♪ opec says oil demand will continue to slide into the end of the decade. risky business. british exit from the european union is the first and biggest threat to the european economy. nike outruns the china slowdown. good morning, this is bloomberg "surveillance." i am guy johnson in london with tom keene in new york. it is pretty quiet over here.

when the options are done, everyone is done. ready for christmas. traffic in new york have settled down. james steelewhen will join us, we will talk to him about cold links to other commodities. larry summers with a terrific blog, i will feature that as my morning must-read. guy: he is pretty concerned about what the fed is up to. think you very much. what a show we have lined up. if you're sitting at home, maybe wrapping a few presents, this is the show to watch. tom: i haven't started shopping, yet. guy: is that why it is so quiet over there, i think you will have an easy run of that. vonnie: i know you're both

joking, you just don't want to tell me what you got me. the high-ranking officer asked that it will take some time for the iraqi forces to retake ramadi. they are in a battle in the center of the city. the capital was seized by the islamic state last may. accusing russia of killing hundreds of civilians in syria. they have conducted airstrikes since late sip timber. they say that russia is using unguided arms. some unguided cluster bombs remain unexploded after the fighting ends, later maiming or killing civilians. in ther was found alive rubble of a china landslide 60 hours after the disaster. three dozen buildings were varied, trapping people inside.

three dozen people are missing. .com faces charges of -- it will not be as crowded during the next republican presidential debate. toy will use new criteria decide those that make prime time. that could mean as few as 6 candidates could did they. .- could debate military officials say a streak of light seen in the western u.s. was debris from a russian rocket. it produced a fireball while .eentering the atmosphere it amazed skywatchers in arizona , colorado, and nevada. i am vonnie quinn. opec is showing headlines.

we know this is coming. the phrase for the rest of the decade gets my attention. they do not see a demand pickup. vonnie: saying it was like 20. it is a little bit of a positive spin. 30.7 million barrels a day by the end of the decade. tom: not much going on, the second day in a row. the equities got a nice lift, the yield going nowhere. 34 of toroup with a 36.4 five. what do you have this morning? you on anl take energy journey. i want to show you the first one and the second one. nymex crude. the spread is absolutely tiny. tlc 01.

that gives you the spread between wti and brett. the ftse is up nicely and the nymex is surging. tom: you just like the color green. vonnie: why is nymex lower than brent? that this iser is a rare thing. the global price, for those of you watching in america, it is always brent. where is the wage growth? the answer is it is not. this is the intergraph. wage growth past 10 years or 15 years ago. 1.5 percent inflation adjusted wage growth. we should feel phenomenal. vonnie: look at the direction. this is one of the points on janet yellen's dashboard.

she pointed to this on several occasions. herewhy do we feel good and not here? most of this movement is due to know inflation. as wehart explains a lot go into january and the march meeting. get us started with our guest. guy: good morning, james. james barty, european equity strategy for merrill lynch. had you get to that number? how do we deliver? james: part of the attraction is that in a world of low classes, weasset calculated that european dividends will be between 3% and 3.75%. we have a growth rate of dividends up about 5%. compare that to every other

asset class. given the ongoing recovery we can deliver 7% earnings growth. that is where the numbers come from. guy: if big oil could not sustain its dividend, how does that change your numbers? james: it doesn't. many say the dividend in europe is a function of the commodities sector, but it is only 12% of european dividends. even if they half, the story remains intact. we on the are sensitive debate of continental comingn management are more like the anglo-saxon model? this is something no one talks about in polite company. we are not in polite company, guy is with us. where is the trend to act more like those crazy americans with use of cash? do we move the needle at all?

james: there is a fundamental difference with what europeans do with their cash and americans do with their cash. part of it is tax driven. in america there is an incentive for cash buybacks. in europe there is a preference for dividend payments. if you look at what companies are doing and raising dividend payments, european companies are doing what they should be doing, and american companies are doing buybacks. tom: what about eastern europe? -- oddities buying companies eastern europe, what about the of security about buying shares in eastern europe? james: i'm not the eastern european strategist of merrill lynch. as an asset class, we think it is ok. there's plenty to be developed, but that has to go into the emerging market space. taking european banks, they are

on 10 times earnings. if our numbers are right they will be sitting on a 5% positivity yield. guy: adjust your numbers for european investors. james: our strategists have dollar-euro and 95. the currency adjuster does not look that great. there are plenty of ways to hedge or currency. guy: you still expect u.s. investors to put money to work in europe, they will just hedge it out. that is where the flow will come from to drive european equities higher. james: we have 2 forms of flow. one is out of the states, that tends to be currency hedged. the second tends to be people coming out of other asset classes, things like corporate bonds. they have been hunting income. the flow has been dividend bonds. tom: you have to love someone

that quotes sidney homer. you have a chart that goes back 5000 years. i want to congratulate you on that. what can we learn from an interest rate chart acts 5000 years? james: interest rates are at unprecedented low levels. it is a function of what central banks had to put in place to generate recovery from the financial crisis. they talk about the financial crisis causing a long dated recoveries because we have to build a financial sector. that is why banks have had to take unprecedented actions to stimulate economies with unconventional means. it has largely been broken. the monetary policy into the real economy, that is why they have to go down different routes in terms of buying government and mortgage bonds to stimulate the economy in other ways.

that shows, notwithstanding the low interest rates in 5000 years, we still have a tepid recovery. the ecb will remain for a long time, and the fed will have to go gently with its timing next year. tom: i believe that england lost 1790, inies in 1780 or don't know if you recall that. guy: i been trying to forget ever since. tom: that is a cool chart from sidney homer. james barty with brilliant research. we will continue with the brilliance. one of our most popular guests, james steel. not only on gold, but on the microeconomics, the culture, the fabric of the precious metals. ♪

tom: there is no other theme across all of america. i know that guy johnson is saying that london is warm, as well. it is beyond it. in new york, we may touch 70 degrees. what is that in center great -- what is that in centrigate? vonnie: i think it means centigrade.cente part of thebiggest u.s. economy was gaining momentum and to the shopping season. spending is down 310 survey percent.

percent.f a released early by the bureau of economic analysis' website. the biggest risk facing the european economy is a british departure from the european union. 32% said the buildup to a brexit. the presidential elections did not feature in the list of concerns. staying with a gdp, they grew less than expected. growth is losing some momentum. it has been a record year for mergers and acquisitions. that is according to data compiled by bloomberg. there have been 3700 deals completed. roughly one in every four employees at goldman sachs. that is our bloomberg business

flash. 2016 will saying that be bigger by volume, if not by dollar amount. tom: maybe smaller deals, as well. guy: let's talk about the oil story we were referencing. opec says that demand for crude will continue to slide until 2020 as rival supplies grow. it comes at a week when oil .rices sank to an 11 year low let's bring in our chief energy correspondent. in a surprise with what opec is saying? >> what opec is saying is that the war for market share will take a long time. hisit -- he is basing forecast on 100 $10 by 2020. now he is assuming $80 by 2020. that could be optimistic.

non-opec countries will be very resilient. guy: that is not a surprise, but it is something that has caught a lot of people off age. how hard it has been to winkle out. yours producers have provided them with a little bit of hedging, but it is a harder battle to win that opec originally thought. >> have a lot of momentum. we have five years or six years of $100 royal. $100. that has come in on a stream right now. the other thing you have to take into account is the currency impact. the ruble, the canadian dollar, the u.s. dollar -- that is the lighting. the companies operating in russia are not feeling $30 oil, they are feeling $50 oil.

tom: what we will do a james steel, we will bring this forward. going back to the low, oil of two $100 a barrel. it is a normalized chart. it shows oil collapsing and going through the lehman low gold migrates back. i do not want to make a correlation between oil and gold, but it is a correlation of the dollar. the strong dollar is critical for oil? >> it is absolutely critical. fed increasing rates, already probably going in 2016, we will see more pressure across the commodity sector. for loyal that will be a problem. that is why they are taking a negative view in it to 2016. tom: thank you. we will see you through the week into next year. writes up a storm

on hydrocarbons for bloomberg news. goals, oil, or interest rates. james borgwarner interesting -- bory with interesting views. ♪

♪ back.elcome i'm guy johnson in london with tom keene in new york. it is a chilly 11 degrees celsius. tom: stop with this.

i need to go to the fahrenheit converter. guy: i have it up in front of me. 51.8 to be per se's. nice and warm, but not as warm as new york. it is sunny. look at that blue sky. the morning must-read from this side of the atlantic, i think it crosses the atlantic well. a piece in the financial times. it is basically about the danger of taking roads out of oxford. clearly this is something we have talked about with woodrow wilson at princeton, a similar story. what it says is that airbrushing out figures because they offend our contemporary values is no way to approach history. if the students at oxford don't understand this point, they should question why they are at university of all -- at all. it is right to be alarmed at the

lack of racial equality, but they need to open their minds. tom: it is a big deal in the united states as well. have to be careful. i have opinions i am not allowed to give. vonnie: last thursday, new orleans about it over the city council voted to remove 4 statues that were huge part of the center of the city, including one of robert e. lee, jefferson davis, and beauregard. the idea is that the museum is the place for those. tom: i.r. number the quality of under the football stadium at the university of colorado the morning after they can't state shootings. i don't know what else to say. guy: i find it hard to follow up on that, to be honest. tom: we are about stuff that is politically correct, when there was real tension, including when maybe mr. rose was alive.

i find it charming we are having this debate. discussion toood have. think about the names associated hodes. goes tothat it surrounding how race relations work, particularly in higher education. barty went to tragedy. to the students have a point? james: those sites have a point. i come down on the side of the t brady have to be careful about airbrushing history. the rhodes scholars has been a great program. there is some stuff by saying is that a great job of educating people in bringing through. they have added a lot to the world. you can keep it there and have a

debate around it. that the police who are living in in modern times, and you have to make sure not to disenfranchise anybody. 1970, i was sitting in a room as we were in shock getting shot at kent state. coming up on bloomberg "surveillance", we are joined by howard davidowitz. holiday retail, tomorrow. stay with us, bloomberg "surveillance." ♪ the only way to get better is to challenge yourself,

and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20.

it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. ♪ tom: it has a december 23 take to it. watching the gold at 10.70. james steel will join us in our

next hour. now, vonnie quinn with the bloomberg first word news. a human rights group said russia could be guilty of war crimes in syria. and it strikes have killed civilians and caused widespread damage. many facilities have been destroyed. they say that russia used unguided weapons and cluster bonds in densely populated areas. pushing back against the islamic state in a key city. are in a battle for ramadi.y of they say will be a long fight, but the recapture of the city by iraq is inevitable. a man was found 60 hours after the landslide in china. 70 are still missing.

it will not be as crowded during the next republican presidential debate. the network will use new criteria to pick those who make prime time. tot could limit the debate 6. a preliminary forum will be held for the rest of the 13 hopefuls. news 24 hours a day. guy? tragedy5 was marred by for france with paris suffering in januaryattacks and november. how will that play out in 2016? we are joined by eurasia group associate charles lichfield. james barty is still with us. for many be remembered things in france, but front and center will be charlie hebdo and the attack on the 13.

on the recovery story. how will that play into politics and the french economy, charles? charles: the attacks will be what i remembered from 2015. you already said that francois hollande is trying to use the partyal unity to show his is in control. not only of security, but taking care of the economy to ensure france has a future in the 21st century. given the division on the center right, he has a better chance. think it will be used? telling people she is the only person i can protect the french by redirecting the borders. you have seen her popularity grow to 30%. that does not when sheikh -- that does not mean she can win

power. remaining french voters would like jobs. that goes for huge part of europe. one of the best papers that i read was on the shadow employment economy in europe. let's bring up a chart. france and germany. for years, the red line did better than germany that crossed during the financial crisis. those unemployment's are elevated. 10% or so.france, of what will they do to create jobs, especially with the dynamic of one million migrants? charles: it will be difficult. the million migrants will not come onto the job market straightaway. we have to look at reforms before we think about the migrants. reform itsrying to economy. there's not a consensus to take courageous measures, but they

are trying. you will see interesting measures taken in march. when the migrants come in, most stimulant will go to germany. germany is a country which needed quite a lot of low skilled labor to come into the market. you will see a lot of german industrial champions and employers in smaller enterprises privately saying they're happy a lot of people are going to germany and can work with them, maybe later in 2016 when i have learned a bit of german. guy: one thing people have said that is lacking in the european recovery story has been a fiscal impulse. do you think the terror story on debtovide a raise for the fiscal impulse to become a reality? pitch ise fiscal starting to move toward more stimulus starts in europe.

it is marginal. we've gone from austerity to a marginal expansion. real work is being done with the ecb. i can agree with the previous speaker, what you need is structural reform in the labor market, particularly in france. we're slowly but surely seeing that. that means that labor has less power in europe, meaning it will take longer for the ecb to get to their inflation target and they will have to keep monetary policy for longer. guy: when we look at the fiscal story, james says it has already started, but will be relatively small. what will we see in terms of and the in migration terror story? we heard after the attack large numbers being talking about -- bank talks about by francois hollande. what would that look like in terms of a meaningful impact on the economy?

charles: more spending. in the grand scheme, the state is reducing its spending and deficits. not the same as germany and they will not obtain a balanced budget, but they are bringing it down. it is not expansionary just because of spending on security. after the attacks, president hollande said that the economy exceeded the terry rule and was -- exceeded the budgetary role and was more to reassure the french. the wordnailed discipline. to the people of europe and france, do they want discipline and their politicians? certainly. .hat is a very difficult word you have to think about what it applies to. in terms of spending, it is fashionable in europe that you do not want to suspend lots of

money and in part debt on future generations. they expect politicians to think about risks and provide prosperity now. europeans have rather difficult expectations, they set the bar high for politicians. politicians have to run after different commitments. tom: james barty is with us, a brilliant researcher from the bank of america merrill lynch. of hsbc will be along. he is enormous on gold and will be worth us for the entire 6:00 hour. ♪

♪ >> it will never work. when did we forget that? it is getting rave reviews. after you spend a lot of money watching star wars, go see "the big short." a lovely review in the new york times. going back to some of the tude.te -- assertatti christian bale can play drums, great. lots of screens. they have vintage bloomberg screens. vonnie: i bet he knows more about the bloomberg terminal than we do, he is an immersive

actor. we should get him. it.going to see it is my christmas day movie. i read the book and -- i read the book a long time ago. tom: what do we have? guy: i'm looking forward to seeing the film. the 2 biggest risks on the fate of the u.k. economy are the , accordingthe brexit to a bloomberg survey of economists. they can never agree on anything, but i can agree on number one and number two. why is it one and two? vote don't know when the will be held. when you are asking people what they expect for 2016, you can say i'm expecting concern about a potential vote, because it might not happen. we had to ask what you think about the risk of the u.k.

leaving rather than the buildup to the referendum? guy: it is a before and after kind of risk. how concerned are they? if you put the two together, it is 56%. then, the concern tails off. nothing is above 9%. guy: the fed does not registered? jennifer: yeah, it is like janet who? guy: are we overdoing it? how big is the risk? james: significant. if you look at the latest , probably have 55% and 45% in the lead. given where we were in the s&p polls, you can imagine a swing toward the leave camp. the reason i think it is so charged is not a big chunk of

the conservative party wants to leave. cameron is trying to old the government together. it will be tricky. he needs to bring enough back to europe to keep them together and run the campaign. there is always a danger of a referendum that it will go the wrong way. tom: you are hardwired to the fabric of the many londons. what happens to london the day after the brexit gets passed? jennifer: all trade agreements are in the air and have to be renegotiated. what is a big industry? finance. instead of having one enormous agreement, you have to have bilateral agreements with different countries. all that do if you are a u.k. fund manager and now you have to compete with people across the channel?

your cost make a lot because you are in the midst of renegotiation. some cost you may have shared with your counterpart in europe you now have to bury yourself. tom: what people want to funnel money to save halls cathedral or the bank of merrill lynch? i don't get the morning after angst. james: the u.k. will still exist if there is a vote to leave, but we think it will do damage. guy: we hope so. will: we do think it damage the economy. there is a risk you will not be able to passport in. there is a risk of the single market might be more difficult. the party will have to say europe will have to deal with us, under what terms will europe do that deal? we would need to leave to be a low single-digit of gdp. it is significant and will hurt

the u.k. economy in our opinion. plenty of- there are people supporting the idea the u.k. should leave. they believe the u.k. would be better off, that london would be better off. lackwon't face the kind of of influence the british government has on finance of the whole of two u.k. how easy is it to stand up that argument? it hangs on the negotiations you are able to achieve in the years following the vote. guy: this does not happen on a monday morning. it is 2 years of potential negotiation. jennifer: it is impossible to say with certainty there will be a competitive advantage. you have to look at it as an international investor. here is the pound, the smaller nation without the big international clout being a member of a bigger trading block

. is it easier to invest in trade there or to go somewhere with her as a single currency and agreement? tom: what is your number one thing you are thinking about next year? what is the single thing jennifer ryan is thinking about? jennifer: when will the bank of england raise interest rates? of what it said this at the beginning of 2015. we have seen the fed move, will the bank of england follow immediately thereafter? until you can see evidence inflation will pick up, it will be hard for inflation targeting central bank to move. tom: jennifer ryan with bloomberg news in london. coming up, thomas farley will drop by. he works for the nysc group president. they have a museum. tom farley on bloomberg . ♪

♪ -- a fogg

g is over much of america. washington dc on a foggy morning. now, let's get to our business flash. its crudeec says that will keep sliding until 20 20 as rival supplies grow. the oil outlook says that it will need 37 million barrels a day by the end of the decade. brent crude futures added 11 year low earlier this week. china wasrts from sold at unfairly low prices and will be taxed at 200 56% according to a finding by the commerce department. imports from china -- from

india, south korea, and india will also be taxed at lower rates. asset management, the hedge fund manager owned by carlyle group, suffered withdrawal request from the first quarter. below the peak for assets last year. then struggled over the last 15 months with poor performance and an investor exodus. it keeps going. the bank of america merrill lynch, still with us. we have not talked about the 2015 and 2016. that mario draghi isn't done. there are people that have believed when things went a little better for germany, they

would keep going. james: i suspect that is why they disappointed. our view is that the ecb will fail to meet the inflation target because of the phillips curve argument. the phillips curve appears to be disappearing or flattening. you are getting no pickup in wage inflation. then you do not get a pickup in core inflation. when the ecb reviews is inflation forecast, it will find it is missing its forecast. they will have to go with more qe -- this has not since worked? you talked about the migration story and how that flattened the wage story. how much longer will we be talking about how the ecb will have to do more and more? james: for a number of years, frankly. we need wage and collation. if you look at what has happened in the u.s. and u.k., we are

still waiting for the wage inflation pickup six years into the recovery. waiting six years into recovery. distinction you have to work with that ethan harris does not. or 22 separate nations. will that work out if there is no combined fiscal holocene, no united states of europe? james: i want to throw that one back. i'm not sure there is a fiscal strategy in the u.s. given the battle between congress and the president over where the fiscal debt goes. fiscal policy in europe has largely finished tightening. it is slightly loosening going forward. the ecb has to push the growth. the ecb monetary policy plus structure reform will eventually

sort out your. you could not get all of the policies together, but there are problems the u.s. doing that as about. what i do see is more labor market flexibility. i see a central bank doing its job. central deficits that have come down. that is not a bad backdrop. is, is theretion double-digit returns in europe because europe has been so beaten down? james: the double-digit returns in europe is partly because, as we talked about earlier, because europe has a yield, a recovery, meaning growth can pick up, or the u.s.pe has lagged and japan and its earning growth. that will pick up in the next couple of years. nextthe way they solve for year was when does the bank of england raise rates? back to the issue of wage

,rowth, you said in the break you were sitting there when he said he would raise rates. he hasn't. he continues to oscillate around if he will be able to do so. what do you see in the u.k. that will provide any upside for mark carney to deliver? at the bank ofs england were focusing on wage growth picking up. that has disappeared. as long as wage inflation is under control it will be difficult. they will try to inflate in 2016, that perhaps later than we thought before. tom: is janet yellen going to in 2016, i europe wish you go discrete and domestic with the united states? james: i think janet yellen will have to go cautiously. we are in unprecedented austerity.

you saw the chart from 5000 years, no one has tightened monetary policy with a balance sheet like this. she will go cautiously. she will look at the u.s. economy. with the ecb is doing in europe affects the dollar, the dollar-euro, and her strategy. tom: thank you. particularly the 5000 year chart . even i've was not around 9000 years ago when rates were higher around 5000not years ago when rates were higher than they are today. join us.el will this is must watch. james steel on gold. another hour of bloomberg "surveillance." ♪

tom: it is a flat 2015 for stocks, the new volatility under

the new mediocre makes well predictions for a flat 2016. what will bonds do? oil tanks from $100 a barrel. in this hour, james deal says -- james steel says the nightmare is over. and you cannot make money in stocks. that will buy you a nice set of nike's point, did they do well. this is "bloomberg surveillance. " it is about time i start my christmas shopping, december 23. we will look at the cross asset you of commodities and bond. guy: i think it will be interesting to talk about commodities. comes,at turn finally there is going to be some money to make. i am looking forward to getting some insight to what is going to happen. when it will happen, in particularly. we are in original

territory. the certitude of our first word news. here is vonnie quinn. vonnie: a u.s. military spokesman says the defeat of is inevitable,y but it will not be easy. the gains are the biggest by government troops and ramadi since they seized the s may. government reinforcements are rushing to the scene to battle the taliban. troops in the southern helm and district -- troops in the southern helmand district called for help. the afghan defense minister says downity have been pinned for days by the militants. a human rights group is accusing russia of killing hundreds of civilians. saysty international russia is using cluster bombs and unguided weapons in densely populated areas in syria. the governor of washington state

's depending prisoner releases until a computer glitch that freed inmates early is fixed more than 3000 prisoners have been released in error since 2002. most of the errors were small, but a few inmates got out nearly two years early. military officials say a streak of light seen in the u.s. last night was debris from a russian rocket. it produced a fireball while burning up in the atmosphere. it amazed skywatchers in arizona, nevada, and california are in -- and california. i am vonnie quinn. check note do a data even two screens today. we are going to get equity markets. the 10-year yield does nothing. george bory is nodding off steel's6.47 and james 1071 announced.

guy: look at that, 36.36. that is what the export story has done. the ftse is up today. it is the metals and the mining stocks that are pushing attire as well. -- that are pushing us higher as well. it is trading sharply to the upside. tom: let's go over to one of the great themes for next year. this is wage growth, when it was good back in 2000 e-2004. adjusted for inflation, maybe that is average on the way. all of this ugliness, and we come back. wage growth is ok, but inflation is next to nothing. so you get the elevated perception. donna -- like neil like neil donna thinks it is good.

we are thrilled to bring you james steel with hsbc. is gold, gold, gold. george bory is with us. he is going to be on a roadshow bostonrock star -- january 6, chicago january 7, jet lag in minneapolis. let me cut to the chase of wells fargo clients. his financial repression still with us? >> i think it is still with us but it is starting to relieve, and you saw that over the course of this year. if you look across asset classes, across returns, repression has started to live, and it is having meaningful implications on how companies are funding themselves, access i capital, and importantly, think the corporate strategies as we go into next year. away from your

world and away from james steel's world. bring up the chart, if you would. this is the equity chart of the dow market. bring that up if you would. we are getting that up in the control room. it was christmas cookies, 90 proof. they are working a little slow. standardhe dow, two deviations, and we e back on trend after some enthusiasm. how do equities as competition play into the bo market yak of georg it is an alternative to bonds. bonds returns this year depend on where you were. investment grade returns were roughly minus half a percen down, whereas high yield is down almost 7% year to date, and that compares with a flat equity market. if you look at returns this year, what is notable about them is that they are compressed. you are sort of plus or minus 4% for a few outliers.

but there is quite a bit of compression, and i think that goes to your first question about repression and financial repression. as that repression is released, as the fed starts to raise rates, as central banks the verge in terms of strategy and companies react, you will see a greater dispersion of potential returns, and you will start to see money shift accordingly. guy: you talk about the ending of financial repression, though. we live in a world where the fed balance sheet is absolutely enormous and is lifting rates from a place that we have never been before and is going to raise them slowly. it will not be a big shift, is it? george: i do not think it is a big shift. there is still a tremendous amount of repression around the world. central banks in europe and asia mode,ry much in easing trying to engineer recovery in their respective economies.

but what started as kind of the first inclination of relief started 2.5 years ago with the infamous taper tantrum. that was the first nod to financial markets that the policy shift was ultimately coming, and we have seen how financial markets have reacted. it has been a struggle. you have seen compressed returns, diverging trends across commodities, across rates, across credit, and across equities, and i think that trend is set to continue as we go into next year. w's are do we think going to go up this year when inflation shows no sign of picking up in any meaningful way? yes, we are going to get an event out of the commodity market, but inflation in real term is not going to pick up. george: we think it will creep higher at least in the u.s.

fed, it isth the moving toward tighter policy. that will allow yields to come up a bit. the trend and the amount of uplift in yield is very much under can -- is very much under discussion. it will be hard for yields to move up substantially, but they should move up. tom: that as a backdrop of the financial system. james steel, do you care about what is going on in these asset classes, or his goal just its own east based on china or india dynamics? if you look 10 years ago, it was not an issue at all. a dual status as a currency and a commodity, so in that sense we are certainly affected very much by the fixed income markets, but notably by the currency markets more than anything else. and especially dollar-euro.

gold tends to be positively collated with whatever the world's second reserve currency is. that is the euro. now it was the yen. tom: if we get consensus calls through parity, as a talking point, what is that to -- what does that do to gold? james: it would take gold lower, and that has been the case for the last couple of years. us, fores steel is with our next section on gold. are -- james: we think the dollar will push back against the g 10. tom: finally a bottom in gold. we are going to look at that next. we have a couple of great charts. george bory, james steel with us. futures up 2. this is "bloomberg surveillance

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guy: welcome back. this is "bloomberg surveillance." i'm guy johnson. the sun is out. it has been a little chillier than it has been of late your it 51 degrees. vonnie: guy johnson. guy: i have been converted, quite literally. give me the number business flash. vonnie: consumer purchases climbed in november by the largest in three months. was tough $.4 trillion at an annualized rate. the data was to be made public today but was released by the

bureau of economic analysis website. turing pharmaceuticals says it is cutting jobs and looking for a permanent chief executive officer. martin shkreli last week was arrested in new york, accused of lying to investors and illegally taking assets from one of his other companies to cover losses. blockbusters like "star wars" the force awakens, and "drastic ."rld -- and "jurassic world just over $11 billion. it would surpass the current market, $10.9 billion from 2013. that is our "bloomberg business flash." tom: did you go see it? vonnie: i saw it last weekend.

ofn i have to do a whole day academy nominated films. i want to see the spike lee movie. it is a good season for movies. tom: this is exciting. james steel with us, and george bory from wells fargo. from hsbcl is with us on gold and the absolute reality is that it has been a bear market and you are finally calling bottom. it has to do with currency and dts. this is gold, inflation adjusted to 1947 when the play should numbers click in. the numbers clicked in. james: we have now a substantial part of the world that is active in the gold market, which had not been the case previously. do not forget that gold was

suppressed for a very long time, with bretton woods right into the 70's. so this huge rally we had into the 1970's leading up to the end of that decade was a hair trigger mechanism. tom: nixon releasing, etc. james: exactly. and with inflation decades later the gold arc it has called -- has-- with the gold market called banged down. tom:'s gold and inflation hedge? is gold a currency? what the hell is it? james: i think it is a good portfolio diverse of fire. or.iversify there is a markup on jewelry. to get different jewelry prices all over the world, in china and india, the price of the jewelry is much closer to the actual price of all you. -- of bullion.

you have more options to you than the person in china or india buying gold. so you see a fuzzy intermingling , where gold is a jewelry item and an investment item. where someone like you, or anyone in the oecd which strictly delineate gold for jewelry, adornment, and investment in you use different vehicles for each of them. questions ask you a about what happens. you talked about currencies in the last block. i want to get your take about what impact iran is having to production. iran was badly beaten up, but what that is allowing in russia and elsewhere is the fact that that is allowing producers to stay in business because they are not dealing with gold prices at these low levels. effectively currency adjusted is a very different story for them. james: that is correct and what these producers do outside the

u.s. and the dollar bloc is that most of their costs are in local currency terms, especially labor and local electricity and power charges three they sell in dollars, so the fact that gold has gone down has been offset by the weakness of their currency against the dollar. that has also been the case in platinum in south africa. for instance, the ptm's. one of the differences in gold compared to other commodities is because it is never consumed, you have these enormous aboveground stocks. theoretically -- i do not think we will -- but we could see a reduction in mine output. tom: this is north of kings .anding they make it into swords or something like that with open -- with "games." of thrones." the collapse of

commodities -- lehman -- oil goes up, down below the lehman lows, and gold not doing much better. two george bory's world, which is a new low terminal value -- does gold have a new low terminal value within his calculus? james: it depends on what rates do. gold has already had plenty of time, and i imagine other too, has had plenty of time to react. this will be the most telegraphed rate rise we have just had. the market has built this in, and i think gold in particular -- it has always been an excellent barometer of the way the market is going to -- tom: what is it telling you right now? james: there will be some gradual rate rises. tom: james steel.

george bory is speechless over that. respecting -- we expected doom and gloom from james steel, but we do not get it today. morning, toter this talk about listed securities, the state of the new york stock exchange. thomas farley will be on "number "bloomberg go." it is a golden morning in new york. ♪

guy: welcome back.

you are watching "surveillance." i am guy johnson in london. tom keene is in new york and we live in a multipolar world, tom keene. the morning must-read. the larry summers piece from last night. i read it, i just reread it, and there are some asininity point in there. -- there are some fascinating points in there. tom: there really are. he takes it back to secular stagnation. secular stagnation is the curveesis that the i.s. so shifted back and down that the real interest rate consistent with full employment has declined. terminalhe new low rate. "the fed is failing to recognize it transmission from the rest of the world." this is an exceptionally smart essay from professor summers out

of harvard, the former secretary of the treasury. george, this is the important focus that everybody in the media is looking at the money curve. janet yellen, mario draghi. there is a real economy out there, and larry summers is saying hello, what about the real economy? george: people are fixated on what janet yellen and the fed are doing. but the reality is, monetary policy, financial credit conditions have been tightening for two years. corporate borrowing rates have gone up. they have gone up substantially. we are talking about james." james'e talking about mining companies. you are going to have a hard time raising money, and the cost is going to be much higher than it has been in the last several years. dropyou could hear a pin

when secretary summers talked about the word "stagnation." do you and john silvia work within ieu of you -- a mil american stagnation? are central forecast is roughly 2.5% growth next year, a little bit better but basically on par with the conditions we have seen this year. we are not really forecasting out right stagnation. how that mixes in the underlying, which sectors are doing well, which parts of the economy are doing well, is critically important. 2% inflationis a rate target the right number? a reasonable forecast. we have seen core inflation drift a little bit higher, and the expectation is over time we will ultimately get there. it does seem consistent with the

growth numbers that we have penciled in right now. tom: george bory is with us from wells fargo. james steel on gold. george wants to talk about the lower terminal rate and what that means for the diversions into 2016. talk about their virgins. we have to to -- talk about diversions -- talk about divergence. it is the oddest, truly oddest retail season. it ain't about the weather. we'll hear about that from howard davidowitz. james steel, george bory with us , in a gorgeous, warm new york city. dow futures up 69. stay with us. "bloomberg surveillance." ♪

tom: good morning, everyone. surveillance." it is really something out

there. it is an out of body experience, the elevation of temperatures. right now, first word news with vonnie quinn. vonnie: a human rights group says russia could be guilty of war crimes in syria. amnesty international says russian airstrikes have killed hundreds of civilians. holmes, mosques, and medical facilities have been destroyed. migrant worker was found alive in the rubble of the huge china landslide or than the hours after the disaster. shenzhenlide sunday in buried nearly 70 buildings. robert durst will face a murder charge in los angeles. he has been in a new orleans jail on a weapons charge since march. prosecutors say he killed a policewho was helping

investigate the disappearance of his wife. a new zealand court world that the megaupload founder had a case to answer. fox business network says it will use new poll criteria to pick those who take the stage for the next gop debate. global news 24 hours a day, powered by our 2400 journalists around the world. i am vonnie quinn. guy: optimism does not come he has really tried. we have the pessimists get -- to 2016.mists guide now with the optimist guide for 2016 -- did i get it right? >>

two possibilities. last year there was a lot of opportunity to say look at that ticking bomb, look at that hand grenade. -- soade an effort to rid i made an effort. a big one is the fed. log, fourers on his more reasons why the fed is wrong to raise interest rates. he is talking about secular stagnation. if you were a martian and all you knew was the data and the outlook, the forecast for growth. how car sales are booming, how house prices are doing, not only would you say a quarter percent fed rate was the wrong rate, you might even say a half a percent was the wrong rate. going forward, one of the bigger surprises for 2016 could be not only is the fed right to raise interest rates now, but a quarter percent increase every quarter, you might see that change is the economic outlook changes. it's all you knew was the economic evidence, you would not

be -- if all you knew was the economic evidence, you would not -- at some point or other we were involved in the greek story. it has nominated 2015. but the optimists' guide is that it is fixed. >> i spoke to a lot of people. if you look at what they achieved in just december, after being on the abyss, on the edge of leaving the euro, they have realized they do not want to be in that window at any time. they passed a budget. they passed a law say what they can do with the banks. they have done a couple of privatizations, which gets them on track for raising the money they promised they would raise next year. have thes tsipras will pension reform bill by the end of january. they have everything they need to stay on track.

tom: long ago and far away, you and i sat on a couch at the ecb in frankfurt, and it was a frankfurt with its diapers on. it was brand, brand do. tell us about the ecb in the next year. it is a more mature organization and i get that. struttings an ecb with enthusiasm and confidence in the next year? mark: i think the ecb has done so much at taking burden on its shoulders. the impression from mario draghi, he looks tired of doing that. the cries for government to do more is going to get louder. the idea that mario draghi can be the only person to do whatever it takes to save the euro strikes me as a tired refrain that will not have the same effect. it loses its power every time it is said. bundesbank gotten on

board with the fact that quantitative easing is not only going to stay, it is going to have to extend? tom: we bring you back to the fed here it is janet yellen central bank or to the world? is she the dominant central bank or even for europe? george: the fed still basically sets the standard. tom: they create the divergence you speak of. george: they do, and they are incrementally ahead of where the central banks want to get to. success, seeing some and if that continues, the big event next year could ultimately be a euro taper tantrum, where the economic improvements start to come through that are a , ande bit more broad-based the ecb becomes less dependent on pure stimulus. i think that is a distinct possibility.

i think the fed and janet yellen still hold the keys to the car and are still the dominant factor when it comes to setting sentiment, setting rates, and ultimately i think capital allocation. guy: i take you back to the last month when we had the fed raising rates, and the ecb announcement. the ecb was a disappointment and it had a bigger influence on the currency markets and the fed did. some of that was because the fed was telegraphed and the ecb was not. will mario draghi have a bigger influence on euro-dollars and and a yellen does? george: the ecb has the possibility to surprise, and i think the fed has done a good job of communicating, perhaps over communicating, and seems to not want to surprise the markets at all. it is a different path they are trying to cut, raising rates in

the face of others, trying to cut rates. we are being very clear in terms of their intentions. in europe, the desire is still the surprise to the upside, easy monetary policies across the board. to that extent, there is more margin for error. as we saw a earlier this month, if the ecb does not get it right, the market will be very disappointed. i think that is one major concern as we go into the end of the year. tom: mark gilbert, have a great holiday. with jamestinue steel on gold and talk about other commodities as well. maybe touch on hsbc, their low rate call. --rge bory with us is from george bory is with us from wells fargo. nike shoes cost $69, but they

never have your size in the door. stay with us. ♪

guy: welcome back. you are watching "bloomberg surveillance." let's get you your bloomberg business flash with vonnie quinn. vonnie: it has been a record year for mergers and acquisitions. get this -- there have been more than 37,000 deals completed this everyroughly one deal for employee of goldman sachs. one of the winners in the merger boom. the wall street bank has revised $1.4 trillion this year.

chipotle is making new steps to make sure that vegetables and rice are bacteria three -- are bacteria free. footwear and athletic apparel for nike -- it has demonstrated it is largely immune to the retail malaise with selling growth in china. revenue in china was up 24% to almost $1.26 billion. we keep looking at nike for the single best chart. it is pretty instructive to look at nike's performance compared to apple. -- 27s continuing to go buys in terms of analysts, six holds, no sells. nike was a much lower price point, etc., etc., but it is a cultural thing that we have lived for 20 years. analysts wereint

making is that weather has not been an impact. people probably buy more sneakers when the weather is warmer as opposed to boots. i just got a note from john kiernan at callanan company saying that the best at how one and company. yes? tom: i am listening. vonnie: the outlook for the growth margin is not as good as you would have hoped. tom: george bory, what does it mean -- and james steel as well -- for nike and apple if there is a lower terminal rate? is that good for consumption? george: consumer demand is robust, but it is a measure -- it is a matter of who is capturing it. older, big-box retailers are struggling.

we see that in the corporate bond market, both in the investment grade, high bond yield. older format retailers are really struggling. they have a heavy footprint. vonnie: stores like foot locker, the finish line -- they depend on the likes of nike. tom: i am relying on you for analysis. they will not let me into a nike store. "you're not cut and chiseled. you are not allowed in." guy johnson, step in here. guy: i am trying to figure out which company you are talking about. "niek."re we call it that will be the question i ask, vonnie. this is a company with exposure

to china and they did really well in china. they were up 24% on china. is that how we differentiate between companies in the retail space that will do well? do they have exposure to that ever-growing perimeter of the middle class that operates in china? george: do i think international retailers have been doing well, especially those with exposure to the growing and developing world? that has come under a fair bit of pressure, but with places like china trying to reengineer their economy to be much more consumer-driven rather than infrastructure-driven, that should help well-recognized brands like nike and apple. consumer driven demand. companies who have that kind of exposure do very well. tom: we have not talked about this, james steel, but the idea of petroleum products -- they

are in all these products coming particularly in shoes and plastics and the stuff that goes into nike. this is phenomenal cost savings to these companies. james: it is, but unfortunately we do not cover oil from the commodity -- gold?: what about rose what is rose gold? is it gold colored with paint? james: it is all the same, it is just used in different stages of the manufacturing processes, and generally the physical demand has been very good. you would have to look at it in totality, really. if you look at the last import data in india, it looks like india is going to import as much as 1000 tons of gold this year, 11% above last year, which is

25%, 30% of mining production. rose?id you say rolled or vonnie: rose gold. we learn new stuff every day from vonnie quinn on bloomberg surveillance. davidowitz.ward a little bit of it might be on sale right now with futures up five. james steel and george bory. this is "bloomberg surveillance." ♪

tom: we are cross asset here at "bloomberg surveillance." 1.19 would be a bit of a surprise. dollar index has been resilient. we had our clays and others yesterday. deutsche bank talking about a 6% lift in the dollar index next year. we shall see. george bory is with us from wells fargo.

james steel is with us on precious metals from hsbc. i am not going to send out the hsbc report. we protect the copyright of all of our analysts, including wells fargo and hsbc. james, the economist richard burton once said, "i showed liz taylor here, she -- i showed liz taylor beer, she showed me bulgaria." i went to a dubai airport, and the whole english really selling to somebody, i need to buy a bracelet, but totally different than the psychology of america or fifth avenue in new york. how do the chinese and indians support the gold market with jewelry? james: in the case of china it has only been recently that the market has been freely traded. you could not own gold or horde gold, so they are still playing

catch-up. that is one of the reasons we see this extraordinary growth, which might continue for some time and for most of the last century they were denied the ability to own it, and there is a mixture of views about investment and jewelry. india, manyof people that buy gold do not have a bank account, so that is a store of wealth. vonnie: when it comes to things like bags and so forth, is there that kind of problem, artificial gold? is that a problem in china and india? vonnie: knockoffs, artificial gold. simpleit is a relatively test to go through to find out what you are buying. you also tend to know, localularly at the economy, whom you are buying the gold from, and they are

established merchants. you do not tend to find that the way you would other luxury goods. 's demand for gold higher in countries that have elevated levels of nation? you look at countries in the emerging world, latin america, etc., running double-digit inflation right now. do you see a greater preponderance of buying gold when inflation is higher in those countries? james: yes, you tend to see that. also areas that have greater geopolitical risk. i think of them more as a quality asset. that one can go to in times of crisis. so any countries, any economies that would be closer to that, you would see an elevated purchase. guy: can i make a judgment? cannot pull up on my bloomberg terminal, the five-year where i

expect inflation to be or not be in the case of the u.s. or the eurozone? james: gold, in the strict inflation definition, it is historically a good hedge itinst it, and other times is not. the gold universe is probably a bit wider than inflation. if you were to look at inflation alone, you would see a flat line gold price. there are other elements. that is why we have a more conservative upside, because we do not -- our research department does not see a huge global elevation of gold rising. george: one potential opportunity for next year as you think about gold as a store of wealth, if you look at what we are seeing in the corporate bond market, the average high yield fund, the yield is about 9%, which is different from where we were 12 or 24 months ago.

re-values.id recover what does that mean? george: recovery after you have adjusted for default. the coupon is going to be higher than the realized return because they are an ongoing default. even if you haircut that and cut it in half, you are still generating a total return of 4.5%. those types of return potentials are becoming distinctly possible. tom: i do not think somebody is buying jewelry in dubai or jakarta or new york city based on a yield calculation. am i right? it is all emotional. james: jewelry, that is correct. there is a big investment market and a big paper market. jewelry specifically is driven more by income, and that is why we see a nice relationship tween employment and jewelry. one cannot buy luxury goods if

you are not employed. hand theore likely to jewelry in their there was a massive increase a couple of years ago in the scrap market. to interrupt,want but we have to show vonnie quinn the success of marketing in 2015. bring it up here. where was that a year ago? that was nothing a year ago. vonnie: where is it? is it in your pocket? tom: you talk about a marketing success? vonnie: you do not have one. tom: no. vonnie: i will take you for one tomorrow. buy ore central banks sell? james: they have been buying gold. almost all of the purchasers have been saying dollar dollaron occasion --

diversification play. have a central banks great deal of gold but they have stopped selling. they have not sold for years. tom: george bory, thank you so much. and james steel, with a massive headline, perhaps gold with a bid into 2016. guy johnson, as always, thank you in london. mark gilbert, thank you for darkening the door as well. we will continue the discussion on radio worldwide. "bloomberg surveillance," boston, new york. bloomberg surveillance in washington. it is "bloomberg surveillance." ♪

nike is another quarter of double-digit sales growth.

2020, oil isinto off for the week. david: economist at the biggest risks the u.k. economy is a brexit. david miliband ways and. ♪ stephanie: it is wednesday morning, we're in new york city and bloomberg world headquarters you're watching "bloomberg ." 'david: helping us kick things off as david kelly. also come with kyle from bloomberg news. shopping done? that is the big question. stephanie: is it being done to purchase gifts?