♪ >> shaking off the selloff, asian and european stocks rebound as china exports rise. below $30 a barrel for the first time in years, then bouncing back. rebukes president those who criticize american values. good morning. this is blan "bloomberg surveil" .

you have some challenging news, but a better tape today. >> yes. stocks are rising overall. >> good morning. china, stocks fall to their lowest level. the shanghai composite lost more than 2% to a rebound in chinese exports. the shanghai composite index down 17% this year, the most among benchmarks that bloomberg tracks. 10 american sailors being held in iran are expected to be released. two small navy boats and crews were detained after entering territorial waters in the persian gulf. pentagon officials say iran intro than the crews would be returned safely and robbery.

-- properly. president obama urged americans to turn away from cynicism and fear. the acknowledged that rancor and suspicion has grown between democrats and republicans. anyonesident said that who eclairs the u.s. economy is in decline is peddling fiction. 14 people killed at a polio vaccination clinic. a suicide bomber designated explosives among officers on patrol. officers have accused polio workers of being spies for the united nations. three apartments used by the paris attackers, the brussels flat was one of their hideouts. they had apartments into towns south of the capital. one of them was used by the suspected ringleader.

he is still on the run. powered byday news 2400 journalists and 150 bureaus around the world. tom: thanks so much. muche do a data check, a better tape than we have seen in recent days. dow futures up 120. still lower yield, but better. the euro weaker. yesterdayoves afternoon on west texas intermediate. was down. at 142.08. it is a little better. the spread has not broken

through. >> we have some breaking news. we've been talking about 10 u.s. soldiers detained by iran. we now understand from local also -- iran, but has now freed these u.s. sailors. it is just another spat intentions. tensions. this may not have an impact on oil. let's get an eye on european stocks, up for a second day in a row, rebounding commodities and energy producers. chinese yuan after some data today. trade surplus widened, exports recovering. stocks rebounding, but the shanghai composite did close down.

finally, a little bit of a sign of relief. it seems investors taking things in stride. there may be fears and china, but it won't affect other markets as much as they thought. >> good morning. side, while it sent mixed signals, it showed exports better than expected. economy mights stabilize a little bit. story will economy be important for china's markets going forward. as always in china, there are questions. in particular, a spike in exports in hong kong, more to hong kong than the u.s. in december. it was unusual figure. were not sure what happened there. a question over the veracity of

the numbers. we did not see it in equities today. what is the significance when shanghai goes through those august lows? >> i think it will be symbolic. maybe theignal is state is stepping back. we know there is a big hangover in the market, not least the big shareholders restricted in terms of when they can raise their holdings. it's not safe to say we can't rule out further invention -- intervention. so, if it does test that level, it will be key to see if the government steps back in or let's go through. is head oft host macro research at rbs, some very

interesting calls on equities and great calls on china. great to have you on the program. when we look at the research day,, at the end of the china will have to follow the fed policies. chinesee that authorities are liking ammunition. >> exactly. if you look at what they have done over the last eight years since 2008, china doubled , so theyt and debt have a lot of non-performing loans in the banking system. if you sum up the losses from banks, state-owned firms, and capital outflows, then the order of magnitude is similar to the reserves and the amount of jet to -- debt to gdp. the chinese economy

transformation is a 3-5 your process. the dry powder needs to be used over this time, and the resources have to be used. the only way is to devalue the currency. tom: i thought your research note on this was fabulous. i want to bring you over to other nations as well. how much is the devaluation -- you and i know there is a difference between depreciation and a violation. the violation is an abrupt move, are you calling for that? alberto: it is always a measure from the chinese authorities. free like a path towards a currency, but in reality it could be something the market forces accelerate and it goes over 10% from current levels versus the dollar. tom: $.60 from here, out to

what? alberto: the problem is that china still has some dry powder. -- other emerging market economies don't. brazil, other countries, in the lot more difficulty, politically as well. francine: you talk about catastrophic spillover effects on emerging economies, if the yuan would be divided further. alberto: american markets never had a credit crunch, so they kept barring thanks to the chief -- borrowing thanks to the cheap fed rates. you have an amount which basically doubled, and now the fed is raising rates, even very slowly, a you have weak currency, so this dollar debt becomes more expensive for emerging market borrowers. solvents. problem of

-- of solvency. mood right now a to tell us to get into asia or these emerging markets? can you make some money for me today? alberto: there is a lot of stuff we don't like. there are very few things we like. the only emerging market opportunity we like is argentina , argentina and brazil are trading places. trade, onlyy risky for expert investors. generally what we see australia, brazil, emerging markets still have downsides. we are hiding under the table from emerging markets and the u.s. junk-bond market, staying close to home in europe. francine: were looking at some live pictures from istanbul, were the german foreign minister

is speaking with his turkish counterpart, a joint news conference here we will have plenty more on that. -- joint news conference. we will have more on that. they are talking about that explosion in the center of the stumble that wounded 10 people killed 10 people. there is concern that this is an excuse to consolidate power to editorial -- dictatorial level. alberto: there is a trend of social unrest that we have seen in the middle east. turkey is not a big oil producer, so it is not in the eye of the storm. what we will see this year is an excavation, a transformation of this political risk into something bigger, more domestic. egypt,the arab spring in but now oil producers like the s, who were benefiting from high prices, are now forced

to pop it low prices. the alternative is austerity and cutting benefits, and then you have more social unrest. i think the political situation domestically for many countries will be tougher in a lower commodity prices market. -- priced market. , alberto on u.s. high-yield, he is cautious. thank you from the many notes from our conversation yesterday. we do it again today. charles good heart would join us, from the bank of england. we will speak with lord turner on any number of topics, including the future of your finance. stay with us. ♪

tom: good morning. "bloomberg surveillance" on the road in london today. it's going to be the coldest davos meeting in years. good morning to all of you calm er markets today. we have a terrific bloomberg business flash. >> there's a crucial meeting between volkswagen ceo and regulators. yesterday, california regulators rejected the proposed engine fix. today, he will present the reworked plan to the epa. general electric plans to cut 6500 jobs in europe, france, and the energy unit.

tois sticking to its plans create a net 1000 jobs in france. he's one of the markets biggest bears, and now he says more bad news ahead. the cofounder of double line capital says this is a capital preservation market, not a moneymaking environment. >> we will see a continuation of the things that began in the aftermath of the fed rate hike, market struggling in the first part of the year, then create a good buying opportunity later in the year. he correctly predicted oil windfall and treasuries little changed. that is our bloomberg business flash. tom: thank you so much. very important in the markets, very influential. francine: it was amazing to hear what he had to say yesterday. the more negative news, the more it is self-fulfilling. tom: it's like first derivative

january. it's not the moves, it's the speed which is extra to know. want to talk about oil? francine: tumbling below $30 for the first time in years. persistent oversupply means prices could still decline further. it seems every major house in europe and the u.s. is calling below $20, below 30, some around $15. how difficult is it to call the bottom? >> it is linked to politics. of $26 by rbs.ll that when oil was higher, or when it was in the 30's or 40's, for middle eastern countries, it was ok. it was penalizing competitors in the shale gas in the u.s., but now these middle eastern countries are realizing they

can't agree with each other. opec is now not agreeing on supply, and now they have to pump at any price to avoid cutting benefits. they may have to sell some assets, like aramco, or they are with drawing money from funds. your seeing petrodollars become petro pennies. tom: let me write this down. say it again. petrodollars becoming petro pennies. and they are shrinking. now let's look where we are , petrodollars become petro pennies. i said make me to charts on oil. this is the short-term chart, g chart, and you can see the speed from the beginning of the year, the rate of change 30n, and the drama below

yesterday. mcphee ofjohn princeton university. on to the next chart. , not back to 2000. the most recent was january 1989. dverybody is adjusting, an even you in the yield adjusting. alberto: energy is 18% of the high-yield market, but were seeing defaults could spread outside the energy second -- sector. many companies are linked to the energy sector. 10%?18%, plus minimum alberto: in total, the sectors energy 18%,re , sofacturing 5%, retail 5%

roughly 20%, almost a third of the high yield market. tom: do you need catharsis to get through this? alberto: you need more market repricing in assets, u.s. high-yield, some more default in the u.s. high-yield market. to 5% or go around more this year. tom: of course the focus on oil is in texas. kaplan is the new president of the federal reserve bank in texas. in his first interview, we speak to him. look for that this morning. stay with us london. "bloomberg surveillance" ♪

francine: welcome back. i am francine lacqua with tom keene. ft.cked something from the a credit bubble will be difficult, probably no outright disaster, not much fun either. there is another set of credit bubbles that will leave a legacy of financial shock and that debt. when you look at this piece and general comments about turbulence, you can say this gaps that cap between -- between the real economy and the financial markets is not widening any longer. alberto: maybe people are

realizing that there are some bubbles in financial markets. debt the 1960's, private has increased. in the united states, it quadrupled. in china it doubled in the last 10 years, so we have a global economy growing in large part thanks to the growth of debt. interest rates near zero, so this trick is no longer possible. you either have a country that or you haveina did bt overhangs.dea you will need a deeper surgery to deal with dept overhangs. tom: where will that come from? is that one symptom currency war, but everyone is

doing the violation, so in the end it has to come through debt restructuring. havefew years, but we also debt restructuring for banks, the portuguese banks, and for corporate, you have to lower the amount of debt. charles goodhart, former bank of england policymaker has been down that happy for. conversation on brexit among other topics. stay with us. "bloomberg surveillance" ♪

tom: from london, the headline in asia is a better environment for equities. what you need to kw is that chese equities c't get it

done. hat is front and center as something to observe this week. we need to observe first word news. released 10 american sailors held overnight. and crewsavy boats were detained after entering territorial waters in the persian gulf. the pentagon says the both appear to have drifted into iranian waters after one suffered a mechanical problem. south korea says a machine gun burst was fired today at a drone from north korea that cross the border. the incursion is the latest tense episode since north korea tested an atomic bomb. north korean media showed kim jong-un presenting awards to the weapon test team. president obama called it one of the few regrets of his presidency. the president acknowledged that rancor and suspicion have grown

between democrats and republicans. donalde didn't mention trump, he took aim at the front runner. >> the united states of america right now has the strongest, most durable, economy in the world. anyone claiming that america's economy is in decline is peddling fiction. >> in the republican response, governor nikki haley targeted from she said americans must resistant patients to follow the siren call of the angriest forces. a bomb attack in istanbul more pain for tourism industry, killed 10 people, most from germany. germans and russians made up the largest number of visitors to turkey last year. forcederators have been sincep selling vacations

i russian jet was shut down. francine: thank you so much. is charlesnow goodhart, senior economic consultant with morgan stanley. great to have you on the program. were trying to figure out what 2016 will bring. one of the pitfalls is for policymakers, because interest rate are still near zero. what is the chance of a global downturn? do central banks have any ammunition left? >> there is always the possibility of a global downturn. the developed economy will actually do quite well. the downturn will be concentrated in emerging markets . they have a difficult time ahead, but they will come through it. francine: what is your main

woory? -- worry? how should policymakers react? >> it is difficult. now that interest rates have gone to the bottom, and quantitative easing is not doing much, and you're left with physical -- fiscal policy to pile on more debt in the public sector, again with the future pensions andhe old care homes growing, so that is a problem. the far right suggestions, we get rid of currency, reduce the availability of currency, in order to drive interest rates negative. that is a quite radical suggestion. tom: there is an optimism to good-heart economics. about japanimism

and developed economies. get does the gloom crew most wrong? appreciatehink don't that the decline in oil and commodity prices will keep the developed economies, those economies that don't produce commodities themselves, that will be a slow but steady cause of improvement, particularly in the developed economies. at lord somersk writing up a storm in the is cautiousmes, he of economic models that don't factor in behavioral economics and don't factor in confidence. a confidenceu see in policymakers right now? >> i think the policymakers are

finding life difficult. there'sle coming becoming more confident are the ordinary worker, who has for the very many years, in some cases decades, is beginning to see an improvement in their income. tom: do you see rising wages as part of this, alberto? alberto: we are just seeing a little bit of improvement in real wages. if you look at u.s. jobs created, a lot have been temporary jobs, bartenders, waiters, not high-paying jobs. there is a part of the workforce which has a skills gap. see high wages, i think it will take a long time. it is a retooling of the economy, and it is a fiscal policy measure, retraining of workers, not monetary policy.

the problem is that monetary policy by itself is done everything it can. the remaining solutions are in the hands of government. francine: it is a team you have been saying for the last 6-7 months, christine lagarde said the same thing, central banks should not be the only gig in town. tom: we heard from several others. alberto: the problem is that they are still picking up the tab when there is economic problems. tom: they are dealing with the immediate shock. you have a tipping point on pounds sterling, a value which becomes a concern? where is it for charles goodhart ? is there a point of weaker sterling where it matters? >> no.

i think you slightly got it wrong. tom: usually i always get it wrong. francine: we have never heard that. what matters to central banks is speed decline. pound began to slide very fast, then they would worry, but a slow, steady decline i think you could go on for quite a long time before anyone in this country worried. they are very concerned about rebalancing. as you saw yesterday, manufacturing is not doing well, and they want to rebalance -- tom: weaker sterling will help. how will this referendum impact daily policy?

>> it will cause a hiatus for a time in which no one will be becausedo anything, they don't want to affect the way the voters might move one way or the other. it depends when the referendum is called, but if it was called the summer, i think after the budget, about march-april, there would be a temper a time in which it would be quite difficult. tom: nothing would get done? we hit that on "bloomberg surveillance". we have a lot of smart insights for you this morning. economics, finance, investment, financial relations. look for that this morning as well. our first conversation with robert kaplan of the dallas fed. we will have mr. caps on with us. stay with us. "bloomberg surveillance" ♪

francine: this is "bloomberg surveillance". you're looking at live pictures of london. s next week will be -10 degrees celsius. tom: all that is is cold in fahrenheit, very cold. francine: let's get to the bloomberg business flash. >> anheuser-busch inbev, the biggest bond sale ever to pay for its takeover of miller. billion, according to a person familiar with the matter. dell may makehael as much as $4 billion from a government effort to buy back airwaves. michael dell has been buying independent tv stations.

they plan to buy them and sell them off to wireless operators. of brookfield asset management and in an exclusive interview, he spoke with us about his firms investments and potential threats to the business. for anyiggest risk organization like ours is liquidity. scary for most organizations because liquidity was drying up. the good news today despite all the issues around the world, liquidity is generally freely available. >> you can watch more of that interview on bloomberg . tom: thanks so much. the question of liquidity is front and center. it doesn't seem to be the way and was in 2007, 2008.

francine: he has been called the canadian warren buffett, but little-known in europe. i mixed -- expecting to hear more about him. he said this is the perfect time to invest in china. tom: with the revitalization of downtown lower manhattan as well. let's look at some of the international economics of the moment. this is something that has crept up on us, the russian ruble. francine demanded we do this chart. with oil, the ruble unravels. francine: that is exactly it. we have some great interviews lined up. we will be speaking to the finance minister. if you heard some of the commentary out of russia, they are saying we have to think of our balance and budgets because of oil. we could call it a rogue economy

impacted by oil price. tom: they are all linked to oil. charles goodhart with us. alberto as well. alberto, you had a stunning call on your caution on the middle east. is it the politics, equities, bonds? alberto: it is the feedback loop between low oil and politics. low oil was a good thing initially, because the middle east countries thought it would create distress in the competition. now it is persistent. middle eastern countries are in conflict and can't agree on control supplies. oil has become a one way street. they have to keep producing, because the alternative is austerity. think about the saudi arabian population, they subsidize education, transport.

you have potential for a bigger arab spring domestically and complex internationally, and that's why they have to keep producing. or they withdraw money from sovereign wealth funds. francine: going back to the itce of oil, at some point will make sense anymore for shale oil producers to continue pumping at these prices. will they be able to balance their books a year from now, 18 months? >> the gulf states have much breakrate even points -- even points. they will keep pumping. they have to. the alternative is to do austerity -- they need to fund -- or to, wars withdraw money from sovereign

wealth funds. are $7 trillion mostly in dollar assets, creating volatility. tom: which central bank will blink first here? they're delaying. alberto: i think the chance that the fed will not do four hikes. story that the u.s. is strong enough to hike will be called into question. tom: the dots -- thank you so much. what we know for certain is that the dots did not come out of cambridge. charles goodhart is with us. we will continue. we will talk about the tumultuous times for britain. stay with us from london. "bloomberg surveillance" ♪

francine: this is "bloomberg surveillance". i am francine lacqua with tom keene. a lot of the bankers are probably thinking about what a

brexit means for them. let's talk about the u.k.-eu split. turner, chairman of the institute for new economic thinking. charles goodhart also with us. great to have you with us. evidence tolack show exactly what would happen to the u.k. if the country were to leave the eu. we don't know. it is a step into the unknown. i suspect that will be one of the biggest arguments, why take a risk. i think there are some things we could know. i think it would be bad for the city of london. if we left, there would be a reaction that in europe they would make it difficult to compete.

there would be extensions of the games that have occurred so far. it would be bad for the , thenial services sector for some of the manufacturing sectors, where the tension often focuses. if we go out, there will still be some phone -- form of free trade structures of the toyotas can sell into europe, but on the financial services, i think it byld be deliberate attempt paris and frankfurt to use it as an opportunity, which would have some success in taking business away from london. tom: i look at the debate, and so much of it to me is what is the alternative to london, to both of you. i can't figure out what the alternative is to london. >> frankfurt am, amsterdam, paris -- tom: frankfurt could be an alternative to london?

this is a cambridge moment we are having. there is a tendency in any time zone for wholesale financial services to congregate. tom: agreed. well said. >> that gives london some very strong inertial power. went out, it if we would be a catastrophic failure immediately, but steadily over the time at the margins there would be pressure that would be effective. tom: what you need to see from brussels, frankfurt, or amsterdam? >> euro markets on the continent. tom: that is their negotiating peace? >> is not their negotiating peace. if we leave, it will be controversial and the will be bad feelings on the european side.

what that opens up to is all sorts of possibilities of people saying, clearly the clearing of security, and it would open up opportunities to play those sorts of games which has been limited so far. using the u.k. for some clearinghouse. do we know if it would be positive or negative for sterling after this country were to leave the eu? >> i think it would be massively negative if we were to leave. ,> people wouldn't really know but the markets would react in a negative direction. -- everyve read conversation i've had with the german leader is the same, it is all back to the remembrance of courage ofi, the

others, does david cameron have to consider the german thought that we need to be together because -- >> i think this is one of the big problems in the european union. for the french, germans, and many people on the continent, there is an emotional commitment which is based on the war. pictures -- the extraordinary pictures of the leaders holding hands. britain has never felt that. we have always been much more transactional in a relationship with the european union, and that is something a fact of life that we have to live with. there isn't that emotional heartstring commitment to europe in britain that there is undoubtedly in france and germany. francine: how do you speak to

women and the u.k. to get them involved? it would be the campaigning once david cameron came back with a negotiated deal. what does david cameron need to secure to make sure this company remains in the eu? >> i think it is difficult to say. the brexit issue is much more about if we leave, the scots will ask for another referendum, and the u.k. will break up. interested inre looking internally than the unification of europe as a whole. >> i think the difficulty is that the renegotiation and reality will not be fundamental, and was never going to be fundamental. probably in popular terms, although we are talking here about the city of london and the level of sterling, probably the single biggest issue is going to be migration, and i suspect he

will get some marginally useful changes in the availability of welfare to recently arrived migrants, but let's be clear that that is not fundamental. most migrants have jobs. most migrants are the sort of people who get jobs. that as a problem here lot of the renegotiation debate is at the end of the day, we will have to decide whether we are better off in the european union -- tom: we will come right back. stay with us. "bloomberg surveillance" ♪

tom: this morning oil bounces

off historic lows. at 2:02 yesterday, west texas touched $29.93 per barrel. frome and britain move brexit to inflation. adair turner and paul de grauwe. it is wednesday, january 13. we are at our european headquarters in london. i am tom keene with francine lacqua. this is the first day we can take a breath. francine: yes, with chinese exports better than expected, but it tells us markets and investors are taking a breather with the shanghai composite still down. tom: day after day of this, 2016, and something happens. it is amazing. i do not know where we are going to be in the afternoon today. stay with bloomberg television and radio throughout the day. new york city will help us with

the first word news. here is vonnie quinn. vonnie: the 10 u.s. sailors being held by iran are now free, that word coming from a radiant state television. it is determined that the sailors did not intend to enter iranian waters. they were held after being detained yesterday. a turkish official says one person was under arrest after the istanbul attack. the interior minister news conference today with his german counterpart. most of those killed in yesterday's suicide bombing were germans. the attack happened in an historic part of this temple that was popular with tourists. a 28-year-old syrian was linked with islamic state. a suicide attack on a polio vaccination center in pakistan. 15 people were killed, including 13 police officers escorting health workers.

says a machine gun burst was fired today at a north korean drone that crossed the border. officials say the drone turned back after a warning shot. it is the latest tense episode after the bomb test a week ago. jong-un presented an award to the weapons test team. in his final state of the union address, president obama admitted that rank or and suspicion have grown between democrats and republicans. while he did not mention donald trump by name, the president took aim at him. obama: the united states of america right now has the strongest, most durable economy in the world. anyone claiming that america's economy is in decline is peddling fiction. vonnie: the republican response also targeted donald trump.

american voters must resist the temptation to follow "the angriest voices." voted to let the st. louis rams moved to l.a. i'm vonnie quinn. tom, you have some data. tom: we have data right now. equities, bonds, currencies, commodities. we do it globally at the bloomberg terminal. dow futures up 90 point. 10-year yield schoening. the euro -- 10-year yield schoening -- the 10 year yield is churning. the vix is down to a more complacent 22.47. i put nat gas in there.

gas not., nat maybe it has to do with the weather. particularly, we saw that football game in minnesota this week, the arch coal. -- the arch cold. francine: i am so glad that you brought minnesota off your data check. i am pleased. you can see the stock scanning for a second day. i put that in there because it is important to keep an i on the renminbi, headed for the biggest five-day game -- the biggest five-day gain on record. turner has been focused on private debt. his wonderful book is between -- is "between debt and the devil." he is here today to talk about the shock and awe of what we are

witnessing. none of this was in the history of economics that you studied at cambridge. the is distinctive about oil collapse we see now, lord turner? adair: the oil collapse is clearly a combination of supply and demand factors. is a thirdid it supply, a third demand, and a third we really do not know. the thing that interests me is the way debt developed before the financial crisis and the advanced economy is up to 2008 -- the advanced economy up to 2008 tuesday crisis that for five years was offset by an external he debt explosion in china. that is unwinding, and it is the unwind of the china credit boom -- the credit is going up still, but investment and construction are coming down. that is sending anna nordqvist -- an enormous deflationary

message to the world. tom: the critical distinction here is your very wonderful and sophisticated analysis, versus just saying it is the saudis' fault. is always with a market economy, there are three or four things going on. the saudi pump picture strategy -- which they have stuck to, and it is putting some stress on them -- as part of it. sitting behind it is this super cycle in commodities driven heavily by the chinese credit fueled investment boom, and it is that which has really slowed down significantly over the last year. that is really the biggest thing happening behind everything in the world economy at the moment. francine: tom keene had a great chart that he did this morning. why has the fallout -- tom: you can show the chart again. which chart do you want yet on

-- which chart do you want? say a fall in to the oil price itself is in effect between producers and tosumers, but consumers tend spend the money and producers were saving the money. it is meant to be a stimulus. one of the big points of 2015 was how little that stimulus was. there was a stimulus in the u.s., but what we underestimated at the beginning of the year is how big a negative effect this would have on producers, but also crucially, brazil, russia, indonesia -- the slowdown in the market. chartring up the brent right now. this is inflation-adjusted brent, which is not bad back to 10, 15 years. lord turner, my point is the benefit, the first-order condition that francine mentions

, i am looking at the confidence that larry summers talks about, the wealth destruction, the income destruction that you see when you see a plunge in commodities like this. adair: you see a big destruction in the income, clearly of the oil and the commodity producers. i think that is having a major effect on their expenditure across the world, and i expect that to a greater extent we are entering an environment where it is difficult to see where robust global growth comes from unless there is a re-expansion of credit in countries like the u.s. and the u.k., which will put us back into the same vulnerabilities that crystallized in 2008. we are not seeing what we hope to see in 2015, the low oil price producing a robust growth without credit growth. that is the fundamental problem by the global economy at the moment. francine: will on a 16 be the year where the lack of monetary

utensils and policy to combat this deflationary spiral lead to more volatility on the markets? adair: there will be more debate about the central banks out of ammunition. i think we will see them to point more ammunition. i will not be at all surprised after mario draghi's essential failure in december to get the him onncil to support the stimulus, we will be back at some of the subsequent meetings with him arguing for and getting some of that stimulus. francine: can it actually work? adair: i think qe is better than nothing. inflation and growth is probably slightly higher than otherwise it would be as a result of the good qe programs, but it is an imperfect lever to maintain economies, and it has adverse side effects. ultralow interest rates maintained over a long. of time -- ultralow interest

rates maintained over a long till of time cause problems. you need technological progress to jumpstart a somewhat deflationary, conservative, and cautious economic model. where is the new new for you? it is not china? adair: i am not a technological pessimist. i do not argue that we have run out of -- suspect adam disagreed with robert gordon on that. we have a wonderful new set of technologies coming along. the difficulty is that there is something about those technologies which, even more than in the past, do not require all that many investment dollars in them. and also they are not necessarily good for the pay of lots of unskilled people. tom: they do not help china at the core. adair: but they also are behind

the fact that we are creating plenty of jobs in the u.s. and the u.k., but they are all pretty low-paid jobs. that is inherent to something about this information and communication technology. it delivers the benefits to the top end of the income distribution. are you going to fly over there to china to tell them what to do? adair: they have to move away from attempting to control this equity cycle. part of the problem that started last year is they deliberately encouraged the upswing of the the mistaken belief they could replace a slowdown in property markets by encouraging -- it got out of control, and then they tried to prevent the fall. they have to move to saying equity markets go up and down and that is something you have to accept. you cannot control it. tom: we are coming back with lord turner here on the european banking axis.

coming up, an important conversation. robert kaplan has been on "bloomberg surveillance" many times. his first interview as federal reserve president of dallas. ♪

francine: welcome back. this is "bloomberg surveillance ." these are beautiful pictures of new york. i do not know who is missing this more. the bloomberg business flash here here is vonnie quinn. vonnie: general electric plans to cut 6500 jobs in europe. ge is eliminating duplication after buying energy units from

all stem of france. nearly 800 jobs are being lost in france. plan for its diesel powered cars is not flying with regulators. vw's chief will meet with u.s. regulators today to discuss how it will make amends for cheating on pollution tests. amazon is quietly building what analysts say looks like its own delivery company. the company plans to complete its takeover of a french parcel service within three months. some think amazon will make a similar acquisition in the united states. tom: vonnie quinn, thanks so much. our theme with a dare lord turner is -- with adair turner is his wonderful book. let's look at our single best chart on banking. it is an unpaired chart. i took a good and bad performer and came up with a chart.

it shows a huge transatlantic disparity. the difference from the beginning of the financial 20,007 --gust of august of 2007 -- the future of european banking -- what is your prescription for european banking to do better but not the anglo-saxon? well, european banking i think has been in a very slow growth period for the last seven years, and in a sense that was part of the necessary deleveraging. like banking across the world, it is probably in a much different state than it was with high levels of capital. i think banks have to realize that we are living in an capitalent with higher requirements, where they are not going to be able to get the high returns that they got in the past. there is not going to be a high return on equity business. the regulators do not want it to be that. youthe flipside is that

have to take a look at the cost structure. tom: but the goal is to buy asset management. everybody is on the same page, that gets all my radar up. adair: the challenge with asset management is that prices will come under pressure there. we will see more focus on what is value for asset management. we are seeing these big shifts into low price, passive funds. tom: aberdeen is even looking at the passive. adair: i think all of the asset managers have to look at the balance they have between passive and active, and making sure that where they are active they have a proposition to investors, which is coolly value added. this is going to be a challenging environment in the future for many people in that space. francine: i would love to hear your thoughts on compensation. we had a proposal from the boe that bonuses may be brought

back. does this seem like a fair proposal? adair: i think the crucial thing is, if somebody does some crazy banks and moves to another , they should not be able to get scot-free from the crazy things they have done. one of the biggest challenges we have with regulators -- there is nothing wrong with risk-taking, but the risk-taking should be rewarded once it is really obvious whether that was a sensible risk to take or not. there are some risks that you take where it is not obvious tot it was a sensible risk take until three or five or seven years after you take it. that has always been the challenge in the area of remuneration. tom: is banking just waiting for a yield curve that helps? it is not there, is it? adair: i think banking is praying for a yield curve that

helps. it will not get it for a long period of time. my own belief is we are in an environment where yields are going to stay lower for longer. inall talked about said exit december. look at where u.s. 10-year yields are and how lower they were than on the day the fed increased rates. tom: nobody got out in front of .his debate like marvin king he saw this coming before anyone else. like henry kaufman talked about -- this utility nature of new banking. about merv and has talked it. people like john kay has talked about it. how do we get banks to their core business? tom: are we? adair: because of regulation, we have made some steps. we have made significant progress. as i say in my book, i would

like to go further down that road. he has a train to catch. he cannot be late. adair turner, thank you so much. coming up, another conversation that will help you with economics, finance, investment, and international relations. lawrence summers, "bloomberg ." he has been writing up a storm. stay with us. "bloomberg surveillance" in london. ♪

francine: a sigh of relief rippling through hong kong as isna's central-bank intensifying efforts -- it is time for the morning must-read with vonnie quinn. vonnie: unfortunately, it is shown in "theg as wall street journal." aboutsummers is saying the equity markets. ruchir sharma is saying -- he says that u.s. growth that began with a two may have to be revised with a one.

's with morgan stanley as well, and a frequent guest. morninghink your must-read is absolutely fabulous. it carries a lot of weight when it comes from ruchir sharma. what i find interesting about the dynamic is what currencies will do. it is interesting that finally today they are almost quiet. today they are taking a little bit of a breather. there is at least a pause in the markets for now. currencies, many are off 20% relative to the dollar in some cases in the last several weeks. we should watch this play out. francine: to put it simply, we are going back to currency havens taking a little bit of a breather. we saw that huge move, 9%, and it has in -- and it has had an

impact on the australian dollar. i would like to see that wire about what will be positive about the next 12 months. on twitter,y it out that "bloomberg surveillance" is bloomberg. a quote from larry summers this morning as well, that there is a lot of caution in the air as well. did you hear that in the president's state of the union last night? vonnie quinn with a killer morning must-read. thank you so much for your feedback. we try to bring you the best we can. best, our next guest from horizon investment strategies. stay with us. ♪ we live in a pick and choose world.

choose, choose, choose. but at bedtime? ...why settle for this? enter sleep number, and the lowest prices of the season. sleepiq technology tells you how well you slept and what adjustments you can make. you like the bed soft. he's more hardcore. so your sleep goes from good to great to wow!

only at a sleep number store... find the lowest prices of the season, going on now. save $600 on the #1 rated i8 bed. know better sleep with sleep number. tom: good morning, everyone. "bloomberg surveillance" from london. francine the ball and tom keene. great festivities in the united

lacqua andrancine tom keene. great stiff -- great festivities in the united states last night. first, here is vonnie quinn. vonnie: there is no u.s. confirmation. saids revolutionary guard it determined that the sailors did not intend to enter iranian waters. boatsay their small drifted into iranian waters after one of them had a mechanical problem. three apartments have been located used by the paris attackers. investigators say the gunman also had apartments in two towns south of the p one of them was used by the suspected ringleader, salah abdeslam, who is still on the run. positive obama sounded themes in his final state of the union address, and he made a thinly veiled attack on donald trump's call to bar muslims from

the u.s. he rejected targeting people because of their faith. pres. obama: we need to reject thatolicies, any policies target people because of race or religion. it diminishes us in the eyes of the world. it makes us harder to achieve our goal. a depraved who we are as a country. vonnie: in the republican nikki haley said voters must "ignore the angriest voices." bloomberg news, 24 hours a day. i'm vonnie quinn. more now on the state of the union from reaction several hours later. greg valliere is joining us from washington, d.c., the chief global strategist at horizon investments. this was supposed to be a different state of the union. theas heralded across

sunday shows as something different. did the president deliver on that? was. it sure i have covered a lot of these speeches and i have never seen anything like this, with the leader of the free world devoting his speech to a reputation of donald trump. is there any further proof that donald trump is the front runner for the republican nomination? vonnie: let me stop you there. i have seen notes that this was directed at donald trump, but the angriest voices could also refer to ted cruz, chris christie. there have been several angry voices so far in this nomination process. greg: but i think there is a gloom and doom narratives that trump is peddling. bernie sanders is also, by the way, about how things are terrible. i think obama definitely wanted to refute that. the irony is that the republican responder, nikki haley of south carolina, also criticized the negativity. vonnie: he also spent a long

passage explaining american foreign-policy. how would you characterize it? was it an apology? an explanation? -- was it a policy, and expiration? greg: what resonates with the public the most right now is national security. number two, he wants to show that he is relevant. he has a year to go and has things to accomplish in that area. the our goal is to pound new hampshire accent out of you. we will get it one of these years. we have iowa and new hampshire coming up. john mccormick out with a bloomberg politics/des moines register poll today. tell me about the unique dynamics of your new hampshire. greg: what an incredible story, tom. great to see you. i thought during the holidays

that story was that trump stabilized and did not go down, but the big story in the last week is that hillary is in trouble. i never thought i would say that. i thought she was a shoo-in. i think bernie sanders is going to win in new hampshire. number ofseeing a articles on this. give us color of what the strategy is, the adaptation that secretary clinton needs to go through to regain momentum. the first is these ridiculous charges she is making that bernie sanders is pro-gun, that bernie sanders wants to dismantle obamacare. secondly, she has come up with all sorts of left-wing tax proposals in the last few days. she is not going to be able to chase him on the left. if she keeps doing this, it could hurt her in the general election. nostalgia there is a

of the clinton effort. it is a fact. does nostalgia play well in new hampshire? does it play well at the conventions, and critically, will it play well in october of this year? greg: it is a blessing and a curse. on the one hand, things were pretty good with bill clinton. on the other hand, we will have dredged up, ad nauseam, all the sexual stuff. i think the sexual stuff will be used ruthlessly by the trump, and it goes against hillary's claim to be a feminist. francine: you? the foreign-policy of the u.s. will be -- you suggest the foreign policy of the u.s. will be. how do you address that? fair, i think the u.s. in many regards has been inconsistent, has sent mixed signals, and i think that has to change, and maybe starting last

night it will change. forie: what is the plan year number eight for the president? does he plan to get something done in congress with, for example, paul ryan? greg: he can get a couple of things done. i think mainly -- i think maybe criminal law reform. tax reform will not make it. there will be a lot of things done. the most intriguing story is that we are going to lay the groundwork this year for fundamental tax form next year. -- for fundamental tax reform next year. tom: let me ask you the question i have been asked three times in my swing through london. who will be secretary clinton's vice presidential candidate? greg: she is not going to go for something real funky -- hispanics, another woman. i think she looks for the most boring, middle-aged white male she can find that will maybe

bring her some electoral college votes. has 13rner in virginia electoral college votes. my pick is mark warner. boring, fat, white, older man. i am not fat. nice to have you with us. horizon as well. we have a wonderful lineup coming up in the next hour. michael mckee, an important conversation with robert kaplan. and tom faulk, chief executive officer of kimberly-clark. ♪

francine: this is "bloomberg surveillance." i am francine lacqua in london with tom. here is vonnie quinn in new york. isnie: anheuser-busch inbev starting a bond sale today that could become the biggest ever. u.s. dollarthe portion of the deal could reach $25 billion. of personal computers fell to an eight year low in the final quarter of 2015. users went mobile. an industry researcher says china's slowdown and the strong u.s. dollar hurt. is in position for a $4 billion score. he could make that much from a repurchase of airwaves. he owns independent tv stations the fcc wants to resell to independent operators.

it is not a visit to london unless the owner -- unless paul degraw is with -- paul digg rolla is with us. his book is definitive on monetary union. there is no one in europe to speak to. am i pronouncing this right, francine? schengen? francine: yes. in: you are front and center the study in question on the ability to move people around europe. how desperate is the moment? 7paul: it is a defining moment because it appears that schengen is something that was a great idea. let's have people move around. but it is unfinished business. withoutd the borders

doing the necessary things, which is integrating police forces, and as a result there was a big danger that the whole thing will collapse. in fact, it is already collapsing. let's go away from economics and politics to the emotion we are seeing over new year's eve and the emotion of the images from germany. what is the paul de grauwe prescription for chancellor merkel? paul: i was very much taken positively by her approach initially. but surely this has come back as a boomerang against her. so now she will have to take a plan that is tougher. afford doing anything else, so she will have to find a difficult balance between, on the one hand, hospitality, wishing to have these immigrants that is economically

good news for germany. and at the same time appear to be tough enough to avoid the left-wingextreme, takeover and become such a force in europe. francine: it is clear chancellor merkel is being drawn more into middle east tensions. parliament will debate the sexual assault that happened, but also a people who were germans in the istanbul explosion yesterday -- how will we see chancellor merkel chain? paul: i find it difficult to evaluate how politically a german chancellor should react, but again, this is going to be an extreme challenge for her because the more the news of this nature comes in, the more she will be pushed into a corner . she will have to get out of this

corner, because now she has been pushed in that corner. she should come up with new initiatives that re-create some trust in her because she is losing trust by the day. francine: is 2016 the year where schengen will be tested, if not abandoned? also the time person of the year, and she is the reconciliatory tone in europe. paul: she will have to come up with initiatives to be sure that schengen will be safe because it is hanging over the cliff. what this has to be, it will be extremely difficult. conference many countries to be willing to deploy forces externally, but whether that will be possible is very uncertain. of: they knew about disinflation and deflation is something you have been way out front of in europe. of disinflation

and deflation in europe is something you have been way out in front of. how desperate is europe to ies to getthe economy out of this dis-inflationary impulse? paul: i would not use the word "desperate." oil prices go down, and that certainly works like attacks decline, which macro economically is quite significant. it means that people have more purchasing power they can use to spend. that is going to be something that is working positively, together with the ecb's quantitative easing program that is going on and they will continue to do it until next year. it will not be great, but i do not think we should use the word "desperate."

there will be some slow recovery, not something we will be proud of, but not something that will just make -- tom: i would suggest that madame lagarde is out front with you with the word "mediocrity." is with us with the london school of economics. back talkingnue, about europe and the economic experiment. hamm -- this is important in the oil trenches. we will do that on bloomberg radio this morning, worldwide. ♪

, quiet within foreign exchange. the yen weaker today. to 1.42.nada out and pausing, we see that with the mexican peso and the brazilian real. , 100 is not a big deal, but nevertheless it is an emotional hurdle. we are getting near that dollar

strength as we see asia and the developing economy currency weakness over the next few days. michael mckee has a very important conversation this morning. frame for me how someone moves from harvard to dallas to the oil crisis. it must be most interesting for your guest. hour we in about an will be talking with robert kaplan, the new president of the dallas fed. --s is the o'connor clastic this is the iconoclastic dallas free markets bank. employment is starting to rise. they do nothing they will go --er down here, but there but they are keeping a close eye on the markets. we will ask him whether he thinks the fed needs to move more quickly or needs to hold off to help the constituency of the federal reserve district of dallas. has alwayssor kaplan been known for speaking his mind. do we have a potential dissenter

here? michael: so far, no. he did say yesterday he has pushed for a rate increase, the first rate increase. what is not clear is how soon he wants a second one. he thinks perhaps we should be accommodative for longer, that we should let unemployment fall farther than it has now. but just how far? at one point do we see inflation ? tom: look for that conversation with president kaplan. right now, paul degraw with us from the london school of economics. we were talking about differences, as we talk about mario draghi and mark carney and the rest. this is the virgins. how do we -- this is divergence and at how do we get back to convergence? bankssuppose the central were not to do that.

then we would increase the real fundamental divergence. today isgence observed because the business cycle is more favorable in the u.s., and you would need some tightening -- that is my view -- while in other places the economy is going down all while going off the ground. you would need some stimulus. the divergence of central banks -- it is something that may lead to convergence of the economies in the future. francine: we talk about divergence day in and day out, but if you get interest rates, they are at or near zero. there is divergence, but they are lacking firepower. but if something goes wrong, what can be done if we see an inflationary spiral? paul: we have learned from the crisis the less few years, when interest rates are close to zero, economies call that and

liquidity trap. -- economies call that a liquidity trap. fiscal policy has to take over. governments start spending more. that is what the textbooks tell you. francine: they do not need to if central banks are here. this is almost a catch 22. you want infrastructure, but if the central bank is taking that heat off you, you do not need to worry about what that policy is. paul: what we have learned in the eurozone is that the euro has been weakened. for the rest, it does not do much. the liquidity is trapped in there in the financial sector, it does not get out of it. and they should step in, but there is strength in the eurozone by all kinds of rules that make it possible to act. tom: bring up the inflation chart here, and i want to roll this over to foreign exchange.

we like to do that. there is the persistent inflation and disinflation that we see right now. we live in a time of floating currencies. ken rogoff has written about this come about the numerous floating currencies out there or managed floats. do we need more currency discipline to avoid the currency war we are falling into? paul: i think there is no other way than letting the markets do their job. rogoffu agree with ken that we do not go back? paul: this would lead to more tension because countries are different. they have different objectives. each moment of time, all these policymakers want to do different things. the exchange market is like a safety valve. it allows these things to be somehow coordinated, and if you fix the interest rate, that is when you have wars and conflicts

between countries because they will always disagree on what to do. francine: if we leave china to one side, where could the biggest policy mistake come from .his year? outside china what is your number two policy mistake? paul: i never thought about this. it is a very interesting question. i think probably it is in the u.s. francine: interesting. paul: this program of gradually increasing the interest rates and reducing the quantitative easing program. i am in favor of doing this, but the scope for making relatively small mistakes is quite large because it is these small mistakes, when you do not manage expectations, then it could go wrong. professor, thank you so

much for being with us today. it has been a wonderful number of days, with lord desai yesterday and paul de grauwe this morning. later this morning, robert kaplan and michael mckee in dallas. this will be an incredibly important fed interview, maybe market moving. tomorrow we continue our discussion on the economic experiment of the united kingdom. the former chancellor will join us. and we are thrilled to bring you andrew sentance tomorrow. always opinionated on the bank of england. from new york and from london, "bloomberg surveillance." good morning. ♪ we live in a pick and choose world.

choose, choose, choose. but at bedtime? ...why settle for this? enter sleep number, and the lowest prices of the season. sleepiq technology tells you how well you slept and what adjustments you can make. you like the bed soft. he's more hardcore.

so your sleep goes from good to great to wow! only at a sleep number store... find the lowest prices of the season, going on now. save $600 on the #1 rated i8 bed. know better sleep with sleep number. the markets according to larry summers. he looks at china and oil and tells us what the future holds. you don't want to bet against

this man, it's forecast usually pay off. jeff has the predictions you can't afford to miss. he is one of the biggest names in alternative investments. hear him trash talk his rivals. ♪ david: welcome to "bloomberg ." stephanie: big morning. jonathan ferro from london is with us. specialave a very guest, former treasury secretary and harvard president emeritus warren summers it with us. you have a lot to cover. a quick check of the global market. stocks in asia rebounding after exports recovered last month