of -- just how vulnerable is new york? david: welcome to "bloomberg ." i'm david westin. stephanie: we are focused on the fallout of the terror attack in paris, and joining in on what this means for local business. to kick it off, bloomberg editor in chief john micklethwait. welcome. we have a lot to cover. let's take a look at the markets. it seemed like we were falling back earlier, but now we are back in the green. matt: we are seeing futures up across the board, and not insignificant gains. five points on the s&p. 29 point gains on the dow

inis. into europe here, so we are focusing only on europe. you are seen gains across the board. this is the euro stocks, up .2 of 1%. here's the ftse, up .2 of 1%. pretty muchany -- everything is in the green, except travel and tourism. you can see the paris' benchmark index, although down earlier and ,ad a little bit of seesawing it is basically unchanged, actually a gain of .1 of 1%. so the first day of trade in paris after the horrible terrorist attacks, we are seeing markets gain, which is interesting, especially in a little bit when i show you historically what happens. you can see the euro is moving down.

1.742 now. this is after a six-month low and gains last week. marriott is going to buy starwood hotels for 12 point the -- for $12.2 billion. marriott is gaining while starwood falls three. both of these stocks are down 7% year to date. we will talk about that throughout the program. david: let's go to france, where guy johnson is at our paris bureau with the latest. bring us up-to-date is happening overnight particularly with the investigation. guy: the investigation has taken a couple of different turns. we saw 168 raids on various difficult locations. in toulouse in the southwest and franceoble, so across they have yielded weapons and a series of suspects.

20 people are now in detention. raids are taking place in brussels as well. i have been talking with our brussels bureau, an earlier report of one of those involved may have been arrested. that has been denied. new news overany the next few hours. we saw these attacks taking place in northern syria. french dress -- french jets attacking locations there, eating sites thought to be central to i.s., but that intelligence coming, crucially, from the united states. so the u.s. and france are working together on targeting information. we have also had a series of names that were involved in the rates being released, so we are getting more information about who exactly were the perpetrators in this. that obviously is a fairly difficult job as some of those involved blew themselves up. one of the early identifications

was made by a digit that had been severed from the body, and that forensic process is still ongoing in france. stephanie: let's talk about the local business impact. when we look at the images from the streets of paris, with the exception of the military, they really seem empty. what is it like there? guy: security has definitely been up. you have french paramilitary, the police, the army, and paramilitary. using old carbine rifles -- they are not that old but they are very striking. they have shut down the old metro station. french military you're looking at in front of you, patrolling the subway. you can see the very strong military presence. stephanie: i see that military presence in an empty subway. our business is open today? guy: yeah, businesses are open.

kids are going to school, france is back in business. but what you are going to see our frictions being developed as a result of the fact that it is harder to go about your daily business. that is something france will have to deal with. it is likely that the economic situation will be muted. france is open for business, let me assure you of that. but it is tougher. stephanie: we are going to continue to bring you the latest from paris this morning, the let's turn to michael purves on mikel for way. -- to michael purves and john micklethwait. geopolitics has been a massive overhang in the last year and a half. when we get news like this, it surprises many people to see the markets in the green. michael: i am not surprised to see the marketing green. tocifically as it relates friday night's terror attack, there has been a trend of increasing resilience of markets

to terror attacks. if you start off of 9/11, a vicious correction immediately following that. that was the big first one. but the market regained three weeks later. -- after thed tiesd attacks, it regained 2.5 weeks later with minimal over two other markets. there is a broader trend that the markets are learning that this is not at all necessarily the pivot point in terms of economic consequences. some of your colleagues were suggesting earlier the political consequences here. but in the near run it is hard to imagine this is going to be a strong reason for the market to sell off. i would also say that to a certain expect -- to a certain respect, there is a willingness for the markets to stand up and fight back. michael says is

certainly true historically, but i wonder whether we can know the answer to the question before we know what the next shoe is to drop. historically it has been a one-off. john: i'm going to disagree with michael a bit. i am nervous about this because this is a different time. in the middle of this you have two big things -- immigration and the european project. the european part of relies on borders. you already seamer in the pen saying we have to restrict france's -- you already have marine le pen saying that we have to restrict france's borders. but this time i think there is a systemic issue that could emerge, which has to do with europe. if the european open market really get themselves into problems -- the european market is about the transfer of goods and people. shank and is about getting the

-- schengen isut about getting goods and services back and forth. stephanie: so let's operate without europe? the euro stock -- i would be nervous on that. the world wakes up and doesn't deal with this stuff, and the voices of what i would regard as liberal capitalism prevail, and immigration does not get hit and people focus on the right things. ,obby jindal is writing letters and the leaders in france could go that direction. you have some elements of worry about what angela merkel is going to do. this time there is something potentially different. michael: we do agree on the political dimension of this. angela merkel heard that she was coming up 30% in the polls.

it is hard to imagine those ratings will not go further. what kind of divisiveness does this create politically within france but also with the eurozone. in the united states, you can imagine how certain republican candidates like trump are going to leverage this. stephanie: greece sat down with sitting down from roman, he did a chart on what happened. if he did not make last week am it certainly does not make sense this week or it michael: industries like tourism are going to be under pressure. i am not dismissing economic obligations, but if you go back to what i call old war, the vietnam conflict/war in the 1960's, where budget deficits in our country went through the roof and put in end to a 15-year bull market -- that kind of dynamic is not at work.

but there is a complicated political calculus if merkel continues with losing friends and her power base in germany. and we get the monetary prices -- the monetary crisis around the corner. those are questions that are hard to answer at this point. -- point we could matt: we could pull up the tourism sentiment. here you see the biggest drop, and by the way it is monthly, so it starts at the end of august and it is only released every month. attack inter the madrid, and this is the attacks in london. it recovers, and it is interesting also to look at the severity of the drops. on a day like today, here is the euro travel index. while we saw that markets in europe are resilient, we will continue to show you throughout the program the resilience of

the terrorist attacks. there are certain industries that get hit very hard, and tourism and travel come as a mentioned earlier, definitely are the main one. stephanie: remember last week we got horrible retail numbers. many people are looking forward to what we get this month. look at your own life. what could this mean for new york city echo friday i was at an escape, i was -- i was at a -- what could this mean for new york city? friday i was at a new york knicks game. i was in times square. hardern one hand it is on the whole for paris to get here. on the other hand, it is much easier to buy guns. stephanie: great. people who bought guns easily can now shop in times square. our u.s. willing to go to times -- are you your kids

as willing to go to times square with your kids? david: yes, i am. ways on whether a people to go out to a new york knicks game or to go to times square as i do. stephanie: the frequency we are seeing, i think it has a lot of people concerned. brendan greeley also joins us from paris. you have been walking the streets all weekend long. what have you learned? is a realhere difference between the mood here from yesterday to today. , therday i walked around trailer's closed, the luxembourg gardens were close. there is not nearly as much traffic as they would have been on a normal sunday afternoon. this morning i went west of the city to see what the commute was like. the trains were packed starting at 6:45 this morning. i talked to some people and they said there was not quite as much

traffic on the trains is normal, but people have to get into the city. saided them why, and they "because we have to work, because we have to continue." standing with strollers, and he said are you scared? the husband said we are not scared. the wife said i am scared. , rightas panic yesterday behind where i'm standing right now. paris is absolutely changed. on friday marine le pen, the conservative rival, did not make -- did not make -- did not waste much time coming out with a strong statement. how does this play out on immigration? brendan: it is not necessarily going to be to marine le pen has benefit. we heard from her friend senator who said that marine le pen is

eating good bread and it will work out well for her at the national front. but after the charlie hebdo attacks, she was not included in the national unity markets. her support did not change. it stayed at a stable 30%. so the question is, how long can the other parties -- the center and far right -- wait to say something about how francois hollande is handling this? , did speak to people yesterday who were not necessarily marine le pen voters. elysees and of the said that we need to close the borders. they said if francois hollande does not do something a strong, we will see huge showing from early in le pen -- from marine le pen in next week's elections. stephanie: what do you see from the conservative party in france? john: french politics even before this was in a state where

who would enter the final round of the presidential election with marine le pen? she is 25% or 30%. whoever you want to choose -- a charge that this is something that would rally people. she has played this so far relatively well. she has not overstated it. she has not manifestly said things that would make people run away from her. is a very canny politician. she is completely somebody who exists outside the paris elite. she is a very effective politician. stephanie: we are going to talk about harris and the effect on europe. in a sign of solidarity -- about paris and the effect on your.

buildings all over the world lit up with the colors of the french flag. the sydney opera house, the statue of christ in brazil. and bloomberg, right here in midtown manhattan. we will be back in a few, continuing to cover paris, the effect on global business, and specifically what it means for france and its neighboring countries. ♪

vonnie: welcome back to "bloomberg ." and acquisition today will create the world's largest hotel company. marriott is buying starwood hotels & resorts. the price, 12.2 billion dollars in total cash and stock. it will include 5500 hotels.

a new report confirms what many economists have predicted. japan's economy fell into a second recession when prime minister shinzo abe took office three years ago. it fell in the second quarter. the news could put pressure on monetary stimulus. in brazil, inflation exceeds 10% by the end of the year. that would be the first time that has happened in 12 years. the central bank has been keeping the benchmark interest rate on hold. is affected by rising inflation and the recession, the largest recession since 1931. stephanie: e.u. leaders are figuring out what to do next after the paris attacks. we have hans nichols joining us now. what do these attacks really mean for europe as a whole in terms of investment?

hans: in terms of investment, officials are concerned. the european central bank vice president says it could come down global risk. we have not seen much market reaction, but it gives an indication that officials are concerned. let me take a broader view here. what we have heard consistently throughout the morning, last night, and over the weekend from french officials is that this is a country at war. have a president who will ask for expanded emergency state powers, and that will have an effect on commerce. we are talking about suspending the schengen agreement. that is the free movement of peoples and goods. if that is suspended, that will have an economic impact. an overall what this will -- and overall but this will have to do on the french budget as they grapple with what is a state of war. david: i am also concerned about what happens with angela merkel. when you have been talking about

european leadership, you have been talking about merkel, one person. will that undermine her leadership? hans: on her country's response to the refugee crisis, to migration, she has a bit of a in the name of document out mohammed. mohammed -- out had not quite made the link that it was an individual that had gone through the migratory route. we now have that link from fingerprints. we know that a 25-year-old, the bomber that was found here, arrived in greece october 3. by october 6 he is in serbia. then he goes to macedonia, then on to austria. that he is heard from again in france six weeks later. that gives you an indication that the refugee, the migration route, which in this case could have passed through germany and pass through austria, is going

to be a political challenge for angela merkel. she is facing challenges within her coalition, within her sister party, the csu, which is bearing the brunt of this in bavaria, and she is basing it within her own party. most recently her powerful finance minister, wolfgang schauble. she faces a difficult challenge and the idea that if paris came through the refugee route, it would be difficult to explain away. thatanie: here is how does was giving us the european tour, but i'm looking angela merkel's comments today where she said that she-20 agreed to measures -- that g-20 agreed to measures that would reform terrorism. this -- that would address terrorism. they are unified and they are strong against terrorists. is that really the case? the question is the unified nature of this.

what this proves is that merkel has been the leader of your. , at the very least, someone who can stop anything happening at europe, and often the person who could push things through. the migration was already a difficult issue for her. now you have this very difficult link. the other thing a goes to the heart of is the motor of europe. the motor of europe -- that is now difficult. maybe it wants to go in a different direction. -- merkel is personally committed to this idea of opening up. it seems to go to the core of her in a very brave way. stephanie: do we know anything about angela merkel and marine le pen? john: i suspect they are on totally different continents. they share the ability to communicate quite well with people. angela merkel has been very

sensible about getting the germans to trust her. even though you can see a lot of suspicion about migration and policy, until these attacks we do not know what has happened now. german public opinion remains pretty solid behind her, given all the difficulties and reserves they have about a particular migration. david: i am curious about this standard by merkel. is this really an effective tool to deal with isys? i thought they were self funding. they are not involved in the international monetary system. michael: i think you are right. merkel is going to be saying things quickly and aggressively right now. john: it does not feel very big, doesn't? david: it goes to the heart of isys. we are going to cut off your bank accounts. john: that is what the french are doing, and it may be a different approach.

hans, do you have something else for us? seen a precipitous decline in angela merkel's approval rating. she is under 50. that is wanting to watch on the angela merkel side of things. the other thing we have to watch for is the relationship between the e.u. and turkey. there is a back-and-forth right now about one of the terrorists. turkey is saying that they were informed twice that this individual had been to syria and could be coming back. the french authorities have no record of it. it would call into question how good french authority -- french security forces are. stephanie: we will be back with more as tom keene joins us. ♪

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matt: these are futures and we are looking at not insignificant gains, six points on the s&p futures and 30 on dow futures. if you look at what happened to the s&p 500 after 9/11, we were closed for four days and opened on the 17th of september and fell 12% and five days, the worst five days since the october, 1987 crash and then we rebounded up through the rest of the month. by october 11, we were back where we had started. i will show you the bigger view. a look, you can see here is the drop from september 11 and down and one month later, back to where we started. that was a very sharp drop in a dramatic rebound. each event has taken a shorter and sure amount of time to rebound. stephanie: the g 20 summit is

wrapping up in turkey this weekend. they honored the victims in france with a moment of silence. let's bring in ryan chilcote. havevents in paris derailed the conversations somewhat about the economy. yeah, day two of this two-day summit was supposed to be about the bread-and-butter issues where they normally discuss economics. they wanted to tackle climate change but one hour ago, we were hearing about the british are ministers meeting with the and all theydent discussed was syria. that grabbed all the headlines. how thels you about russian president has gone to cameron mockedd of the russian president because there were russian warships off the coast of australia and the british prime minister said i

did not have to bring my warships. leaders you that the even when they have acrimonious relationships with one another seem to be prepared to work together on this issue of terrorism. it begs the question with so whether theon agenda was hijacked and everyone was distracted. that's a question to i put to the prime as the canada but he says this focuses. >> certainly, the events in paris in a that are in everyone's mind and how we continue to work forward with greater understanding and cooperation across the g 20 nations. that will be an important discussion to continue to have. ryan: the biggest manifestation of this closer crab -- collaboration was the obama meeting with vladimir putin and they talked about syria. they did not get to the economic

stuff like they wanted to but that stuff was rubberstamped. they talked about the pressing issues that no one wants to talk about and forget the pomp and circumstance. david: thank you very much. president obama is speaking in a news conference on the g 20 this morning. you can catch his remarks at 10:30 a.m. eastern time here on bloomberg. let's get to tom keene and the morning must-read. what a week, it was in store -- extraordinary and there was a lot of smart stuff written. roger cohen has written a lot about this.

there is a new wants between perfect and good and that's part of the democratic debate in all of europe. >> you are dead right, he is very good on the subject. effectively, he calls for an all-out assault in syria. he says attack there but on the other hand, be tolerant at home and be able to make these things work. he is calling to invoke article five. tom: when you grew up in england, what was it like to deal with northern ireland and how do you extrapolate that to what we see now? growing up, it was part of life.

you wonder why everyone is going back to work because in europe, terrorism has been more prominent every day. that is one reason why september 11 was so spectacular in america. the way things began to heal in northern ireland was when people of faith on both sides, catholic bishops and protestant bishops came together and condemned it. the problem and the middle east -- tom: we don't have an archbishop of canterbury. >> and you don't have many fates from both sides saying we can solve this together. shia, christians, jews, it's everything. we should doy something about this but what do you do? tom: the first thing i featured this morning was from the

economist. it brought out the idea of if we need is really attributes of security across europe. america.s do we extrapolate the israeli method? stephanie: which is what? tom: i would break it down as daily and minute by minute a dead seriousness about limiting some of the liberality's of society. >> i desperately hope not because i have just into india and stayed at the same hotel the terrorists used as a model. guards andmed concrete blocks and it begins to affect the whole society. . in the end, there's a reason they call it terrorism. is designed only to make people think i should not go to certain places. is, that is the aim

is to disrupt people's lives. that's why they aimed at innocent people this time. stephanie: i want to bring in a morning must-read. this one came out of bloomberg view. mark champion wrote it -- marc joins us now from paris. what is the answer? >> it's not an easy one. if it was, we would have fixed it some time ago. i think the essence is that i kind of agree with roger cohen but i think you need to be more refined in saying we need to develop a strategy for syria and

it has to be a strategy that can include the various players who have been fighting a proxy war and the question is how do you do that. asyou extend the airstrikes the french did last night, it may be helpful at the margin but it's not going to do anything that changes the game. you need that strategy, you need to get everyone involved in that involves some very tough questions. do you agree to have a partition can stay andssad keep the russians and iranians happy? that way they can be assured of their own security. these are the kind of questions about to answer. david: i wonder whether president putin's position has not become stronger. i'm not sure we can find a way

to deal with syria without going to russia. >> i think there is no doubt. president vladimir putin made the change when he intervened. well that in to havey, if you want leverage, if you want to have influence and for people to be unable to ignore you, what you have to do is to put your chips on the table and he did that by starting his own airstrike campaign. he chose to join assad in that campaign. youquestion now is how do marry his campaign with that of the western powers and how do you get a strategy that will allow some kind of peace settlement, some kind of settlement in which they feel they cannot or don't need to continue the fight. stephanie: stay with us.

and looking at my terminal it is flooded with messages from market participants in the last 40 minutes. globaly it's clearly a -- political issue. as far as the markets come i think attacks are totally irrelevant to these market. this is simply not world trade center number two. someone else said in terms of europe, europeans are accustomed to this type of action. it's clearly not something this day that when the world trade center was hit, we had never seen anything so spectacular in the u.s. as it relates to the market, do you agree we will not see market effect? the market regained its levels within three weeks after 9/11. in terms of disrupting the capital markets, that's not an effective objective for isis. i think there will be a lot of

political fallout from this that will be dynamic and not necessarily destructive. toward the issue about the in thetail risk eurozone, that's a tall order going up against decades of european integration. let's not forget that 15% of france's muslim right now. there is already an existing infrastructure. for france to do anything that aggressive in the wake of that, i think there is already an act limit is asian -- and acclamation towards this. are examples in history when western countries are hit, they have economic impact that we have not seen that. >> i think there is a potential -- this does get the europeans attention. imagine what would happen to the american economy if you could

not cross the boundaries from new york to pennsylvania or whatever. stephanie: donald trump would be ok with that. that this is point not directly comparable to september 11 attacks. if you look at the market effects, they were much more serious. in blue, you've got the s&p 500 and white are the euro stocks. red, you got the attacks in madrid and here and green, you got the london bombings. later on, i will show you the bloomberg terminal will show you what happens in the event of a simulated 9/11 attack and its affect on equities. we see u.s. futures rise today and european stocks are rising as well. took it morerkets seriously on september 11. stephanie: july, 2005, the bomb explosion in london, consumption

rose and after the march, 2004 attack near the madrid train station, consumption rose. we have not really seen negative economic impact in the past. >> the more attacks you have, the stiffer the resistance of perhaps the economy. marc champion joining us from paris and we will let tom keene get back to "surveillance" on radio. we have more to cover. we showed some images earlier and we have to bring this back, buildings across the world illuminated in the colors of the french flag over the weekend. this is the brandenburg eight in berlin near the french embassy where hundreds gathered to honor the victims and we will have a look at the old city wall in jerusalem and the san francisco city hall. around the world united following the attacks in paris.

when we return, keeping new york city safe. we will have the chief of counterterrorism from nypd. ♪

vonnie: welcome back. creating the largest hotel company. they want to buy starwood brands. the new company will have more than 5500 hotels. boeing will sell millions of dollars of spare parts to saudi arabia. the state department has approved the deal and it will bolster their allies. say the life streaming of an nfl game on yahoo! will jumpstart heading for online sports right.

the game last month pulled in more than 50 million viewers which is the most ever for a live online sporting event. bloomberg business news. stephanie: let's turn to the u.s. political reaction to the paris attacks. got phil mattingly joining us from the d.c. bureau. it's been interesting watching the positioning. is that a be assumed candidate with experience in foreign policy whether it's hillary clinton because she was secretary of state or marco rubio on the foreign relations committee would rise to the top and things would get more serious, some of the trivial issues that have dominated this race would be put to the side. it's too soon to tell whether that will happen. the interesting element is immigration. we've had donald trump and ben carson and ted cruz talking about this issue of syrian refugees coming to the united states and making it a huge

issue that might actually cloud the idea that the traditional, historically competen candidates on foreign policy will rise. the fallout will be interesting to watch over the next couple of weeks. if anything has been true over the last 50 months, assuming this race -- in this race is a bad idea. david: thank you very much. we are now joined by special guest, and why pd chief of counterterrorism, james water. explain to us exactly what you do and how it affects the safety past 14ork? >> over the years since the attacks of 9/11, the new york city police department has built a counter terrorism bureau. it's robust to protect new york city. we have a number of units starting with the joint terrorist task force who work side-by-side with the fbi and 35 other agencies in collecting

intelligence and investigating terrorist matters around the world. currently, our detectors in our flew to paris saturday morning and there on the ground working with the paris authorities. david: did you have officers stationed there before? >> the intelligence bureau was rebuilt in 2002 and continues to build and grow as we speak has liaison posts throughout the world and we have a post in paris who was able to give as real-time information on what is happening on the ground there. that informed the leadership of the police department, the commissioner, myself, the ability to deploy resources and understand exactly what is happening there so we can better protect new york city. stephanie: december is one of the busiest months in terms of tourism traffic. is your message to the tourists or americans don't come to new

york city for the holiday season because of this increased threat or is it business as usual? >> business as usual, we are keeping the town safe. we have a lot of programs in place. we have the new strategic thatnse group, the offices expand around the entire department and the five boroughs. they are long gone train and we have a critical response vehicle program that has changed into a permanent command within the counterterrorism bureau under me. those individuals are getting trained and counterterrorism trained and long gun training and they are having 12-14 shifts. david: there are some indications that the perpetrators may have come from syria. how much more difficult as a make your job when there are u.s. citizens going over into

the theater and coming back into this country? >> dinner partnership with the fbi, we track these individuals on a regular basis. we have a very good understanding of how many americans have gone abroad and our concern is that any of those individuals coming back. we have open investigations on them. we do surveillance and use all and courtwiretaps orders to understand what they are doing and why they are doing it. we are in the prevention business. quite frankly, that's what we are looking to do. stephanie: risk management. >> you can see the same stuff happening europe. security there said they were able to keep 200 or 300 people under surveillance. thousands of people were flying to turkey and going across the border and it became more difficult. is that a similar effect in america? >> i think it's much less in

america. the u.s. government, the fbi and other federal agencies have a good handle on the number of individuals that have left this country in hopes of going to and making their way to syria. we follow some of their travel and they transit through turkey. i think we have a good handle on that. realistic is it to keep a close surveillance on that many people? how many people do you have to have per person? it's not one-on-one. >> we don't play man-to-man defense. in terms of surveillance. person team a 5-8 out on one subject so it is very challenging and is very manpower constraining to do that. stephanie: are you federally funded to do this? the fact that you can say is that many people, where does the money come from? >> we are well supported by the

department of homeland security. we also have a partnership with the fbi. can you give us a sense of how many people would be followed in the new york area? >> i would not -- i would rather not get into the specific numbers but i have a high degree of confidence that we are following the right people and we have a good understanding of who they are and what they are about and we have excellent coverage on them. the new york city businesses have an understanding and they know what your obligation is. we are talking about cyberattacks and corporate america is not spent the money or attention to keep themselves or their customers safe. our new york city businesses doing enough? >> i think they are. in the counterterrorism bureau, we have a shield program that is a public/private partnership and we have 1500 members.

wingate the private sector all the time. for them and we did training in this building and we go throughout the city giving them terrorism awareness courses down to how their mail comes into the building and how they can better protect themselves. david: you have listened to all this and being from great written, what is your best advice about what we need to do? to carry on is because there is not much you can do. you have to trust people like him. the difficulty about this is that you have people who don't mind being killed themselves in the terrorism they do is very makeech are you you can the explosives yourselves out of fertilizer and all you need is a gun. sadly in america, guns are easy to get a hold of. stephanie: are you concerned that we will have an increase in people buying guns in america? i think that is a growing

phenomenon around the country. people will buy guns to better protect themselves. stephanie: does that really protect us more? >> i think guns belong in the hand of law enforcement, trained people. stephanie: i think so, too. very busy had a season with the pope and we are able to protect the city quite well. december is a busy month and we are well prepared. stephanie: we thank you for your efforts. nypd chief of counterterrorism, james waters. cover.ot a lot more to the u.s. ambassador to france will join us live from paris. this is "bloomberg ."

stephanie: u.s. ambassador jane hartley says it was more than attack on paris, it was an assault on humanity and we will speak with her in a few moments. could it happen here?

u.s. officials are trying to figure out where the country's most vulnerable and we will speak to the former head of homeland security, michael chertoff. stocks are showing resilience after the terrorist attack and investors want to know if there will be any long-term impact. welcome to the second hour of "bloomberg ." david: here with us is rich yamerone and let's start with matt miller. the paris of fact is not the negative as far as u.s. equity market. in the past, we have seen terror attacks drag down markets for a few days.

u.s. futures are up across the board. these are not huge gains but significant and we see gains in european markets as well. the euro continues to decline and we see it trade now at a six-month low. take a look at the cac. the dax and the footsie is up at the cac has been bouncing up and down, now at a loss. you can see some strength there even as we get some negative economic news from around the globe. marginal requirements increase in china and japan is in a recession. going back to the madrid bombings, i want to show you the reaction of the equity markets. benchmarks their market. after the bombing in 2004, there was a drop of about 8% here.

the recovery was coming that quick than one month and the ibex recovered all of its losses. this is a pattern you see whether you see that attack or the london bombing or 9/11. you always see this recovery. very soon after the loss. david: thank you. let's go back to france where guy johnson has the latest news. guy: we are waiting to see exactly what the results of a series of raids that are taking place across the continent are going to leave. there are raids in brussels that may ultimately be forthcoming with one suspect that is missing as a result of what happened this weekend. that may happen in the next few hours. in france overnight, there has been 168 searches, 23 people are in custody, weapons evidence these and we understand a rocket propelled grenade has been seized.

security is tight but businesses carrying on in france. we are waiting to hear later on hollande and he will address both houses and may call for a three month extension of a state of emergency. that will encompass the regional elections which will be of coming soon. stephanie: thank you. we will continue to bring you the latest from paris this morning. thes bring in the impact of attack on u.s. and european economies. my flood theore u.s. markets because we seem to be the safest place? >> i would have's expected to see that already. we have not seen much of that. the 10 year treasury is pretty much unchanged. you might see a bid on some of the higher-quality paper, aaa

rated stuff, investment grade. stephanie: why hasn't it happened yet? this, iepare for thought let's look at 9/11 and i went to the fed transcript following the 9/11 attack. it looks as if they only care economically about the infrastructure that was damaged, the shutdown in the air. this is not happened here. we will have intensified security and even more so that economically speaking, this is not a 9/11 event. it's more of a 9/11 on the psychological/emotional fear front. david: there are many ways this is different and it happened on a friday rather than a tuesday. aople had no time to react on

tuesday but friday, people have the weekend to observe the news and let it settle in >> area >> that's very true and then you had a closed market. i worked at cantor fitzgerald for a couple of years so i know a lot about that situation. at the same time, that's not is. this this is not a freezing of the market or a disruption of financial activity. . the financial activity is not compromised in any degree. that's what the markets probably fear. events like this are horrible but they have occurred in lisbon and london. we have seen these attacks and come to accept the more not just in the middle east where they were predominant in the early 70's. this is what happens now. stephanie: other than sympathy, this won't be a major factor for janet yellen? >> i would be surprised if it's

a factor. as you see, the markets are not reacting. if there is a muted economic response, i don't see why the fed with either act or not act in different with respect to what's going on to anything. course, it heightens fears that another event would come. david: that is the question. >> who can predict? david: let's go back to paris with brendan greeley. talked about the french economy. what is businesslike there today? it'it looks like the stores are all empty. our people shopping? brendan: that is just a video you are seeing. people have had a weekend to react and there has been a huge difference in traffic from saturday until sunday and a huge

difference from sunday until today. i went out this morning and the commute was packed and everyone said there is less traffic than normal but no matter where you are in the city, people are going back to cafes. people are going to shops. a district that has relaxed the blue laws and is open on sundays, there was less conference -- there was less commerce. i think the president announced a 90 day state of emergency. what practical effect is that have? what does that do? brendan: it has allowed a lot of the raids you see going on. the sense is that everyone is waiting to see what france walk holland can do -- france walk -- hollande will do. when you look politically at what's going on, there were some

shows of solidarity. we are coming up on regional elections and you will see jockeying between the center right and the far right. we will see what can be done with this but it's not easy to look at these attacks and turn to the far right. earlier this year, marie le penne and did the wrong thing and was petulant after the attacks on charlie abdo. france has finally begun to emerge from this economic slump. will the attack stifle that? i remember being here after 9/11 there was a catatonic state

, gross disbelief that it was surreal. have you seen much of that, that rosen ability -- that frozen ability to spend? i guess the stores are not open yet. what are you seeing there from the retail perspective? touristthe number one destination in the entire world. i think there are a lot of comparisons between september 11 and what happened on friday. i was in new york in the days and months after september 11 as well. there are many people here gathered in small knots and looking at their phone and talking to each other and asking strangers questions. there is a lot of police that is something that happened after september 11. there is a tremendous difference between what happened in january with the charlie hebdo attacks.

they said it was an attack on freedom of expression and now they are scared because they say it's an attack on us. lost,ou talk about lives it's not on the same order of magnitude. i believe it's in the same order of magnitude when you look at the way it has affected people. stephanie: let's go back to the way it affects markets. i continue to get instant messages. in the 1980's, terrorists used to blow up planes all the time. that's a bit of an overstatement. we had a massive expansion in the stock market as well as real estate. you cannot argue with that. that was what we saw from a geopolitical situation but the markets were flourishing. do the markets ignore this type of thing? >> i don't think they ignore it but they keep 18 high on it or you -- but they keep a keen eye on it.

there will be some positive effects from this economically. you will have increased security, hiring new people, and infrastructure systems in those kind of things. stephanie: you have been an economist for decades. before september 11, was terrorism a category that you even thought about on a regular basis in terms of risk management? >> not in the u.s. it was always in the middle east, always over there. david: europe and england. >> exactly but not so much year. -- but not so much here. we had a positive frame of mind. david: we were fortunate. stephanie: people around the world are focused on what happened.

there are a vigils for the paris attack and are laying candles and flowers in her honor. these are some poignant images. in berlin, hundreds gathered at the begin -- at the entrance of a french and missy. held and inls were paris, hundreds were visiting the sites of the attacks while people are scared, they are standing strong together. when we come back, former u.s. secretary of defense, william cohen joins us and we will look at the long view of the world of security. you are watching "bloomberg ." ♪

vonnie: welcome back to an acquisition today will create the largest total company. marriott is buying starwood hotels and resorts for $12.2 billion in cash and stock.

the new company would operator franchise more than 1500 hotels. berkshire hathaway has reduced its state by 13%. it still almost 11 million shares of goldman sachs. confirms that the japanese economy fell into its becond recession since kenzo a took office. pressure on him and the janco -- and the bank of japan to boost interest rates. the former united states secretary of defense william cohen joins us from washington. help us get a broader sense of how the attacks in paris or changing the security situation. you are head of the defense department and have been inside

the situation room. as you face this, one of the options open to the united states and the european governments? >> the question would be what is the mission going to be? is it simply to contain isl or try and destroy it. then you try to decide that issue and ask your military advisers given these options, what would you devise as a military strategy to achieve these goals. first we have to decide what we want to do and to accomplish and secondly, how do we do this, unilaterally or with the french were with nato? then you formulate your strategy in conjunction and cooperation with your allies who will be involved in this particular mission. then you combine that with what we can do to really hurt isis? we can start attacking their source of revenue which is oil. when we went after the serbian

forces in cosa of oh -- kosovo, we eventually degraded their industrial capability and that brought them to the table. going to their source of industrial might brought them to the table and we had a settlement. there is a combination of things that have to be done and we have to formulate some kind of a military force that reflects the region. u.s. ort just be the white europeans waging war inside in iraq and syria. when he to have arab countries on the ground, we need to have turks involved on the ground, we need to have the uae and others on the ground. look like it does not it is a holy war being constructed or carried out against the muslim faith. those are things that would be discussed in a situation room and formulate a policy that is not spasmodic and responds only to one terrible event as we saw

in paris this past weekend but rather anticipating more on the way. this is the shape of things to come. hitting soft targets, places they cannot be defended, weaknesses in intelligence emigration policies would be exploited. we can expect more will come in europe and even in the united states. it will be tougher here in the united states for them to penetrate but not impossible. we have to have a very long range strategy and work very closely with our allies. i would add russia. this is an opportunity for us to work with resident vladimir putin. we have forgotten that more than 200 russians died in that aircraft just two weeks ago. such are happening with rapidity, we have become consequences. the here's an opportunity to sit down as president obama did with to find out how to work together on issue that affects all of us.

those discussions should take place in the situation room. stephanie: you're giving us examples of tools we can use to reduce risk. talk about social media and the impact of the advancement of technology and how it is able to unify these forces and how we can defend ourselves against a? it's very different landscape today. -- we need toogy share information. the program that has been and hasted by the united states come under heavy criticism from the europeans in particular. there will be less criticism now and still try to find a balance as to how we gather more intelligence in terms of what people are doing and the people at minas harm and still protect the privacy of india -- of innocent individuals. technology is rushing way ahead of us.

age of theter an minority report where we try to who are those who will attack us. if you have a continuation of these type of activities even on my larger scale, the pressure is going to be more intelligence, more invasion, less human liberty. these issues have to be worked out in advance and not in reaction. we have to think about the role that technology plays. secondly, we have to think about the role that energy plays. we have to start supplying our oil to notiends with have the supply come from russia and that will send in a signal to the russians that we need to have them be less aggressive and work more closely with their european friends and the united states. that is part of a package and there is no one single silver

bullet to deal with this issue. david: that is former u.s. secretary of defense william cohen. we are joined now by the united states and basses are to france, jane hartley. thank you for joining us. >> thank you. david: what assistance has the united states government offered to the french government and what assistance have you been able to provide to u.s. citizens? closelyve been working with the french government over this weekend. frankly, for the many months before, in terms of american citizens. our consulate has been working closely. we have been in contact with approximately 3500 americans in terms of asking -- answering their questions and making sure they are safe. in terms of the attacks, it

looks like tragically we have one american student who has died and4 americans who were injured. david: can you share their status? are they among the critically injured? >> we cannot because of privacy. we have been in contact with their families. i think they are not critically injured. stephanie: when you look at what happened over the weekend in paris, what do you think we face as for his additional risks in the u.s.? so york is on high alert should we be concerned about fallout? >> i am a new yorker. i lived in new york during 9/11. i think anybody who has lived in new york knows we are always concerned about security. i think our security in new york and the u.s. is very good. when obamaespecially

said, this is an attack not just on the people of paris and not just on france it's an attack on humanity. i said this earlier in a speech earlier. terrorists don't know any borders. we all need to be on high alert. stephanie: what will the impact of immigration? it's an important topic for those running for president and it's an important topic for employers in global business. what do you think the impact will be of immigration? i will leave the european discussion of immigration to the europeans and that's a critical importance. america is a country of immigrants. we care deeply and seeing these -- these terrible pictures breaks everyone's heart

of this is an issue the european governments have to deal with. david: this was a game chamber -- a game changer. as far as you can tell, do you think this could change fundamentally french society and how they do business? >> it's an interesting question, i was in new york and i think you are as well during 9/11. 9/11, there was a shock and the harder that someone could do something like this to innocent people. in new york, it was people going to work every day in paris, it was people who had worked a long week and were going out to have dinner with friends and family are going to hear music. i think there is a huge amount of shock. the masst, i went to at notre dame and went to one of the memorials. i really did feel, as i felt in gets ak, that paris

linked together. as in new york city, parisians have a lot of grit and spirits. i don't think they will allow this to defeat them just as we saw in new york where we bounced back strongly. stephanie: we just saw this a few months ago, could this affect them differently? it is obviously having a larger effect on society. it was not as horrible as charlie hebdo, it was a targeted attack them this was more like 9/11. stephanie: thank you for joining us this morning. ♪

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attack in paris and we're looking at the global impact. france is widening its crackdown at home after the terror attacks and they rated 168 locations and may 23 arrest and seized dozens of weapons and french officials believe the attacks were carried out by extremist cells based in belgium. belgian police conducted their own rates. 2 explosions were heard during one operation in a neighborhood in brussels. french warplanes bombed islamic state targets in syria. the french say they hit an ice is command center and for the first time, u.s. lanes attacked hundreds of trucks they islamic state uses to transport oil. the governors of michigan alabama say syrian refugees will not be allowed to resettle in their state. the michigan- governor says they have a registry of immigration but the first priority is protect the

safety of residents. in get more on these and other breaking stories at the new bloomberg.com. matt: i'm looking at breaking news -- we are getting economic data specifically empire manufacturing. it is worse than economists had anticipated. a 6.5% droping for and we got a 10.74% drop -- a drop of 10 point 74. the previous number was a drop of 11 point 36. empire manufacturing is worse than what we previously had anticipated and now we see negative reaction in futures. the dow and the nasdaq futures are down and s&p futures are still up. coming downres are a little bit. in the wake of the paris attacks, we have seen s&p teachers trade positive pretty much the entire morning. taking a look, i can show you the world index equity page.

this is european indexes. we saw earlier green across the entire screen and now we are comeg the euro stocks 60 down just a little bit. -- thell see the footsie ftse gaining slightly. back in the u.s., we have an equity story. will by starwood hotels for $12.2 billion. down andboth trading earlier, marriott was trading up and now it has come down about 2% and starwood is down about 6% on this news. both of these stocks are down about 7% year to date. david: you have been talking about how markets historically have reacted to various terror attacks. corwe are joined by andrews

who is an authority on this. >> i would say don't overreact to the news. markets have overreacted to terrorist attacks wewell as government are you don't need to overreact to this issue. stephanie: 80% of terrorist attacks happen in the middle east. why is this that much more important in terms of the markets? is it because it's a developed country? >> a lot of oil comes from the middle east and that will have an effect on oil but now we have shale. it seems to matter less than it used to 20 -- 20 years ago. terrorist attacks and have the same kind of effect on oil to the united states. stephanie: what indicators do you look at? when you pull up your bloomberg terminal, what are you focused on watching? >> you want to watch aerospace defense and watch hotels and

airlines, anything related to tourism. the biggest hit for france in terms of their economy will be tourism. attacks had abdo big effect on traveling in paris. let's stay on tourism and hospitality. what do you think it means when you about major cities like new york, london, paris. it is the holiday season of people come to celebrate and shop. will there be in effect? >> it will definitely have an effect. this is the weaker part of the season. we just got through the high season for hairline -- for airline travel so it has less of an effect because we are in 4 q and we will roll into the first quarter which is quiet it it will have a decent effect on transatlantic travel. seen europeansy not as willing to travel as the

u.s. because the euro has been weaker. we have been looking for the u.s. to fill part of that demand and this will not help. david: coming back to risk assessment, does it make a groupence that this was a that appears with the downing of an airliner as well as these attacks? >> yes, there is coordination and sophistication with this latest attack. on the other hand, there is a certain -- it was not as sophisticated as 9/11. did notthese attackers even managed to achieve what they were doing. some of them were using very crude weapons. in the big picture, it is coordinated but not highly sophisticated. stephanie: we have gone from paris, london, alaska, belgium and let's talk about mars. >> you know this one. matt: it's an incredible

function which applies events of the past two market functions. you have the russian crisis in the long-term capital management here we have 9/11. there we have the lehman brothers crash. what would happen if you take the lehman brothers scenario and played it out today over 10 days? over 10 days, we could have a rebound and another 9/11 situation if ejected just -- just took the past actions. the lehman brothers scenario would be more difficult to dear with. this goes across all asset classes and you can look at how it would specifically affect 9/11 and you would rebounded almost all asset classes with the exception of credit default swaps which would be down as they would be lowered. interesting look at multiple asset classes in a scenario from any historical

tragedy you can imagine. stephanie: do you compare what happened over the weekend to any of these events in terms of significance as it relates to global markets? >> i really compare it to spain in 2004. 2005 but youing in also receive learning on the parts of markets to not overreact to these things. 10% in 9/11, a drop in the dow jones in a rebounded within a month. see smaller and smaller with the additional terrorist attacks which are admittedly smaller attacks in 9/11 but you see smaller market effects and quicker rebounds. verythis attack, you see little market effect, less than 1%, in terms of these things of the rebound is a most happening simultaneously. stephanie: does this grow attention in terms of individual

u.s. countries and there are roach to allow refugees into those countries? if they change the rules of engagement, what could it mean for european business? they will definitely see a tightening of controls of the borders. we would hopefully see some more cohesion in terms of uniforms. the individual member states are all over the map. if they do tighten borders more because of this, you'll get less influx of young labor and that will have an effect on business. it will have a slight negative effect but not major. stephanie: kenneth shift where labor takes place? >> there could be more capital flight but it will not be a big one. david: you mentioned aerospace and we don't know what will happen but many people are calling for a very vigorous response, multilateral like nato. if there is that certain

, what is theort knockoff effect? >> you will see aerospace defense increase. the important thing is not to over react militarily. obama has done a good job and not overreacting and has taken some limiting attacks on the supply chain of oil out of the country. but they hasment specifically said we are not changing our strategy based on this attack which is incredibly important. incannot embroil ourselves another iraq war that will -- if you cruise interest payments and that ours payments, we are talking trillions of dollars. about libyaalking are other places. >> in egypt, they have a tight

control on that country because they are an autocracy. with libya, it's still chaos. for those kinds of places, the terrorists will look for outside enemies and attack us. it's incredibly important to actually revisit and secretary cohen said we need to rebalance the balance between privacy and security in your democratic government is not your enemy. we can trust these guys to watch up for the terrorists and catch them for they get us. we need to do that. stephanie: one strategy we focus on every day -- does a shock to the system like this forget the janet yellen decision in december? matt: it does not really look like that.

a 64% probability of a move which compares to a 66% probability at the end of last week. it has come down slightly but not a substantial amount. michael mckee has said the people he talked to are saying they don't expect this to be a fed rate cut pol -- probability unless there is another incident. in the mars model, we saw a drop in interest rates on government date but that's because of a fight to wally and that's something we are seeing today as well. stephanie: let's talk european consumption. talking about the hospitality industry. how will this affect europeans? when we look at back in global markets whether it's spain or london or the u.s., the historic consumption went up. >> i don't think it affects the european consumption inside or europeans traveling

outside europe. we think it affects broader this yearause we have and immigration. the u.s. population will cast a wide view on europe as being a little risky because of this syrian migration. i think that is the real challenge. when need the u.s. travelers to flow into europe. there is probably too much capacity across the atlantic for i think the u.s. traveler will not want to travel because of this. stephanie: thank you, everyone. i want to share more of these special images. the colors of the french flag illuminating buildings around the world, honoring the victims. brandenburg gate in berlin and

the french embassy were hundreds gathered to honor the victims over the weekend. the old city wall in jerusalem and san francisco's city hall and even our own bloomberg world headquarters in new york city. those are on social media3. many people change their profile pictures to be covered with the french flag to show unity. we will cover this this morning and michael chertoff will be with us. this man advises so many companies and so many investors in our specific world how to handle your business following a shock to the system. stick with us, you are watching "bloomberg ." ♪

stephanie: welcome back, you are watching "bloomberg ." we have global market reelect --

reaction following the paris attacks. we go to our bureau in paris for the latest. i think your conversations have hit the nail on the head. paris is getting back to business. the attention is focused in brussels now were ongoing operations are taking place. at the moment, they are not yielding any arrests. paris has been getting back to business and people want more security and they want to see the police on the streets and they want the extra checks but that is slowing everything down. will the tourists tuna -- turn up and will it be as easy to get around the city? this is getting in the wills of an economy that is already struggling. later on, we will hear from the president will address a joint hearing in front of both houses of parliament. that will extend the time in which we are operating with

these kind of images. the state of emergency will carry on for three months and there are some reports suggesting that maybe the french authorities will put changes to the security agreement. this is at a time when the french economy is struggling. it will make life a little bit harder for everything you do. david: thank you. let's look at the role of the private sector in intelligence3 . michael chertoff is the former head of the homeland security department. inside so what is going on as far as the investigation? >> this is one of the advantages that having intelligence data gives you during investigations. you want to see what the connections are whether they are financial or communications or travel between the people who were the known terrorists who

carried out the attack and others might have planned or supported or been involved in carrying out ancillary operations. what you are trying to do is map the universe of these terrorist. what you are seeing now is an unfolding effort to roll up all the people might have been connected to these attacks in much the same way we did right after september 11, 2001 in the u.s. whetherive us a sense of manyanother one attempts which have been foiled or is this different? they attacked several places simultaneously and it was well disciplined and was from command control. is this different or another one that happened to make it through? somewhatk this is different. it's not in the scale of september 11. on the other hand, it's not like what we often see which are one off attacks, one or two people carrying out an attack that

kills a few people but appears to be isolated. this is relatively sophisticated and reminds me of the mumbai attacks where you have multiple actors going around the city. it suggests an ability to do cross-border planning and sophistication which we have not seen very much of lately. it's alarming. if you put it next to what we sow with the airliner being downed in egypt in the bombing in beirut, it suggests that isis is working on a pretty robust effort outside the area of its immediate operations to carry out terrorist attacks. i think we will see more of these. stephanie: the fact that this opens a door for isis to create whyre robust platform, don't the attacks have more success on this mess? they end up being recording tools to increase a presence like isys.

is that what we could see here? >> i think that's exactly right. they want to elevate their brand attractingnds up people to come fight in syria and iraq but carry out operations at home. that's one of the critical things we need to do is do what we said we would do which is defeat and destroy them. by not doing that, we have given them the ability to say they are beating us and that is very damaging from a recording standpoint. stephanie: will they say that this week? >> i think they will be trumpeting this week as a triumph of their ideology. french are doing is they reacted quickly in going after some of the heartland whichin syria and iraq are the headquarters areas for isis. we have to keep that up and create safe havens so we can begin to manage the crisis.

we have been reactive over the last couple of years and we need to totally change that dynamic. david: when you say defeat and destroy, what would be involved and can that be done from the aired or does that read wire boots on the ground? >> my view is that you cannot do it just from the air. you will have to have boots on the ground. it will have to be a coalition but it will have to involve americans and europeans. if there's one lesson after what happened in paris, it's the idea that we can stand apart from this and watch it from a distance safely. that's a false idea. you can see the consequences in syria and iraq in the massive flood of refugees into europe and some of these attacks which involve a couple of people who infiltrated using the refugee as a vector to get into europe. we see these attacks evolve and become more

sophisticated in terms of communication immobilization, what does the west need to do in security, andse, intelligence strategy to keep up with this or get ahead? when i look to technology, it seems to be a win for the attackers but not a win for us. we need to do is stop spending a lot of time criticizing our intelligence collection and more time coordinating with europeans and our friends around the globe in collecting and analyzing intelligence. have twotool that we identified might be potential terrorist actors is to look at data about who indicates with home and who travels with home and who pays for whose airline ticket. as our tickets we have test phase are things we have used in the past to identify threats. there is a little bit of a push back but i think these events will remind is that these are critical parts of the strategy for defending the west. roleanie: what should the

the for social media platforms? datan collect all of this is -- of whose communicate with him, the social media platforms have enabled so many of the so people to connect and communicate to begin with. >> there are two elements -- one is how we get a heads up or warning when someone gets on social media and says or does things that they are about to carry out an attack. and to what extent does social media prohibit certain kinds of users. we do that with child pornography. precedent for saying certain kinds of material should be off-line. at the same time, we have to a darkze that there is web, a method of medication that is not necessarily visible to most people who operate on the internet. we want to make sure we all force people deeply into the dark web where it may be harder to monitor what they do. we have to balance shutting things down and of the other

hand, being able to watch what people are talking about doing before they do it. runningf you are back homeland security, what is the one tool you would be pressing the heart is for to have to conduct that intelligence gathering you might not have now? to get thewant europeans involved with us in making sure we have the broadest ability to collect what we call who speaks to who and who pays for who and make sure we have an understanding who crosses borders by getting more data about travelers coming in. europeans presses not to do this. we insist we have to and i thank they are now learning they should be doing the same thing. criticalike me as the ways in which to identify the needle in the haystack which is always the problem in identifying and preempting terrorist attacks. stephanie: thank you so much for sharing your insights this

morning. that is a former secretary of homeland security, michael chertoff. next, we will be joined by the one and only legendary investor and founder of aqr, chris asthma. uth. we'll also talk hedge funds and how to invest in a low income world. we will go around the world with ess and share that and a whole lot more on "bloomberg ." ♪

>> we are now 30 minutes from the opening bell. veryanie: it has been a

two hours. erik: good morning. with us it is the chief investment officer at a qr capital management. i was stunned to find that your assets under management or up to $135 billion. that is a large number. cliff asness: pending what is going on today. erik: you will hear from him and just a moment. but first, the first word. >> britain is doubling its government for aviation security. the company is recruiting 1900 intelligence agents. in direct response to the paris attack. and japan's economy slips back into recession. they dropped to an annual rate of 8/10 of a percent.

these oft more on bloomberg.com. david: thank you. let's go to our paris bureau, keeping us up to date. what we have seen over the oft hour or so is the result some rates that were carried out earlier on in paris. the results negative for the authorities there. there was some expectation that a building in brussels may contain one of the eight that is .uspected of being involved that is now a negative results. francis terry -- france is searches.ut many

23 people are in custody. weapons including a rocket propelled grenade are in custody thanks to those searches. we expect news throughout the day as the justification of those involved in the attacks continues. erik: thank you. the far we have noticed market reaction has been somewhat muted. matt miller will bring us up to speed. matt: futures were across the board of the entire morning. we are now looking at a downturn. not huge drops. many futures down three points. also saw a brief recovery of losses. overnight and throughout the .orning we have in throughout beenowest we have seen has

in paris. some other asset classes, the euro touching a six-month low. what we haveing seen an oil and gold. incredible swings. ago and it3% an hour is no trading down -- and is now trading down $.10. up about .5% right now. erik: thank you. as i mentioned, cliff asness is here. if we could begin with a little investors tend to think about events like the attack on friday.

things don't seem to move that much overtime after these horrible incidents. top, why is sits on that the case? as a person you wait, but as a long-term investor in your best to ignore. i do not think it manages test matters very much. it is not our strong suit. we're not timing these thing. i'm a more victorian than anything else. i am not the time -- guide to give short-term advice, but i would say that the markets are asked -- acting very rationally. it is a human tragedy but it does not drive markets. erik: we have a great chart to show you.

matt: if you look at all of the terrorist events that we see in magnitude, starting here in new see bali, you madrid, the london bombings, and then will die, and then a long break until the charlie hebdo attack. after each ofrops these terrorist attacks, but he is to take news recovery. now takes three or four days. if your takeaways what you want to be is a long-term investor, because you want to ignore this, there is more pressure from hedge fund investors to be a short-term investor. , theemands they put on you fact that they change things so

much, how can one be a long-term investor, when the people who are giving you the dollars won't allow it? cliff asness: i think they are better than you think. i think there is this trend. i'm not denying it. good investing is about exactly that. i wills harder to day send the rewards will be bigger to doing it. i used to think being great and investor was genius. genius is still good. by more more i think it is about doing something reasonable that makes sense. and then sticking to it with incredible fortitude. stephanie: but how do you do that? take a look at what we have seen grow in the hedge fund community. vertical after vertical. community for outside your someone say get

out of here. had he invest in a time like this? cliff asness: you get fired by those people. you find other people that are out there. they invest with you and then you do well. you try to stay away from these people as much as possible. short-term ise years. people look at years to often. optimismk my method of is that there are more investors and more individuals who have a longer time horizon. the ship you are talking about is real. for the moment let's talk about some of the macro managers that are taking and paying geopolitical risk consultants

all kinds of money for advice that does not seem to matter. when you look at the relentless march upward of the market during times of geopolitical stress, it just leaves me wondering. cliff asness: why they pay so much money? paid a geopolitical analyst to my knowledge. it is a big firm. disciplinedng to a systematic manager. i do not believe that kind of stuff works very well. my kids have to go to work in connecticut. i am not sure if i can go home again. there are people who are more short-term. some have good track records. if you ask me, my honest opinion, it is not very

you need toavid: figure out a good plan, stay with the plant and do not get thrown off. but at what point do they say they have to get a plan? thef asness: i do not think global credit crisis was just an ignore it. most of the time you focus on why you're doing what you're doing. what the historical evidence is. and you stick with it. they found he was fantastic. -- not quite as fantastic his track record was phenomenal but human phenomenal. phenomenal wasg sticking with it for 35 years and really retreating.

that was a nice lesson that you have to be good, and very good. you cannot invest in a vacuum. investors makew mistakes, they were not looking at the global economy. you can be an investor in a tech company in texas, but did you not know where portugal was on a map, you were going to get smoked a 2008. at what point to you focus on your strategy? and at what point did you have a perspective? cliff asness: strategies tend to have a global perspective. ,ooking around the world quality of firms profitability, low risk to high risk. -- equal,e go dull low risk high profitability firms have tended to outperform

their offices in it is a bit of a puzzle. the kind of thing works very well with the value strategy. you have a nice combination. this -- it looks like a regular works. two out of three for a hundred years. mechanic said it worked like this, he would fire him. two out of three is not good on your car. if you have a process that artie does that, and you have a , youss for risk control want ask yourself a different question. do you deviate from your process? .hose situations are far rarer

stephanie: we're going to try to solve this puzzle in next hour. join the conversation, tell us what matters most. want -- what you want im?know from h we will be right back. you are watching bloomberg go. ♪

david: a live shot of people. many respects at the plaza in paris. tell us what is going on. in the league can see a real

difference right now between the charlie hebdo attack now you are looking behind me at the plaza. people have been gathering there , there were about 500 last night. they come to pay their respects and may leave. they are very much a city on it. people ask questions, they look at their cell phones. there was reduced traffic on the morning commute this morning. we're seeing a lot of stores are closed. i do not think we can expect socially or economically this is going to be over in the next couple of days. david: thank you. at 10:30 a.m. eastern time president obama will be holding a news conference from the g-20 summit in turkey he is attending. that will be live on bloomberg television. the wire so many hedge fund strategies failing? we will find that out from cliff asness on bloomberg go. ♪

erik: welcome back. founder in chief investment qr capital a management is here with us. i have a question for you. why are hedge funds failing so at least. we have a graph. matt: you can see the s&p 500 versus hedge fund returns. this is total returns over the past two years. he can see the s&p is out funded. this is macro strategies, equity strategies, mobile on. everything is underperforming. towould just be better

buy a tracker fund. with asness: we started new hedge fund hedge that is very unpopular in the hedge fund world. they do not hedge enough. the opposite is showing up. they charge too much. over time what they are supposed to do is hedge of the market risk, vita richard that is independent of the market, and they are supposed to do it at a reasonable price. erik: those look like when correlated returns. [laughter] cliff asness: the fluff size: i criticize them. and i have criticized them for those two things. the flip side is when they are not on hedged. they are not 100% long. i do not like that part because

the observation is right. you should get that from? goal for near zero. if you want to be not alone, he will give it to you for five basis points. you do not need hedge funds to take to a 20 out of a 40% long. but on the flipside they're not 100% long. criticize me for not being hedged, short-term and the bull market they're not fully invested. erik: we will go back to 1900 little bit later -- cliff asness: i wrote a blog iece about the length. over time i do think the criticism that they do this partially hedged thing and not fully hedged or invested, and they do charge too much for they do -- for what they do is appear criticism. stephanie: you have crowded --

criticize them for being too crowded. is this the cause of short-term investing? can a sergeant to disentangle the short-term investing because crowding is crowding and investing. it is an industry that has grown tremendously. tofinancial asset is immune being harder to make money. short-term is another problem. anyone under short-term pressure is going to find it more difficult. i think those counting other and make it harder. i just look at one or two years as a lagging bull market as evidence. i tend to be a critic. i just do not want to basis on a couple of years of lagging market. erik: are these strategies still

working? cliff asness: i think there is a lot of good stuff underlying what hedge fund managers do they provide n mergers that no one else provides. i think there are trends that exist on average. they keep going. added,tic followers have the strategies work. individual stockpicking if it is on things like value, quality, low risk, hedge funds have figured these out. the package that they put together for investors as an industry, clearly i would walk -- would not want someone to say this to me. the package that they put together is not fully has to not very transparent and too expensive. we know that it is hard to beat the market. when you go to hedge funds, we figure out how we can beat the market and we just were not charging enough before.

that is not going to hell. so i'm a critic, but i will not be sit on the short-term. it should be packaged better for investors. know that theld nasdaq and new york stock exchange are observing a minute silence. we will do the same.

erik: that was a minute of silence observed at the floor of the new york stock exchange and the nasdaq in, ration of the tragic death and the terrorist attacks on friday night in paris. be readingptain will the opening bell for his curse during the operation in afghanistan in 2012. stephanie: we actually have a question coming in from bloomberg or one of the reasons we have seen poor hedge fund performance because this is a moment where this is a regime change? gain,latility, steady

more choppy uncertainty in the market? otherasness: from the side, i think that is a pretty poor excuse. thepe i am the first to say short-term is tough. sometimes you make money, sometimes you lose money. if you make more than you lose you are doing a good job. but for a couple of years hedge funds complained there was not enough volatility. they talked about a boring market, not enough going on. , i would not buy it. there is no perfect market brady can make or lose money had any market. i do not think anyone will make money all the time. pointwill not say you can to the current environment and say who can make money now? they were getting out of macro trading. macro hedge fund investors were the original titans. it was a time when we had a whole lost -- lot less data.

given what we've seen around the world, hasn't made it significantly harder to be a macro investor? cliff asness: anything you is harder than it used to be when a lot of people know about it. stephanie: but only a few people have all the information, it was a much better time to trade. if you have more information, you should be more equipped to trade. cliff asness: more information, all else equal have a. more information than everyone else knows does not give you and edge. think there is confusion between getting information and processing information well. this is not a statement on current micromanagers. in 99, 2000, we were getting killed. we were on the wrong side of that. we thought it was crazy.

a year to early is excruciating. one of the things we heard was how can you say this is a rational they have every piece of information their fingertips -- ask their fingertips? the reason the internet to justify the internet bubble. what we learned is that people can get it right or wrong but more information does not lead to better decisions . but you talk about being short-term, information overload , i do not think it should make us into idiots. but at one point it does not continue to add it to your value. erik: is that not what you're trying to edit out? get the noise out of the signal? cliff asness: we will have tough times when other people don't. whathappens, because it is we tried to do. about whatnt to talk is going on with other people

and they do not want to be short-term about it. a lot of people are trying to do the same thing with the same information. erik: how much of this is a function of zero interest rate, and how much is a function, particularly in equities, but also in fixed income of market structure? cliff asness: i will be mean again. i think zero interest rates continues to be an excuse. hedgey to any fund strategy issue early cash flow premium. long might assure short plus cash. paul returns will be lower when cash is lower because you start at a lower base rate that is just valid. a 5% lower cash rate and they are as smart as they used to be, you are adding to a smaller number. equally andaffected i think markets are affected by the short rate also. i do not think it necessarily leads to fewer opportunities. if someone is yelling you are

making 5% less, that is a good excuse. if you are adding less on top of cash i do not think that is a fair excuse. david: so much is inherent in the structure of headphones. it is particular in the way were compensating. when you get 2% immediate 2% no matter what happens. it is interesting that you do not write a check to those people. doesn't inherently create a conflict of interest? cliff asness: yes. david: i love simple answers. cliff asness: the problem with the fees are not so much their structure but their level. there are strategies out there, and i'm not time you about -- talking about quite the high fees. aggressive, you

can consider whether you want an investment or investor wants to invest aggressively and they will have to pay a higher fee because they will have much less having because the take paper positions. performance fees, and a lot of them are message preferred. but if you add up these as the expected fee is very large first substantial value added and a lot of that return is coming exposed overtime. can that can be too high versus the good stuff. the strategies that are underlined. it would be a performance fee that was long-term, you need investors that will stick long-term and be two-sided. that would be better. but in the world we have i think the problem is more about the level of what is being done in the particular structure. stephanie: we saw you at the more -- most influential summit, and bonds notcks

usually that expensive at the same time. why? cliff asness: let's start with white. the measures that we like to look at, the most famous these days is the show j adjusted fee. -- but it is more expensive than 8.5 times or 10 times history. if you do the graph, you can get fooled and thinks it looks reasonable. thing.this in your if you want to look thin, stand next to fat people. that looks -- that works for me here. really, the else on the 10 year, over the long-term, low 90th

percentile of times. the techhose are not bubble. the tech bubble stocks were 1.5 times prior high. percentile is a tricky number. you can get no higher than the 100 percentile but you can get more expensive. neither are a bubble. .hey are very simple asset if you take a portfolio of the tube and put it together with ethan will portfolios more defensive than 100% of the time. ,hey were just about to begin the endpoint jumps around. they are not usually expensive, not usually in the 90 percentile. stocks were way worse, but bonds will give you 4% inflation for just showing up. erik: what is changing in the investors mind?

as you wrote, if you look at the schiller case adjusted over time, you see in the first half of the 20th century the average was 13.5. in the second half of the 20th century, it was 17. in the first half of this century we are only 15 years, it is 25 plus some of those elevated by the technology bubble. that is where we are right now. people are willing to pay more for earnings. cliff asness: if you're going to read my stuff, it is not going to be fair. [laughter] there are no certainties here. there are some theories. if they were certainties, it would be easy. but why do people pay higher ,ultiples today pretty steadily obviously we have dips and moves, but pretty steady moves of the last 60 years on stocks. is you do not care

about what you pay you care about what you make. --the past you do not or gerdau the returns on stock. you cannot get the whole market for a very low fee. people had more concentrated folders that higher fees. they do not earn as much and i .ad to take your works he cannot use that logic to say everything is ok and we will make historical returns. circular logic where you try to trick yourself. election -- you had actually use the lower number. erik: here's the thing i do not understand -- if he believes what he says, why are you also say at the same little momentum that

has been following is not such a bad idea? sending a little bit is ok? did you just spend the weekend reading my stuff, that has scary. stephanie: all the time. cliff asness: he wrote a paper about market timing, where there are two sets of people. overselling. and we think we're somewhere in the world -- in the middle. evaluation. where do we stand today versus history. bones and add a little bit of volume if you do them in moderation. trend following is night before -- it is the tendency that

assets will keep going. the trend is right now. it is in -- erik: unless you are anonymous on her microsoft. being an investment follower, that is where you to have hedge funds. erik: you may have seen the research. you were ones a prototyping goldman sachs and found out that these five stars, facebook, , amazon aree, ge part of the game. that is a trend that has only .merged they only last about four

months. which you write that line. the market as a whole, if you're going to send a little bit of time in the market, how it has been doing, and where is valued, let's talk about toys simply sells. i want to be sure 500 on the average is great. it has been a strong year for momentum investing in stock selection, not in the trend. it has been a relatively weak year for value investing. we still believe in both. we want to build a portfolio that does some of the other things i mentioned in the relative world. but i can report that we find very similar to them, that if you have let in been consistent

fairly consistent with my finding that it has been a year for best friend watchvery interesting to these markets. we saw markets dip down right before they closed. right now the cash markets are trading up about eight points right on the s&p 500 great eight -- s&p 500. in the bloomberg you have the imap up which is the heat map of different industries that are gaining. we saw a smattering of red and green about five minutes to go. it is turning all green, and energy is steadily moving up. the race here to be the big you can use it for any in a different index to see what the gators and losers are. ,ou are single energy names

marathon oil, all asset class gators. interesting, as he gave up its games. one reason is that david einhorn is talking at a robin hood meeting right now or some sort of conference, mentioning he is still interested in consol energy. let's take a look at what is going on over in europe. -- showing ithat to you this morning after the attack in paris. it came out throughout the day in europe. it is really unchanged at the close in paris. the euro touched a six-month low. we are looking at 10714. continuing to drop from early this morning. taking the brunt in the beating

of asset classes. stephanie: it is the robin hood investment conference. i will be there later today, speaking with jpmorgan leaders. we have an instant bloomberg , asking dost come in you believe that a list. wants to know when it will yield positive results? cliff asness: people say a lot of things about it. notion that the invalid by traditional risk is dominated by equities and is much more than 60% of return. we and many others think a that first geographic fo portfolio of stocks and bonds and risk

weightings that matter but not too much will long-term outperform. but as a complete strategic argument it is a long-term argument. everything else we're talking -- nothingnot a good is great, but those are better short-term. risk parity is about the next 10 or 20 years. i take they are diversified by risk portfolio without a damaged . it is a long talk to talk about how to make those the same. that is what a strategic allocation means. erik: i'm so glad you brought up long-term investing because it will be talking about that when we come back. the debate between public and private markets.

stephanie: welcome back to bloomberg go. let's take a quick check of the markets. we are trading flat but we do have some monday m&a to talk about. various international is buying for $2.4 million in cash and stock. this may be less than what some were expecting. it does create the biggest hotel company in the world. ceo sayspresident and that the greater scale of the deal should offer consumers a greater choice amongst brand. for $26ne bought hilton billion in 2007. marriott be out other competitors including hyatt. worriescase anyone has that airbnb is hurting hotels, do not worry. most are based off of business

travel. track is having treasured travel.ion returns ift lower those returns and public workers are lower. invest in public market. if you have the money you qualify and you are not subject to some kind of call on your dough. why not invest in private equity? i think bigs: institutions that can do it should put some into private assets. the profits that they should do this instead of -- let me -- i know iw ways am a broken record, you're

worried about your net not gross. in one of the investors that a fewbout private rolling times. let me tell you there is not a thing in the world you are not going to do at long-term if you can be the first four. cash all theofit private equity managers, all of the widget managers that you are in the top four of performance. he will do well. if you can do it, there is a case that many of can be savvy enough. if you can make that case, fine. private test of the subject to the same force. i'm going to guess they are paying higher prices are there at the game is to go public. you have to remember, a lot of these things have to end in the public record. evaluations regress to the mean, if they are paying anywhere near

elevator prices now which i'm guessing they are, they are links to the public market. to the extent you think have an to the extent you think you can find good managers, you should have allocations. what can they do that people do not? they have their money tomorrow. being a little liquid should have a return for you. but i think it is subject to the same forces that public markets are. i think you should always be looking at them a few have that capability. stephanie: all the magic and love we have given to private equity in last three years and the private funds, is it just because they giving such part of investing? cliff asness: i have a long history of complaining about this. i go back to my goldman sachs days about a 20-year-old story. you had a manager stating over it. there was october 1997, the

asian debt markets that we crash that they. i said we are flat, and he says me too. and i said no, you're not. i said are you not leveraged small and cap? would you not be down a lot if you had to sell today? audience -- but he said he did not have to sell today. that is a little bit of shooting in my mind. we can reduce private equity. today.ittle less cynical i think most investors are smarter than that. i think they give it and there a ulysses tied to the mass concept. it is better to be disciplined

.ithout it if you have the option to get out of her day you might at the wrong time. not my field, not what i do. but they investors almost tying themselves to the mass. david: there are certain market imperfections that more people can look for and identify. that probably is right. ? imagine a world without this. you would have to create it. smaller companies and needed from the public -- stephanie: president obama has taken the stage. he is speaking right now. >> i have been practicing this. or focus was on how to get the global economy growing faster and creating more jobs for our people. i'm pleased that we agreed that

it be inclusive to address the rising inequality around the world. even growing cyber threats, we committed to a set of normalcy for how governments should conduct themselves in cyprus days, including a get agreement stopping theft of private property for commercial gain. we pledge to work together very successful outcomes in paris. of course, much of our attention has focused on the heinous attacks that took place in paris. across the world, in the united states, the american flags are , in solidarity with our french allies. we are working closely with our french partners as they pursue their investigations and track

down suspects. france is already a strong counterterrorism partner and today we're announcing a new agreement and we are streamlining the process by which we share intelligence and informationmilitary with france. ability tollow our transfer information more quickly and more often because we need to do everything we can to detect against more attacks and protect our citizens. tragically, paris is not alone. attacksseen outrageous beirut, last month in and cara, entertainingly in iraq. here at the g-20 are nations have an unshakable message, that we are united against this threat. isil is the face of evil.

our goal, as i have said many times is to degrade and ultimately destroy this barbaric work. we have always understood that this would be a long-term campaign. there will be setbacks and there will be successes. the terrible events in paris were obviously a terrible and sickening setback. even as we grieve with our french friends, we cannot lose sight that there has been progress being made. on the military front our coalition is intensifying our airstrike. more than 8000 to date. we are taking out isil leaders, commanders, their killers. we have seen that when we have

an effective partner on the ground isil can and is pushed back. two local forces in iraq. are fightingces stick-back ramadi in syria. back.been pushed support ofing up those working to break supply lines and strongholds. isilin iraq and syria, controls less people than it did before. i've made the point of my fellow leaders that if we want to congress to be sustained, were nations need to step up with the resources that this fight demands. of course the attacks on paris remind us that it will not be enough to defeat isil in syria and iraq alone. nations have these

border controls, sharing more -- weation and sherry will continue to stand with leaders in muslim communities, including faith leaders or the best voices to discredit isil's warped ideology. arehe humanitarian front, nations agreed that we have to do even more individually and collectively to address the agony of the syrian people. the united states is already the largest donor of humanitarian aid to the syrian people. so far.5 billion in aid as winter approaches we're donating additional supplies including clothing and generators through the united nations. but the appeal for syria has less than half the funds needed. i begin calling on more nations to contribute resources that this crisis commands.

in terms of refugees, it is clear that countries like turkey, lebanon, and jordan, which are already bearing an extraordinary burden cannot he expected to do so alone. at the same time all of our countries have to ensure our security. to ensure the safety of the american people. as we accept more refugees, including syrians, we do so only after rigorous stripping of the sick the scraping of the suretyship. many of these victims are the victims of terrorism themselves. refugeesns can welcome who are seeking safety and ensure our own security. we can and want to do both. somely, we begin to see modest progress on the diplomatic front, which is

critical because a political solution is the only way to end the war in syria and unite the syrian people and the world against isil. the vienna talks marked all the key countries coming together. of american leadership and reached a common understanding. there was a path forward this weekend. a transition toward a more inclusive representative government. a new constitution followed by free elections, and alongside this political process a cease-fire in the civil war even as we continue to fight against isil. .hese are very ambitious will -- folks have been dashed before. s of ways number this could falter. there are disagreements between the parties including over the fate of bashar al-assad who we

do not believe has a role in syria's future because of his brutal rule, his war against the syrian people. what is different this time and gives us some degree of hope is that i said for the first time that all major countries on all five of the conflict agree on a process needed to end this war. while we are clear eyed about the road still ahead, the united states in partnership with our coalition, is going to remain relentless on all fronts, military, humanitarian, and diplomatic. we have the right strategy and we're going to see it through. with that, i'm going to take some questions and i will begin with jerome of the ap.