>> tom, in frankfurt you're in new york. with -- and she says we can't talk about them as brick, the emerging markets, but they each have re-structuring reform. tom: we will look at the data check. while you're away in frankfurt,

the marks since the yellen conference a good 10 days ago. francine: yes, tom, i think they have been trying to look at the course. now let's get straight to the bloomberg first reviews. here's vonnie. >> francine, thank you so much. vonnie: they want to know just how invested the banks are. they show how the rich and powerful shell companies, greece has -- their loan has otten rockier. and credit event in greece, the managing director christine la guard told us. and a poll shows 5% want to

stay in the european union and voters says undecided e more likely to maintain -- since the first time -- global military spending is on the rise. $215 billion, less than half the u.s. figure. the philippines and indonesias response reas flaps to the china's movement. and impeachment proceedings that -- are you receive's lawyers says they took out ans to state banks due to -- global news 24 hours a day pouffered by our journalists around the world. tom: and a lot of corporate news. not only the corporate america

and the disney move we'll have. the tax aversion issue as well and we will do some economic -- right now it's a food equities bonds and currencies. there are huge moves. and barely described yields in on the 10-year. currencies on the move and crude oil can't find a bit. i don't want to make a big deal of it. but still west texas under 36 get your attention. thank you. the yen is my feature today without question. 110-48 is a new stronger yen and the german we go to -- on the bloomberg. we go to three digits, and it's a .03. it's a positive number and is jaw-dropping and mad lamb guard

just spoke to. let's look at maybe the global litmus paper. here we are. here's on by momics. we've shown this a million times. oops. new leg down. vonnie: and slightly different move when it comes to the dollar and the yen. >> tom: well, francine? francine: tom, we were talking about the selloff with madam lagarde. also with us from new york he is drew pat 'tis the securities deputy from the chief economist. let's kick it off with you because we kicked it off with the la guard and yet there's

nothing fundamentally that has changed. is it just the realization that the -- >> she was talking about the last six months and of course during last six months the world economy has slowed and we were talking about the potential of the u.s. recession and still u.s. growth looks weaker than maybe six months with d we had obviously the markets in europe we had a ard start into the year. francine: are they seeing something that we have not seen in world growth yet? >> one has to understand that with markets so difficult to assess the real economy that basically psychologically, psychology sometimes takes lead but of course the situation in

the european pinking was very tough in the beginning of the year and you can see the result he ecp has taken more measures than the -- anticipating so you know there's no smoke without fires. so -- francine: what does it feel like in the u.s.? when you look at the growth there seems nothing fundamentally wrong with it, but the -- well i mean i think that's one part of it. i also think that we really have to think of all these u.s. policies in place. so it really is a matter of psychology, and a way out of sit to normalize it more quickry and continue along the path that's not worked and you need to move forward. when the u.s. economy is moving and rapid declines, rates should be moving higher.

we shouldn't be talking about risks. the only riss is that we shoumbt be doing something abnormally wrong. >> obviously with francine. tom: i go to tom from rbc capital markets who has been an optimist like you. he said i really don't want to say this but weave gron -- have you and maury aris had to adjust because of the tchards are being dealt to yellen right now? >> it's not the cards that are being dolt yellen it's the cards she is playing. tom: but the backdrop, atlanta is 0-.6%. >> g.d.p. isn't everything. g.d.p. is -- if you look at all the different survey data and

the labor market the market is doing better than the g.d.p. numbers are saying it is. tom: francine, the real world gddepd with the 10-year moving average. dr. schneider when i look at the 10-year moving average looking at 3.5% real growth down 2.57 growth, that's a huge move a catch thening of g.d.p. could sharon yell been independent from that reality? >> no. she can. but i think it's also important to understand, what are we comparing? we have learned that pre-growth crisis -- because of hype involving the brick economies that has materialized now and it's a wrong comparison. these this growth was

artificially inflated and i would call it the new normal and there's little policy can really do about it and we have to adjust to it and we have to find a way ahead which involves structure that we have not seen n the euro zone. tom: and everybody from is that word fragile? that mad lamb guard brought up? i mean houston how fridge i will is the american economy francine: if you look ?t and on the markets that also means that they are putting money into -- we were talking about the new normal and you were shaking your head.

are you a little more essimistic than to know that we were coming. and >> they overestimated the rebound which was supposed to materialize, wearned talking bout 3%-3.5% growth now. and not only for the country but for the world as a whole. so i think we have to adjust that and that's something they think is very difficult for them to -- with. francine: and at the moment it's not the u.s. economy that's in trouble but the global -- tom: again parks reacting this morning that we have not seen d the to give you an idea, .02 right now and we'll launch that through the morning.

later today on the bloomberg markets. invested with secretary kerry. look for that in the next hour. this is "bloomberg surveillance." ♪

francine: i'm francine. let's get trait to the bloomberg -- with vonnie. vonnie: the german factory order fell. a drop in export orders. french automaker peugeot says they see some speed bumps ahead and spending on technology will have a cut in profits.

and big changes are on the way for the saudi arabian market. they will add dozens of companies and they want to make it easier for foreigners to invest. tom? tom: very food. after francine's very important interview with madam lagarde. drew, i ry to -- think all of our heads are spinning on what monetary policy can do. i think even madam lagarde's head for that matter. now y plus g plus nx. world trade itself, for janet yellen, she's got to focus on kansas and wisconsin. >> clearly you can't just simply ignore world trade but in the u.s. the export sector

is much smaller than in other countries. so what that tells me is if you're going to get out of -- , one way is to accept and in other words by allowing higher interest rates in the u.s. and -- tom: what's fascinating to me in this discussion and of great respect to the review and maury harris, the jd what would happen if any we raised rates once or twice? i get a huge doubt that the world would come to an end. >> no. the world wouldn't come to an end. well, not that i'm right on everything but what i think is you would see a pick-up in the united states. american consumers would respond favorably and some of that would be exported overseas which would help global growth

and because our impress rates are moving higher, the interest rates that all these other currencys are trying to maintain means they would have to cut rates less into negative territory so you would begin to normalize global interest rates. tom: this is really the first time i've heard this. if they are the adults in the room and raise up the negative rates what, percentage of full faith and credit g -- and debt? huge number. huge number. >> what strikes me as very sod this whole idea that negative rates can help. negative rates work a lot like tires, all you're trying to do is influence your currency and if seven influencing their currency at the same time then no one has as much of an effect as they would like so you end up not influencing it. vonnie: away from inflation is the deloor the number one

concern for chair yellen? >> i think she worries about it but i think number one certain concern is labor market. i think she has a very different view of the labor market than i do and than most economists do. we nk it's like people -- don't know exactly how many people are part-time for economic reasons what wouldn't have been in the affordable care act in the u.s. tom: bring up the chart, if you would. this is oil down. that's the regressions from $100 a barrel. so that's sort of in our mind the trend that we have seen, the ugliness of oil and drew, what a nice pick-up we have had in a rollover. this goes into the soup of what is the dollar going to do? what's the economy going to do? when do we get the benefit of

the increased oil prices versus the benefit we have seen? >> it's been the increased savings. it's not flowing into consumption. so there's still a benefit. it's just happening at an awkward time. we'd rather have people spend it. if you want people to spend more money. they need to think that they can spend more money and that means a higher interest rate environment that allows them to think about their retirement in much more normal terms than hey are. tom: where's normal, 1%? 1.5% rate? >> that would make people think when i move toward retirement interest rates will be positive and anything they put into fixed income assets will

actually have a positive return. save want to have people -- tom: we will continue drew pad son and francine in frankfurt 1.12 up next the vicks brian bells can i of bmo capital markets. look for that in our next hour. from frankfurt and from new york, this is bloomberg "surveillance." ♪

tom: a special "bloomberg surveillance," francine lacqua is in frankfurt after speaking to madam lagarde, and we will have much more than to. this morning drew with us in new york and steffon schneider in frank ford and joins us right now. stephon, we look at negative rates and drew looking for a more accommodative and immediately accommodative fed, you push back against that. what is the toolbox that's optimal for janet yellen and optimal for mario draghi? >> if you look at growth in the u.s. it's running at 17%, so the u.s. might well afford slightly higher rates without killing credit -- economic theory states the opposite, but if you look at the rest of the world, credit growth is very mediocre, so i think the

central banks are still trying -- especially in europe, which is a bank-based economy, trying to foster lower credit growth by lowering or fostering lower credit rates so if the e.c.b. tried increase interest rates, we have also seen the savings and from lower oil prices, this is the major driver in the european economy right now, it's bad consumption because of the real income gains and if you look at low inflation you have to take that into perspective when you look at interest rates. because interest rates are not that the great but they are not that bad. francine: when you look at what the real -- i'm going to jump in with a question. you're saying that the e.c.b. -- to remain very acome very accommodative, do you think janet yellen would raise

the rates this year? >> yes, after mario dragic's remarks the unintended side effects was that the euro increased because drog mario draggy -- mario dragic's comments. francine: do you think chair yellen's speech was ate favor of the pvoc of china? >> to a certain extent that might have been the case but on the other hand it weakened the dollar, which obviously didn't help europe. but japan might have helped emerging markets a little bit twropt china. francine: christine lagarde said china is growing. we are concerned with the debt loads they have throughout but it's the only economy that has

something to write home about. tom: the number one moving part is the differential between the united states and to an extent a fewo developed economies and basically everyone else. we will continue this discussion. in our next hour on technology, blues sweeney will join us and gene munster and yes, we will talk about apple but much more about the disney news yesterday. gene munster of technology in our next hour. from frankfurt, germany and a friday inch new york, this is "bloomberg surveillance." ♪

thank you. ordering chinese food is a very predictable experience. i order b14. i get b14. no surprises. buying business internet, on the other hand, can be a roller coaster white knuckle thrill ride. you're promised one speed. but do you consistently get it? you do with comcast business. it's reliable. just like kung pao fish. thank you, ping. reliably fast internet starts at $59.95 a month. comcast business. built for business. tom: good morning, everyone. mark is on the move. francine lacqua with madame lagarde. i'm tom keene in new york. dow futures at -112.

but the headline number is oil, continuing to look for a bid. solidrman 10 year is in a three basis points; that's a big move. right now, we need a big first word news. iceland, several thousand protesters showed their unhappiness with the prime minister, due to the so-called panama papers. the prime minister is refusing lawmakers demands that he resign. meanwhile, a state-run newspaper in china says a powerful forces behind the panama papers. it says the u.s. government stands to gain the most. it mentioned the brother-in-law of xi jingping. in the smokey mountains, a helicopter crashed, killing all aboard. no word what caused it. witnesses say they heard explosions. donald trump faces his toughest test yet in the nomination race. he trails ted cruz going into

the primary in wisconsin. it would reduce his chance of reaching the number of delegates needed. hillaryemocrat side, clinton trails bernie sanders by as much as eight points. on well among unionized workers and students, but sanders is still relatively far behind in the race for delegates. the best finishes ever in the ncaa men's basketball tournament. north carolina is down by three, a wild, off-balance three-pointer from high up, and villanova bowls. the victory, 77-74, with seconds. day,l news, 24 hours a powered by our 2400 journalists in 150 news bureaus around the world. tom: very good basketball. that was very exciting.

francine? tom, how did we not take villanova? thought, i need to make sure my coanchor fix the winning team. how did we not select villanova? we chatted with madame lagarde about that. she is an avid follower. says,rld economy, she over the last six months, has been exacerbated by the chinese economy and tightening in emerging countries. that's her view, who i spoke with earlier. >> we see the baseline as slightly lower, but we also see what we call downside risks a bit higher on the horizon, and we don't seek much by way of upside. we believe that these three key risks -- china, change of business model and lower growth

-- the lower commodity price for longer, and the tightening of financials as a result of new monetary policies that has just begun -- as the three key factors. that's on the economic front. on top of it, we also see some very concerning geopolitical threats that can have an economic impact of many countries around the world. francine: and then we have the brexit.is that in your top three risks ? >> well, it's clearly part of the uncertainty we have at the moment, particularly in the european union and concerning the financial sector as well, because of the size of the financial sector that london represents. francine: you talked about china, and were concerned about the debt load. are you concerned that despite all the central-bank action, we're still in a no growth or

low growth economic rut? are we sowing the seeds of another recession? >> i wouldn't say that china is no growth. we forecast them at 3.5%; it's really something to write home about, if we had more countries like that. but we see the chinese authorities as being determined to tackle some of the fragility's of thies of the system. when leaders come out to say they will restructure the state enterprises, which are clearly a drag on growth, particularly in that change of business model, you don't need as much construction. you don't need as much of the heavy-duty manufacturing work that had been done for decades in china. that is a restructuring which will apply a lot of hard work, a lot of manpower being

g reachade rained, hopefully. but in a way, because china can produce those figures, it's a bit of a badge of honor of being a critical part of the globalization of the economy. francine: that was madame lagarde, talking about the main risks that is facing the world economy. we also talked about greece. we are now joined by our senior european economics correspondent. the weather in frankfurt is just as bad as in london. when you listen to madame lagarde, she's more or less talking about the same risks that chair yellen cannot normalize. rced druggie to put the stimulus out there. -- draghi to put that stimulus

out there. jeff: although stimulus continues in the same way, the risk that something comes along y brings outside reall monetary policy to the limits of what it can do. francine: how surprised are you that given the monetary policy in the last three to four weeks we haven't had any upwards growth? jeff: you could argue that we are still in this debt super cycle and that pertains to your -- the confidence, the animal spirit that needs to be present in order for investment to take off, for businesses to be able to grow are still not realized. francine: animal spirit is what we talk on "surveillance," don't we? we like animal spirit, and yet we don't see or pinpoint what needs to happen. jeff: monetary policy can deliver that. that's a line you will hear from

fromone, from draghi, and those who spoke today. the next step is fiscal. francine: are we concerned that europe will break up with brexit? madame lagarde is saying this is one of the biggest concerns. then we also had this leak over the weekend with greece, and she was being a little more diplomatic. jeff: we have been in so many of these greek drama episodes that this one, although the leak was unfortunate and certainly the trade a little bit of cynicism on the part of the imf, and also on the side of the greek authority, this is probably going to blow over. there has to be a resolution in the greek episode. it'll probably come this summer. there either has to be movement on the fiscal surplus or there has to be movement on the debt sustainability. the imf wants the debt

sustainability upfront. whether or not we will get that depends on merkel. francine: we talked in the past about the limits of qe. given what europe is doing today, because people are chasing those havens, it's out of the hands of mario draghi. jeff: i think that has been done. the ecb has gone almost as far as it can, even though they are continuously underlying that monetary policy still have some left. tom: very good. jeff black. frankfurt, the home of the european central bank. later today, we turn to international relations. we turn to diplomacy. david westin in conversation with the secretary of state; that will be something. from new york, from frankfurt, bloomberg "surveillance." ♪

francine: i'm francine lacqua in frankfurt, where we had an important conversation with madame lagarde. we're looking at asset classes, and we are told there is a clear indication that investors markets are trying to reassess the riskier assets, and that is not making central banks monetary policy easier. tom: a lot of tea leaves. you have corporate news as well. we will talk about disney in the next hour. that economics is front and center. you are looking at west texas intermediate. they're down. oil is down. trying to contain paul donovan's exuberance. if i got you and paul donovan together in london, he's insane. if i got the three of you together, the thing you'd agree

with this as there is a new mediocre. what is the ubs prescription for the new mediocre? >> in the u.s., its higher rates. she kept talking about risks -- when was the last time someone accurately predicted the upside risk cost from something? overnight;happen good things happen over time. for her to be focusing on risks, 's only downside risks, seem silly, because we will never know the next upside risk is. tom: i think vice chairman fischer has been out front -- here's where we are. you are getting ripped up on twitter for your comments on this show, about the idea of -- raise rates, forget about the exhaustion is stuff like the international economy . if they raise rates in april or june, what's next for jamie dimon in tulsa, oklahoma?

what is the knock on effect? >> there's the confidence factor. most americans think people in washington may know more than they let on. they don't trust them, but they think they might know more. so you have been coming out and saying we need rates low, and the average american response to that. if rates are so low, people feel like they have to save more for retirement. and the third thing is by being so far off interest rates, we're forcing a lot of issues onto the rest of the world. i will say, take it back to the whole paul donovan/jeff using. that's one of the great things about working at ubs. it makes it fun every day. we're always learning something new. had villanovaou in your bracket. let's bring back jeff schneider of deutsche bank. the i look, dr. schneider, basic idea of the global economy and janet yellen, at some point

she has got to ignore it. when is it? when you talk to peter hooper, where is the point where the u.s. says they will go it alone? the potentialn happens from the global economy has receded, we've talked about china, the uncertainty, and yes there is some debate about the implications of china on the rest of the world, but i would assume that given the increased weight of china over the next few years, that you underestimate it, and i therefore think you also have to look at the political agenda. we have to increase discussion with the imf; we have to talk about brexit. i think it is not the right time. yes, i can see that it might the good to increase rates, but the worst thing that ecb did was to increase rates and to find out it was the wrong move, and that

destroyed the confidence. tom: where are we right now? let's go to the terminal. francine is checking her account in panama. when i look at the two year yield in the u.s., the u.s. to year yield, here is the trend for rising rates. and we go back and forth, and we rolled over. we're almost back to two standard deviations. this is becoming, drew, a significant move to lower rates. >> yeah. i think part of the problem with the argument to raise rates is -- one of the things we have to consider is they are making a mistake by letting things get out of hand, and the alternative is driving us back into a recession. we should talk about risks to both sides. one of the, i think biggest risks the fed is running with credibility is when you tell us if you get to a certain unemployment rate and inflation

rate, that we can expect a certain interest rate, and then you don't deliver -- that is a problem. and that is what they did in march. and now everyone is left try to figure out how they will respond to data. part of the reason we are seeing these responses to data and this weird action in the market is because no one understands what the fed's reaction function is, and even if they tell us, we will not believe it will stay the same meeting to meeting. francine: i'll ask you what christine lagarde did not answer -- how did the fed you a possible donald trump presidency? we talk about brexit; we talk about greece. but we are seeing something scary and big. >> you know, i think she was right not to answer. it's not something i'm spending a lot of time worrying about right now. if you look at the range of potential outcomes in the united states, there is a lot. boils down to divided versus non-divided government. that's all i really care about.

who's in the white house -- what drives it is the structure of government in the united states. i think that is something that is often lost. the u.s. government is designed for nothing to happen. that is the way it was founded. and that's the way we like it. tom: ubs. morning,erg radio this we will speak with brian belsky on television. and on bloomberg radio, we will reaffirm equity markets. from goldman sachs -- just possibly, we will talk to abby joseph cohen about the front running washington capital. stay with us. ♪

tom: tom keene in new york; francine lacqua in frankfurt at the european central bank. lagarde's speech. let's get you are bloomberg business flash. vonnie: all of a sudden, plans about disney are so clear. the heir apparent has stepped down. no reason has been given for the departure of the coo. according to a person familiar with the matter, he had problems convincing some board members he was the right person to six need iger.

new moves on corporate inversions could threaten the $160 billion merger. it would limit the company's ability to take part in deal if they have done thats within 36 months. in an inversion, a merger with a smaller foreign firm would track it offshore. the spotlight today on 276,000 model 3 electric cars. the company came up short on delivering cars, saying it sold a little less than 50,000 cars, less than expected. it blamed the shortage on what it calls "hubris." tom: very good. we have a massive correction right now. this is what happens when your show is run by a guy on a boat who studied french medieval history. we ran the wrong video before. everybody is in blue. this is the real video.

villanova, taking it away from unc. no one was happier than michael moore of duke university. michael, this is great for basketball. is anybody in london engaged in college basketball madness in america? >> i think that game ended at 4:00 a.m. here, so, no, not many people were aware of it. you need to bring sallie krawcheck back on. tom: [laughter] francine: i tried it to banter with madame lagarde. we joked, but it was very american. she is way too european. it's all about the banks. an exclusive interview with a credit suisse co. he was asked by rishaad on the penama papers -- where they really impacted by the allegations of the swiss banks? many swiss bankers referred them

to panamanian lawyers. >> we only do it if they a legitimate purpose. every client has to certify to us that he's compliant, otherwise they have to leave the bank. and then there is a structure that is beneficial, and we insist on knowing who is the beneficial owner or we will not engage in business with that entity. francine: michael, how much do we know about current swiss practices for private claims? are these things that haven't put behind them? new regulations that will come into place, that will hurt this was thanks? >> well, you are starting to hear from the regulators that they are taking a look at this, and as you would expect, they are starting to see what is still going on and what are things of the past. ubs came out and talked about

some of the businesses they have gotten out of these off shore structures, and the banks are trying to make it seem like all of this was in the the regulators would certainly be looking at what continued to happen. one of the top things here is a lot of these offshore dealings are perfectly legal and appropriate, but they have to see if the right controls are in place. francine: does that mean that the banks are discounted? there is a lot of talk about the g-20, under gordon brown. the u.k. was trying to crack down on these tax havens. is there going to be something discounted, or because we have been talking about it, not been priced in? moves bya lot of those the tax authorities and regulators have been going on for a number of years, and i

think that is why you haven't seen a dramatic movement in the stocks. certainly, the stocks have reacted, but not in the 10% down ways we have seen in the past. i think some of that is starting to get priced in. tom: michael moore, thank you so much. a final thought here from true madness as we inch -- from drew mathis as we enter the second quarter. there is a fuel to the second quarter with brexit. i go back to the atlanta gdp number. one is the indicator you have that it's not a big deal, that it will prosper and have a better economy? >> i will give you three very quickly. claims -- no one is being laid off. i find it all that we are having gdp numbers like this with hundreds of thousands of jobs per quarter. i'll take the jobs because they are easier to measure. bank lending -- accelerating. tom: dr. schneider mentioned

that. >> also, it's. easy to calculate and ism surveys. manufacturing, ism services both in positive territory. tom: very good. drew matus. you get a huge response on the show here. we need to say thank you to stephan schneider and francine lacqua. in our next hour, we will look at the fuel market. capital markets -- we have been really waiting for this. gene munster will join us. we will try to figure out. bloomberg "surveillance." stay with us. ♪

marketss morning, adjust to further global

slowdown. oil weaker. the german 10-year makes new yield.n h as the durability of the economy question. an interesting interview. we are certain -- nobody at villanova -- christopher whalen nailed that puppy. villanova wins. what an amazing ending to the tournament of the ncaa. this is "surveillance." live in new york. i'm tom keene. francine lacqua demanded i take iowa state. what was the single idea from madame lagarde this morning? what was the distinction in your conversation this morning? francine: i think there are two main points. first of all, she sees downside

risks she has been talking about the new mediocre. now she says it is in the papers. and she also considered brexit. this is something that i see a shift in people's minds. she considers brexit as one of the top risk worldwide. we are not talking about the impact on the u.k. -- we talk about the impact of the e.u. we are talking about worldwide impact. tom: not in the vicinity of a 1.09 yen but getting are quickly. in new york with first word news, here is vonnie quinn. vonnie: european regulators -- are taking a closer look at shell and offshore investment. documents leaked from a law firm show how the rich and powerful used shell companies. greece's path to a new loan has grown rockier. the prime minister has alienated fund officials. a transcript shows the imf

considering pausing a credit event in greece. u.k. shows 51the percent of voters want to stay in the european union. 54% want to leave. undecided voters are more likely to support the remain campaign. global military spending is on the rise. china's ramped up its military budget by 7%. the philippines and internat -- an indonesia show double-digit increases. in brazil, the president's legal team first congress to reject impeachment proceedings that could lead to her ouster. rousseff's lawyers reject claims that she took bad loans. the committee on impeachment may

make a recommendation next week. tom: we are going to go to the data check today. a little slower. equities, bonds, currencies commodities. dow futures, -128. yields are in. the euro weaker. and yen stronger. oil cannot find a bid. there is also was of opinion on the indeterminate nature of oil. equities do well. we will talk to mr. brian belski about that. i'm watching yen. .1040. the german 10-year yield to three digits .088. the german two year -.486%. brent distant from 40 as well. let's go to the terminal.

this is a leg down from the last five days. you want the interpretation by central bankers. less economics but this ties in stronger japanese eyyen. vonnie: two big figures, the last two sessions alone. in part a response to the fed. tom: there is a faint line of 1.110. you really wonder what a 109 thele will signal to markets. we are going to synthesize cross acid and bring it over to the equity markets. brian belski with us. with the minnesota vikings of imo capital -- bmo capital. overweight stacks, underweight stocks or under the desk? brian: you are definitely not under the desk. year, haset of this been a tough year, 2016, as we transition from this prior leadership which was non-u.s.,

global investing, commodities. we are still unwinding that, fighting against that. what we found in february and march when we saw the great performance with respect to u.s. stocks was driven by large cap, brand name -- tom: visible with multiples of 22. brian: remember, valuation is not a good precursor for performance. ok? growth and earnings and cash flow are better determinants with respect to performance, not valuation. at the end of the day, the economy is improving, earnings will improve, and the fed will raise interest rates over the next several months. . to feelil we start better about commodities, gold recovering, the global market starting to solidify, we're going to have these types of moves. it is april.

guess what is going to end up happening? we'll start hearing talk about that. tom: what i'm fascinated by here. i'll take your point on free cash flow. the atlanta fed is 0.7%. let's say it is 2% a year growth, is that enough to keep the free cash flow game going? brian: we think it is. hes talksy drew mat about the leading precursor jobs. growth in gdp estimates are what works. we as investors are focused on what was anot focused on what is. what is developing is earning growth, cash flow growth and economic growth that we believe is going to continue to improve in america. given what we have seen on the markets today, which is almost a mini investor panic for

no real reason apart from the fact that they look at that gains and decide they want to go how muchd bunds, volatility will we see in stocks and how frustrating will that be for markets? term basis.rt especially as you take a look at the short-term mantra of investors, the one- three month time frames. we continue to believe the market is in recovery mode especially from the january-february lows. we do see the impact of a discouraging fed situation where decide what they want to do. that is going to cause consternation in the election. majority ofo, the our clients have been position for recession in the united states. we do not see recession coming anytime soon. wind negativity, we're going to see volatility in the vix, especially on a short-term basis.

when you say the earnings actually are going to do better in the longer term, what is the impetus of that? does it come from growth getting easier on the back of cost-cutting, so new synergy is being found? brian: i think it is growth getting better. the other issue is that we are in this phase now of corporate promise,here we under overdeliver, and you take a look at the biggest part of the market, that being areas like financials and technology. financial managers, cfo's and ceo's are undercutting earnings, number one number two, if you take a look at technology, also negative known to be and more defensive with respect to how they model their earnings growth. look at a stock like apple or google. they will continue to under promise and over deliver. that is where we see the surprise. tom: we will look at those with gene munster. i want to go down the income

statement where the greatest dynamic is. if it is not the revenue line, where in that income statement does the free cash flow come from? brian: at the end of the day, we still have -- see cost synergies beginning to improve. theother part, tom is where income statement is starting to see increased revenues because we believe capacity is coming back to america. tom: units will do better. going to see revenue growth that will help some of the profit margin slowdown. you can talk about that would gene as some technology companies are bringing back capacity. we are seeing that in industrials. as the domestic machine continues to improve and we see more consternation in emerging markets we are going to see more on shoring and capacity come back to america. tom: brian belski, bmo capital markets with a little bit of equity. gene munster and paul sweeney will join us any hour.

we will drive for this conversation on bloomberg radio. abby joseph cohen will refer my need to be an american equities. "surveillance." ♪

we have just been speaking to christine lagarde, t he managing director of imf. tom will talk about the markets and that important conversation we had with madame lagarde in a second. vonnie: a sign of the global slowdown is have an impact on germany. factory orders fell 1.2% in

february. peugeot seeaker some speed bumps ahead. spending on new technology will have an impact on profits. it plans to come out with 26 new cars. the sudden succession times of disney is not so clear. has steppedarent down. no reason is being given for the departure of tom stakes. -- tom staggs. the problem is convincing board members he was the right person to succeed. tom: thanks so much. i guess it is a big shock at disney, mr. staggs has done better than good. smith is a little bit important, lee director, ex- starbucks guy. runs the university of washington. who's oren smith and what did he

do? >> one of the lead directors. this is a shock to wall street, certainly. tom staggs has been groomed for this position for more than 10 years by this board and by bob iger. to get to the point where they had the run-up between tom and another senior executive. tom after a lot of due diligence. timeto turn around a short later and decide the perhaps he is not the right person to lead the company is really surprising to investors. tom: what's fascinating is the makeup up of the board. a guy named dorsey from twitter is there and ms. sandberg from facebook. the usual l.a. touchy-feely -- bring up the chart. it's a bear market for disney. a huge underperformer. what's the why? you have got to be kidding me. long-term it

has been a great stock over the last nine months of has been under pressure, because concern about the core cable network business, but principally espn, which is the big cash flow generator, people are concerned about cutting the cord, and what does it mean for the cable network business and for espn. that company from that perspective is at a crossroads. creatively, the company has never been stronger with her movie and television studio and their parks and resorts. they are about to open up shanghai disney. so, from a creative perspective, the company has never been stronger. for investors, there is concern about profit growth at their cable network business, espn. vonnie: tom brought up tom dorsey -- staggst is, tom responsible for? digitally it has gone from

strength to strength. >> tom was the longtime cfo. he really knows the operational side of the business starting up under bob eisner. he ran the parks and resorts which is one of their largest businesses. he spearheaded the entrance into shanghai. he has operational and financial experience. they really had been grooming him for 10-15 years for this position. lastim to be at the minute, the 11th hour, to decide he is not the right person is shocking to most investors out there. francine: what does it mean for, -- this is a major setback for bob iger? whaas it his guy? how could this have gone on for 15 years? >> i think this is a setback for bob iger. i like to argue that the crowning achievement in bob iger's role was that did orchestrate a successful succession plan.

he identified the person the board and the management team and investors were comfortable with in tom staggs and put him in a position to replace bob. now that has been kind of put off guard. so, now question is what does he do? do they go outside the company or within the company? tom: the board has only done that. come on. this is not a disney movie, this is disney. they have already got three names lined up. probably somebody that wall street would be intrigued about would be sheryl sandberg. vonnie: i was going say with jack dorsey having two jobs. leaders proven to be a at facebook. to the extent that disney needs to make a giant step into the age over the next 10 years, maybe sheryl sandberg is someone that can do that. outside of the company, there are a lot of media executives. peter -- is out there.

a news corporation executive, spent a long time under rupert murdoch. doing a lot of interesting things in the digital media space. it would be somewhat unusual for them to go outside. tom: no one cares about your silly gossip. buy, hold, sell, disney. hold disney. we have been buying. our analysts for capital markets -- we see these types of things in a core stock, we buy more. tom: the cash flow is not under threat. brian: no. stock is this different then other media companies because of the cable component with espn. cable and media is all about broad pan. that is what comcast -- why comcast is a better start. disney is more about content. tom: they've got a big movie that will save the date? >> they have marvel movies.

a jungle thing coming up. they have a movie slate for the next five years which is locked in, that is going to be very strong competitively. tom: paul sweeney with a gossip of the morning. thank you. later today, there will be a little less gossip. david westin in conversation with the secretary of state. a little bit to talk about. from frankfurt, germany and from new york, this is bloomberg "surveillance." ♪

tom keene is in your. tom - in new york. first, we have a very important must read. vonnie has it on allergan. vonnie: just wanted to draw attention to the stocks that are moving with allergan down 21% following decision yesterday. we can take the note immediately and explain what. -- explain why. citigroup writing to investors that pfizer will have difficulty extracting the primary benefit associated with the transaction. the merger. the treasury will provide -- for the proposed transaction not to move forward. saying that,alyst given what has been decided by the treasury, this whole huge merger may not happen. the treasury department saying that if the transaction has been trying with the past 36 months,

they may not be valid. tom: allergan is down a lot this morning. what took so long? what have they been waiting for? i don't know of anybody in the public that is for this. ofnie: the whole point getting to this so quickly is that these rules were coming down the road but nobody thought that they would be -- that they would reach back into the past. brian, are we going to see more of this? are we looking at the end of companies merging for tax reaso ns? since we mightly be seeing a regime change in washington could health care health care was one of the best-performing sectors. companies were incentivized to get together. as health care in general has underperformed, and you will start to see some of the slowdown in that sector. tom: the idea of a fair day, a fair moment, it screams of

financial engineer pittyo. every time the minnesota wild -- are they going to the playoffs? you look behind the goal and theirs tim hortons. this is warren buffett and he is murdering burger king to big tim hortons in canada, the coffee shop. it is all a shell game. that is how the public thinks. the half of the minnesota wild, we are asking canadian teams to root for minnesota. i think it is a real issue. i think from the campaign issue, you're going to hear more about that with respect to try to grab tax revenue with these companies trying to leave. trend is to bext incentivizing companies to come back to america. the majority of this engineering is over. within look at pharmaceuticals. like it the broader calls -- we just did disney. growtheuticals were

assured 20 years ago. is that true now? wean: 20 years ago when learned the market together, pharmaceuticals were more defensive. what we saw in the 1990's, they became more growth. now they are becoming growth engines again because earnings growth is so strong. the fact we have had a bit of a malaise and health care stocks, there is volatility considering what has happened with the health care bill and pricing. that is why you see a pullback in valuations with respect to biotech. bm: brian belski of capital markets. gene munster in the building. more from madame lagarde. francine lacqua, her conversation with the managing director of the imf, that is next. ♪

you are just joining us, markets moving off the lagarde comments in frankfurt. weakers well the idea of

japanese data. the yen much stronger the smarty. let's get to our first word news. in iceland, 7000 protesters show their unhappiness over the country's prime minister. so adjusting he had tax havens. the prime minister is accusing lawmakers -- refusing demands to resign. the state run newspaper in china behindpowerful forces it. the paper mentions the brother in law of the prime minister. a sightseeing helicopter crash. killing all people aboard. witnesses said they heard two explosions. donald trump faces his toughest test in the race for the presidential nomination. trails ted cruz in wisconsin.

it reduces his chances of reaching the delegates needed before the last primaries in june. hillary clinton trails bernie sanders by eight points. he's counting well -- on doing well among students and unionize workers, but even with a victory, sanders will be far fornd clintoni in the race delegates. thank you. we had an important conversation with managing director of the imf christine lagarde. we talked about emerging markets in the biggest risk. she says on the last six months, there is further pressure on the world economy and she sees further downside risk thatn shn- than she did in september last year. one of the other issues we addressed was greece and that l eak which implicated some of the imf officials. lagarde saying he will put this behind them and the imf will

continue negotiating in good faith. madame lagarde: we continue to be focused on addressing the greek situation by negotiating in good faith with a two fold objective. one is to restore the financial stability of the country and to give it debt sustainability. equip that economy with the competitiveness, the productivity, the structural reforms that are needed for it to be independent. the objectives have not changed. the negotiations will continue. andve a team on the ground we will continue to do so in good faith. francine: the transfer of suggest the fund is willing to agree to more lenient fiscal surplus. is that still the case? madame lagarde: everything has to add up. if the primary surplus is lower because that is what the greek people can deliver, then it

means the debt operation needs to be a bit stronger or longer-term. but it needs to add up. we hope it is not going to be done, we wanted to be done by long-standing sustainable measures that wiill la -- will last long after the imf has disappeared from the landscape. francine: at the moment, you're still playing an active role? it will not only be advisory. arde: i have been invited to engage our efforts through very confident staff members to actually help the greek people. and we have to do a transparent, evenhanded job. we cannot cut a special deal on the site. we have to do the way we do it with all countries, because we are independent and we do it for all. francine: yet i get the animosity amongst the greek government towards the imf if something we have not seen in the past. is it unfas? ?

lagarde: we have gone to us and downs. it has been a saga that is been around for six years. and we will continue because we are there for the people. so that the greek economy can strive, kent be standing -- can be standing an independent. francine: i have to say that she has a lot of humor tissue is referencing her very public spat with the minister when he was finance minister of greece. we had this leak over the weekend and it threw markets. seven people realize that again greece could be back on the table-- suddenly people realized that again greece could be back on the table. garde responded aggressively pitch today she seemed to back away and said that we can put that animosity behind us. we will try and work through this. tom: who is she speaking to, and the imf, authorities, who are

they speaking to in greece? francine: the imf authorities going speak to everyone. they are trying to figure out what the finance ministry and the central bank, what the best way to structure a deal. again, we have three parties. tom, we have the european central bank, the imf, we also have the other eurozone countries. lagarde will speak to angela merkel later on. bottom line, it threw the fact we are not done dealing with greece. the imf has been taking this seriously. we have also seen a lot of columnists saying that the imf has to be part of the solution. brian, you are still on our new york set. if you look at what madame lagar de was telling me, she was not only talking about greece. it translates into your world directly through earnings for a

lot of the companies. are your more concerned about the risks we are not talking about. the shocks such as the financial crisis are not things we foresaw. it was things that were unknown to us. brian: we are more concerned about drawing. capacity in commodities in emerging markets -- drawing down capacity in commodities. of noise.a bunch we focus on emerging markets and seeing stronger earnings growth in terms of consistency from that area to be able to call more solidification for overall global markets than greece. tom: brian belski with us this money. francine: does the --- tom: go ahead, francine, please. francine: i was going to ask a quiz question -- a quick question on volatility. what that does to the industry? brian: there are two very different stories. you have the draw down and hard

commodities and you have soft commodities like energy starting to show pretty solid bottom. two different stories in terms of capacity and supply coming down. going to continued with respect to having pressure on hard commodities were you start to see less negative trends developing in oil. tom: brian belski and francine lacqua. we are going to talk about the technology sector. you heard mr. belski talk about it. talk apple but much more we will talk about the dynamics of the greater technology business. from new york and frankfurt, this is bloomberg "surveillance." ♪

francine: we are talking livingcs and also

in the market as a lot of traders want to get into havens. i'm in frankfurt. tom keene in your. let's get to the bloomberg business/. -- flash. saudis plan to double its size by adding dozens of companies. it wants it make it easier for foreigners to invest. new rules on corporate inversions could threaten a merger between pfizer and allergan. and would limit the company's ability to take part in inversion deals if they have done the wind thin in the last 36 months. tesla grabbed the spotlight. 276,000 of its new model 3's. when it came to delivering, the company came up short. selling a little less than 15,000 cars in the first quarter, or delivering. that is less than expected.

tesla blames a part shortage. is. there it they have got the new one out. i never bought the story. just sort of don't get it. vonnie: you will not get it if you order it. tom: for x numbers of years. brian belski with us. and we are thrilled to bring in on set gene munster. the 5ths throw from avenue apple store. we will talk about apple but much more to talk with gene munster about. when he speaks technology stocks move. apple, like every four years, has a product pullback. given the excitement about the a9 chip, do you have enthusiasm? gene: i'm impressed with your tech specs. tom: i go to the engineering but

it is underplayed. the chip is everything. gene: if you ever had that latency with your phone, it gets frustrating. this chip is going to be twice as fast. tom: i just got it home, the new turbocharged -- vonnie said pay mup for the terabytes. where the imac is now is that where our cell phones are going to be in five years? gene: it is probably more like three years. the technology we use to see at the desktop is being pushed into your smart phone. the good news is is that the hardware is getting better, the bad news is the software is getting more intense. tom: what you do so well as look at the logistics of their cookacturing, what tim became famous for. what do you see when you look at chinese sourcing and the other sourcing of apple? gene: what you're going to see is iphone returning to growth in

the back half of the year. when we talk to our taiwanese supply component suppliers we hear about orders turning about 7% positive. it will be down 13%. it is an important distinction. as we shift from negative to growth, the multiple should go up. tom: should margins protect it? theincome statement, continue to sustain and grow gross margin operating margin. are they going to stay there? gene: a 50 basis forced to climb because the new phone -- world 50 basis to an end in points. you will see a fluctuation of about a percent and gross margin but think of them at the high-end of the industry despite the lowe rr price. in free casherate flow daily the gdp of greece. francine: it is crazy. they can buy greece and be done with it. are expecting

sales to increase. is this on the back of the chea per iphone? in the 11% decline from what they typically sell an iphone at their lowest end, which is going to have an impact on emerging markets. the bigger reason why you're going to see return to growth is more people buy and the full cycles. you see a natural cadence that is good for growth. tom: bring up the chart. everybody thinks gene munster is a one stock guy. there's apply. e. we did a log chart for belski. this is like a bro moment for -- they used to work together. piper, whas it piper? let's talk about somebody more challenged, gene munster, and that's paypal. i find a lot of people cannot stand it. do they have the endurance to

get to their challenges? gene: i do not think they do. this is going to be a $47 billion company that is going to be much smaller. it is hard to believe when you think about the shift to payments. they make money and essentially being an interface for payment. you have players with apple pay and android pay, samsung and amazon announced yesterday, and they are not intensified -- incentivize to make money. the you did a company with challenge model. i get that. you look for management initiative to turn it around. i'm not going to ask about paypal but you need debt management catalyst. gene: not only initiative but what their track record is in terms of making changes and facilitating those. from a technology perspective, these stocks have been some of the best managed companies in the world, and that's why they have done so well and why they have recovered over the last

decade. i think that is what gets lost. we get stuck on innovation and growth, but it is management expertise. tom: what's he doing? with he is try to keep up what is going on a point-of-sale. because he is not part of the operation, it's going to be difficult for them to build an experience consumers are going to want over the next decade. ultimately they are going to try to sell the company but i think it will be too little too late . tom: we are drowning in minnesota viking enthusiasm. bloombergy on markets, this is important. david westin in conversation with lame duck secretary of state, that is interesting in itself. secretary ofested state. look for that at 11:00. francine lacqua in frankfurt. i'm tom in new york. this is bloomberg "surveillance." ♪

features -16. francine lacqua, after speaking with madame lagarde in frankly. a foreign-exchange report, see if francine can afford to get

back to london. a weaker sterling. to see the move in the eyn -- in the yen is shocking. euro-yen below 1.26. that is our foreign-exchange report right now. right now, david westin speaking with secretary kerry later. whoeed to go to jon ferro thinks that villanova is a strain of pneumonia. jon, what do you have? it is risk off and markets pretty have to go to decimal places to find some yields on bunds. we are grinding down to the 2015 low. as for japan, three years and a day since kuroda started this experiment. handle this1.10 morning. that is really significant, october 2014 low. it's an abenomics unfriendly

dollar-yen. tom: what a great nerd fest. we are going to three decimal points. jon ferro with bloomberg coming up. here is our single best chart. we did this for belski. this is a great chart i stole from "the wall street journal." slope matters. and the answer is it is vapored. there is some good investment here, some there. but world fdi, which was on a fabulous log trend, brian belski , it speaks to a new globalization. brian: they really does, and with the trend over the last 20 years has been the diversification of big companies. that is why you have stronger earnings growth coming out of the tech wreck in 2001. it is the same reason why there is more than even playing field

in the next 10 years. we are going to see more on shore and growth. tom: gene munster with piper jaffray. 12, 700 employees that facebook is not going to employ america. there is this new sense of globalization. give us a window into how you see transnational technology companies working in the next five years. gene: the manufacturing. facebook, the only thing they make is -- eyeballs. of of the development, a lot the development is still going to be in the u.s. you are also seeing companies like all the major companies -- google works with the company based in argentina. they basically do a lot of the development for google outside of the u.s. you are seeing out sizing -- out sourcing. tom: francine, jump in here. i have got a million questions. francine: i want to back to the animal spirits. this is something we have been looking at a lot on\

"surveillance." i'm not sure what it takes to unleash them. we're seeing a lot of companies sitting on cash. when will it change? brian: ceo's are pointed continue to act in the best interest of the shareholder and the best interest is to continue to be excessively conservative in terms of how they are managing growth and that is why you still seek share buybacks. as long as yields remain low, you will see dividend growth. we think from a longer-term perspective you need to see more corporate incentives in terms of corporate tax changes for ceo's to be incentivized to employ more people. that is a trend that will happen . but now we are in this malaise with respect to global growth and trying to manage the business accordingly. till things change, we're going to see status quo. going to gene, are we see a lot more m&a in the technology space? what a be crazy to think that uber would buy general motors? bee: one of the big areas of

around self driving cars, electric cars. that is a theme. we are seeing glimpses of that with the tesla. a lot of them a day talked about apple buying tesla. i think there is m&a around that. the second big airy you're going to see is around virtual and makes to -- the second big airy. how this will impact computing. we think this is a new paradigm. all the major companies will invest. tom: dumb question. does an apple iphone sold in china ever come to america? do they make it in china and it stays there? gene: stays there. tim cook and his logistics, they sell it there. tom: what did you think of the panama thing? i do not want to get you in trouble with piper jaffray, but do you assume that these companies are using a broad shell company or haven to lower their taxes? is it just a given? gene: everybody does it.

one of the areas that has been notable is ireland. you see the e.u. trying to make some steps to keep that money in europe. i think this is part of, they're playing by the rules but getting creative. tom: brian belski, you have got a play by the rules within the equity markets. if i have a retirement plan, do i maintain investment right of? brian: yes. the problem with the markets is the adhd crowd that only care about 1-3 weeks. if you believe in equities, i'm getting tired of the risk on risk off trade. the risk on trade the next 10 years rae bonds. as that unwinds, we are going to see the money come back to equities. you want to buy u.s. equities. tom: francine, final thoughts on visiting frankfurt. what did you learn? francine: it's just as sunny as london is. it was interesting because, first of all, we also had a small speech from the lucas bank president. bundesbank president.

we are not end of the troubles in europe. we talked about brexit, but there's a sense we have not seen the trials and tribulations we had last summer with greece. tom: safe travel spirit she will head back to london. thank brian belski and gene munster as well. they'll continue on bloomberg radio. acrossr bloomberg television. john kerry with david westin later this morning. tomorrow on the program, it has been way too long. some political fallout from wisconsin. this is bloomberg "surveillance." ♪

bond yielderman ground down to a one-year lopp p at the japanese yen jumps to a 17 months high. christine lagarde says she is

ready to move ahead with greek negotiations after a tense few days of heated exchanges. planned merger between pfizer and allergan. the treasury department's taking tougher steps towards ending inversions. i'm jonathan ferro alongside stephanie ruhle and david westin. david: we have with us morgan stanley strategist adam parker. stephanie: we are going to be talking equities and we have to talk about francine lacqua's sit down with christine lagarde. we have got to talk about ncaa basketball. what a win, villanova. the team campton, new york city boy, dalton. you think we do not have athletes in this town?