the yen staysing, strong as japan fights deflation and the failure of abenomics. as anticipated, puerto rico invokes a debt moratorium law. the panel in san juan versus the hedge funds. and the consideration of blue chips. we begin the week with michael holland in john herman. good morning, everyone; this is bloomberg "surveillance," live from new york. it is monday, may 2. with me is vonnie quinn; francine lacqua is on holiday. vonnie: yes. they demented the bank

holiday. vonnie: i can't believe it's madyday. tom: we will talk about the correspondents dinner next hour. right now, let's get to the first word news. vonnie: thank you. puerto rico has escalated the biggest crisis ever any noticeable bond markets -- the commonwealth will default on the 420 $2 million bond payment for its development bank which could open the doors for other general obligations. aol additional $2 billion. u.s. congress working on a rescue plan. protesters ended their citizen.

they breached the city's heavily fortified green zone to protest corruption and political paralysis. brussels airport has reopened for the first time since the terrorist attack in march where the suicide bombings killed 16 people. authorities say it should be back in 100% capacity by next month. in southern turkey, a car bomb exploded outside a police station. no one has claimed responsibility. in recent months there have been a number of bombings blamed on kurdish militants are the islamic state. ns arepoll shows brito almost divided on whether the country should leave the eu. oppose.ort and 43% three fourths say they were unaffected by president obama

backing the u.k. to stay. global news, 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. i'm vonnie quinn. it is made. we are seven weeks away. it just seems closer. weekll talk about it this as we go to the jobs report on friday. let's do a data check of equities, bonds, currencies, commodities. michael holland nodding off. currency is the big atry with nymex crude $45. we had a calamitous end of last with euro yen-signifying

it. let's go to the bloomberg and get set up. i is that manufacturing -- here is the 50%, the diffusion index. crisis, down we go with a listless trend. a very nice rebound in these manufacturing data. vonnie: certainly volatile, and there is some difference reading them, but they are pointing higher anyway. tom: let's get started with the week. holland,with michael with decades of experience of looking at overpriced blue-chip stocks. we'll deal with that later in the hour. mitsubishi's by securities. we talked to him about an update on the american economy. michael, you remember this --

the world stopped for milton freeman. >> inside information, right? tom: we are there with the pmi indexes. having overrated? >> at this point, it is the most reliable, most accurate of all the manufacturing surveys and it is very important to see this threshold because we stumbled in the first quarter before we pulled back, spending on --uctures, all the things tom: we will touch on this. michael mckee is scheduled to join us. right now we have to turn to japan. john herman, let me stop with you. is abenomics a failure? >> i don't want to say that because i work for the largest japanese -- tom: [laughter] >> levy just say this.

-- lets me just say this. -- parent company in tokyo we have the largest takedown of every bond auction in japan and we have the largest -- it means anyone who wants to buy on jgb has to come to us in these things have rallied remarkably. want to own jgb's, as do, theple want to negative interest rate -- what is so surprising about this it just set off a big risk aversion flight to safety in japan which is what i don't think they anticipated. everyone there wanted to own anything that was positive yielding and the bond rally -- vonnie: what kind of -- they have to come

to us to buy it. vonnie: what kind of securities were they looking at? -- what kind of maturities were they looking at? >> first of all, anything that is five years and of -- they were buying into the 30's. they want anything that is positive yielding. tom: i want to bring in michael. --s is a chart that shows here is dollar yen. the first bank of japan action, the red circle. but they wanted was to migrate to that green box. sometimes what policymakers want doesn't happen. >> having said that, the short history we have is not particularly pleasant. there was a wonderful article i

was reading on the way in about bloomberg on negative interest rates -- the only return we have is in denmark, which came out yesterday. it's not very pleasant and it speaks to what he was talking about -- the alternative effects coming in, the unintended effects of people's reaction, it's not helpful. >> it is a very negative thing. very negative signal to the central bank about what their outlook is for their country. tom: i want to get this out. this is mored -- sustained. hand,f we have strong 120, abenomics -- what does it worldwide?r viewers

>> is very bad. japan is basically an export driven nation terms of the growth, and this really impedes the growth. if you go back to years ago part of the recovery was driven by a weaker yen and pulling profits back. toyota had a tremendous year, mitsubishi was number two in the back country -- you pulled and when the yen strengthened it undermined some of the earnings performances of their largest multinational companies. vonnie: that that is really the only pain point. if you own most of your death yourself and you aren't counting on corporations, you are ok. >> yeah. it isohn is describing -- slowly imploding and i think all those factors are part of it.

currency is a major factor. tom: this is what we will talk about all through the week. we will address the american stock market in a bit. in the next hour we will carry the conversation forward. fromweinberg will join us new york university and i believe the trend is your friend. stay with us. ♪

tom: we say good morning -- bloomberg "surveillance" from new york. a big holiday today -- great to see francine lacqua this weekend at the white house dinner. here is vonnie quinn.

vonnie: british regulators are criticizing deutsche bank over its financial crimes controls. --says the financial contact regulators reportedly found 37 out of 42 clients did not meet requirements. apple has its eyes set on a new headquarters in london according to "the sunday times." it is in advanced talks to move to battersea. it would take over at the office space planned for the others. halliburton called off its $28 billion merger. faced resistance from regulators in the u.s. and europe over antitrust parents they will pay a $3.5 billion termination. let's get more on this story with michael holland and the director of rate strategy john herman stop -- john herman.

does this put ge back into the picture on baker's use? >> i think ge is a reasonable response -- i think this is a surprise for some people with the antitrust regulatory atmosphere that hasn't changed. fee and allows for some breathing room but on the other hand ge has been aggressively and and people are looking at opportunities. vonnie: the department is saying that 90% of revenues for halliburton overlapped with baker's use. why might they have been wrong? >> what are they trying to stop? are they truly worried about price gouging and people getting her? is the fact that there is overlap a reason -- i think in

the case of halliburton it was worth a shot but no surprise that in the current environment it didn't get her. that would put a third candidate into the rain for things like oil services, drill monitoring -- is theyt i don't get are going out of business, right? let's go to the bloomberg, the this is like the blended oil index, this is a terrible chart from the lower left corner to the upper right. are we even in a bear market? i don't even think there is something out there. >> it's a great perspective and the answer is no. itting here for months ago was going to five dollars a barrel --

we're all going to die, and all of a sudden it's at $43. people who know something about theyatural gas industry -- haven't repealed the cycle. tom: what does all this talk due to the american gdp? do you partition the american oil economy out of your mouth or do you have to keep it in the aggregate? >> a few years ago, it was focused on the dallas fed and looking at where employment and estimate spending was and to pull that out of the u.s. economy full what we found is that it drove most of the recovery in jobs and capital spending, investment and so on,

driving everything from caterpillars and machinery in production -- it was driving everything. to help president obama's gdp recovery -- he doesn't really support the petrochemical industry. [laughter] remarkable.tty it actually benefited some of the gdp trends earlier on. the bottom line is that we have seen hook down and we have seen structure spending hook down and we put those in the charts this past week. we are seeing some strains here. what we need to do going forward is to find replacements in these critical industries. tom: 20 seconds. do you love the oil tanker this morning? can you overweight been

significantly? >> one of the big pieces of exxon mobil-- increase their dividends. this is a board that is quite responsible and if i thought it was no longer a vision they can increase the dividend. tom: one of our themes on energy, global energy. carl weinberg will help us out in a bit. later, a conversation with richard clarion of dynamics general equilibrium theory. later this morning. ♪

tom: good morning, everyone. economics, finance, investment. it's jobs weeks in america. right now, a morning must-read with vonnie quinn. vonnie: the financial times is itt we are looking at -- talks about central banks and fiscal and monetary policy being the bedfellows. we usually talk about them is completely separate things, but i want to read you a quote -- he says it would probably be less effective than direct fiscal expansion that would bypass the democratic oversight. is this a we need to do? doing it to bypass the

lawmakers, and look for something -- >> the central banks -- i won't say they have gone too far, but i sent out e-mails recently to some of my former professors at and i asked them -- do you think they have gone too far? it looks for the practitioners standpoint that they had and i was surprised when i heard back in which he totally agrees with me. with is thatraised there is supposed to be something called coordinated on the terry fiscal policies. policy extreme monetary and the lock down drag out i -- drag out fight. tom: my book of the lead year last year -- you are at harvard when trumpeter was there.

goings what we are through, we are distracting the debt that we build up in the financial crisis. debt stability out there that can lead us to a better time? >> i think we will go through some kind of a crisis which we cannot anticipate because economists have never been in a situation where central banks have taken it. we don't even know what the crisis is and i presume it will be in debt markets but i don't know the nature of it. i think in the meantime you have to prepare yourself for all kinds of outcomes. vonnie: have we avoided -- at least in the united states -- the crises that we might see in japan or europe or emerging markets? outset we arethe probably in the least bad place. i think we are probably ok to other people.

>> what we have going for us is a population demographic. years, it looks much worse in germany, in europe, japan -- it's horrendous. -- the deal is that there are just enough of them to turn things around as you get through the end of the decade -- tom: demographic economics are revealing -- we will talk about that in a minute. this is critical. how did our viewers be investors, rather retailer institutional, given the relative analysis of mr. herman? can you stay enthused inequities, given the tentativeness? a badhusiasm is probably a motion to invoke at this time

with the possibilities that are out there, some of which we can't get our hands around. do i stay with equities? they are the least of that place i thinkeighborhood -- the debt markets are for all kinds of opportunities and creative destruction is capital. you have to be spread across a lot of industries. tom: we will come back with a killer chart. up, a conversation with theistopher edelman, institutional underperformance. global conference, stay with us. ♪

example, it isor a wonderful opportunity. when you work at these places or go to school, you are among the best. tom: my grandfather went to 26.ard in it is not just harvard. i can get is wonderful she is taking a gap year. talk about the white house bubble. right now, breaking news.

up and down we go. , not that you are a cold expert, but is this part of the distortion we are in now chuckle >> uncertainty is feeding its way into cold. i don't think we're in one of these inflationary breakout peridos. we have wage pressures building moderately, not just here, but around the world. uncertainty, in fact, global uncertainty. as was suggested earlier, we are in unprecedented stages of monetary policy. no one knows how this will all end. the fed keeps saying, we have to tile this back and down. the guys who were same march was bouncedable, they got out. now, june is on the table. for us, we have been saying much

less than advertised. >> jp morgan is saying july. tom: i think it is a ploy to keep michael holland in place. we need to bring got tim cook and company. there are 18 research reports saying that apple is so done, so complete. a former single class chart. from one dollar to $100 a share. those red shares are where holland sold. i'm kidding. michael, help me here. how do you just the information -- digest the information ? >> you step back, as i have done. a criticals the

question, can accompany shift -- we saw it with the apple dividend. are ahead ayou thise bit, right tackle will face competition from the chinese phone makers. >> the challenges in china are numerous for disney as well as apple. google, all of these companies are saying great opportunities, but the and the person who runs the company, he is not comfortable with -- tom: instead of going to holland, i want to go to john herman. a big deal was always made about the equity markets for a barometer of creative strength

-- greater strength. how do you look at overpriced equities, good or bad, within the american economy? >> you mentioned, earlier today, you will have a chart on -- an .xcellent charter i started following the grass back in the day. with the insight was once you could look at it very narrowly, and see a decent performance, but when you look at the broad equity market, it matches up well with the broad indicators on gdp. in washington, they even say the same thing. when you look at the broad and s measure, the composite, for example. they match up very well with profits. that suggested that we have some strength.

tom: i want to get to blue chips in a moment. earnings are coming to an end, a freefall -- to buy the idea of an earnings recession? >> we are in it. we are contracting, declining. tom: my distinction is we're not in a free cash flow deficit. >> the opposite. companies across america and ,cross the world, global giants as well as medium and small companies, have learned to work with an anemic environment. you we only wanted to get up at 5:00 for the money question. q and i have never seen this. madman a decade ago. what to do when you are indeed earnate's -- when you

the colegate's of the world ? >> action, i don't. besides here, eight years ago, and two thirds was for the great company. companies that are not really producing a whole lot of growth at all, or increasing their cash flow at all -- the fact is, i kind of stay away from them. vonnie: everything obviously an active q j, but companies have a lot of cash. what will they do chuckle will they finally invest? >> no. companies are doing the same things. they are worried about the uncertain environment. an easier way to do it is by

something rather than building something. building something is more dangerous. the uncertainty, when you look out 5-15 years, uncertainty is investing management into the large corporations. they are very reluctant to invest. tom: we will come back and talk about top-flight gdp. right now, let's to the data check. may 2. futures up a little bit, healed commands, and currency markets, the litmus paper with cold. you know there are three major quotes on cold? i am confused. ♪

tom: good morning, everyone. bloomberg surveillance getting may may started -- your started. john herman is with us. mckee ons now, michael what the fed will do this week. it is alive surveillance this week. michael: it is. don't go away, don't touch the tile. we have some much economic data. the question is what is the fed going to two? it will act on where they think the economy is going. a simple chart, elegant. chart.both in one it is gdp and isn. it basically tells us the story. tom: the pittsburgh penguins and the washington -- not talk aboutl that. we will talk about that later on

bloomberg radio. the cold line has been going down, down, down. the isn has turned a corner. we will have much more conversation. thisuestion -- is deflation or disinflation? the fed has to make that call. tom: does janet yellen agree which air mckee? >> i think she has a more cautious view then mike does. she actually wants to see the recovery. she wants to see things turn around. we are looking for ourselves a gdp to grow a little better than 2%. between 2%-two .5%, so it is an ok rebound. fed,rms of the regional suggesting the bounce in the isn will not do as strong next month

, we do have to watch. i is and should start pulling up in the second half. we think it is a little early to pull the trigger for the fed in june, but we still think that september is in play. vonnie: that's the thing, how many good months do you need? another 200,000 on friday. i have been talking to some fed people, and we talked with robert kaplan. they are really surprised by the fact that no one thinks they will go in june. as john said, there data depended. they will not wait. >> in that interview, he said, look, we are trying to match so-- why are the gdp number strong compared to payroll

chuckle payroll growth is coming in substandard sectors, low majors. michael: he said no one expects it to happen in june. what you think the market effect will be in june, if no one expects it? that is the question. this is the first of may. we have seven fed officials speaking this week. they have the opportunity start be shaping market shares. >> but chair yellen does not speak until the end of may. now thets are definition of cacophony. people don't pay attention. michael, what about jp morgan's gold for july? >> the one issue for the fed, if

the economy develops, as they expect, and they want to go in june, brexit. totom, no -- if you go back alan greenspan, december 1999, before y2k, he said, i am pausing. tom: you are saying yellen wilpon struck >> he said, at the next meeting, if everything is calm, i can pull the trigger. michael: the markets expect september, so that everyone knows. 8:31 on friday, we get a strong jobs report, and then everyone will change their mind. tom: i want to point out what happened on the bloomberg, while i was gone. michael, can you please explain to me, how i got this condition of 1.8%.

michael: we switched quarters. this is the role from security to security. you see what they did, they broke it down. i went for the components. they stepped up consumer spending which makes sense because they saved way too much. tom: my problem with this is john herman is right, michael mckee is right. michael's head is spinning when he sees the analysis of this data. help me with the jump condition. michael: the earlier numbers are for the first quarter. gloomy johns -- quote m is expecting stronger growth. tom: what is critical here is that hysteria does not get it done. you need an informed conversation to see a jump from one quarter to another quarter.

that is what we are trying to accomplish here. >> to michael's point, we want to see gdp accelerate. chair yellen -- if i were to put myself in her shoes, this is what she wants to see. we have had the last 7-10 years, the labor force shrinking, stagnating, not growing. now, for the first time, it is starting to grow because some people who work pushed out -- one mee people pushed out. thank you to michael mckee, as always. we will continue this heated debate on bloomberg radio in about an hour or so. coming up, in our next hour, evil continue the discussion on international and domestic power. .ohn herman loves jeff degraff from new york, we have to calm

down. it is bloomberg surveillance. ♪

tom: bloomberg surveillance.

our first look at april. we will do that all across april through the morning hours. now, the bloomberg's flash. moree: taking on responsibilities. nameri is going to marchionne as ceo. that will keep it all in the family. it is the first day on the job for the new ceo of delta airlines. he sat down with bloomberg, and talked about the key area of growth for the airline. >> china is an opportunity. the u.s. to china traffic next year will largely pc largest traffic flow in the world. i think shanghai will continue to become not just the

commercial capital of china, but long-term, the commercial capital of asia. vonnie: meanwhile, holding off of oil hedge prices. our bloomberg business flash. you saw, they went on a pine rampage. tom: i was watching hockey, in the caribbean, watching hockey. they were making a huge deal. vonnie: it was a massive order. tom: the world is coming to an end, slow economy. things are terrible. we are here with michael holland and john herman, two very smart people. news, puerto rico. they may miss a principal payment today. the herman, synthesizes in

american economy. >> basically the debt is very widely held across the united states and various municipal bond funds. this has been simmering. tom: simmering, exactly. well said. twoimmering for about years. about two years ago, i remember people being very alarmed by the circumstance of very large death and at first population moves, but it seems that over the last two years, they have more or less than building catches and so on in their portfolio. it is very widely held. tom: this is important. meredith whitney, with all the pros and cons, she had the courage, and michael lewis was of meredith.rt

there would be individual municipal on failures here. what is the scope of scale for someone like you went quaffing nation goes belly up chuckle >> lack of hubris over the years has kept people from getting investment in the stage. i think were john was just describing his people have been preparing for this. having said that, people. of 2008e early start was not going to be a big deal. whenever i hear these things, people are prepared for, i will say, ok, but things could get worse. million andar, $143 today is 400 something. it is the consequences of today. >> the subprime crisis started cap way, a little liver.

here you have $17 billion with a b. >> it is a big challenge, a big problem, but we will face this. we have lots of funding problems. tom: i don't sense a lot of panic here. we will drink some puerto ricans rum, and that will solve everything. .e will continue here jeffrey degraff will join us as well. we will look at some interesting non-trends. sometimes it is what is not out there that gets your attention. stay with us. bloomberg surveillance. ♪

tom: this morning, the yen stays strong, japan fights inflation,

of other dockets -- the battle of san juan versus the hedge funds. may this morning with after graft. monday, may 2. theie: we are well into second quarter. can you believe a chuckle tom: no, i cannot believe it. it is a good day to have jeff degraff on. vonnie: you missed a big week. tom: did you survive without me questio? vonnie: fairly. tan?do you like my let's get to first word news.

escalated,ico has the country will do -- the nation default the date on a pond. they owe an additional $2 billion. u.s. congress is working on a rescue plan. in baghdad, protesters who stormed parliament at the end of againstin to protest the russian and iraq political paralysis. the brussels airport has reopened for the first time since the terrorist attacks on march 1. authorities say the airport should be back to 100% capacity next month. middle of in turkey, c a car bomb

exploded. in recent months, there have been a number of bombs blamed on the islamic if state. than three fourth say they were unaffected by barack obama backing the u.k. staying in the european union. global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. i think those sunday newspaper polls -- you really should trade on them. tom: i don't know. francine is not here. disservice day off. she went into washington for the white house dinner. equities funds currencies,

futures up. currency, a dominant story. oil elevated. cold through 1300, a unit. stronger today. the dollar index, 94 as well. the pmi statistic, we will get that today with an interesting number. you heard john herman of mitsubishi in the last hour talk about isn being a great indicator on. -- optimism. kyle, and bring in with may day a perfect annual degraff.h jeff

jeff, let me begin with you. should we sell in may, and go away? early to do too that. that is across the board. our work shows you need to work on the handicap starting in about august. you get into earnings in july. if you want to play it purely seasonally, that is the point. tom: carl weinberg, japan, you out front with immense caution on the japanese experiment. >> they are deep populating -- depopulating. monetary policy can fix that. -- cannot fix that. they need more people.

they need to accept the fact that the compilation is decreasing or open the doors to immigration. vonnie: we had this argument play out for so long now. i mean, is there nothing of that can be done short of importing babies? >> we can accept that puerto rico will default. we have accepted this for 6-7 years, why can we not accept that japan will contract. vonnie: inflation is picking up a little bit. >> just a little bit, and that will probably go away when the effect of the ins appreciation will go away. is strong yen. the first bank of japan is the red circle. they want to get to the green box. does that break under 100? >> absolutely.

it is one of the better trends in the market right now. we have been talking about this for two weeks. the only short-term tactical question is it is a private trader. tom: everyone is on board. >> i think it is on record. tom: what are the ramifications of the monetary experiment chuckle >> the appreciation of the yen will hold prices down. that will be helpful to them. i don't think this is something they can control. i think we have to talk -- really appreciate your view on this -- we have to talk about hedge fund downsizing. tom: well said. ast a graph, it is this speculative market, like people playing a roulette wheel? >> absolutely. i think current fees are the betting point of that.

we have seen the euro, the yen, the australian dollar, the canadian dollar. this is one of the natural safety valves of policy. vonnie: how much firepower today have to combat it? >> unlike oil, these are policy moves. at any given point in time -- we saw this was do it last year -- they can link their eye and put out a world of hurt for the hedge funds. i'm talking about something more fundamental. hedge funds worldwide are downsizing. they are going out of business. yenn they paid at the loans, the payback lines of credit. i think that may be even more important than the policy story. of: this is a convexity

the again? he will not go where we are. you see a second derivative in the yen that lead you to acceleration or complexity? -- convexity? >> sure. there is a contraction. vonnie: what is the endpoint, the tipping point? idea.ave no the nikkei does not look like it withstand much more. driveny opinion, it is more by the macro economy than the exchange rates. it makes exporting a little less competitive. back, andiving japan it must go there, is a shortage domestic savings. fthe cover-up deficit is so

big, they have to do some interesting. as the population gets older, they are joined down tom: -- -- trying down there savings. say, 5-6 days ago on the yen. there is dollar strength in the recent rollover with the dollar, weakness, and recent strength we have seen. is this a currency war? >> it is not strictly speaking a currency war. we have right now a lot of people blaming the currency for other things that are happening. people in europe like to see a cheaper euro. there withoutis

regard to the currency. the currency is facing on the cake. tom: quickly, dx why, are you longer short dollar? >> more short than not. i actually like cold. tom: what is your target on m cold chuckle >> you are talking something close to 1500 easily. tom: we will talk about that here. coming up, we continued discussion across bloomberg television with pimco. stay with us. bloomberg surveillance. ♪

good morning, everyone. this is bloomberg surveillance. right now, on monday, are bloomberg business flash. vonnie: chris regulations are criticizing deutsche bank over financial controls. the paper calls their transaction monitoring outdated. of 40 not meet requirements. apple has its sets on new headquarters in london. allcompany would take over office space plan for a powerplant. chu oil giants have called off their merger. halliburton will pay baker hughes a termination fee. story get more on this

now. we are back with carl weinberg and jeff degraff. we don't have to get into the for bakerdetails, but hughes, which did not want this to happen in the first place, now they get money to play with. >> they will be able to move forward investments necessary. i guess, from a strategic point of view, it will never be cheaper to lay the pipework, if you will, then now. tom: where is the opportunity. when you look at oil in general, to you by straw hats in winter? how do you do that? >> that is the sentiment, for the most part. tom: where is it now? >> on oil, it is too bullish.

net speculators are at l long positions. they are taking oil and selling get as fast as they can. tom: here is excellent wine. we showed this in the last hour with michael holland. this is the equity market in oil. this is good news, the ugly news. how do you play this? this is the ultimate dead barrel bounce. >> are models were set up for to be so bad it is good. believe it or not, between that point and today, our trend model still says that this is a very strange. margin, the outcome

of the chart is about the dynamic of the chinese market. >> i don't think it is about china. i don't think the problem with oil prices is on the demand side. it is the supply side. tom: you look to saudi arabia? i> i look to iran, iraq -- have trouble looking for a rally in oil prices. i cannot, with a straight face, say will come down. tom: this ties in with the news with baghdad. real unrest there. vonnie: absolutely. what usually in the patenting is you have this distribution formation. there is back and forth. tom: we are talking distribution now? wow. >> there is a period of unrest. over and to roll create this jerome information

-- dome information. i believe that is what will happen. what you make of the doj action struck of the big mergers not happening? is it better for the u.s. economy? >> that is really a microeconomic story, i will pass on that. tom: step up. deals, and so forth, i think this is a job for a micro economist. i'm not an expert. tom: come on. isl weinberg, catherine mann adamant that the consolidation we are seeing in financial markets is bad for competition, where vonnie was going with the question. gdp, byve low nominal

definition, companies can consolidate. wind you know too much is too much? >> corporate cal consolidation will post u.s. gdp. i do not see that is winky root cause. i see more fundamental macro economic problems having to do with productivity. i don't think that relates to the relatively small number of deals. tom: jeff degraff and carl weinberg with us. we will continue this conversation. coming up on bloomberg markets, an important conversation. alan schwartz on bloomberg markets later today. ♪

tom: now for your surveillance -- the hangover continues. washington in a fog this morning, two days after the ncete house correspondent dinner. really, the president was quite elegant going after everyone -- any and all. more -- and larry will tom: people hated it or loved it. i will not opine on that this morning. i did run into one individual at cee white house corresponden dinner. i caught him at table 112

writing his bloomberg column. here he is, writing for bloomberg. he wrote this at the dinner table. this is carl weinberg's territory. including negative ones in europe and japan, and stepping up asset purchases, the failing banks -- the three banks made an effort to stimulate demand, beyond a certain point. heryone feels what articulated so well. we are way off. >> we absolutely are. while you were on vacation last week, there was a really interesting point in new york. he said that you are moving expenditures from tomorrow to today. sooner or later it becomes today.

that is why we have negative interest rates now. it is a strategy, if you play it out that way. i'm not sure he is completely right, i think it is an interesting point to ponder. tom: do you know, as a technician with the rate is? >> i don't have any idea. folks.is is not a joke, this is deadly serious. >> one of the ways we measure over the last nine years as we look at the relative out performance on equities versus the risk for rates. it is important part of our framework. you talk about being close to riods over the last nine years when the risk has been off the charts. this is not just a point where you allocate the irony money into the equity market. historically it has been a bad

it. .- bad bet we came off the lows in february, and that has been ok. again, the framework for equities for us says i am more risk than risk off. there is limited gas in the tank. tom: i don't even know how you get the framework. talks about modern economics being an economics of equilibrium versus a traditional idea of these equilibrium -- disequilibrium. are we permanently in the state? >> and economist goes out and says, cut interest rate, or do this, or do that, and we will be better off. ibrium that occurs

is where all the uncertainty is. i think we are more in the realm of equilibrium. on interest rates, i'm thinking that the long end of the yield curve in europe is looking like the most dangers place on the planet. your, but go to break we will come back and address this point on europe and the yield curve, something just a graph can talk about. up from the milton institute in los angeles, on the challenges -- no clue on where the risk rate is. good morning. ♪

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you can never get enough of it. change the way you experience tv with xfinity x1. shoah, ha ha.ew artist. show me top male artist. my whole belieber fan group. it's not a competition, but if it was i won. xfinity x1 lets you access the greatest library of billboard music awards moments, simply by using your voice. the billboard music awards, live sunday may 22nd, 8/5 pacific, only on abc. tom: good morning, everyone. may 2. i'm tom keene in new york. frank like -- francine lacqua is in london. here is vonnie quinn.

is turning tos. russia for help in trying to revise the cease-fire with syria. john kerry wants russia to pressure them to stop attacks. dozens were killed and aleppo last week when syrian planes attacked. the than two weeks before senate is expected to vote to impeach dilma rousseff, she announced tax cuts, more public housing, and more spending on a cash transfer program. she called the impeachment process a coup. in seattle, police used pepper spray to break up an anti-capitalist demonstration that proved -- that turned violent. five police officers were hurt. at least nine people were arrested. bernie sanders is promising the democratic presidential convention will be contested. sanders says by the end of the primaries next month, front-runner hillary clinton will not have enough delegates

to win the delegate -- to win the nomination. donald trump has ratcheted up his attacks on hillary clinton. he says clinton is using the women cards to win the were -- to win the nomination. last month showed that trump is viewed unfavorably by 70% of american women. theof course neither was at correspondents dinner at the white house. tom: mr. sanders was there. will join us. we will talk politics in a minute. maybe we will talk about the mail card as well. carl weinberg is with us. trulyy degraaf is exquisite at looking at charts, what they do say and also what they do not say. what do the charts not say right now? co the charts --

jeffrey: the charts say do not -- amedium-term there medium-term bear. without question, this is a market that has most of the momentum and it is good. the other part of that would be, be very careful on the reversal trade. momentumok at the versus anti-momentum trade over the last quarter, we have stretched this into the 95th percentile. tom: we have way extended into what? jeff: into a realm where the performance of laggards doing well has not consistently persisted. in other words, it is a point where -- tom: the leaders are leaking -- the leaders are leading. jeff: the leaders are lagging. colegate, mcdonald's, they are way out extended. jeff: they are extended, but they have come in on a relative basis.

this consolidation we have seen looks pretty interesting to us. full of morris, mcdonald's. those are good solid trends -- phillip morris, mcdonald's. those are good solid trends. those were leadership names in the february lows. look at appleu computer? technically, what do you do within the silliness of the day-to-day emotion on apple? jeff: you have to follow a trend. it is that simple. some trend. to use follow some trench discipline and that will that follow some trend discipline. the quickest way not to lose money is what jeffrey degraaf said. vonnie: i know macroeconomic fundamentals are what you look at.

what about the fed rate hike? could that disrupt trend? jeff: i worry more about the right?een -- the 9/11's, when we talk about brexit, it is building -- it is getting built into the system. it is handicapped. it will not be caught totally whenard, the chances are, something like that takes place, because there is a transition from one equilibrium to the other. walk into theou office, high frequency economics, what is the one chart you want to show carl weinberg right now? i would say gold. gold's trend and momentum changed for the first time in four years in january. it was one of those standout moments for us. we go through hundreds of charts on the weekend. it was a standout moment that said something is different than what we have seen.

vonnie: it keeps rising. jeff: compare that to the industrial metals. gold versus the industrial metals has trounced that relationship, which historically is not great news for the economy. there is some disruption taking place. what do you think about the nikkei? jeff: the nikkei is a again story. national -- is a the nikkei is a yen story. yen strength is anathema. monetary policy has moved to the antithesis of gold. they are printing money based on paper, which is government bonds, and gold is just -- am: is jeffrey degraaf seeing bull market in gold because of a lack of theory or underpinning theory with what chair yellen is

doing at go -- with what chair yellen is doing? carl: the increase of the industrial level, electronics and so forth, the stories i'm hearing about gold are more fundamentally based, and they agree with what he says. tom: technology stocks -- ibm, not the romance with facebook -- tell me about the boring tech companies. jeff: i had a wise mentor say to me that in the long run all technology companies make toasters. i think that is true. ibm makes toasters. google at some point will look like they make toasters. vonnie: do you even look at their charts? jeff: absolutely. but the difference between what tom wants to talk about and what he does not want to talk about arehe ones that look great under pressure, but most of the technology names are vulnerable.

tom: jeff degraaf and carl weinberg. tomorrow, we synthesize across economics, finance, investment. our guest will join us with a distinctive emerging-market view with dell tech. upures of three, dow futures 24. this is "bloomberg surveillance." ♪

tom: good morning, everyone. "bloomberg surveillance." economics.t week for jobs day. here is funny quinn. chrysler's ceo is about to take more responsibilities on. he is about and be named ceo of

ferrari. entrepreneur claims he is the creator of bitcoin. that is according to the bbc. the network says craig wright provided technical proof to back up his claim. he kept quite in december when two magazines said he was likely bitcoin's creator. it is the first day on the job for the ceo of delta airlines. bastion -- is -- and ed bastian is taking over for -- >> the u.s. to china profit next year likely will be the biggest traffic flow in the world. -- iartner in shanghai think shanghai is going to continue to become not just the commercial capital of china, but the commercial capital of asia long-term. vonnie: delta will hold off on --ging oil prices while the

that is our latest bloomberg business flash. tom: i remember the day they went under. i remember clear as a day that clear as a bell they went under. can they be adults? vonnie: they are certainly spending like cowboys on aircraft. i guess boeing loses. is that bad? speaking of losing, that may happen tomorrow in indiana. megan murphy, straighten me out at the white house dinner this -- megan murphy straightened me out at the white house dinner this week. she is still wearing her beautiful black that she wore at the dinner. i thought this was sort of a non-primary. i am wrong. it is a big deal. megan: it is a real big deal. .t is game over

if america -- if ted cruz does not pull indiana out of the bag. if donald trump can have another big win there, it is clear he will get the nomination. tom: the path is clear, but they have to get to the conventions first. what do secretary clinton and mr. trump do? megan: bernie sanders held a rare press conference and fightd down on taking the -- for trial, the question is uniting the party. tomorrow, ite win is getting to the convention with a unified message and that we do not have -- you uset is new here is to exit gracefully. you would exit stage right. megan: i am not sure ted cruz is want to exit gracefully.

such rhetoric we have really never seen, violence at some of these rallies that we have never seen. it will be ugly between them over the next week. vonnie: there were a couple of press -- therehe is no one else now. it is going to be -- megan: i think they'll president was most trenchant in those remarks. saying you need to take responsibility for when you have created not only in the race but in terms of the rhetoric. but he was very clear, staker fish -- steak or fish. the marketked about vigilantes, the chart vigilantes, and are there other vigilantes in the press? political vigilantes is a strong term. tom: he was not happy, was he? megan: the press has been just

as behind as the polls in sort of figuring out where we are with this race. we constantly thought trump would fade, that ted cruz would,, that bernie sanders was eventually also going to fade, and we have been proven wrong time and time again. we look at the presidential event and we also worry watching congress. will set these direction, but congress still has to move on it. logjam has caused us a lot of problems in the past. i think there is going to be more congressional fallout. vonnie: one interesting thing that came out of the president's comments is, how much does this highlight the difficulties in america, the so-called middle-class and average american and what they are experiencing? president obama said donald trump started this out as an advertisement for his hotel business, and oh cleveland is

hoping to get through august. this is turning into a real debate over where america is headed. messaget is over what we are carrying through. we have seen this in other democracies as well. what is going to happen with this, and what are people expecting from donald trump? there is little flush on the bone in terms of his policies. the question is, can he actually layout policies that will make any kind of difference? tom: some of the backstory -- i have a problem with a lot of the reporting on the white house dinner. you are most gracious with the bloomberg/vanity fair party. -- toecretary kerry and watch secretary kerry and vice president biden work the room, it was really quite the moment for the beltway. megan: everyone is looking at a new era.

if it is going to be a hillary clinton presidency, that looks quite familiar. with a donald trump presidency, i am not sure we will be having that. tom: you said my thoughts for your four times at the dinner. i am not like megan murphy. i go to megan and i go, who is a beautiful woman with bill nye? she says, who is bill nye? i said i had no idea who i was talking to. megan: it was a challenge for me. i had a cheat sheet. you had then give you a little book at the beginning. megan: that was me. on: megan murphy will be "bloomberg " later today, in 10 minutes or so. equities, bonds, currencies, commodities. all that matters is yen. foreign exchange, dollar-yen,

106.66. the euro, 1.15. gold, the headline item this morning. more with jeff degraaf and carl weinberg. this is "bloomberg surveillance." ♪

tom: good morning, everyone. for exchange -- the yen the huge story last week. you heard jeff degraaf talk about further yen strength, even to below 100, 106.64. the rally continues, over the queen's 90th birthday. vonnie: shopping inherits. coming up on "bloomberg ," with david westin and jon ferro -- david, what is on cap -- what is on tap today? david: we will talk to the brand-new delta ceo, ed bastian. we also have richard clarida with us from pimco. puerto rico is expected to have a big default today.

we will talk with richard about that. finally, with drew matus. a big week this week. jobs day coming up on friday. he will tell us what that means, coming up on bloomberg . very good. let's continue on economics now. krugman is always stirring up with lots of good writing over the weekend. in his "new york times" -- tom: carl weinberg is with us. if you are not going to provide stimulus in europe, you cannot provide it anywhere, can you? carl: i agree with that. it is not coming, though.

there are problems and there are facts. the fact is that fiscal stimulus is not coming. monetary policy has either reached its limits or not addressed the problem. so we are stuck in an eight-year depression now. tom: how do you define euro sclerosis? carl: that is such an old phrase. i think we are beyond euro sclerosis. that is from the 1980's. but banking depression with europe, save the banks, save the economy has been my motto for a long time. the underlying problem with low productivity growth, weighs heavily on the economy. that is the euro sclerosis. jeff, how do you look at charts when you have german yields out to eight years that are negative, when you have the ecb behind corporate bonds? how do you decide what charts are real and what are not?

jeff: it becomes a relative game. in every circumstance, there are winners and losers. to carl's point, clearly, when rates went negative in europe, it absolutely penalize the banks there. the charts of the banks in europe look horrendous. there is some knockdown effect in the u.s., but what we are seeing, which is a head scratcher, is that you are not seeing the intra-bank rates spike. there is not this crisis of confidence between which a bank and ubs and the -- between deutsche bank and ubs and the counterparty risks. we try to look at where the winners and losers are based on what is happening with these policies. clearly, these banks seem to be

on the losing end of that trade. francine: -- vonnie: you were talking about the italian banks. carl: italy has a problem today. one of the things that came to me as i was writing my high-frequency notes this weekend is that ecb bond buying ends a year from now. i have run out the total amount bybonds that they will buy march next year. that means they will stop buying. with negative yields out to eight years, that as a result of the ecb buying. if the buying is going to start by -- it's the buying is going to stop by march of 2017, there has to be a correction. vonnie: it does not have to stop, though. carl: yes it does. it is law. it comes from bankruptcy law with europe. allowed to do that. tom: i have to rip up the script right now. renzirence, italy, mr. says he has discussed japanese investments in italy, and most abertantly counts on mr.

for success. you have to be kidding me. japan is fighting for their lives. g7y do not give a dam about success, do they? carl: they invented zero and negative ventures rates first. to take your phrase, they are completely off the map as far as foreign policy is concerned. tom: i want to give jeff degraaf the final word here. this is the under performance of deutsche bank, the outperformance of storage -- of jpmorgan as well. stay with the winner, jpmorgan with a nice bounce up recently, or is there a huge failure trap or opportunity here within deutsche bank? jeff: maybe there is an opportunity at some point, but we do not see that yet. i would stick with a relative winner. if we are looking at the entire broader market, jpmorgan is no prize either, frankly, if you

are looking of the rest of the u.s. equity markets. relative to financials, without question. tom: what a way to start. carl weinberg, thank you so much. and jeff degraaf as well. coming up on "bloomberg ," richard clarida well-timed. he will speak on global strategy in japan. the continued moves in the japanese yen. "n "bloomberg surveillance tomorrow, i to lay label join us. stay with us through the day on bloomberg radio and bloomberg television. good morning. ♪

billion end of a $28 merger with halliburton, and what it can mean. david: warren buffett calls out wall street thieves.

>> david: welcome to "bloomberg ." we are particularly happy to have you with us, megan murphy, our washington bureau chief. bastian in a few minutes, taking over the chief executive role today. everyhe first monday of may, it meant a holiday at a bank holiday in london, meaning the ftse is closed. not me completing has not me complaining, i'm just informing. pointsures up about 26