francine: volatility rules. market turmoil could derail a march hike by the fed, as the ubs ceo describes the volatility and is paralyzing foreign investors. bp plunges, and 91% drop in profit. we have an interview with the cfo.a and ted cruz wins against donald trump in iowa, as hillary clinton clings to a win in the democratic caucus against bernie sanders. evangelicals really pick the president? good morning, this is "surveillance." board, european

stocks declining. they are alike lower on oil prices. tom: lots to talk about, not only the markets, but look just across the bloomberg hd screen, francine. european unemployment coming bon stocks declining. they are alike lower in, and that was off that german unemployment. it's a shift from challenged markets with a good economy. francine: yeah, pretty good. maybe pretty good is too optimistic, but the overall jobless rate decreased. so it is a little better than expected. we'll itake it. let's get to the first word. vonnie: thank you. the first test of the presidential campaign ended up with surprising results. ted cruz won the republican vote while hillary clinton edged out bernie sanders. cruz upset donald trump 20% to 24%, and marco rubio did better than expected with 23%.

victory for the grassroots. [applause] tonight is a victory for courageous conservatives across iowa and all across this great nation. caroline: meanwhile -- vonnie: meanwhile, hillary clinton failed to get a decisive victory. in the closest race iowa, she 49.6%.m 49.9% to >> i am really excited about getting into the debate with senator sanders for the best with your word to fight for us. mikee: resulting i, huckabee and martin o'malley have dropped out of the race. the european union says it is deal on revised membership terms that would

clear the waiver david cameron to get an agreement from fellow european leaders, which would allow him to hold a referendum as early as june. part of the agreement -- national parliament could block european legislation. the world health organization has an outbreak of the zika virus. it has been widespread in central and south america and has been linked to birth defects. the w.h.o. says the first priority is to control mosquito populations. global news, 24 hours a day. i'm vonnie quinn. tom: vonnie, all the sleep deprivation was the order of the day. we need to explain -- here in iowa, there is a magic moment at 6:15 in the evening, you make the -- east. -- you make the dash east. we'll do some careful iowa analysis and how it falls into economics and politics. a data check -- futures are

deteriorating, dow futures down, the yield much more than yesterday. dan alpert will join us in the next hour with discussion of low yields. nymex down again. right onto the second screen. the vix under the average, 19.9. that will change this morning. yen is a huge deal. it really pushes back against the japanese action. this red is right -- the spread is right there. 2/10 spread, that yield curve ever flatter. francine: i also picked the japanese yen on my data board. i probably should have looked at ruvell. tom: we have 20 minutes. francine: yeah. we'll get you that ruvell chart. yen, european stocks a leg

lower, down by 1.8%. they're declining as oil deepens the drop. bp is the biggest loser on the ftse 100. we really have earnings on our minds. 90 companies reporting in europe. tom: british petroleum in a bit. let me go right to the bloomberg terminal and explain i'll. this is before we get to our iowa expert in berlin. we will show you the oil chart later. this one really shows the movement and elegant bounce. if you teach a course, this is short. the chart says short. saycine: all we can really is to echo what stanley fischer said, that it will come to a stop at some point. article i was a smart

read on the push of the ethanol industry in iowa. it really pushed back that republican corn lobby in iowa. we expertise on iowa. we are seven time zones away. the nichols is an expert on dash from iowa to new hampshire. forget about the clowns like you with no sleep. hans, what will the candidates think about as they dash to new hampshire? >> marco rubio is going to wonder who is taking ad buys out against him, who is buying massive amounts of td points to run negative ads. he comes out of this with a big target on his back. he came in third, but most of the republican establishment takes he is the front runner. here's your assignment. only wmur, call up all the boston tv stations. try to talk to the media buyers,

figure out who was buying how much and what the ads are saying. the thing about the boston tv market is that it plays into new intohire and reaches -- new hampshire and reaches a lot of independents. tom: let's stack it up for our global audience. boston is in massachusetts, that's where you buy your tv for new hampshire. it's 70 miles to the north. what will be mr. trump's advertising message after a "defeat" in iowa? trump leads to figure out who is biggest threat is. if he does after rubio, that is going to be an indication that rubio could face a fight from the anti-establishment side and the establishment side in jeb bush's super pac. rubio has already endured quite a bit of negative advertising. we will see whether or not they can drive rubio's negatives up a little higher in slow his

momentum. but rubio is in the crosshairs. trouble attacking from the anti-establishment wing, and jeb bush will attack it from the establishment wing. he came out pretty smooth and quick, but like you say, he is good on his skates. he did well in iowa. real quick, on the democratic side, yes, hillary clinton will have a difficult slog to the nomination. serious to anyone in democratic circles that say she won't be the nominee. the question is how wounded will she be and how long will the challenge be. francine: actually, just the back it up, what does this tell us about the polls? it seems that the race is wide open again. hans: you know, it tells us the polls, at least in iowa, weren't a good fo predictor. in some ways, you can't judge pulls in iowa, because it is a caucus and it is difficult to predict the caucus. you will see how the polls are in new hampshire, and who gets

bonds into drops out. i suspect we will have fewer candidates in new hampshire, and in south carolina, a lot of evangelicals. the electorate looks a lot more like americans -- less white, much more diverse. jeb only got 12% -- can we discounting? hans: not really. governor jeb bush did not play into big in iowa. iowa wasn't great to his father in 1988. in 1980, it was a great to george w. bush. he's taking his campaign on new hampshire and south carolina. offhe past, you can't write the early states entirely. i'd only ask you to ask president giuliani about that. you have to show some movement. tom: well said. on your tour of duty, you were

able to observe senator ted cruz and the other republican senators. why do they dislike and so much? hans: oh, he doesn't play by the rules, right? i mean, you can point of the examples,fic saying he called mitch mcconnell a liar, that he attached a writer to this amendment. in general, he just doesn't play by the clubby rules of the senate, and that has offended a lot of washington types. he hasn't just not played by the rules, he's proud of it. tom: hans nichols, our american political expert seven time zones away. coming up, my conversation with the vice-chairman yesterday. the council on foreign relations. stanley fischer on his dovish comments on uncertainty. stay with us. ♪

francine: welcome back. i'm francine lacqua with tom keene. let's get straight to your bloomberg business flash. vonnie: thank you. bp got slammed by the lowest oil prices and more than a decade. they reported fourth-quarter earnings fell 91%. the collapse has driven their market value below $100 billion or the first time since the gulf of mexico oil disaster in 2010. third-quarter profit fell 36% at nintendo. the company didn't have any hit a videogame titles for the holidays, which hurt sales of 3dsir wii u consul and the consoles. google parent alphabet,

meanwhile, is on the verge of overtaking apple to become the world's most valuable company. shares rose in the free market, which surpassed their market cap. alpha that reported higher sales, fueled by a booming at business. that is our bloomberg business flash. the fascinating thing with the fact that alphabet is willing to live $3.5 billion, -- toulouse $3.5 billion. tom: the real message here -- it's really about alphabet and facebook taking over. it's winner take all. vonnie: exactly. francine: i don't know how i feel about that. i went a lot of copy saying that the problem with apple losing market value is that apple is a proxy for the world economy, because they sell so many iphones to china. that may be another proxy of the

china slowdown. let' sees what our guest thinks. he's george sayreville. great to have you. another leg lower for european equities, volatility on the rise, ubs wording there is more to come, oil price, liquidity. is there anything i should be optimistic about right now? >> two things. i guess one is things could be worse. [laughter] >> if you look at european growth, it's still doing reasonably well, slightly lower than 2%. we're a bit better. the dm side of the equation is holding up pretty well as opposed to the emerging markets, where the source of all the stress is. francine: are you more worried about turmoil and the lack of liquidity, or are you worried that negative rates mean central banks are running out of tools? wewell, the issue is that have plenty of things to worry

about across the board. i'm worried about everything, but i think the fact that we did get the japanese action last week shows that central banks are still willing to go ahead with more and more innovation. i'm not sure i fully agree with the argument -- if you look at the market reaction, the bond markets have had a huge global fixed income has rallied. the signaling that came out of japan was very strong. tom: the signaling we saw yesterday was quite something. i was thrilled to have michael foerroli. he asked the vice-chairman an important question on negative interest rates. >> countries that have continued to use it have given it up. undertakingbillions the monetary policy that rose the interest rate from -25 basis points to -65 basis points, thereby raising the interest

rates. than i can say i expected in 2012, when i wasn't on the committee. tom: there's the mystery from the vice-chairman. george, you work in the trenches. did you amend your calls off the bank of japan action? >> well, we haven't, actually. one reason is we were expecting the japanese to defend dollar-yen to prevent appreciation of the yen. we did of course predict how aggressive it would be, but we haven't changed the forecast. we have been looking for dollar-yen to stay quite elevated over the course of the year. we. the bank of japan would respond. tom: what the unintended consequences of defending the yen, of forcing his weaker? that things can tend to happen -- what are they? >> at the moment, the biggest

unintended consequence is what we are seeing out of china. if you look at the last two years, you have had these ways the depreciation in currencies. china has been willing to accept these passively. the unintended consequences -- if japan engages in another round of depreciation, that puts more pressure on china to allow the currency to weaken. the unintended consequences are outside japan rather than within. francine: what is your main reason for china? that whatever happens, exacerbates capital outflows? at what point do we see a crisis, where people start pulling money out of china aggressively? >> one of the issues is that we are seeing a large amount of outflow. the thing that the market worries about is that we are not in equilibrium. we are constantly seeing outflows. they've been trying to outset these by -- to offset these by capital control and currency

adjustment, to allow the market to reach whatever new equity that is. or in the the capital controls to work more effectively. at the moment we are not getting either, which is where the market is so unsettled. francine: overall, what is your smart plan for 2016? >> in the fx space, this was unfamiliar, but we are bullish on the dollar. the rationale is similar to previous years, but the key difference is if you look at this fed hiking cycle, the dollar weakens after the first fed rate hike. this is unusual because it should strengthen. the key reason is this is a late cycle. around these late cycles, it means the fed -- typically, the dollar does very well. it's a high-yield. it's remarkable that the fed has only risen rates once. francine: george, thank you so much. george saravelos.

he doesn't believe that the dollar rally is losing steam. coming up, market volatility is also a concern. interview from this morning with manus cranny. and we haven't even touched on the ruble. we will have more on that, coming up next on "surveillance." ♪

tom: when the markets move, we do a data check. they are led by oil, which flat-out can't find a bid.

there is no other way to do it on west texas intermediate. german two-year yields are doing nothing versus oil. yen is churning at 120.72. a picture of the morning, with futures and -17. is myne: this morning must-read. we have spoken a lot about market volatility, and we also spoke to ubs. it reported earnings that he estimates, disappointing on underlying estimates because they saw some outflows. in an interview with bloomberg, the ceo spoke about market volatility. >> i think when you look at the dynamics of the fourth quarter and you look into how it started, you can see a trend continuing. of course, there is a high level of risk aversion, that people are happy with their asset allocations in general. but people are paralyzed by this high volatility and all the

geopolitical and macroeconomic news. francine: george, when you listen to shar sergio ermotti, there is nothing that i can come out of that. does that imply a lot more turmoil? >> yes, i think it's good waya of characterizing things. there are two major problems. one is central banks. they are becoming more surprising day by day. we don't understand their function because they don't know how to react to developing situations. on the policymaker side, we will continue to see surprises. hat becausene is t everything that is happening is new -- we have literally never seen this -- investors don't know how to value things. we don't understand the implications a central banks and their new policies. and on top of that, regulation

is reducing people's willingness and capacity to take risks. you've pretty much got the message for high volatility and surprises. francine: george, thank you so much. coming up, bps profit falls 91%. we will hear from the ceo. you also addresses concerns about him leaving the company. he believes there will be weaker oil prices in the first half of the year, with a gradual rise in q3 and q4. this is bloomberg "surveillance." we bring you market checks -- that is london. back in two. ♪

tom: "surveillance" means more data checks on the markets. it will reverse and with higher, and this morning the yen churns at 120.75.

flat-out, and center, oil can't get a bid. i won't say $29 yet, but it is weaker. vonnie, this is that idea of a flatter yield curve, even as yields don't move. andie: the two-year ten-year. tom: yeah. there's much more news. let's get the first word. vonnie: as we've been saying, an upset on the public inside in the near upset for democrats. ted cruz and hillary clinton the winners in last night's caucuses. ted cruz upset donald trump, with marco rubio finishing strongly and third. cruz and 28%. trump was low key after the results. >> we will go on to get the

republican nomination, and we will go on to easily beat hillary or bernie or whoever the hell they throw out there. iowa, we love you, we thank you, you're special. vonnie: the democrats have the ever,st iowa caucus 49.9% to 49.5%. bernie sanders spoke to and right nowright no we are looking at live pictures. he said that the results show the american people this is a campaign that can win. of bernieive picture sanders in iowa, about to make his way those 1200 miles to new hampshire. republicans mike huckabee and martin o'malley have called it quits. the primary is a week from today, next tuesday, in new hampshire.

the pentagon the last 435% increase in funding to fight the islamic state. the u.s. military also wants us-based security initiatives aimed at countering russia's aggressive moves toward the ukraine. and xi jingping has completed the biggest overhaul of the military in decades. the people's liberation army will be under a single command structure for the first time. troops will be organized into four "battle zones." day --y is, 24 hours a global news, 24 hours a day. francine? francine: thank you. we were talking about deutsche bank's main fx guy, and goerge, you clearly said you see much more dollar rally. draghi -- he mario will need to rely on the fed to

weaken the euro, he cuts his policies won't have enough oomph. can he move it all? >> i think it is definitely working. you've seen a very big improvement, obviously succeeding in pushing the euro down last year and the year before. this is more forward-looking -- can they push the euro down further? with a combination of more aggressive rate cuts into negative territory and more qe, they will, which is why we still have quite a bearish euro forecast. of course, it still relies on the fed, not necessarily hiking as aggressively, but at least versus everyone else, still stay in hawkish. francine: there is a great story on the terminal -- it is difficult for traders in the currency space getting whiplash twice central-bank action. how much volatility are you expecting in your space? is there a bet on the ruble, one

of the currencies we talk about less, that seems less risky? >> unfortunately, i'd say ruble is one of the examples where it is even more risky. the issue in the market is the correlation being driven by three things -- one a central banks, two is oil, three is china. it's driven by the oil price, which makes it hard to have a strong idiosyncratic removal. the fundamentals behind the ruble look better. it's a much cheaper currency, the politics are getting better between russia. but you still have the fundamental issue of oil price. we are staying out of that type of investment until we have more clarity on the oil price. tom: george, do you have clarity on japanese yen? it is not the russian ruble, not a frontier economy, nodding emergi not to emerging market.

yen, we moved, and then here is the weaker yen and the defense. -- is this aolumes leader to a new currency war? >> the title you have there in the chart is very much accurate. a strong yen is unacceptable for japan. they're still trying to get inflation up, trying to get inflation expectations up. i think it is right that they will respond to dollar-yen as aey did, which is why we have range bound field for dollar-yen over the course of the year. it is very cheap as a currency. dollar-yen has moved a lot. we don't think they will succeed in pushing it much higher, but also we think -- tom: interesting. francine: it wasn't a very big move -- vonnie: it wasn't a huge move.

was it an intent to target the currency by this structural change in monetary policy? >> i think it was targeted at preventing dollar-you depreciation, but the actual move in the rates was fairly small. we have only moved to -10. i think it was more about the signals, that they are not willing to tolerate dollar-you depreciation. so long as we are range bound, i think that is what policymakers in japan desire. vonnie: that was my other question. you say was only attend basis point move, but going from zero to negative is more than just a 10 point move. it is more symbolic. >> that's certainly the view we have taken. what we have been arguing is that it is a lot more about going through zero. even more interestingly, it is about the design, the way they designed the system of negative rates, which allows them if they

need to to go even deeper into negative territory. it is all about the technicals, exemption thresholds reduced around liquidity. some rules about absorbing and the offset they have in the system. the message here is if they want to they can take rates more negative. it's the same message the ecb will send. obviously we are seeing it across europe. francine: goerge, where do you see pound? you have an outlier call, but we are expecting more. >> i'm not sure the bank of england will be as aggressive. the market has shifted, and we are now pricing even a 50% chance of a rate cut. we don't think it will be as aggressive on thursday, but forecasts are still very negative. we've got a 115 forecast. it's a combination of a few things -- first, that the bank

of england will not be successful in hiking. also sterling is very overvalued. you have the brexit issues, which puts a risk premium on the pound, which is a big problem. it's very reliant on inflows to stay strong. tom: we'll comeback to look at foreign exchange and new deflation. later today on bloomberg west, an important conversation. mark herman from hewlett-packard, now at oracle. somehow the cloud will come up. look for that six foot p.m. this evening. stay with us. ♪

francine: welcome back. this is your data check.

we are seeing quite a lot of pressure on the european markets. you can see crude down at $30 per barrel. ais is basically pointing to possible regrowth. bp disappointing investors on its biggest fall. i want to show you a pound -dollar. george expects it to go up, and i also want to show you the ruble, another decline. drop, but a 91% the ceo says he still has lots of options to keep investors happy. >> we have no plans to cut the dividend. the feedback from shareholders is important, and we have $6.6 billion in dividends. cash costs to reduce, a little bit of flexibility on the gear. unless this looks like it will go $20 for a long time, i think we are in good shape. francine: ryan chilcote spoke to bob dudley in a bloomberg first

a short while ago. he joins us now from outside london. he did a great interview. you spoke about dividends, looked at where he sees the price of oil going, and he told you he will stay at the company. what was most significant for you? look, i think is the on the oil prices the most significant, because his whole strategy for the company is based on that. bob was one of the earliest people to get bearish on the oil least and he's one of the bearish as things stand at the moment. he thinks the oil price will recover in the second half of the year. no, the things that will shoot up to $100. he thinks it will come up and off to help him borrow more money, take the gearing up as high as 30%. it will allow him to not cut spending and keep that dividend safe. you look at the dividend yield as south of 9% in not all

investors are convinced. tom: it is at 7.57%. when the ceo says he is not going to cut the dividend, it is usually the kiss of death. capex can he take out? they have gone down to 17 $18 billion. how much wiggle room does he have to/capital expenditures. -- two slash capital expenditures? tom: ? ryan: i think the answer is not much. think they would like to come in close to 17, 80 they can surprise everyone, but the reality is if they cut capital expenditure anymore, it starts to affect the future growth of the company. i think that is something bob really wants to avoid. predicated ong is

oil prices rebounding in the second half of the year and preventing information to do that. francine: george, we were talking about the ruble -- that's linked to the price of oil. what i the facts we know about oil? it is not likely that opec and non-opec will cut production. is the price of oil anyone's guess? >> as he said, what are the known facts? the fact are that we are near term in oversupply. it's not an equilibrium but it is trying to reach one. what is fair value in the medium-term? according to our analysis, we think fair value is between $40 and $15. -- 14 and $15. technology, but going back to the previous conversation, it is a new conversation with shale, and we don't know how quickly it will adjust. francine: what are the emerging-market currencies --

they have been taking a rough ride because of the dollar strength, and with oil there is almost no hope, in my right? >> is certainly becomes more difficult, but there is one source of hope. for the oil price declines, the less important it becomes. it's difficult to get that drop. the hit that should be reducing -- if it goes up and the u.s. credit market. we're seeing less macro contagion but more financial contagion. tom: what is the call on renminbi? so many predicting seven yuan per dollar -- canopy worse? -- can it be worse? >> we have a forecast, but we do see the risk being skewed toward more weakness. that goes back to the problem of the market not being in equilibrium. so long as you are seeing the outflows, and the china reserve numbers down, the best guess is we should see a big reserve drawdown. i think the market will worry about more depreciation. tom: ryan chilcote, thank you so

much. we'll continue with george in a moment. thank you so much. conversation with on the hugely skeptical efficacy of what your federal reserve system can do. really looking forward to this conversation. daniel alpert at westwood capital thinks we are in an age of oversupply. stay with us. ♪

very weak markets with oil down and ruble up. a lot of the other markets churning, futures that -15, some stability. let's get to the bloomberg business flash. vonnie: thanks. two of the biggest retailers of the u.k. have agreed t combine. sainsbury's and home retail group by. they are fighting back against online merchants. talking with thanks about selling so-called islamic bonds for the first time, according to people with with knowledge of the matter. millward yet on helping any bond sale would be. they are also considering an

ideal of its parents. they maintain investment in oil and gas projects despite the fall in prices. here in new york, hundreds of protest overoves fair costs. last week, uber cut fares by 15%. that is your latest. tom: an important note from bloomberg intelligence. when thomas or like rights "we listen," he has just put out an optimistic note on china. he's saying that china is well resourced to hold off crisis as compared to his analysis of 25 years of international emerging-market crises. it's a beautiful template to the note. cold has the smartest note i saw on negative interest

rates. derek, congratulations -- i think i understood it. i spoke with the vice chairman yesterday, who was delicate on negative interest rates. you are not. why does canada care about negative interest rates in japan? >> well, it's an interesting concept that works, and canada might be among the next market to pursue it. even as it garners more attention in the united states with respect to the federal reserve. tom: none of this is in our text books. what are the ramifications of negative rates for canadians? if i look at other canada, which is sort of like a high-class wrubel, this is trudeau's fault. trudeau on the left is the old trudeau, and then the massive commodity strength, and no recent weakness. what does this mean -- the fragile confidence of canada -- what does it mean for the average canadian? >> well, the weakening in the

currency is a negative net. we have imported so much of what we have consumed, and now the cost of importing that is going up, in the environment of limited wage growth and stop writing credit growth. you spend more than what you have to and you spend less on discretionary items. ek, in your note you rightly point out that there are four european central banks with negative rates. you argue that they work -- but on what? the economy is not really picking up on the back of negative rates. it's more a bigger policy. >> i agree. i am actually quite negative on the concept of negative rates. the idea is to lower the real cost of borrowing or to force the deployment of idle cash or to generate lending growth, or if all else fails then the currency depreciates. if all those policies work, in

overtime, that should left the currency and not lead to the kind of depreciation we have seen. i'm quite negative on it being adopted. francine: so you think negative rates are coming to limit? there is the shock and all people saying -- that central bank does whatever it takes, but after things progress, it is limited? >> yes, i think so, and i think the bank of japan's experiment was an illustration of that. we saw a strong risk rally on friday. i think it is all headline oriented. tom: derek, really way to get mark carney back from london is if we give him the job coaching the toronto maple leafs. if i look at canada as a unique story, denmark is a unique story, sweden is a unique story. the strength of your research note is how individual all this is. what do you expect out of japan? they are not a small nation like sweden or canada.

>> no, they are not. very much so. longeste had the history of experimenting with unconventional policies since the 1990's. the proof is in the pudding -- it hasn't done a whole lot for their economies. depreciating the currency puts upward pressure on import costs. but in japan, we have seen the outcome -- negative for consumers. they spend less on discretionary items. to me, unconventional policy, quantitive easing, and the adoption in a tepid a matter of negative rates haven't worked in japan. tom: derek, thank you so much. a superb note on all this complexity. we saw this yesterday -- the complexity that the vice-chairman -- vonnie, you were in the back of the room. was it any clearer in the back? vonnie: it was a huge surprise that he said he thought it was working.

to remember that the fomc discussed negative rates is fascinating. francine: tom, it is still quite unclear when you talk about negative rates -- and there are always in these exciting economic times the one saying they can shock the market, and at least it means they play and weaken their currency. the other one is what do you do after this? draghi has been wowing the markets. but once they have been wowed, everything has been priced in, and you wonder what their next move could be. tom: sam fisher alluded to this -- what francene said is critical. as you move to negative rates, there is that next move. frenzy, and line -- francine, am i right in that we don't negative we can be in denmark and sweden? francine: yeah. we keep on understanding that they can go lower, but it

affects the unintended consequences which are difficult to quantify. central banks would rather be on the side of caution. tom: i hope you have enjoyed our coverage on this. a little bit of complexity on economics, but that is what we try to do. we will try that in the next hour. daniel alpert will join us. he is fired up about global deflation and are oversupply. george is in the trenches of trying to figure out what will happen to your yield. this is a show where we talk about the yield curve. stay with us. ♪

stability.a fragile no, not iowa. oil and equities weaker this morning as world leaders adapt

to their new deflation. friday is jobs day. the vice chair speaks on janet yellen's uncertainty. rubio establishes a foundation for south carolina. good morning. this is "bloomberg surveillance ," live from our world headquarters in new york. tuesday, february 2. i'm tom keene. in london, francine lacqua. i have to admit a little bit of shock and awe in the political world of america. francine: looking at volatility linked to u.s. presidential years, they are correlated at negative rates. tom: of course, on to new hampshire. we will go there and moments for you. right now, to our first word news with vonnie quinn. vonnie: some surprising results in the iowa caucuses. ted cruz one bank the republican vote.

democrat hillary clinton edged out bernie sanders. marco rubio did better than expected with 23%. here is ted cruz in des moines. ted cruz: tonight is a victory for the grassroots. applause] ted cruz: tonight is a victory for courageous conservatives across iowa and all across this great nation. vonnie: meanwhile, hillary clinton fails to get a decisive victory in the closest iowa caucus race ever. hillary clinton: i am excited about really getting into the debate with senator sanders about the best way forward to fight for us and america. vonnie: senator sanders held in early-morning rally in new hampshire.

the primary vote there is a week from today. safety investigators say an engineer operating an amtrak train accelerated just before a fatal crash in philadelphia last year. there was little evidence of mechanical failure. isrobable cause of the crash due out later this year. -- european union says it dealing with the u.k. on revised returns -- part of the agreement, national parliaments could block european legislation. day,l news to four hours a powered by 2400 journalists in more than 150 news bureaus around the world. tom: a quick data check -- equities, bonds, currencies, commodities. futures at -16. dollar weakness. crude, 35.5. crude took a bid, which is good.

next screen, quickly. here, the vix showing recent quiet. bears watching, a stronger again pushing against the bank of japan and abenomics, and the point to spread really up against the call. the flatness in the curve and what it means for american banking. francine: pitted against weakness in australia and new zealand, the australian central bank keeping the interest rate unchanged. european stocks are down 1.6%. bp is the biggest loser on the ftse 100. i want to show you the british pound. the presidentng of the eu to announce a compromise, in about 15 minutes from now. , also want to show you dollar-ruble, 79.36. tom: oil, we know the chart.

down at goes to what is so elegant is how it pushes up against this moving average. if you are teaching a course, this screams maintain short. that is not my opinion, it is what the technical analysts would tell you. that is a gorgeousity chart. she is beautiful, particularly with no sleep. megan murphy is our washington bureau chief. megan, do they serve cocktails on the plane? megan: there was one with beer on the plane. it was a bit of a contention, but they try to make the case why it did not exactly happened the way they wanted in iowa. we are glad to be here in new hampshire. tom: president clinton was standing behind the secretary. tactics,pt at changing changing the vector of a campaign. what would you presume would be his advice to mrs. clinton?

megan: look, we have to look at what happened last night. bernie is going to come in here and he has the momentum. he has had the big lead here and you should win new hampshire. if anyone is going to change vectors, it is going to be her. what we keep hearing from the campaign trail and from old guys are's -- and from advisers is that she does not have the message. anger -- sheon and really has to double down and focus on what the american people want. look northump can and see manchester, new hampshire, from the view from new york city. he is not an iowa guy. is donald trump a new hampshire guy? interestingis so now is that we are talking about donald trump seeing the come back kid. that is the thing. who knows? he has a big lead but we have seen it happen before, where people come into new hampshire

with leads and they do not win. theort of filters into distance, and that is what we are seeing. it's either real guy are not yet not? is he the real guy or was it a surprise that bernie sanders got so close or that he did not actually win? megan: i think the biggest surprise was how close it was. we have polls from her showing as much as 10 points ahead, five points ahead, three points ahead. but the tightness of this race given the turnout, and what was most interesting was how she sort of clawed back with first time caucus-goers. she is going into new hampshire with a monkey on her back. she thought she slayed the ghost of obama in iowa. wait until she gets to new hampshire. we will have to see if she can double down on what she says which her campaign, that i am the one that can truly deliver a general election win, who has

the policy and the momentum and the enthusiasm to back up what i am saying. that is where everything has to play for here. francine: how much of a relief to establishment republicans was marco rubio's performance? megan: absolutely crucial. the biggest surprise of the night was how well he performed. sitting down from his third-place victory party, and all you could hear were cheers and raucous moments. if they can bring credibility back, it is going to be with him. that is what they really need, to get the momentum, the funding, and the establishment back on track, to make people believe who are on the fringe that he may be the candidate they can rally behind. tom: thank you so much. i am from manchester, new

hampshire. hey claimed hotel -- all going on with global economics. on the american economy, robert nardelli with his executive experience at home depot and chrysler. bob nardelli and look at that later this morning. this is "bloomberg surveillance ." good morning. ♪

francine: welcome back. this is "bloomberg surveillance ." you are looking at live pictures over the millennium bridge. the european union saying it is closer to a compromise with the u.k. over vice membership terms. we should have a draft of that shortly. let's get straight to the bloomberg business flash with vonnie quinn.

vonnie: marissa mayer is returning, a familiar face outlining ayahoo!, plan to cut costs and increase growth. -- says net income rose 7% rose 7% in the fourth quarter. ceo has reshipped ubs' focus, shrinking the investment bank. betha that is -- alpha is on a path to the apple. -- they reported a higher profit in sales. that is the bloomberg business flash. p." you have to eat the 's as well.a

i want to bring someone in the trenches, george goncalves. viewing the world from 35,000 feet, the acclaimed book on global oversupply. flattens.curve are we anywhere near yield curves that will slow down? the fact that other central banks are diverging from what the central bank is trying -- what the fed is trying to do, is leading to the long-term rate and bond market part of the curve. at the same time, the bond market is signaling that the perhaps there is a policy error. so great about this is flows of capital, one of the great themes of your wonderful book. these are second and third order effects of obvious

announcements. is the announcement of bank of japan, negative rates, nothing more than a flow of fun that pushes those bonds and yields down in george goncalves' world? dan: he is right. you have a bunch of other regions. asia, andapan, europe. all three regions are competing with the united states for their share of global demand. the only with that china can do youabenomics has failed -- have a situation where the only way they can do it is through currency maintenance. that is what is directing the flows. tom: let's go to stanley fischer. this was the conversation yesterday on rates with the council on foreign relations. stanley fischer: countries that have used it continue to use it. they have not given it up. we have the danes undertaking a

contracting monetary policy. they are raising the interest rate. so it is working more than i can 2012.at i expected in i was not on the committee at that stage. tom: i did not expect that from vice chairman fischer. fischer pushing back against the established monetary policy? dan: i actually think he represents a core group within the establishment. you have people who realize we are nowhere near out of the words -- out of the woods in terms of the united states economy. and you have a fairly broad middle who is concerned about the efficacy of monetary policy going forward, basically operating more or less from an academic standpoint. they are not really looking at

with the market has to say. as a practical matter, they know that being at the zero or lower bound -- tom: that is a "surveillance" exclusive. dan alpert says stanley fischer does not care about george goncalves. with negative rates, it seems the landscape is changing so much. how can we be sure that what we're seeing in the markets will translate into reality? george: i can speak for our clients as well as all bloomberg viewers probably. no one really steps into investing expecting negative rates and not getting paid what they put into it. to your point, central banks have gotten to a point where they are not really just trying to help financial assets but they are trying to put in place their monetary policy objectives in order to hopefully change things. but as we said before, as dan said, the efficacy is

questionable. tom: there is that dreaded word, "hope." ,onnie: making a policy error or if this is a policy error in the making, they could not have known that. you are saying that because this is subsequent development, market hasge: the been flattening and rates have been lower overall. this latest move has been aided and abetted by this view of negative rates, but i think the market has been suspicious of the fed's intentions for many years. their forecasts have been notoriously wrong, overoptimistic. the forecasts, whether they will put rates up, now i end up whening that i am hawkish the fed has penciled in four hikes for this year. the market keeps running away from the fed. it keeps pricing out the actual

fed hikes. francine: when you look at global disruptions, and when you that thehe concern world would get a lot worse. what is your main worry? is it that the price of oil is indicative of a slowdown in china, or that the negative rates at the end of the day do not really filter through the real economy? is the central bank sloshing around cash? so you one from sloshing oil to sloshing cash. i like that. the practical matter is that you have to separate the effects from the causes. broad reflecting a whole dynamic going on. it is reflecting a certain degree of oversupply caused by the north american oil supply, it is reflecting overproduction. it is reflecting the change that literally 18nning months ago, where suddenly china and other countries stopped using oil as a money substitute. they stopped trading futures in

that way. so you have all of these various things, plus global flowing, all of these things conspiring to tame the price of oil. as far as monetary policy and negative interest rates, all of this is a phenomenon of weak global demand. there's nothing more at stake than that, and until that is corrected -- and it has to be corrected at some point by a redirection of capital. it about boosting aggregate demand or cutting oversupply? dan: we have done that in the past in history. we have had wars to cut oversupply. i do not know any other way of doing that. you have emerging companies that desperately want to employ their people. they are at very low wage rates. think about two years ago, three years ago, people were talking about wages rising in china. china was going to be noncompetitive in a couple of

years. look at what is going on right now. they are working with a currency, the japanese are working with their currency, the europeans are working with their currency to ensure that they will remain competitive. 10's spreads. if the fed is wrong, does the yield come in and stay under 100 basis points? george: the fed, if it does not hike one and twice this year, it will be hard for the rates to rise. under 1% is something that you will have to have a referendum on. the fed actually did the wrong thing. tom: george goncalves and dan alpert with us as well. a very important note on twitter. a massive twitter skeptic has just reverted to a sell. scott the was been usually cautious and he pushes it right

back to a sell this morning. coming up on bloomberg, an extended conversation with dennis gartman on your global economics. stay with us. from london, from new york, this is "bloomberg surveillance." ♪

francine: this is your data check. with the markets on the move, we had to do some extra data check.

profit fell 91%, missing -- .91%, missing estimates. we are expecting some kind of renegotiation drop today with the e.u.. it is time for the "morning must-read." what do you have? vonnie: i wanted to take something on a different topic. there is a wonderful op-ed in written byial times" peter sands on the global health ka for the future. he says --

the point is that people have to be asked ordinarily careful and take this very seriously. tom: and we need to learn about it. this goes back to 1947 and inc. a fever. it is a -- and dengue fever. it is a mild form of that type of virus. we have to learn about this before we seriously panicked and act. vonnie: and there needs to be money spent. it will take years for a vaccine. francine: and this also brings me back -- "bloomberg view" had a great piece on it. with a lot of these epidemics, there is a risk with too much complacency, and there is a risk with too much panic. at this point they seem to be doing a good job leveling with people as far as the

uncertainties with zika. linkage with some of these pregnant women is still unclear. tom: we have an esteemed guest on our obligee, at the time with ebola, which is unrelated at all. coming up, maybe it is help that ,- maybe it is alphabet maybe it is google. google getting it done right. we will talk with paul sweeney about the two left standing -- facebook and google. we will do that next. new york -- gorgeous this morning. donald trump's new york, as he goes to new hampshire. ♪

francine: welcome back. you are looking at live pictures of d.c., only seven months away from the u.s. presidential race. we had the first test yesterday in iowa, a flood of insiders

telling us watch for marco rubio. he did not do too badly at all. let's get to the bloomberg first word news with vonnie quinn. vonnie: thanks so much, francine. it was an upset on the republican side, and a near upset for democrats. race, ted cruz upset donald trump, with marco rubio finishing a strong third. 28%, trump att 24%, rubio at 23%. trump: we will go on to get the republican nomination, and we will beat hillary or bernie or whoever the hell they throw up there. iowa, we love you, we thank you. you are special. the democratic side, it was the closest iowa caucus race ever.

sanders says the result demonstrates that his campaign can win. as i think about what happened tonight, i think the people of iowa have sent a very profound message to the political establishment, to the economic establishment, and, by the way, to the media establishment. [cheers and applause] vonnie: republican mike huckabee and democrat martin o'malley are calling it quits. the new hampshire primary is a week from today. wants $3.4litary billion for european-based security initiatives aimed at countering russia's aggressive moves toward ukraine. global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world. i am vonnie quinn. francine: we are just getting

breaking news out of e.u. president donald tufts. it will be the basis for negotiation between the u.k. and the e.u. as we head toward that referendum. this is the basis of the heads of state trying to have an 18-19ent at a february summit. saying the text put out, -- they are basically talking about red cards, right? one of the sticky point is whether nationals arriving in the u.k. could get benefits, this text, giving national parliaments a red card on e.u. laws. which for me would indicate that they are ready to negotiate, right? tom: i wonder how germany response to those kinds of headlines. very interesting.

francine, thank you so much. i think i know what apple does. they sell iphones. i think i know what facebook does. i do not have a clue what google does anymore. paul sweeney knows the out alphabet from a-z. would you please explain the why of a $3 billion loss in other businesses? ceo's, orconceit of is it a legitimate business plan? paul: i think it will be a legitimate business plan down the road, but the key is "down the road." alphabet --ts for when you put it into the context of a company that has $75 billion of revenue and very healthy profit margins that are growing over the top line and bottom line, it seems they can afford it.

tom: are they the only ones who can do this? paul: we see it across the board for some of these tech companies. when google went public, they said we will take 10% of our operating expenses, and more importantly, 10% of capital spending, and put it into this. a lot of the tech companies that come after them, including facebook, have done similar types of spending, from speculative spending that they hope down the road will -- vonnie: we all know it takes an extraordinary amount of money to start that process, but it could end up being highly profitable. paul: they are trying to bring more broadband, higher speed broadband to more parts of the country, and which will drive more consumer usage of google and internet services. google fiber has prompted other cable companies to step up their spending. francine: how do i read this?

you are talking about alphabet/ google. if you look at the chart and the valuations, it is the apple share price that has been going lower. if they become the largest valuation in the world, is it because apple is not doing as well? paul: it is a combination. investors are looking for the next big driver of growth from apple. e, thes at alphabet/googl growth story is much clearer for google. tom: dan alpert, you touched on the equity markets. i guess these are the new blue chip stocks. is google a new blue-chip stock? dan: i think so. when you look at google and some of the other major names, relative to growth of other blue-chip stock, how can you argue that? at: you have people looking corporate paper.

these guys got tons and tons of toce to issue corporate debt do financial engineering, right? place tohina is one issue a lot of debt. china is trying to shore up their problems over there. tom: apple goes out and does coupon in-- the switzerland? it is cashlot of overseas, right? apple, google -- what is the distinction with google? paul: it is the dominant search engine globally. they have 75% share in the u.s., even higher internationally. they really are the best mousetrap by far. in the context of facebook, the one area they have stumbled, they do not have a social offering. they have google plus, but that does not help.

they do not have a good social play. stumbles -- itter vonnie: what is the metric you would use to compare the likes of google and apple? or is it a ridiculous comparison? paul: market one, and what is the market is looking at his topline growth. as the economy slows globally, people are looking for growth. one area that consistently delivers growth is technology. when you look at a company the size of google with $35 billion in revenue, it is still growing its revenue at 20% per year consistently with no bells and whistles. just consistent outline growth and ad spending. that is very compelling for the marketplace. francine: paul, one of the things that analysts took out of the report is that capex in 2016 will be quite significant. 2016 is when they will start

spending. are we expecting more acquisitions, or are they just whatng in investments with they already have? paul: the new ceo has really introduced a higher level of -- this is a company that has a lot of aspirations globally, and it is a business that innovates every single day. tom: paul sweeney, thank you so much. the conversation on technology will be continued late this afternoon. "number bwest," mark heard of -- "bloomberg west," mark heard of oracle. dan alperttinue with and george goncalves. stay with us. ♪

francine: live pictures from the city of london. publishing a draft agreement on tuesday aimed at satisfying david cameron's demand for changes to the e.u. that will depend on whether he is successful, and whether he he can come back in the u.k.. let's hope it does not get the change because of this referendum. let's get to bloomberg business flash with vonnie quinn. vonnie: some investors are losing patience with david einhorn after the worst performance ever. investors withdrew at least $600 million from the firm, 5% of assets lost. to stay withwing

his value strategy. bp is feeling the pain from the lower oil prices. the company says fourth-quarter earnings fell 91%. has driven the profit down. -- taxi drivers protested uber. that is our bloomberg business flash. tom? -- wehe single best chart did this yesterday per michael bavaro in "the new york times" y, on theon the furo impatience, even the revulsion as what they see is a fixed system. here is a chart that maybe explains it. yearlpert, my chart of the two or three years ago, median

household income, long, slope matters. green is really quite good, then pretty good after pauses. and then to a flatness. i am sorry, it is two americas, and vice chairman stanley fischer talked about that yesterday. dan: you cannot introduce 3 billion new people to the global economy and expect not to lose some income potential on the part of established economies. people are eating our lunch, as a practical matter, and that is what feeds back into this. whether you are on the progressive side or on the conservative side, it is really fundamentally being caused by the same thing. people are very anxious about their ability to retire. they are a very anxious about their ability to put their kids through school. vonnie: using population growth

is the problem? not population growth. when the post-socialist economies became capitalist, people in the developed world were in competition with a new 345 billion -- with a new 3.5 billion people that were not there before. just look at china. you have one point 3 billion people. only half of them are urbanized. the rest of them are still coming online. the downward pressure that creates the global labor and what global labor can earn -- tom: george, your world of low interest rates -- dan alpert with one of our charts of the flowsast year on capital -- do you just presume a lower interest rate for generations? george: i think dan is right that we have been in this deflationary backdrop over the

last 10 years. today is groundhog day, right? there are 10 years of no have seenn the -- we the developed world that dan is mentioning competing with emerging markets. i think emerging markets are now converging on developed markets, and no growth engines will push up deflation. that has banks running scared. dan, when you are talking about the u.s. competing with emerging markets, when you are talking about eating the lunch, china is way ahead but they have huge problems. on a nominal basis, the u.s. is in a much better place. but that presumes that everyone cooperates in that effort. as soon as you start seeing places like japan deciding to trim their interest rates and thereby drop their currency, you can see china doing the same thing. wait until the shows up -- we until draghi shows up -- wait

until draghi shows up next month. you will have people saying i want my share of that demand back. tom: i am going to say five, even seven years ago -- can fair prescriptionlicy force in oversupply? dan: there is nothing wrong with fair trade. at the end of the day, people have believed this for a very long time and they are not wrong. but the practical matter, to ignore what that means, to ignore the opportunity that that gives other countries to be competitive especially with u.s. labor, is a policy for failure. briefly, beating on the bottom line for the fourth the fourth quarter beatted earnings, a huge

there with pfizer. tom: we will continue our discussion with george goncalves and daniel alpert coming up. stephen major, front and center with his call on sub 2% yield 1.50.o on "bloomberg surveillance." stay with us. ♪

tom: modest fireworks in the market 90 minutes ago. a little bit of stability with the yen, 1.2082. 131 .86. as francine mentioned earlier, the ruble is much weaker. i would suggest there is watching with west texas, a 29 would be dismayed to oil stability. that shows the leg inches of the market -- dan alpert and george goncalves are with us. george, what is the correlation in the linkages of the markets?

you are a bond guy, a fixed income guy, but you have to look at everything else as well. is there a tight correlation? george: absolutely. at times of stress it is high. tom: is this a time of stress? george: i think we have a hard time with oil finding a bottom. airing -- are erring on the side of easing. tom: what is the put spread you look at? it is like howard johnson's, 28 flavors or whatever. what does the spread look like? george: money market spreads and what is going on with the three-month rate. tom: the three-month, two year. what are you seeing? george: you are seeing with the banks under performing throughout january, there was hopes you we get higher rates and that would translate into

better earnings. but then you have this kind of negative rate out there with attacks on the banking system globally. interest margins will be higher and that's will be more profitable. short rates matter -- and banks will be more profitable. short rates matter. you get rates converging on what we saw, that is not good. are is a function of we getting pulled down by all these other global markets, but also people are thinking that these policies do not work and they are creating inflation. vonnie: where do you see opportunities in this kind of market, dan? dan: adding to what george has said, i look at these periods of time when the bond market starts to rally and the equity rallies, and they start to diverge, and i keep scratching my head and saying, one of them has got to be wrong. you cannot have a deflationary

bond market and have a massively rallying stock market. when i have seen these recoveries after the huge decline, and this divergence occurs, i keep asking myself, what is really coming down the pike? the answer is almost always -- and i have not done the data to prove this but i probably should -- almost always the bond market is right. that is something you have to consider. and if you believe that, the opportunity is obviously in fixed income. not credit, but fixed income. yield there'sve are now accounting for a quarter of the entire government bond universe, globally. there is so much ownership of governments -- by governments of bonds, how much is the bond market able to tell? george: if you are an individual inestor, negative rates securities do not make any sense. that is why people are looking outside the yield curve for whatever positive rates are out there.

europeanese curve, the curve, trading almost out on the 10-year. areof these things, they implements of the central banks pushing their yields lower and their price higher. it is kind of a momentum type of world and they keep making money. dan: and they are reflections of e expectations of inflation. people are not worried about losing purchasing power. why should i be taking risk? i will get cash or get a couple of points from the government. tom: this is what we do on "bloomberg surveillance." this is a rare moment. two-year chart. only on bloomberg can you see this. ,- this is a three-month

two-year chart. only on bloomberg can you see this. this is jamie dimon nightmare, right? george: the fact that there is that much movement in a short time period, that shows profitability. tom: dan, i saw your eyes were dan: look atere it that. people do not think the banks are going to be making money. is there something that the markets are mispricing? what is not priced in? dan: well, i do not believe at this point -- and i hate to be beating the same horse over and do not believe the markets have truly priced in what i think will be a significant wave of deflation, if every one of these other regions continues the policy that they are doing in order to depreciate their currency. george goncalves, thank you so much. dan alpert, as always as well.

tomorrow on the program, we will till to the equity markets. liz ann sonders will join us. she is with one see schwab. outme give you a data check here. -15 on futures, -120 on the dow futures. yields come in, as francine entered earlier, on west texas intermediate not threatening 29, but 30.54. the view from new york is a view on new hampshire. stay with bloomberg all day, with a shift from des moines to manchester, as we move to the new hampshire primaries. stay with us. ♪

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stephanie: is as simple as abc. alphabetparent company made become the world's most valuable company. and behind the doors of the fed. an exclusive interview with stanley fischer.

and he is an all-star, whose team is headed for the record books. and he is driving sales and under armour. it's all about the business of being steph curry. ♪ stephanie: welcome to what i'm going to say is going to be quite a big morning on "bloomberg go." i'm stephanie ruhle, david westin is off. as you know this guy had his and him -- did you know this guy had it in him? josh steiner. he has much better house. , formernardelli chrysler ceo and founder of accelerate. and david kirkpatri