and hillary clinton. you saw him test out jabs over the last couple of weeks, poking her decision to go against the obama administration's trade deal in the pacific. going after her iraq vote. we will see him start to poke and prod on that point. that they recognizes

do need to attack a little bit. you will see that tonight. tom: where are we in the e-mail debate? none of it is in the "united kingdom newspapers. i need an update on server gate. phil: server gate is not going away anytime soon. there is a lot of smoke. nobody has found a lot of fire yet, but there are not enough answers to put it to bed. the biggest frustration the clinton campaign has had is that they have not been able to put an end to it. the state department will continue to release thousands of e-mails on a monthly basis, all the way up and to the primary schedules. mattingly, thank you so much, from las vegas. at the democratic party debate tonight. it has been a busy newsday. now j&j. on we go. the fact that you have debates 18 months before the

election in 2016 is amazing. tom: you do it better than we do it. can i editorialize? you are doing it better than us. johnson & johnson reporting a $10 billion share buyback program. this is huge. >> it is. companies are issuing dividends, buying back more stock, not investing. that is a big problem toentially to come here it chief economist of the bank of england has been talking about it being a problem. francine: what is amazing is it has $34 billion of funding, and it is paying it by debt issuance. trade,u can make that and the trade backs up and it has for the last five years. there has been an explosion in buyback, and it is one of the underpinnings in the u.s. market over the last five or six years.

tom: i saw the history of inflation and this inflation back to 1960. i saw the sterling come down. tell us about the dynamic than. jon: there is a big difference between bad disinflation and good disinflation, the result of an inflation shot by the fx market or the commodity market. the guys at the bank of england will be holding off on hiking interest rates, but they will see a temporary transitory shot. francine: and we may have an american investment banker at our place. -- and that the scandal we may have an american investment banker at our clays -- at barclays. tom: is that a scandal? what is the signal about european paranoia, that we are not competing? why do they have to go to the u.s. for bankers. if they: here i guess were asked a question about

where we go with the investment bank, you guys do it best. do it best, and now they can downsize it. that would be my thinking. tom: jpmorgan after the bell. do they report before the bell or after the bell? jon: most go before the bell. tom: was this ok? did i do ok? francine: it is great having him in london. " is next on bloomberg television. i will continue with michael mckee on radio next. good morning. ♪

stephanie: the economy. watch out for currency wars. .hina's losing streak exports were down.

you never thought you would hear this from the ceo of airbnb. he wants to be regulated. it is a bloomberg exclusive. stephanie: welcome to bloomberg . i'm stephanie ruhle. david: i'm david weston. we have a lot today. we have our favorite friend. our very special guest host for the hour is the ceo and chairman of starwood. david: matt miller, can we have some breaking news? matt: we are looking for $1.45 eps, and the numbers have not rolled across the ticker yet.