♪ francine: stocks tumble across the globe. the ducks is down 3%. japan enters the bear market. contracts dip below $28 a barrel. shell feels the pain. taking off with a bang. market volatility dominate the conversation. good morning. this is "bloomberg surveillance"

from the world economic forum in davos. we need to focus on america. this is what the world leaders and ceos will want to know. tom: with what we have seen this morning, we have to dovetail economics, and the corporate world and the market reaction that we continue from january. francine: it is with the markets and whether they find analysis. here is vonnie quinn. vonnie: good morning. gunmen attacked the university of northwestern pakistan. 19 have been killed. victims include students and professors. the pakistani military says it has killed four of the attackers. there are now clearing it block by block. the taliban is claiming responsibility. the militant known as jihadi john has been confirmed dead. the militant was killed in a

drone strike. u.s. military identified him as a british citizen born in kuwait . the u.s. and russia are looking for a breakthrough on upcoming syrian peace talks. secretary of state john kerry and the russian foreign minister will meet in zurich to a degree at who is allowed at the table with the syrian talks start. they could not agree with may talked by phone last week. michigan governor rick rider has apologized to the residence of flood for their water supply. state of the state address he promised to fix the problem and release his e-mails about the issue. residents are at risk because of high levels of lead leaching from water pipes. in iowa, the politician turned television star has endorsed the tv star turned politician. former vice presidential candidate sarah palin gave her blessing to donald trump. she is a hero to the tea party movement, and for trade donald

trump as a man of the people despite being a billionaire. in davos.to you data checkgo to our to look at equities, bonds, currencies, and commodities. it opened ugly two hours ago. a little bit that are recovery right now. futures -32. we were -40 earlier. the 10 year on 2% gives a janet yellen. the euro has euro strength. we are seeing a consensus push toward parity that is drifting away in the last number of days. nymex crude, 20 7.60 six. that was dropping an hour ago. francine has some european wisdom. it is global this morning at 26. it makes you wonder if we will get up to 30.

the german two-year is the single most important data point. for a week it has been a rock. we even give away a zero point 42 earlier. this all caps relate the angst we are seeing on the market. toot of people in davos want talk about ben bernanke. in asia they were saying this may not be the end, but the dollar rally is -- everything is being sold off, from carmakers to minors to all of the exporters. the dax is down 3%. i want to show you brent. it touched below 28. both wti and brent below 28. tom: i was call this davos rationalization. davos over a barrel. we will be joined later with our usual lineup of finance and

international relations. we begin with michael spence, not only on his economic, but with china as well. there are two things. a rationalization and a debate. china and oil. a contingent to the rest of the world economy? in a sense it is, because there is extreme uncertainty. jobhina does a better communicating, that will settle down. the underlying growth, while it has slowed, is the reasonably solid. we are seeing more volatility in the markets. francine: because people are trying to get to the bottom of what the chinese authority wants . yuan devaluation. prof. spence: get out, sell your stocks, wait for the evaluation

to occur. a better job of communicating what they are really doing. tom: we'll have to talk about the markets on the move. you invented stanford education a few years ago, some would say. within that, i am sure you of rationalizing a market moves -- moving up, or in this case, moving down. walk us through the mistakes executives and our viewers make as they try to rationalize these correlated markets. prof. spence: the underlying fundamental problem is that there is very broad-based weakness and fragility in the underlying global market. the asset prices went off on a with the benefit of hindsight -- unrealistic growth assets. in china, emerging markets, europe, and so on.

asset markets are volatile, but in the process of settling down. francine: we spoke to the ubs chairman -- he was great, but he was pointing to the fact there's angst in the markets. it comes from various things. politics, china, inflation, oil, but he could not put his finger on the one thing that would make it better. what needs to happen for markets to feel better about the world? is this an overdue correction? prof. spence: what is overdue is a policy response that is more robust. something that goes along with monetary policy that is investment driven. that gives the world a sense that while it will not happen overnight, there is underlying powerful growth momentum developing. people don't have that now. tom: where will that come from? fiscal policy, infrastructure, begging for infrastructure. larry summer just went from the

jfk in new york. what is the policy prescription you advise to global readers in davos rather than a simple fiscal band-aid? on thepence: it depends economy. in italy, structural reform. in a number of economies we need more flexible economies to thatmodate the changes technology is requiring. there is not a simple answer. sector investment, creatively relaxing the fiscal restraints, it is private sector investment. they are buying back stock because of regulatory uncertainty and economic uncertainty. tom: the change from financial almost forced investment by corporate officers? prof. spence: they cannot force it. you can go after the tax system. you can go after the uncertainty, and so on. some requires multinational

cooperation. there is, i think, by fairly , a fairlyreement large problem with aggregate demand globally that is restraining growth. you cannot solve that problem one country at a time. francine: re: concern central banks do not have anything to throw at deflation anymore. oil is below $28 a barrel. the threat of deflationary pressures coming from china p or click and you do when you are zero bound? prof. spence: not much. demonstrated have they can control inflation. they have not demonstrated they can control deflation. it is hard to control deflation when you have access supply conditions, which is the same as saying aggregate demand is a problem. tom: you wrote a thoughtful book on economic growth. it was a very subtle book.

explain as you would to our officers like james dimon, or whoever, how do we jumpstart growth? i'm sick of the word "innovation." i am worn out by. how do we get back to technological progress and productivity enhancement that gets us to the increased aggregate demand? basically, you invest in a broad range of things. skills, knowledge and technology-based, physical assets, and for structure, and so on. in this condition you have to be creative. there are real physical -- real fiscal constraints. you have to make it attractive to investment opportunities. developing country urbanization. i will say briefly, i economies a setsset balance sheet.

of assets that have to grow along with the growth of the economy. under investment causes that fundamental foundation not to grow fast enough. that is what we have been doing. we have made it worse by piling up liabilities. the we will talk about liabilities. our accounting with michael spence. what a wonderful way to fall asleep on our first morning in davos. thank you. professor spence with new york university. equities, bonds, commodities. the 10-year yield 2%. good morning, washington, d.c., with your call for a 1.50 crude oil. onto the next screen, if you .ould, closing at 26 on the vix the german two-year is my headline. breaking down -.41%.

rolling over. the ruble 80. continue our discussion. the former governor of the bank of israel jacob frenkel. we will speak to jacob frenkel about the currency skirmish, the currency war. stay with us. our first day in davos. "bloomberg surveillance" -- it is a snowy winter wonderland. ♪

,om: good morning from davos

switzerland. let's go to vonnie quinn in new york. bring youwant to up-to-date with markets moving. it is a fragile day. the shanghai composite index is down 1%. we have the dax in germany as a proxy for the european market down 3%. futures in the u.s. pointing to a lower open. the s&p 500 down 2%. the dow futures down more than 2%. the second board, we have that brent crude trading at 28.07, down. we have the german 10-year yield at 48roxy for sentiment basis points. the italian two-year yield at a big move. let's move onto currency action. around onedollar/yen

dollar $.16. the hong kong dollar is one to look at. there is speculation that might disappear after 32 years. $7.82 tokong dollar at the u.s. dollar. the ruble's trading close to 80. 1.4176.ish pound at we have the german 10 year yield. the spread is widening. of 6%pical german spread wider. trouble with banks in europe, typically italy and portugal. francine, back to you in davos, switzerland. francine: markets and data checks or what we do on "surveillance." it is important it is in context. the bear market, following from the highs last august.

tom: i love what market spence said about repressing the balance sheet. they set up their economics with the dynamics of a single view of the assets and liabilities. the liabilities and the flows off of the income statements. there are challenges, as you will see with the expense reductions, and banks. francine: it is difficult for a lot of market participants to say what they worried about. there are various things. these are the topics in davos. we are joined the chairman of jp chase -- jp morgan chase international jacob frenkel. this is a busy day. the markets are in turmoil. we worried about china. that we may not have enough ammunition to deal with deflation. what do you think the markets are spooked by? that: my perspective is

you want to look and focus the real economy, look at the real economy. do not look at the financial markets as the intermediary to reach and assess the real economy. wheree been in a period there has been a disconnect with what the financial markets tell you, and what the real economy shows you. it was extremely pronounced in china where the financial markets went all the way almost unrelated to the real economy. correction ine the financial markets in china is significant, and maybe even welcome. any balloon that has excessive air in it needs to find a way to get the air out without a complete explosion. it will have some impact on growth in china, but let's face , the financial markets in china are mirroring a very small

fraction of the chinese economy. china will continue to grow. it will continue to grow at a slower rate. it is by design. they changed their growth manufacturing and export reliance to services in domestic demand, which means they do not need to grow as rapidly. it has international implications. it reduces the demand for commodities by china. the implications are a case-by-case approach. not everyone is affected. tom: you mentioned mr. draghi will be busy tomorrow. you have been in the crucial bowl of public service as a central banker. what are the bankers doing, and what would be your counsel to mario draghi tomorrow? jacob: study as you go, especially with the market turmoil. central bank's strengthen their

contribution must be in the medium-term. as janet yellen has been saying time and again, these are data dependent. not monday morning, tuesday morning, wednesday -- tom: are we making actual progress? the markets are saying we are not making actual progress. jacob: indeed. the important part is that progress not depend on the ecb. none main issues today in europe, as they have been for the past few years, really relates to the real economy, the structure markets, the labor markets, youth unemployment in europe is at a disastrous level. unemployment in europe today is higher than 2010. in the u.s. it is half of what it was in 2010. what is the case? it is not the ecb that will solve unemployment.

mario draghi must give the message the ecb will ensure financial markets continue to function, but the real economy depends elsewhere. francine: this is a great analysis, a great analysis, as knowledge you believe the markets are not preemptive of more sinister. some kind of deflationary spiral . that oil will tangle and shoot back up, or they do not show was with the markets are worried about a debt bubble bursting in china. jacob: oil is a major issue with an implication on every one. everyone. i came back from russia, and i can say you cannot have a conversation without talking about oil, unless you talk about ukraine and syria. oil is a key issue. the newdgment, equilibrium price is much below what it should be. only withw that not

jpmorgan, but valuing from $51 to $40 this morning. in your visit to russia we see the dovetail of a weaker oil and a russian ruble touching 84 second. nevertheless, is the currency in freefall. israel,r expertise in do you have a confidence in russian or chinese reserves, or any other nation for that matter? do we know what is in the piggy bank? jacob: confidence is the key word. there is not enough reserves in the world or any central to overcome confidence problems. is confidence, you do not need as much reserves as one may think. confidence is not coming from the reserves. confidence comes up from clarity. is: oil is imploding, ruble

50, 60, 70, now 80. what is the jacob frenkel prescription for vladimir putin? jacob: those who read the ,ritings of a man here in davos found the answer to that question is simple. look at his statements. he was the minister of finance. he had a great program for structural reforms in russia. reforms all over the map. it is not the central banks. are you: how worried that the price of oil is not only oversupply, but symptomatic of a global slowdown? jacob: it may be some of the above, some of both. by and large, the fact that the price of oil has fallen so there is a lot of

expectations that are built into it. a lot of thinking, what will he run do now that the sanctions are over? what will oil do? those things do not happen overnight -- those long-term changes. francine: you're not expecting a slowdown? jacob: i do. a slowdown, definitely. not a recession. the a nine it states is going to plus percent. is rolling.d states 2 plus percent. game,his is a serious regarding new mediocre talking about global recession. when you speak to jamie dimon, how close are we to a global slowdown or global recession? jacob: those are two separate worlds with different -- 2 separate words with different

expectations. we have different parts of the world going better than others. we are not on the verge of global recession. could bring us there. is there a lot of concern that prices of oil at 28 could shoot back up. there is a lack of investment year after year, as long as the prices stay at this level. at the marketook prices, something goes down, something goes up. it is fundamental. if you really want to build your economic strategy, stick with the fundamentals. oft are the likely impacts demand, supply, the political situation. the geopolitics play an important role in the price of oil and in the mood of people. that is why i'm recommending -- do not look only at the financial markets. they respond rapidly and often

in an exaggerated way. tom: jacob frenkel, thank you for being with us. jp morgan international. we continue this conversation in our next hour. erik schatzker is in conversation with the new bank thing. we're looking forward to that conversation. markets this morning. this is "bloomberg surveillance." ♪

when you're on hold, your business is on hold. that's why comcast business doesn't leave you there. when you call, a small business expert will answer you in about 30 seconds. no annoying hold music. just a real person, real fast. whenever you need them. so your business can get back to business. sounds like my ride's ready. don't get stuck on hold. reach an expert fast. comcast business. built for business. tom: good morning. "bloomberg surveillance" from a switzerland. we welcome you to the first day

of the economic forum. the agenda is taken out by market moves we saw on thursday and friday. monday and tuesday. a fragile close yesterday. the headline is it continues today. we will like it equities, currencies, commodities. die for and with futures -40, now -34. i would go to crude. jump onto the second port. crude is showing no bid. the technical construction of commodities is ugly. the german two-year is the headline. at -0.39 it was until two hours ago. we were talking about a selloff in japan going into their territory. a 20% loss since august. down 3%. the dax is down 3%. it is automakers, miners,

exporters. this is a day ahead of the ecb -- extremely significant for mario draghi. tom: they will get their at 2:00 p.m. this afternoon. francine: it depends on whether they watch bloomberg or not. tom: they are all on their bloomberg log on phones. downstairs -- i walked by -- they are all on the terminal. say the least. we have a wonderful conversation this morning. between: crossing assets, banks, the former president of the bundesbank. .s folk to axel weber i tried to ask him what he's as the main point of angst among markets. think we are going through a correction. the imf has gone down for the are at year. in the more medium-term, the

driving of future growth. we have come out of the deepest financial crisis. we are nine years out of that crisis. francine: he was a great interview. a great conversation. we talked about oil, china -- it is difficult to call the bottom on oil. that would signal to the markets -- and public officers quasipublic officers have to have a tone of. it is tough to have they tone. -- have a tone. if we spoke to an engineer, we get clarity of thought. francine: to talk infrastructure and oil. tom: it is a snowy winter wonderland like it was in ithaca, new york million years ago. robert smith is an engineer out of cornell. he has done better than good thinking about mergers, acquisitions, and transactions.

we are thrilled to bring you there chief executive officer. it is wonderful to have you here. and almost disconnect the dysfunction of corporate officers moving forward. some good, some better than good. the market turmoil, had you synthesize the markets, the debt markets, with your world. robert: we're encountering the transition points. we have in the short term a transition and optimism to some degree. short-term markets are fueled by a slowdown in china, a slowdown in certain markets. corporate ceos and executives i deal with are optimistic about the transition of the business models of their core businesses. they are embracing a for the industrial revolution, technology. tom: cost control?

robert: part of it is productivity that comes from embracing sensors, data, analytics, the internet, and connecting the business and relying on partners to do things you thought you had to do yourself. francine: when i hear about ceos being optimistic, they would be out of a job if they were gloomy and pessimistic. we will take that with a pinch of salt. our market values good or bad for you? some cases it gives an opportunity. i am in the buyout business. it lets us go after companies that other workers were not -- that otherwise were not for sale at those prices. find aa good time to partner that will help me transition to a digital economy, to become a company that can embrace partners to help me solve problems i couldn't solve. i was in a meeting with the company -- francine: re: you finding any deals here? tom: would you like to break any news? robert: no breaking news. i was meeting with the ceo

yesterday of a company over 200 years old that is transitioning to a judicial-type plot form. they need those who are digital natives. tom: i want to go with you, as an engineer, you know the danger and threat of extrapolation. explain the disease in silicon valley on valuing unicorns and there'd billions of dollars. one does this fad end? point: where now in the of reality deflation. that is a reason i moved out of silicon valley. tom: other still unicorns of the valley? are a few, but we are now realizing they are ponies with cones. but we have to do is to help them go through the cultural mind shift. in some cases it is slow, in some cases it is more rapid. now people are understanding that trees do not grow through

the sky. this is the third time i've seen this happen as an engineer and the manager of a private equity firm. francine: my heart is a little roque in. -- a little broken. are we a better time than we were a year ago. does that mean companies are -- challengee biggest the executive space is in embracing technology and embracing the cultural change that technology brings. you have to invite people in. young people into the economy to transform those as nurses. businessesform those . we come, and we have the ability to make that change happen, eventually. you had the courage to show up in africa, new york and to say "i want to be an engineer." that is a challenge for kids.

.t is not cool how do you get kids motivated to think the skills and curriculum that you took -- to our the on ramp economy is the digital on-ramp. you can create -- the kids today are digital natives. we are all digital immigrants. we come to this, learning this platform. they are worn with it. they have ideas to how things should work as opposed to how things actually work. there are things that do things right, do them better, we want people who do things differently. the younger generation is that group who will be able to create value for companies. tom: what is the best practices apple computer has in engineering and innovation? robert: and innovation of cultural inclusion. when you look at the

organization, their employees, and tim cook, there is a cultural inclusion. francine: what does that mean? how do you get that? robert: it comes from the top. you have to drive that through the organization. those businesses that embrace cultural change will survive the future. those are my thoughts. francine: robert smith, thank you for coming in. it is cold here, but he is braving the weather. ,e're live from davos switzerland. we are focused on market turmoil, what that means for investors. world leaders and business leaders gathered here for day 1 in davos. ♪

francine: welcome back. this is "bloomberg surveillance" in davos for the world economic forum. it is very cold. worriedsee participants about the markets. it is time for the morning movers. thank you. a little bit of turmoil in the markets. let's start with the shanghai composite index. 1%. 4%.hong sheng down in europe, the dax is down 3%. as i've most major indexes across europe. in the u.s., the s&p 500 down to present. -- down 2%. type move on to the next of data. brent crude up 28.10, nymex

lower, 27 point 64 a barrel. in italy, pressure on the banking system. some banks have halted trading. 10-year government bond is dropping. the yield is .04. the u.s. 10-year yield is down 2%. back to, and francine in davos. byncine: we are joined maurice leavy. a great barometer to see how the world economy is going, the fears the markets have usually reflect what you see in the real economy. what is your concern? to make a small comment regarding the reaction of the markets. they are over reacting to news. there is no new news.

when you look at the situation regarding oil price, or the growth in china, as well as the other issues -- the global growth. deflation was going to improve markedly in 2016. i'm a little concerned i this overreaction. francine: the markets may fear of global slowdown. maurice: it is not that new. have not had the kind of growth we were expecting. they don't know, who besides the french, or really thinking about the kickoff next year or this year. i think that everyone was clearly concerned about the slowness of the growth. the move-in 3%e

growth -- it was quite clear this would be below. what are you seeing among corporate officers in planning. if they have to plan for a new mediocre. if they have to plan for not a global recession, but a dampening of the economy. what is their action, given this environment? maurice: it is unfortunately what we are seeing. they're not investing as much as they should. they are not spending as much as they could in terms of marketing expenditures to grow the business. they are a bit cautious. because of that fear, nobody understands exactly the situation in china. the reality is not that they fearwhat can happen, they

that they do not understand what is going on. there are so much different information coming from china. people say i am bullish on china, some say i'm bearish on china. level of credibility which is screwed up a. cruitable.s s look at what happened with the automotive industry in china. november which was terrible. december which was climbing to the sky. it is a you yell affect. francine: and market uncertainty. that is something we have been trying to pull together. what needs to happen so we know what is going on. doing as a shock in the market, so people could say at least we've had bad news, let's go on.

how long are we going to stay in this semi-angst? willce: i don't know what happen now that we are in a globalized world. you always have one market. -- russia isem nowhere. brazil is having difficulties on economy, social, and political the only market that seems to be coming back is india. tom: you are going to be enjoying 30-years as you retire next year. i want to ask you about the american fixation, the denver broncos and the new england advertising in football on tv. disney knows that espn might be a threat. where will the tv commercial be, not in 30 years, but in two

years, three years, or four years. is it a dinosaur? maurice: it is not a dinosaur. the way people watch tv is already changing and will change dramatically. it was mentioned a few minutes digital natives are behaving differently from us. areously, the way they consuming tv is very different. we will have to adapt ourselves. viewingsthat we have with ahows, sitting down beer and popcorn -- couch potatoou say in french? maurice: all of this is

belonging -- it would not be a transition. a lot of people are watching tv. it will move slowly. tweet us whilean you are watching us. -- so far not a sofa potato. -- sofa potato. on oil, our interview of the day. ,tay with us from davos "bloomberg surveillance." ♪

♪ it is snowy and cold in davos. today is pleasant. snow earlier. a beautiful winter wonderland at the opening of the world economic forum meetings. talking about the fourth

industrial revolution. we will do our fourth data check. markets on the move and pushing .side the discussion in davos help me out before we get to our is steam to gas. two-year yield under 2%. the united states yield and european yields are in. nymex crude, 27 .80. worries of a 26. get toond board, as we our esteemed guest. the german two-year, -4.1%. is theger japanese yen litmus paper. what do you have? myncine: if you look at board, oil is plunging. european stocks sinking. i regret not putting in the data for athe global index whisker away from that being off of a bear market.

a 20% correction in the bear market. we saw that in japan, but globally equities -- it is turmoil. we are a whisker away from global equities in that index. yesterday withis the technician, he was adamant that the catharsis is not there. that capitulation is not there. our esteemed guest will help us. our esteemed to guest has been on the road for eight weeks. >> that is so true. tom: our esteemed guest speaks before being told to. francine: this is a correction. there is too much fear on the market. markets don't understand what they are looking at, which is why you are seeing such a big correction. >> we haven't got enough time to

discuss that. we are seeing the market taking one preview, and the delegates at davos taking a different view. i am bullish.ing i expect the u.s. to be bullish on china. coming out here and talking ,bout china being good and well i expect that as well. -- a is a sense of arro sense of urgency in the market. ago, i'venutes thought the inside was this was a balance sheet adjustment. it is made up of ethics and liabilities, both have to adjust, not just one. aboutan: talking capitulation, they break down to the assets. they do not want to sell. we are not there yet. you hear that in the language of the corporate leaders. what i'm worried about, we all sat here looking forward to the ecb beginning qe. if i told you the stock market

in europe would be down 12 months later, you would not believe me. that is where we are. a lot of the discussion will be about the credibility and response from central banks. francine: as we look at the last 12 months, greece is staying together. the euro zone, at the moment, is staying together. you have the china volatility. it depends on if you see the market as lagging with what the real economy has been through, or as a concern for alarm bells. tom: public officials, mark carney, draghi speaking tomorrow -- i will cut them slack on what comes out of their mouth because their public officials. i still see rationalization. we are rational as i shoul -- we are rationalizing 80 a barrel. we're still rationalizing. is probably the

source of the major angst here. it depends on if you believe that this is a supply factor, or the world slowing down, and this being the first sign of that. jonathan: governor carney was talking about hiking rates at some point in the turn of the year. he has not backtracked just because oil is at $27 a barrel. there is more concern about what is happening in the global economy. willjonathan ferro, we speak to you into wednesday, thursday, and friday. coming up, kenneth of harvard university. on the prizeergen fading away. ♪

tom: oil collapses as the market

run continues across all asset classes. in this hour, this time it is not different. global elites have no choice. they will rip up the script in -- she will rip up the script -- they will rip up this good in davos. we will consider, as we always do in davos, economics, finance, . good morning, everyone. wednesday, january 20, we are live from a world economic forum meetings in davos. francine likewise with me. i thought you had an important interview earlier this morning. francine: he was great. i hate this phrase, but he was cautiously optimistic. and the risk of deflation. tom: should i break into song? ♪ the hills are alive with

cautious optimism ♪ it works. the markets have changed. we are back to thursday and friday last week, data 41 earlier. we got that arrested. 2%.10 year yield under crude oil, 27.80. we had 27.40 beginning this thing. we get to ken rogoff here. moment, the german two-year finally gives way. that is my headline this morning, 0.39. rolling over. over asruble rolling well. european oil plunging, stocks sinking to the lowest levels in 13 months, and then through some of the analyst notes -- earnings seems to be exacerbating the route. when you look at the msci index,

this is for global equities. we are around the break of a bear market. tom: so there it is, a data check. we will give you more through the day as well. as we do always at davos, we are honored to bring you can a throw off from harvard university. golf bring you can a throw -- ken rogoff from harvard university. you were in the same position before. how do you respond to critics of the imf. they say the imf is behind. they say christine lagarde is too gloomy. are they? ken: for seven years they have been lowering. tom: where are they now? ken: i think the macroeconomic estimates are realistic. i think they have it down to 6% with china, but i think it is

down to 5%. tom: you wrote an essay years ago on floating currency rates. people wen, the talked to agree that it is a better world now. compare where we are now to where we were in 1998. ken: this is a big difference in the global economy. if russia had a fixed exchange rate, if brazil had had a fixed exchange rate, they would be at the imf right now. it has been a cushion. on the other hand, it is not necessarily a cushion against your stock holdings in brazil and russia. where we are at this market meltdown, people wondering what central banks and governments are going to do -- im afraid the news is, they do not care about the stock market per se. they are waiting to see how it will pass through to the economy. if it does, they will act. is this the markets

lagging or panicking because they do not know what to latch on, or is it the markets reacting to the real economy echo is a something that just a -- it is -- is it something more sinister than just an of reply situation -- an oversupply situation? ken: i don't know. there is a productivity increase. there is more oil around for us to consume. usually it is a good thing, usually it is a boost. he mentioned that in his comments, that that is what is causing oil prices to go down. i have trouble framing why there is the extent of panic. if you are with russia or brazil, that said, i am very concerned about china. writing, and been others agreeing with you, that we need to rationalize our debt, our private debt, or public

debt. give us a scorecard. how are they doing rightsizing debt? ken: i think we are in the middle of what we call a dead super cycle that started in the cycle-- in a debt super that started in the u.s., went to europe. it will yen the day. if you look at the u.s. and the -- , they are not quite as francine: you are probably more bearish on market consensus in china, and that means that it will hurt the rest of the world? ken: if they had a floating exchange rate, there would be less trouble in china. one of the embarrassments for china is they are pretty competent, that nobody can can control thebody can exchange rate attacks, the stock market. so if you are trying to get your credibility out of controlling things you cannot control, you will look -- tom: we have the ruble threw two

record -- we have the ruble to record weakness right now. david wu at bank of america, merrill lynch, it is a 7 for renminbi, you want. yuan, the renminbi. is it seven or is it more dramatic what you want china to devalue to? ken: what everyone has been saying, you should have more of an floating exchange rate. do it not from a position of attack. --e controlled valuation having controlled valuation while everybody is trying to bailout is not easy. tom: it is an economic phrase, but it sets up a tripod of options were leaders have. what is the impossible trinity to get to market stability?

ken: if the question is how much you can control your exchange rate, once capital flows are going -- and there are so many ways to get your money out of china -- it is very hard to fix your exchange rate. you cannot have both. francine: how do you read what the authorities have been doing over the last two to three weeks? is there a danger that they will be able to manage a hard landing if there is one? ken: let's separate a hard landing and the currency. i do not think it is so problematic in a hard landing with financial meltdown, whatever. they have a lot of instruments still to use. they have a lot of dollar debt, but they have even more dollar assets. too much investment but they still have a lot of fiscal capacity. i think what they are looking at, they want to rebalance the economy. they want it to slow down, but they want to do it gradually. that is not going to happen.

the question, how much pain are they going to bear? eventuallyhey will cry out and go back to the old ways. tom: ken rogoff, when i look at this time, it is different. what has been the biggest surprise of a seven-year and eight-year unraveling we have seen in this financial crisis? what has been the biggest surprise? ken: there are not so many global financial crises. we last had one in the 1930's. there are some in earlier centuries. who knew exactly how the euro crisis would play out? i was skeptical. who knew how china would play out? i was skeptical. if you want to tell me that i do the timing of it -- tom: we will continue with ken rogoff, getting us started in this hour at davos. coming up, a conversation with stephen schwarzman, our erik schatzker speaking with him. and our interview of the day with oil plunging.

and on global wall street, gary part of lazard. oft is a wonderful list guests. stay with us. from davos, "bloomberg surveillance." ♪

tom: good morning, everyone. " fromberg surveillance davos, switzerland. francine lacqua. francine: what a day. cold as predicted, which is a good thing all in all. we need to go to new york city with market moving -- with markets moving. here is vonnie quinn. vonnie: we will start in asia where the shanghai composite index is down 1%. pressure is on the hong kong dollar. we will look at that later. in europe, the lead continued,

the dax in germany down almost 3%, as are most of the indexes. futures down 34. 307.utures down brent crude feeling the pressure, down 2.2%. 28.14. nymex crude is even lower, 27.57. some bonds prices to tell you about as well -- the 10-year moving higher with the yield down to 1.98%. let's look at the italian 10-year as well. yields moving quite a bit. some pressure on italian banks. movers, too. royal dutch shell, down 42%. that has not been one of the outstanding stocks in london trading today. tom: vonnie quinn, thank you so much. carmen reinhart is back in the the, dabbing her eyes at

data check. it is so predictable what she and ken rogoff talked about years ago, with many people criticizing. ofse are low interest rates disinflation and inflation, and over eight centuries this is what happened. have goneinly we through what i would call a debt super cycle that started in the u.s., europe, and china. it is interesting to me that when china was growing in the early 2000's, everybody said they were exporting deflation. now they are collapsing. everybody says they are exporting deflation. something is missing. it, ore they exporting is that an undergraduate fallacy? ken: now they are collapsing and it is not good. i think the overarching phenomenon is that central banks are facing these real interest rates, lower global real interest rates, and that has driven them down.

they have to think about having negative interest rates. i have written for 20 years about phasing out large notes so you could go to larger interest rates. be the first would want to do that in your eyes? this is considered extremely unlikely, negative rates, because of the consequences of doing something like that. they are quite measurable. you have to lay the groundwork. so there are different ways to do it. japan could phase out paper currency. they could really use it. again, they are thinking about everything. tom: you have had a delicate optimist him -- you have had a delicate optimism within your economics. larry summers spoke at length in dubai about secular stagnation. is there confidence in the ?extbook

wrote during the industrial revolution, not realizing -- tom: it is on page 17 of samuel to -- of samuelson. ken: everybody said in the 1970's that they would be inflation forever and we are not going to conquer it. i do not know what is going to happen, but i do not think we are in central stagnation. -- secular stagnation. francine: does it work if we are not in a financial crisis? shealy is limited. they are looking at other instruments like negative magistrates someday, but probably not now. they are hoping there will be structural reform, that there will be fiscal stimulus for infrastructure. i do not know if it is coming. you are mario draghi, how do you get through the conundrum that it means for

his interest rate settings? tom: he has limited -- ken: he has limited tools. unless he can change more radically, it is not going to happen. camera to jason, why can you guys take a victory lap? we have solved a lot of the near-term fiscal challenges. the unemployment rate as a constructive vector. ken rogoff, why are we so miserable? why is the white house so reticent to take a victory lap? ken: i actually overheard the conversation. to say great point, tom, but i will say it now. probably the reason is the inequality debate. people say you have made things good but not for the common person. i think that is not true. get employment, it could have been a lot -- you look at employment, it could have been a lot worse. in the uproar yesterday at

half the world having the same -- i saw someple intelligent criticism of the certitude of how we debate inequality. what do we get wrong in our inequality debate? ken: you have to work -- you have to look at the work of angus deaton, who won the nobel prize. there are one billion people living in privilege, six or 7 billion people not living in privilege. thomas piketty's 99% are really the upper 15% of the world. if you are looking at a political question, great. if you are going to make it a moral question, obviously it is about true economic poverty, where a lot of the progressives do not seem to care. francine: the emerging markets are reeling from the shock and commodities. when will that stabilize?

these things have a way of burning themselves out. it is not just a demand question, but there has been huge investment. around the world, investment in all commodity production has dropped, but it takes time to come online. it will, and demand will grow. tom: is this a federal reserve, and for that matter, the ecb and the bank of england -- are they in charge of their models, their debate, their rhetoric, their discussion, or do they make it up as they go? ken: they are doing the best they can. francine: so diplomatic. tom: thank you so much. a very generous morning conversation as well. we are here in davos. tomorrow on the program, we are thrilled to bring you adam posen of the peterson institute. and then ian bremmer on international relations.

and bob shiller as well. francine: the u.s. 10 year just dropping below 2%. we will have a market check, msci global market index, very close to a bear market. ♪

tom: welcome to all of you, worldwide from davos, at the

meetings of the world economic forum. we will get right to a data check. everybody in the conference center is glued to their cell phones. many of them using the bloomberg terminal app on their cell phones. goes under theld emotional 2 level. and brent are soft, soft, soft. on to the next screen, very quickly. the russian ruble is the outlier today. somewhat the german two-year, but the ruble, 80.33. that is new weakness in the ruble. i cannot frame that, folks. adam posen is joining us tomorrow. really looking forward to a discussion with adam posen on dollar ruble as well. francine, jump in here. of thee: global stocks

msci index are on the brink of a bear market. oil is sliding. and the europe stoxx 600, you can see it is down. carmakers, everything. there is a little bit of fear. i want to show the ruble, 80 points. move in brad's 1.8%. move is 1.58%. they are brutal. francine: we had the top picks following last year. global equities, a lot of the ceo's and business people were trying to portray a name image -- portray an image of optimism. tom: the real story is you were freezing earlier this morning. it was colder here. francine: it was extremely cold. , wefirst interview in davos

were looking at the terminal together. this bank but president, now chairman of ubs, was concerned about china but also questioned how much central banks had left in ammunition. >> i think central bank have tried to reflate the economy for several years and they have not been successful in doing that. at the same time, they tried to reinvigorate growth, and the have not been successful in that either. francine: he is cautious on china but bullish in the long term. he says they are -- he is an asset manager, so he would say that. he is not overly worried, but there are a lot of themes. tom: i would think many of our viewers, global wall street and those in the markets, which is just we are not at a correction right now. the correlations here have not a

bear market feel, a gloom feel. today the ruble moves. what will it be tomorrow that moves? francine: we did focus a lot on earn -- on emerging markets p we will focus on that with adam posen and look at a lot of debt from corporate. tom: we heard ken rogoff say we are in the middle of that super cycle. "haze."the word coming up, stephen schwarzman on the linkage between wall street and global economic affairs. this is "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: the winter wonderland that is davos, switzerland. good morning, everyone. we welcome everyone. really a gorgeous day, warmer than the gloom of four or five

days ago. or minust, minus five seven degrees. we have not really seen that yet. when you see, read "the sound of music," 18 times at home. francine: it is time for "morning movers." vonnie: let's recap some of the moves, including asia where the shanghai composite index is down 1%. the hang seng was down almost 4%. a lot of worry about the hong kong dollar, at their weakest 4.782.dropping off futures year for the s&p 500, down 31. that is a little bit better than earlier this morning, pointing to a drop of 1.7%. similarly, down futures -- dow

futures dropping 1.8%, 2.82. -- 282. they had been at 300 earlier on. 10-year yield is trading at 1.98%. i want to bring you a couple of movers stocks wise as well. italian banks -- one was halted after a drop of 18%. ibm is one of the premarket movers in the u.s., down almost 4% after a very soft forecasting yesterday. goldman sachs, we are waiting for, coming out in about an hour's time. tom and francine? tom: vonnie quinn, thank you so much. global wall street represented here in davos with a conversation. here is our erik schatzker. erik: thank you very much. i'm to be sitting once again in davos with steve schwarzman.

welcome. steve: thank you. are: the volatility we seeing in financial markets, it's broad based selloffs -- what do you think is behind it? steve: there are a lot of things. you have economic things such as the slowing of the u.s. economy, which has been pretty gradual but consistent, despite the strong parts of auto and housing. you have got energy going down so quickly that you can almost , and the world has trouble adjusting to things that happen very quickly. issue,e china as an which is probably overdone because the west tends to see china through its markets and its currency, where there have

been a lot of major flip-flops. and mismanagement of the stock market, and what you did afterwards. so that creates an issue of confidence. and the same with currency. so when you put those factors together, you have an unattractive brew, all with the concern that the federal reserve will raise interest rates and slow the economy further in some effort to save it. erik: steve, does it feel too right that this is a correction, or are we at the beginning of something deeper and more enduring? steve: it feels like a correction to me. if i thought china was in freefall, i would be really concerned. . actually do not

the consumer and the service economy is holding up pretty well in china, but there are --ts that are way overdone ,hether it is steel, coal residential, in certain of the interior cities. if you take one anecdote, you can get -- erik: the picture you want, right? steve: you can paint a really bad picture, along with the stock market and the currency in terms of just the policy implementation. erik: but if the volatility continues and the selloff does not stop, what happens then? steve: at a certain point, markets become reality. if they affect the behavior of regular people. at this point, i do not think

that has happened. it certainly is happening institutionally if you are managing money. anybody who really touches the stock market cannot be very happy. erik: what are the sovereign wealth funds you talk to doing what are the sovereign wealth funds you talk to doing right now? steve: different ones are doing different things. the reason they have sovereign wealth funds is to help themselves when there are crises and emergencies. kuwait did it after the invasion and used about half of their fund. it was refilled when prices went up. certain are seeing is sovereign wealth funds are continuing to invest as normal. some of them are redeeming their lower yielding types of assets and sticking with the higher return type things that we do.

and you will have different outcomes across the region. erik: when you say lower yielding, you are talking about -- steve: stocks, bonds. erik: do you get the sense this is happening in large quantity, in high-volume yet? sense they know what oil prices are generally. they know what it takes to run their country, and the alternatives are to shrink their budgets, which is difficult given the on settlement -- given the unsettlement in that region. or liquidate certain types of assets. lp's iran into one of your yesterday, and he told me -- i ran into one of your lp's me -- ay, and he told

steve: we are on two sides of the credit market. the first is we own a big credit they are, and experiencing the other side of that illiquidity, where the is a big demand for money, much higher rates of return than there were three to six months ago. their existing investments go down on a mark to market basis, that -- but not necessarily in terms of their ability to have principal and interest returned as more of a mark than an impairment. , obviously thes junk markets have gapped out. it is hard to issue large qualities -- large quantities of junk markets as we go through instability.

erik: does that mean dealmaking is on hold? no, it does not mean that dealmaking is on hold. what also happens is that price sometimes cures some of these other issues. as stock markets have gone down and valuations have gone down, it normally takes six months or so, sometimes a year, for all of those new relationships to normalize, and then larger scale buying starts. as markets are really going down, so -- as markets are really going down, sellers do .ot like the new price buyers always tend to like the new price, so they do not want to stretch in an uncertain time. the reason we have money for 10 years, and why things that happen over a few months or six

months or even a year does not really bother us at all is our game is to pick the right moment to buy the right companies and the right other assets at the right time. erik: steve, before i let you go, i have to ask you about what is going on in domestic politics back home. are you getting used to the idea that donald trump could win the republican nomination? whole thingd the astonishing. what is remarkable is the amount of anger, whether it is on the republican side or the democratic side. bernie sanders, to me, is almost of theunning than some stuff going on on the republican side. how is that happening? why is that happening? in america that is being tapped into across

parties, that has made people so unhappy? that is something you should spend some time on. erik: i am working on it. steve, thank you very much. schwarzman, the chairman and ceo of the blackstone group. act in davos for another world economic forum. tom: we will continue this discussion. coming up, a discussion with gary carr. steve schwarzman was talking about the risk of geopolitics, and that is something we need to spend a bit of time on. we will also be discussing the price of oil, below $28 a barrel. ♪

everyone.morning, davos, switzerland. we are looking at the markets, to say the least. up toenda has been blown a great extent throughout this beautiful valley. daniel yergin will be joining us later this morning on oil. right now we are thrilled to bring you the vice-chairman of with his manyarr, years of experience on global wall street. i want you to take a victory lap. last year you framed the banking business as a business in turmoil and tumult. we are seeing that. where is global wall street and new york wall street in 12 months? gary: more of the same. companies are being squeezed, having issues with her cost structure, -- with their cost structure, their profitability.

there is still an awful lot to be done, and this volatility of late is going to make it worse. tom: is henry kaufman right, that we are becoming utility backing to the advantage of lazard, and to an extent, steve schwarzman's blackstone? gary: yes and yes. away from thatms without balance sheets and sales trading, have been for the last five years and continue to be beneficiaries. .rancine: talk about m&a 2015 was a bumper year, cross-vector megamergers driven by the need to cut costs. is market volatility something that will spur more m&a this year? gary: it is too early to tell. extreme volatility reduces m&a. hard --et afraid and is people get afraid and it is hard to know whether you are pricing into a difficult environment.

certain types of volatility caused m&a activity, particularly when companies feel the pressure of a lack of growth. all of the signs are on this volatility and the pressure of inflation or deflation -- of low inflation or deflation. you cannot grow the top line. francine: i think of commodities in oil. am i right? gary: there will be restructurings. we are still seeing the damage of low commodity prices. you gople effect, when back to super cycles of commodities, particularly when they declined on a global basis, normally it ripples through the economy, through the industries, and into the banking sector. almost never can you avoid problems in the banking sector when you have commodities go down. tom: today we see the ruble move out to record weakness, and the german two-year yield again revert to negative yields.

0.42.o a do you know where the markets are this dysfunctional when you do the calculus -- do you have a risk-free rate you can work off of? gary: what you are looking at is the project. companies have adjusted to what we would view as abnormally low interest rates, but it has been multiple years. francine: which is psychological. exactly, a psychological effect. so the ways of thinking about return on capital are still adjusting to low interest rates, but are adjusting to the fact that it could stay this way for the foreseeable future. francine: what of the markets getting wrong about china? there is fear in the markets that we do not understand what the end game is. it boils down to whether we are

confident about regulation in china and their authorities and whatnot. gary: i think there is too much fear about the chinese market from outside of china, and for that matter within china. it is not uncommon to see volatility around a new market. that is a way to look at the chinese market. they are still learning about when should investor step in and when should they not. i am a believer of whether gdp believer -- i am a believer of 6.5%, 5%,p growth is or 5%, it is still the largest growing economy in the world. there is a lot of opportunity. tom: gary parr, thank you so much. as we look at the banking industry among others, arguably our interview of the day with oil, the threat of a 26 handle

earlier this morning. we will speak to daniel yergin of ihs, about a changed world of oil. from davos, the world economic forum, this is "bloomberg surveillance." ♪

francine: welcome back. this is "bloomberg surveillance ." it is day one in davos, for the world economic forum, 2016. it is the market flood by foreign exchange. looking at dollar yen, strong yen this morning. it has come back a little bit, but nevertheless a 1.16 handle does not help. dollar-ruble, 85.43, new weakness as we go through "bloomberg surveillance" this morning. the other major story is that the dollar index has not moved. to an overall data screen, equities, bonds, currencies, commodities -- nymex crude, 27.59. let's go back and look at oil.

a few years back in the middle of the pride, about page 200, of daniel yergin's wonderful pride, back in 1950, and down we go. adjusted forh, and inflation, we are really back with rising income where we were new oilago, and almost weakness. it is time for our annual visit with daniel yergin in davos. years ago you said $40 a barrel. nobody believed you. you were way out front on lower oil prices. citigroup lowers its terminal value down to $40 and barrel. how do you know when you have found the bottom in oil? the markets in oil have just taken over because it is so dramatic. this is an historic time. the chart you showed is powerful. correcting without

for inflation at oil prices and commodities, we are back in 2003. the super cycle is over. the incredible boom in the chinese economy is over -- is bigger. tom: which country are you more focused on? iraq is in terrible shape, but three or four of them .- put venezuela there this is knocking out so many countries. francine: russia is not doing great, either. daniel: russia for a while seems to be under control, but this is another market. -- i knowi know it or there is an oversupply issue with oil. are we calling the bottom six months away or 12 months? daniel: producers are showing no inclination to get together. other crises right now -- we think in the second half of the year this is so severe that you start to see a rebalancing of the market. maybe in the beginning of 2017. tom: does the rebalancing come

on balance sheets? say rebalancing, what do you mean by that? daniel: in other words, we get out of this downward pressure on price, and price starts to move up, and in the second half of the year we could see prices a good deal higher than they are today. not what would have been $100, not $70, not $60, but a market that is coming back to operate more with the fundamentals. francine: this is what opec needs to meet in the summer? daniel: the problem is that this time, because this is actually a geopolitical problem, too, which is that saudi arabia and iran are at odds. they say we are not going to move in iranian oil, iran says we are going to make our market share back. you do not see a basis for them to get together -- and this is what the gulf countries say --

everybody -- tom: you cover the majesty of the finding of oil all through the middle east in your book. there is no majesty now. there is a 29-year-old or a 30-year-old deputy governor. daniel: deputy crown prince. tom: deputy crown prince, excuse me. daniel: it is very hard and that economy. it is so overwhelming, but it reflects the fact that 70% of under,ulation is 30 or so it is a generational shift going on there, and a lot of activity, including a war in yemen. panic, or isit a it about the future? daniel: it is going to take a while to get there. prompted by a sense of kind of reform looking at what other countries have done, but it is a signal rather

than them saying it is a specific time event. tom: he will continue on "bloomberg surveillance" on radio, here with us from davos. tomorrow we continue with adam posen, and ian bremmer with eurasia group as well. and robert shiller of daniel yergin's yale university. all that for you tomorrow from the world economic forum. what is the temperature tonight? francine: it is not as cold as it was this morning at 6:00 a.m. tom: it is cold. it is lovely. stay with us. tomorrow, from diagnosed. -- from davos. good morning. ♪ 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. ♪

>> welcome to bloomberg go, live from davos. stephanie: excited to be here. our own david will meet us here shortly. he is not skiing, but his meeting. i would like to point out a very important later. today -- the story today is all about the markets. you somee bringing insight on some of the biggest names in business, finance, and policy? next few hours, the coo and president of nasdaq, debiting many director of the imf and you will hear more from my conversation with blackstone weighing inhwarzman a market volatility of whether this is just a correction or something worse. first though, matt miller is in ney