r is back.king dolla goldman sachs sees a 15% surge in the next two years. japan's biggest company braces for its first profit drop in five years. and dilma's final stand. brazil's political drama reaches new heights. this is bloomberg "surveillance ." tom keene is in new york. we have a lot of currency moves. not only that goldman call on the dollar but also yen. tom: yen to watch out for as

well. but i like how you mentioned brazil. to john for air and 10 minutes in brazil but between brazil and the philippines, a lot of emerging-market politics going on within the student of economics and finance. of economics stew and finance. francine: now, let's get to the bloomberg first word news. nejra: bernie sanders is not going away. he says he will fight for every last vote. night, he defeated democratic front-runner hillary clinton and the west virginia primary. lead inlinton has a big delegates, closing in on the number she needs for the nomination. meanwhile, presumptive republican nominee donald trump won in both west virginia and nebraska. he faced voters for the first time since rival ted cruz dropped out. british prime mr. david cameron may have an awkward time and ofrat's when the leaders

nigeria at afghanistan visit this week or he told queen elizabeth the two countries are extremely corrupt. prime minister cameron: nigerians, the leader is fantastically corrupt. nigeria and afghanistan -- corrupt.ctually not nejra: a spokesman for nigeria's president says cameron does not recognize the work the country is doing to fight corruption. an anticorruption summit will be held tomorrow in london. this may be the last day in office for brazil's president dilma rousseff. the senate votes today whether to impeach rousseff for illegally using state banks to fill a budget gap. that would force her to step down temporarily. rousseff would face a trial she appears unlikely to survive. in bangladesh, the top leader of

the country's largest islamic party has been hanged. was convicted of crimes against humanity during the 1971 war that led to the creation of bangladesh. there's concern the execution could lead to violence. and asian buyers help set records at christie's art aucti on. one spent $57 million on an untitled painting. auction sales are showing signs of slowing down. last night's total of $318 million represents a 52% decline from a similar sale year ago. a day news 24 hours powered by our 2400 journalists in more than 150 news bureaus around the world. datalet's get to the checks very quickly. not much going on. that is what you see a few days after the american jobs report. crude elevated. on to the next screen.

note equities elevated. in our next hour, the german 10-year has my full attention. zero, positive 0.113. that continues to grind lower. i notice a little curve flattening in the u.s. francine: tom, this is my board. when you look at a lot of these european equities, they are a little bit on the downside. basic resources gaining on the --k of news about copper then i did two currencies. of course, the dollop it this is probably one of our biggest stories of the day -- the dollar. this is probably one of the biggest stories of the day. this is an interesting play. this is the picture for yen. gaining on speculation that the slide was overdone. tom: let's go to the bloomberg.

we have two esteemed guests. this is the philippine peso, back 25 years. here are the horrific prices, 1997, 1998. leads to further peso depreciation. the valuation and the miracle of a cessation -- for the philippines. stronger peso throw all of this. then the recent weakening of the peso. with the new president coming 39% vote, you wonder where the philippines are heading in the next four years. francine: yeah. that is an extreme the important chart, especially as the elections are somewhat let's say controversial or interesting. probably just as interesting as the u.s. presidential election. this is my charter picked toda y. in white, the price of brent. in purple, the brent moving

average. in blue, the 200 day average. the average price of brent c rude is set to rise -- that's a golden cross. that is to be we seen as a sign of bullishness. now, we are joined by a managing director and jpmorgan global market strategist. you so much for coming on. let's start with you. i do not know how much you look at currencies, but we talk about goldman sachs saying that expect the dollar to rise. overall, is this going to be the big theme? are traders going to nowhere -- it is inward looking. every single major economies looking inwards. >> what is really remarkable if you look at the period since the crisis has been how much of major currencies have moved against each other. if you look at the dollar versus yen, the dollar versus the euro, etc.

it has been 30% of change with real macro economic change being rather limited. a lot of this has been german on expectation, the expectations of diversions, expectation -- a lot of this has been driven on expectations. the continuation of exactly that theme, that in an economy where japan is continuing to lag, in an economy where the eurozone has only just finally exceeded gdp and where demand is still 2% lower than it is the2008, the u.s. only major developed economy that looks relatively, and it's all relative, relatively robust. and i think that is kind of the main driver of the diversions. francine: do you agree? is the rally going to continue? >> i would not say it is going to shoot up massively compared to 2015. we think it is more a sideways, for the dollar,

especially when you have the european central bank, the bank of japan trying to push down their currencies. there is less of an upside for the dollar in the next 1-2 years. tom: i want to congratulate on your research note. some great charts. i brought up the eu gdp chart observations.your i blocked out all the volatility of year-over-year gdp. all you see is a presidential for your moving average of what was and what is now. nandini, what i see is malaise. malaise with the challenges of china. they desperately need a better china, don't they? >> it's true. the european growth story is 2% gdpthrough, 1% to growth. what they need and european markets is that level of connection to china. when china is demanding less,

you have equities listed in germany or france or even spain exporting a lot less. a bit stronger with the euro. chinese demand, european growth is in that 1% to 2%. tom: i'm going to suggest a productivity reaction of the developed world, a brussels or amsterdam, is a little bit different than manila or beijing. what will be the catalyst to jumpstart em growth, and particular china growth? -- and particularly china growth? >> the near-term prognosis for that is we are not going to be seeing much more optimistic news coming. what is already very encouraging compared to where things were at the beginning of the year is that the downside risk of a very deep downturn and financial crisis within china, that downside risk seems much more limited now. that is probably the most

optimistic we are going to be getting. so sadly, the eurozone will not be rescued by china. it has to reform from within. tom: folks, you say to yourself the answer is a currency war or currency depreciation or maybe a re-leverage. i think they are already leveraged. one of our themes through the morning. will bring hour, we it over to blue-chip america and the price of perfection. seth masters has had a huge response on the show. he'll be with us in our next hour. from london and new york. bloomberg "surveillance." ♪

francine: this is "surveillance ." tom, let's go straight to the bloomberg business flash. nejra: disney's latest earnings mediaoking the fears of investors. the world's largest entertainment company posted second-quarter results that missed estimates. profit from the abc broadcast operation fell. lusplus, disney shut down its infinity games division. carlsberg reported first-quarter sales that beat estimates. forecasting higher profit this year due to rising sales in asia where it battled. heineken. offsetting a sharp decline in russia. and developers in london are trying to capitalize on rising rents. in the last six months, they have started a record number of

office buildings an essential part of the city. 14 million square feet of space is under construction, the highest and eight years. london office vacancy rates are at a record low of 4%. and that is the bloomberg business flash. francine: thank you so much. now, this may be the last an office for brazil's president dilma rousseff. the senate will vote on whether to impeach rousseff, which will force her to step down temporarily. our executive editor for international government for bloomberg news. john, great to have you on the program. when you look at dilma rousseff, she's always had some fighting talk in her. she said, this is a coup. i won't resigned. will today change anything if there is a big majority voting to impeach her? john: this looks like this could very well be her last day in office. what will change today -- if this vote goes against her, she will a lot have to step down but

she will have to step aside. she will be suspended as president heard it will be very difficult for her to come back from that. we are expecting -- if you look at the numbers, the opposition, the numberssenate, we're looking at our 50-60 at least. then, of course, this begins this 180 day impeachment trial that will then take place in the senate. for that, the opposition needs a 2/3 majority to finish her off. they will most likely have those numbers. francine: are we surprised at house with it has been? it looks like -- surprised at how swift it has been? john: yes. of thrillseen a lot and spills a longoria. monday and tuesday were two of the most dramatic days i can remember -- there has been a lot of thrills and spill ed. the interim head of the house try to annul the vote from last month. that said brazilian markets into

a tailspin. he reversed himself at midnight on that day. one of the weirder reversals i've seen in recent times. follow the narrative thread through all the noise, there is a clear direction to this. the constitutional process -- it is a very difficult one for rousseff to fight. and one is market reaction the huge backdrop of the olympics. the torch has been late in athens. august 5 is the jumpoff date. bring up the brazilian real. basic idea, year of the crisis, in the 1990's, up we go. in the middle, the magical lula strengthening of the brazilian real. then all the problem that john's team has reported on. frame for us the bet of the market that brazil can get better fast. john: all of those hopes are being pinned on the vice

president. certainly there has been a lot of optimism. we have seen a pretty large run-up in brazilian assets this year. there is a letter hope that -- a lot of hope that when he gets in, he will get the deficit down and cutting inflation. there is a worry that he himself, he will not have a strong mandate. if you look the numbers on him, 58% disapproval in rousseff. his disapproval rates are almost as high. he is going to have to do as much as he possibly can over the next year. the next date to look at will be the next presidential election. only then will we get a firm sense -- tom: i have got a pattern here. i got austria with an offeror within their political system. the philippines an uproar. let's not talk about that em economy, the united states. in brazil, the same thing.

is this impeachment a mask for a populist uprising in brazil? >> i think brazil is different. you are right. there is a general theme about mostly blue collar workers in emerging markets as well as developing markets feeling left behind. there is this rebellion against establishment. in brazil what is happening, despite the optimism being expressed by a number of market analysts, i think this is problematic. if you actually look at the impeached is being for, these are given the standards of emerging economies, given the status of urgency and the standards of george osborne, our own chancellor, and the shenanigans that many governments get up to, in trying to manipulate or move money around, this is not a crime she should be impeached for. be oncus should

corruption which is far more seriously pernicious. this is further going to polarize the brazilian society. i do not think this is a long-term healthy solution. this does not demonstrate a censoring of brazilian institutions. francine: how much is this also just an economy on its knees? you saw unemployment almost double in a couple months. inflation going through the roof. this is mismanagement. how do we know the next person in charge will do a better job? >> we don't know. which is why we are less constructive on brazil and the emerging market space. there has been a strengthening of the real. going buy now, are you to get this feature reforms that has rallied on a hoax of? -- on the hopes of? francine: thank you so much. of course, our very own brazilian expert, john fehar. boone pickens capital founder

and ceo at 2:30 p.m. in new york, 7:30 a.m. in london. a lot of companies rolling up their debt. what does mr. pickens think about that? ♪

i'm francine lacqua in london. i work of this morning and i thought, what can i surprise tom keene with? this is my morning must-read. look at that.

budweiser rebranding itself. america. fret not, it is only temporary. we picked out something, scott galloway writing in "the ft." "this is a bold move. it is a bit like apple changing its name to "innovation," because one of the core associations of budweiser is already america. it could be a stroke of genius, but i think it is a risky change -- to what is ardently one of the worlds greatest brands." america. tom: shall i give you a little bit of background as an imbibe or of paps blue ribbon beer? are acutely aware that budweiser is owned by a foreign company. they are acutely aware that st. louis has not been the jane. been --louis has not

maybe after the election and i would defer to professor galloway, that they got a beautiful ability to com e labor day, the first tuesday of november, and give a gazillion dollars to their favorite charity. i look at it very plus, plus, plus. if it has a short shelf life like budweiser beer. francine: you're good, tom. you are on a roll this morning. this isn't till the u.s. elections. kapoor knowes sony about budweiser? have you ever had a budweiser beer? sony: i have, indeed. while wearing american flag underwear. [laughter] francine: i am not sure where to take this. this is as much to do about rebranding. us having fun on air as it is

with protectionism or this sense of nationalism in the u.s. which is lost on europeans, which makes donald trump the front runner. >> i think this is a rise of that isg, a brand notoriously not american but does symbolize american roots and energy. changing this is a sign of that. you have america, trump saying, "make america great again." populist wanted to support america -- this populist wanted to support america. tom: where is the case of john courage? don't we have a case on set somewhere? i need some john courage right now. bloomberg "surveillance." ♪

show me top new artist. ah, ha ha. 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. tom keene in new york. francine lacqua in london. francine is looking at the brexit debate.

let's look at first word news. nejra: bernie sanders is not making it easy for hillary clinton. he won the democratic primary in west virginia. and he vows to keep battling for the nomination. appears weders: it have what a big, big victory in west virginia. and with your help, we're going to win oregon next week. a big still, clinton has lead in delegates pitch he is closing in on the number she needs for the nomination. meanwhile, presumptive republican nominee donald trump won in both west virginia and nebraska. he faced voters for the first time since rival ted cruz dropped out. hundreds of protesters battled police during a demonstration against labor reform. french president franois hollande used a special power to push the measures through the lower house of parliament without a vote. the measures would extend

working hours and make playoffs easier. hollande says the reforms will lower unemployment. norway will increase the amount spends this it year. the government is dipping into its sovereign wealth fund to hold off recession. it will withdraw $10 billion, 18 times as much as it had planned last october. president of the philippines keeps changing his mind when it comes to the u.s. and china. he's open toe says cooperating with china on oil china sea.the south on the other, he questions why the u.s. does not end an aircraft carrier to challenge china and shows solidarity with the philippines? he may clarify his remarks now that the campaign is over. britonsan half of think that leaving the european union is the only way to curb immigration, according to a new poll. halting immigration from the eu leaveentral plank of the

campaign or global news 24 hours a day powered by 2400 journalists and 150 news bureaus around the world. tom, you have more on brexit. tom: more on brexit. francine has carried the water on brexit. guests. two what i was suggested as the gerard lyons piece in "the sunday times" caught my attention. economicyons, great forecaster at standard chartered and working with force johnson who is brexit, brexit,. . we do not need a trade deal to trade.' "the eu is a customs union. " he emphasizes food. "food prices could fall to the level of world rates." that begins an opening on a discussion forward to june. pick it up, please. francine: i thought it was a

very lucid, well-written piece by jerod -- gerard lyons. the problem at the same time as you have more and more countries being isolationist, are doing you do not need trade deals when you see protectionism -- the currency wars that could be picking up again is a dangerous game. sony, this is the problem with brexit. on a sidebar, the colombian president weighing in on brexit, saying this would be a big mistake. first of all, it sends the wrong message to the world, which is we are looking inwards. and two, you do need trade deals. otherwise it would be difficult for countries not to say, i do not like that kind of cake they make, because it competes with mine. sony: especially in an economicnt of rising insecurity, protectionism, there is nothing more important than to have the world's largest

economy behind you when you actually negotiate and trade with other countries. it is also extremely critical for investment. the eu has become much more active and proactive in investment deals in terms of investments with countries, which is going to become very important for surplus consonant. so, i think this is absolutely, totally economically self-defeating. and the signal it sends is both that we are looking inwards and backwards. many of the people champing -- championing brexit, would like to go back to the days of the raj. that is not going to happen. francine: how do you look at brexit? it seems a lot of the companies, three and four u.k. companies think that the pound will weekend should brexit happen. the hedging is getting more expensive to protect. towards thedoes go u.k. leaving, we will see more

weakness in the pound. but that is more expensive to protect. as you point out in this morning's must read and many ot her politicians coming up with these ideas, there are strong views on either side. the economic models show short-term weakness four u.k. growth if the u.k. does leave the eu. tom: sony, do you have faith in the models? i'm confused. everybody is extrapolating out with seven moving parts. all my radar is up. sony : i think on the economy part, and this is where someone as respectable as gerard can come in and come up with completely different numbers than his colleagues. you can make the model say whatever you want. models and the actual quantitative estimates is very limited. i think the political economy part of it is very clear. as you know, in the past seven or eight years, after the

crisis, it is political economy that has been driving the world. and it is politics driving economics, not the other way round. i think it is extremely likely the u.k. will suffer badly, not just economically and financially but also in other forms of influence globally. but the main driver will be politics and not just any technical issues coming out of -- tom: what is the call for jpmorgan on oil? i think of the combination of work off john norman's desk in london. how does oil filter in to brexit and the ramifications of the vote if the brits were to leave? oil pricehe forecasts we have is fairly range bound. $50 a barrel for the rest of this year. now, the u.k. economy, a lot of which is dependent on oil is going to be very hurt if the oil price continues to stay low. i do think this is factoring

into the brexit discussion. you are seeing a weakening an investment intentions, capex for rigs and oil production. if you're already seeing weakness, this problem can only get exacerbated with the vortet. tom: a lot going on this morning. futures with a modest wage. coming up later on bloomberg markets, david rubenstein. with the carlyle group which barely speaks of -- on politics and philanthropy. look for that at 10:00 a.m. good morning. ♪

data checks are always good even when there is no data.

8.n't forget dow closing 17,92 priced to perfection. the gloom crew vanquished in the last few days. nymex crude south but still elevated. right now let's get to bloomberg business flash. nejra: thanks, tom. two largest office-supply company in the u.s. have abandoned their merger. agreed withdge antitrust officials who oppose the combination of staples and office depot. they said it would hurt competition and lead to higher p rices. walmart has fired the latest shot and its fight with visa. the world's largest retailer filed a complaint and says visa wants walmart to verify debits with signatures. visa isn't commenting.

toyota says that annual profit will probably decline for the first time in five years. japan's largest company is forecasting that currency swings that had led to record profits are posing a problem. has risena risen -- more than 10% against the dollar this year. sticking with toyota. francine: we certainly are. craig trudell joins us from tokyo. craig, when you look at toyota, this was in my memory, the first time we heard a huge japanese exporter saying they have and will be hurt by yen strength. craig: absolutely. i think it is a theme you will see across more companies that will report. we are getting toward the tail end of learning season in japan. the exportersee really get hit.

toyota is a rare case within the auto industry where they have a substantial amount of production in japan relative to their peers. they are committed to making 3 million toyotas here. and japan is doing a lot of exporting. that means, as far as the yen goes, so goes toyota's earnings. francine: do you expect, you mentioned you are expecting a lot of other exporters, if not all the exporters to be hit like toyota? is there an ideal yen level? is there a price or even a little bit higher they can still cope with it? craig: yeah. i think for toyota, they see toyotat least akio talked about this, as revealing the true state of toyota's capabilities. current levels. and kind of talked about the past couple years where the yen was in the 120 range as being

artificial. i think that sort of echoes what you hear out of carlos -- he dollarbout 100 yen to being the natural state for the yen. tom: tell me about the spirit of toyota and spending money. they have been a great corporate citizen for the nation. the backdrop is the president historic visit to hiroshima coming in two weeks. i don't see on the bloomberg that toyota was to reduce capex. that is remarkable in this environment. spirit to build more factories, and to get it done over the next five years? craig: they have one going up in china. and another going up in mexico. those will both be up and running by the end of the decade. that is after a pretty long io toyota said we have gotten too big for our

britches and we need to take stock of where we are at now, before we take this next up up. so, we are talking about small increases in production. i think the capx you will see more and technology and trying with these really transformational changes we talk about all the time going on within the auto industry. tom: bring up the yen chart. i was remiss, folks. 120. reframed down to yes, weaker yen. back to that green box. how many employees does toyota have in the united states? any idea how many it is? craig: that number is going to change quite a bit. i hate to touch the question. they are switching headquarters. tom: you can dodge a question for you are on "surveillance." if you don't know the answer,

just fake it. craig: they are moving to plano, be a, which is going to heck of a cultural change for toyota. they have been in california since they came to the u.s. they were a former car dealership in california many decades ago. talking about tens of thousands of employees that are going to making that switch over the near future. they have a massive campus going up in the outskirts of dallas, texas. i do think it is north of 100,000 people that will be based out of that headquarters. tom: 100,000 new dallas cowboy fans. that's extraordinary. francine: that is the story, the cowboys fans. away from the cowboy fans and away from yen, it is the employees in japan we are worried about. theyu look at abenomics, are counting on these companies to increase wages. that will help with inflation. if the eyn strip -- the yen wages, theygbbs

will not be able to increase -- omicsni: if you have abenm pressuring them to increase wages -- when does the boj step in again? will they start buying riskier assets? will they perhaps even produce something like a tltro version from the european central bank borrowing out of there and giving free money or money with discounts to banks in japan? you are seeing bank lending growing in japan. francine: should they just intervene in the markets? oda possibly disappointing the markets because he did not do anything last time. we keep on having the finance minister saying, we are going to intervene. is there a level that they have

to intervene? is it 105? nandani: anything close to 103, will really hurt these companies. the virtuous circle will be broken. we expect boj action this year. i do expect they will step in. they are running out of length at the end of the rope. tom: we will continue in this hour. coming up later this morning, austen goolsbee, formally the chairman of the council of economic advisory. goolsbee. on bloomberg markets. good morning. ♪

francine: this is "surveillance ." tom keene is in new york. we have to talk about central banks and central-bank diversions. -- divergence. an economist saying that relying on equity markets for economic signals is a mistake. let's get the view from j.p. morgan asset management global market strategist. and sony kapoor.

sony, when you look at central banks, we were expecting a huge central-bank divergence. the fed went dovish. is now finally the time when we will see divergence again? because of uncertainty in global growth, that this'll be delayed yet again? ll, i think when maybe we use the word huge diverg ence, it is important to know where you are starting from. 4% andebody went to somebody went to 7%, that is huge. with interest rates at half a percent, a quarter of a percent difference is what counts as huge. i think that will continue. what is important is the direction of movement. and the direction is clearly set, which is the ecb will continue to ease. the japanese central bank will continue to ease. and the bank of england's

response portion depends entirely on what happens with brexit. till then, you expect no change. if we go for brexit, there will be continuing easing. if we manage to stave that disaster, the bank of england could be next to follow the u.s. fed. francine: what is your take on the fed. it is unclear whether fed is live in june, and whether they are now stuck. thaey can't raise interest rates. nandini: on paper, the fed is still live. what do they want. they are worried about high tightening of financial conditions. those conditions have eased sinc of thisy and february year. very thai conditions. you have a much more stable u.s. dollar which we think will be range bound the rest of this year. and you have a decent amount of inflationary pressures picking up --

think the last thing we are looking at is the second part of the duel mandate, the labor market. we had jobs day last week. slightly disappointing headline number, the bit more look under od, suggests there are still areas for the market to tighten in the u.s. tom: is janet yellen central-bank or to turkey or central banker to indonesia? ani: she should not bp she is mandated to focus on the u.s. economy but when you have this interconnected global world where assets are increasingly priced in u.s. dollars, debt is issued using the u.s. dollar framework, you do have to worry about the rest of the world. of chicago where you take the kool-aid, which is just the facts. more micro economics. within the odd system we are in, what are the elasticities or the marketess-es of

system right now? is it gummed up or running smoothly? : some economies are doing a lot better. they are moving along, figure out the bad loans. deleveraging. all those positive things. there are other countries where current accounts are out-of-control. the mac pro is not good. let's say turkey and south africa. -- the macro is not good. even brazil trying to work through this. india a bit further along in the cycle dealing with bad debt there, with china as well dealing with those npl's and doing a better job for the global economy. francine: if we stick to emerging markets, is there concern that if the fed surprises the market, which could happen because no one is pricing in anything until september, then we see massive outflows from emerging markets. where there is very little structural reform. rise hasthis rate

been message clearly. this is all we look to every day. whether or not the markets -- 4% is not a very high expectation for june. it would be a surprise. i think there is a lot more stability in emerging markets. it should not be has a prize that it is coming in june or september or december. it is coming this year -- it should not be a surprise. one thing to note is the debt binge in emerging markets have been led by china. so, focusing on different economies that are better suited to handle it is our strategy. francine: is that right? sony: i totally agree, which is the most important signal the u.s. fed has to send has already been sent, which is the direction. less.ce matters much nes we are not going to see the extent of the reaction we saw earlier this year. the differentiation in emerging markets is very important. outside of china on average, i

think if you look at countries such as india, the emerging markets are in far better shape than they have been in any previous episodes of market volatility. ballotner sheets -- the sheets look healthy. despite the negative headlines from the philippines and brazil -- the balance sheets look healthy. you sony kapoor, thank much. hour, we in our next will steer over to the u.s. equity markets. the amazing price to perfection of some of our blue-chips. seth masters will join us. coming up, another hour of bloomberg "surveillance." ♪

tom: how much perfection can one market stand? in this hour, and blue-chip

portfolio is priced to perfection. the conviction of china's monetary policy. triing has many monetary lemmas. good morning, everybody. this is "bloomberg surveillance ," live from our world headquarters in new york. i am tom keene. francine lacqua is in london. what do you see out there? francine: i am looking at oil, looking at brent. what is interesting the most is the yen gaining after two days of slide. company,oyota, a huge the biggest exporter out of japan, and they are struggling. tom: in a minor headline, where hutchinson is blocked by eu regulators to merge with the united kingdom phone unit of 2002. that is exactly like staples and

office depot yesterday in the united states. francine: this is something we need to watch out for. this could be confused with the brexit debate. we are also reminded by annex commissioner that a lot of the times this plays into the u.k. favorite. something to watch for, the eu blocking hutchinson to merge o2. the phone unit with here is nejra cehic. nejra: bernie sanders is not going away or he says he will fight for every last vote. last night he beat hillary clinton in the west virginia primary. lead inlinton has a big delegates, closing in on the number she needs for the nomination. presumptive republican nominee donald trump won in both west virginia and nebraska. british prime minister david

cameron may have an awkward time when the leaders of nigeria and afghanistan visit this week. in remarks captured on video coming he told queen elizabeth the two countries are the most corrupt in the world. the leaders coming for an anticorruption summit. turkey's constitution bars the president from having a party affiliation. now the country's ruling party wants to change that. president erdogan can be its leader. next month the ak leader will push for a change to the constitution. he has been shifting turkey's presidential power from parliament to the presidency. this may be the last day in office for brazil's president, dilma rousseff. impeachment would force her to step down temporarily. he would then face a trial she appears unlikely to survive. asian buyers helped set record at christie's contemporary art auction in new york.

was spent on one painting. last night's total of $318 million represents a 52% decline from a similar sale one year ago. global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus i am nejraworld, cehic. tom: thanks so much. i dropped out of the bidding at $19 million. let's look at the data check. not much going on. futures flat, negative five. 44.23.xas, the vix 13.82. i am looking at the german yield. the 10-year grinding down, nowhere neil -- nowhere near the negative curve, flattening out this morning. francine? francine: it is not bad. crude oil dropping to $44 a barrel.

shares of raw material producers, rallying. the spot and the japanese yen gaining. tom: let's go to the bloomberg. we rarely feature this in our last hour, the philippines. peso weakness. here is the success of the philippines and the recent challenges, and of course they celebrated new president. some of the turmoil of political economics in the em. francine: this is when i picked out. i was looking at the jgb. i wanted to show you the golden cross on brent. -- 50 is the 200 -- 50 is in gold, 200 is in blue. seth masters is with bernstein, a magic name on wall

street. you know them from sallie krawcheck from years ago. i need to show this, for those of you younger, this is a printed document. it is not a pdf file. in the old days, you walked inund wall street with this your hand because this was status. the screen is outlandish. ofs is a modern affectation bernstein. this is called a black book, and everyone coded bernstein black books. coveted bernstein black books. i did not know you still make these. seth: we do. tom: is your security research different now than the era of sallie krawcheck or professor hints? seth: it is much bigger and much more global. it covers more things like market structure, which has become more complex. tom: you got this years ago from

crosschecked -- from sallie krawcheck. it was like you are a girl magnet on wall street. you walked around this thing that he walked around with this thing and it was the ultimate -- you walked around with this thing and it was the ultimate. seth: the returns you can get from broad markets, especially stock and bond markets, are very modest. morere also going to get risk, and that will be an opportunity if you know how to take advantage. tom: is a nifty 50 era? seth: i do not think it will be a replay of the past because things are changing so much nifty than they were in 50. some companies are relatively stable, and they will get even more overpriced than the average stock. francine: push back against that. in this kind of volatile environment where things selloff and gain quickly, active

management is probably not the best way to go. have not beenunds doing as well as the s&p. how do you fight that? do you need a more stable environment to argue that active management is the best way forward? seth: if you look at the last five years, you're right that in most liquid markets the indices are outperformed -- have outperformed most active managers. that is something that will correct as we go forward because we are seeing a couple of signs that are encouraging. first of all, the last five years overall were very strong absolute returns, and it is not uncommon for active management to lag. secondly, at a time when the dispersion of stock returns in the markets was small, we are starting to see that change. dispersion is back to normal levels and will probably rise above normal levels. with more modest returns and higher dispersion between stocks

, that tends to be the sweet stocks for active management. we have seen that in our portfolios in the last couple of years. francine: when will that come back? if you are admitting that active management at the moment is not giving great returns compared to a broader index, when does that change? is it interest rates, normalizing rates, or is it a dollar cloud kind of market? seth: in an environment where the markets overall are doing terms,ttle in absolute but are wiggling around a lot in that low return, that is where choosing the right security in both stocks and bonds is going to matter as much or more than your market exposure. that is the kind of environment we are in today and likely to be in for a wild. tom: i am with seth on this. on data. i'm hugely suspect. it is old math based around

eugene,. you talk about smart data or exotic data. there are a lot of different flavors of beta. years, managers have been in genius in trying to create new products -- have been ingenious in trying to create new products. the future may be going back to the tried and true of having managed with strong convictions in a select group of securities that they identify with research , and the research is probably not going to be simply having a rule. beta bringhe will of those portfolios away from the mainstream s&p 500, or will it come closer? seth: that depends on what is going on object of late in the securities at that moment. the key challenge will be having good research that identifies

some this, and intelligently taking risk. this is a very old idea. when everything was going up in a straight line, you did not need to worry about that. tom: there will be value there. , a lot ofeard there sophisticated theory in math that goes back to the diversification and the idea of and other stock portfolios. that is way too much mass early in the morning. h- that is way too much mat early in the morning. david goldman on china, david goldman on the realities of d and disinflation. from new york, "bloomberg surveillance." ♪

francine: welcome back to "bloomberg surveillance." you are looking at gorgeous pictures of d.c. we are right in the thick of the presidential election campaigns and we will talk to marty sh chenker on what trump is to do with the federal debt next let's get to the bloomberg business flash. latest earnings are stoking the fears of media investors. they posted second-quarter results that missed estimates pair profit from the abc broadcast operation fell, plus disney shut down its nvidia -- it's infinity videogame division. it is the first time disney missed estimates in five years. carlsberg is forecasting higher profit this year due to rising sales in asia, where it battled dutch brewer heineken. that is offsetting a sharp decline in russia.

developers in london are trying to capitalize on rising rent and the last six months, starting a record number of office buildings in the central part of the city. 14 million square feet of space is now under construction, the highest in eight years. london offered- vacancy rates are at a record low of 4%. tom: he is in washington, bunkered down. marty schenker has been watching we our presidential campaign process. i want to get to mr. trump and money. marty: i do not know that mrs. clinton can do that. bernie sanders won last night and he is pledged to continue to the end. that is what he is going to do. tom: let's catch up on what our reporters are saying for mr. trump's need for money.

how broke is donald trump? marty: from a personal standpoint, obviously he is not broke, but because he is running a nontraditional campaign, he is lagging way behind and raising the funds -- in raising the funds he will need to run for president. he has run an unconventional campaign, gotten tons of free media. the more he becomes presidential, the less that is going to happen. he is going to need to raise cash and soon. what is donald trump going to have? what is the back story of how he raises a quarter of a million here, a million there? marty: the whole issue is whether he is able to become more mainstream and get the him.lican "elites" to back the more that seems not likely to happen, the less bundlers

will come through to support. he will need to get them to raise cash so he can mount a traditional campaign in the media. and it is also not just -- tom: francine, this is critical what marty schenker said. the idea of how we raise money in the u.s., i would suggest is completely foreign to our global audience. francine: it is, because in the u.k. we have short campaigns. outsider, what seems crazy to me is that markets are not really pricing in some of the policies that some of the candidates have been coming up with. we have donald trump talking janetpossibly replacing yellin. then he talks about a possible haircut. what does it mean for investors? seth marty: a lot of investors are ideas that the

donald trump has put forward will not pass congress, so they are taking a skeptical eye towards where donald trump will accomplish some of the things he is suggesting. for instance, that the u.s. cannot default because it continues to be able to print money, which is a position left to bernie sanders, which we wrote a terrific story about this morning. plugget the shameless moniker out there for marty schenker. what is the biggest mystery for our washington team right now? what is the mystery you are working on in meetings with megan? marty: the biggest mystery is to try to figure out how donald trump is coming together with the republican establishment. he is meeting with paul ryan tomorrow in the senate leadership, and that will be a critical point in whether or not he is able to move toward the center and whether he can unite this republican party. tom: marty schenker, thank you so much. we will continue the dialogue

this afternoon at 5:00 p.m. "with all due respect," john heilemann and mark halperin. interesting,most on mr. trump's search for money. this is "bloomberg surveillance." ♪

tom: good morning, everyone. francine lacqua e-mailed me early this morning saying, how

is mike mckee? he is out of new york presbyterian and i think he will be on set. here he is. --ie, the capitals fan, mckee, the capitals fan. puts it away. and they shoveled into the net. michael mckee, i spoke to lloyd blankfein last night. arch capital's fans. mr. blankfein says abby joseph cohen is sedated today. michael: my feeling that they are cursed is absolutely correct. it is like the chicago cubs for a long time and the boston red sox. superstars,iant milken and crosby of pittsburgh. tell our audience about mr.

ovitz can of the capitals. he scores 50 goals a year but has not made it past the second round of the playoffs in his career, unlike mr. crosby. ,om: for those who are inside you wonder how long he can stay in washington. francine, step in here. francine: i just googled how many fans of the nhl -- the nhl has come and they claim 50 million fans. tom: it is a huge deal. there are many less hockey fans in basketball, but advertisers love the demographic, particularly in canada. for those of you in canada, i am wearing my don cherry blazer tomorrow. let's get to volley -- let's get to volatility right now. ite: sergio ermotti calls damaging volatility. we have seen it in the bank losses because volatility is up

and we can show that with the vi x index, which has marched higher in the last six months to a year. but volumes are way down. since the market low in february, volumes have averaged 7.2 million -- 7.2 billion shares a day, down from 9.3 weeksn in the first six of the year. same thing with equities. volume and treasuries, $444 billion in april. that is very close to the 2009 great recession low. evident in currency markets p review can see the average daily forex volume has dropped 20% over the last 18 months, creating the potential for instability. when the bank of japan did nothing at their meeting last month, the yen moved 2.6% in just about two hours. so you have this tremendous volatility that had policymakers concerned, and it does not help people who cannot make anything

out of volatility these days. francine: how much does this have to do with something that is so cyclical in nature, and how much does it have to do with more shocks, less liquidity, reflecting the nature of the markets from now onwards. regulation that high-frequency in computer-driven trading and the global instability -- it is feared they have changed markets forever, that this is going to be normal. you have fed officials and treasury officials locked in a big debate with dealers over whether the market liquidity has dried up. treasury came out this week with a new index purporting to show that treasury liquidity is within a range it has been in, but it only goes back to 2010, which covers this period we are talking about. tom: within the volatility is climbing a wall of worry. it is not necessarily good

for the traders on trading desks, but it is quite good if you are a fundamentally driven investor who has high conviction and good research insight and can take advantage of the big swings. what happens typically is when markets swing a lot, a lot of things move together that sometimes should not there it that means things become overpriced, and you can take advantage of getting out of them, and other things become underpriced. seth, whywonder, people are putting -- pulling money out of active management at this point. tom: we have to leave it there bank. -- we have to leave it there bank. on bloomberg radio today, chuck hagel. we will speak to him on "bloomberg surveillance." ♪ show me top new artist.

ah, ha ha. 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. futures under five. from london, new york, tom keene and friends look -- and francine lacqua. nejra: bernie sanders is not

making it easy for hillary clinton. he won the democratic primary in west virginia and faust to keep battling for the nomination. bernie sanders: tonight it appears we have won a big victory in west virginia. with your help, we are going to win in oregon next week. nejra: still, clinton has a big lead in delegates, closing in on the number she needs for the nomination. meanwhile, presumptive republican nominee donald trump won in both west virginia and nebraska. he faced voters for the first time since ted cruz dropped out. hundreds of protesters battled police during a demonstration against labor reform. francois hollande used special powers to push the reform measures through the lower house of parliament without a vote. the measures would extend working hours and make layoffs easier. he says the reforms will lower unemployment.

the amount increase of oil money it spends this year. the government is dipping into its sovereign wealth fund to withdrawrecession or $10 billion from the thunder that is 18 times as much as it planned last october. more than half of written -- more than half of the british think that leaving the european union is a way to halt immigration, a central plank of a campaign. global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus i am nejraworld, cehic. francine? francine: thank you so much. let's get back to our guest in the studio, seth masters. when i am looking at your funds returns, a lot of your funds returned less than 2%, some in negative territory. this is from the beginning of january. is this a liquidity problem in the markets? seth: the return you are getting is not necessarily a function of

liquidity. liquidity will drive primarily how much trading there is in anything, and that means there is buying and selling. what we are seeing in the markets right now is, as we have been discussing, markets are priced for perfection, and that is true of both stocks and bonds. we should expect lower returns overall for most assets. with more volatility, that means we will see markets wiggling up and down, a lower average return also meaning your portfolios will see negative signs and more periods. that will be a trying time for investors, one we think that in having good long-term research and the conviction to act on it will be more critical than ever. francine: if you talk about negative returns and lower returns, are we looking at a correction?

does it just mean it is much more difficult for a lot of investors to make money in these markets, be it active or passive management? seth: it makes it much harder if you are passively managed. when markets were going up in double digits year after year three or four years ago, buying an etf and holding onto it was easier decision. today it is tougher because markets are more volatile and returns are lower. what we have seen so far this year confirms that. the first month and a half of the year, the markets were down sharply. then they recovered just a sharply to be flat today. in that kind of environment, it is more important which securities you are buying that just sitting on an etf and market -- and writing markets down and up. tom: we are going to move this discussion to the back end of pricing to the perfection market. so much of this is money moving out and in. day to day, how does bernstein managelity, how do you

7:00ng at the blotter at a.m. and it says, omg, all that money has to go up? seth: we are lucky we have had positive flows in our firm for the last while, which is good because it is bucking a trend. there has been an enormous shift which has attracted equities, over $1 trillion in the last few years. i think that it is a challenge. however, it is true that when you have cash flows, it is an opportunity to refresh portfolios. you can redirect to the highest conviction ideas when there is money coming out or in. this, and the the sea bassis e gets squeezed.

where is the basis points going to settle for active managers? ath: the one challenge for passive manager is that it is pretty obvious that a passive manager beats their benchmark of zero. some passive managers have been our bogeys. there are literally 9000 mitchell fund companies in the united states, way more than anybody needs. but there are some skillful managers out there, and the ones who can return -- who can earn returns will be able to charge accordingly. tom: we will continue looking at the blue-chip world in our ending section. francine: coming up later today on "bloomberg markets," and pickens. that is -- boone pickens. the last time he was on, he said he saw oil at $50 to $60 by year

end. ♪

francine: i am francine lacqua in london. tom keene is in new york. we are looking at yen and dollar, but first let's get to the bloomberg business flash with nejra cehic. nejra: toyota says annual to crowd -- toyota says annual profit will probably decline for the first time in five years. japan is forecasting currency swings that led to record profit are now posing a problem. the yen has risen more than 10% against the dollar this year. to another japanese carmaker, mitsubishi motors is blaming overly ambitious fuel economy targets for the company's cheating on data. mitsubishi will likely have to

compensate customers. -- the twoernment largest office-supply company's have abandoned their merger. a judge agreed with officials the merger of staples with office depot. tom: i was waxing philosophical yesterday with jeffrey rosenberg and robert sinche about a moment in time when the bank of america , ages ago, part of that valet was david goldman. david goldman joins us with seth masters of bernstein on the set. we have to bring up the chart of the moment on your china, which is the oddity of massively high real interest rates in china. you look at their one year break, you look at inflation, everybody else is down by the blue line.

what do real rates mean for the leadership in beijing? an article inas "people's daily" and a similar one on january 4. china has too much corporate debt and not enough consumer debt. consumer debt in china is only 40% of gdp versus 80% in the u.s. it is a move from an overly leveraged corporate sector, from the engine of growth to consumption. tom: they have a domestic trilemma. how do they clear the debt? david: it is simple. they are not going to let a good crisis go to waste. countries with massive savings and billions of dollars of reserves do not have crises. the way that the economy is going to shift to the new economy sectors, toward higher

value-added manufacturing and things like telecom equipment, high-speed rail, smartphones, and so forth -- look at companies like while way, $.10, as market leaders. china has a nasty organization, but comparable to our s&l crisis in the 1980's. francine: are you absolutely sure about that? i understand that a lot of the debt is owned by local ifhorities, which means that the pboc and authorities managed ok, it does not turn into a credit bubble, but we cannot be certain about that. david: one is never certain, but if you leave the -- if you read they came to the same conclusion. central government that is extremely low, only about 20% of gdp. all of these local government

vehicles will be swapped into provincial or central government , $1 trillion worth over the next several years. that process is already happening, and the tax base in tona is more than sufficient sustain this reorganization. most of the local government vehicles are backed by real estate which has appreciated. it is not that it is a bubble backed by no assets. the assets are there, it is just that there are many individual smaller deals that do have asset problems. seth: we would agree with the spirit the other thing that has happened is the many market. that will actually create a better investment environment for that domestic chinese savings pool that is huge and get assets off of the wrong balance sheets and onto the right ones. it will not be an easy process. it will be complicated. the debt has grown so fast that there are probably some problems, but when you have that much in savings and that big of

a surplus, that is more of the speedbump than the major problems. you were mentioning the imf. they are worried about -- they are one of the first ones saying this is the time for china possibly to tighten policy instead of loosening to help stimulate the economy. going back to real estate, we had some figures, but i still hear about these huge ghost there is pent-up demand of real estate that is going nowhere. david: when you lose 600 billion people from countryside to city, you will have some errors that may involve towns of 10 million people being empty. nonetheless, overall the chinese real estate market is in reasonably good shape. home values have been going up. there is not a crisis in that sense at all. the imf came to the conclusion creditsentially at-risk came to the balance sheet -- we

came to the delusion that npl's were at about 10%. tom: it is way below the media perception. david: it is not like the rate in italy. thinkwe study that, and i "60 minutes" had a huge feature on a ghost town. our analysts went back there nine months later and they could not find parking spaces and they had to wait for coffee at starbucks. has been one of those a success, but china's strategy is to get people into the cities, and they have to build the cities to make that happen. tom: in the last 72 hours, i have been flabbergasted by the gloom notes from major and minor houses you are a pro at seeing exogenous shocks come. worried are we that we are

seeing this exogenous shock or that one leading to a some junk conviction -- junk condition in the markets? david: we are not as vulnerable as we were years ago because of the leveraging of bank balance sheet. my biggest worry would be the southern tier european banks. wealthas vast amounts of . it is much wealthier than germany. what italy has to do is grab the wealth that people have tucked away in other places and use it to reorganize the bank system. that probably means using paris stable companies to buy npl. tom: david goldman is just ruthless with what he wants to do. david: i am a banker. francine: tomorrow, coming up with a talk about that very fund.

my final question to seth is that, david is arguing that there is much more concern about the banks in periphery instead of the banks or the health of china. with, the systemic risk -- all due respect, none of these european banks are. seth: i think that the systematic aspects of the european banks have been diminished a lot, thanks to the target system that the ecb has put into place. you are absolutely right. but there could be major stresses from southern european banks. we think that is something to worry about. china is also something to worry about, and this goes back to the theme that volatility will be a big problem that will be with us for a long time because all of these structural issues will take many years to work out, and along the way there will be bumps and the market will probably overreact. tom: 20 seconds. the dollar, long or short? david: right now, neutral. tom: we are hearing that a lot.

david goldman and seth masters will continue with us. later today on "bloomberg markets," david rubenstein, truly one of america's great philanthropists. david rubenstein on your internal rate of return. good morning. ♪

tom: the forex report. today we do it with not much going on. the yen, 108.69. upo-yen, range bound, 1.22, -- 122, up to 123.84 right now. let's get right to the single best chart. i was not sure what i would see here. this is minnesota mining and manufacturing. to one zillion ours, and you can see even trend. what is interesting is the need for patience, which people like seth masters has. 3m was a dog company for a long time. how does a guy like you hold onto a dog waiting for

constructive use of cash? seth: i think you need to have great research, and obviously if you sometimes see a great company that is incurring difficulties, you have to decide how to play that. for that reason, we have many different strategies across the firm. some of which are focused on companies that have steady growth, which for some of its history, 3m has been a perfect example of. some archive -- some are focused on companies that have had difficulties. between do you discern value trap and we need to double our position? seth: that is where research is irreplaceable. you have to have somebody who understands the industry and the company and whether they will behave in the shareholders' best interest. we found it is difficult to be right all the time. in fact, if you are good in our business, you are right on average something like 55% of

the time, but that extra 5% is worth a lot. francine: let's focus on 3m. i know research is key and you need to understand the company, but then you look at 3m sales that are dragged down by weak electronics, and they are also hurting by a stronger dollar. those are events outside your control as a researcher, but it is impacting share price. seth: a great point. that is why risk management is a key element of any portfolio, both at the level of an individual's security. when you are buying it, even if you like it, you should never own too much. folio perhe overall you have to think about your long-term objectives and taken .f risk secondly, we think it is really important in today's markets to have strategies that are nimble and can calibrate as markets are moving, taking a little bit of money off the table if risk is escalating and you are not being paid for it.

that is the big issue of late. francine: how difficult -- this could be applied to so many stocks and especially the banks in europe. 3m is announcing a restructuring effort. how difficult is it for a researcher to say they are restructuring but they are executing right. you could have a great plan but get it wrong. seth: you are exactly right. in this case, i haven't had a chance to talk to our analysts about 3m and i do not know what their conclusion is, but we will not jump to an immediate conclusion. it will take a careful ever to understand the plan and how likely it is to work. that depends on what 3m and the rest of the world does. tom: i do not know where the risk-free rate is. negative rates, we were talking beta earlier before david walked in the door. how do seth masters and other institutions work in a world where i am not sure where that issue is? david: bond managers cannot work

in that world. require a certain amount of fixed cash flows, and these a great danger in this system, and that danger is well measured by the fact that when the world hedges, when the yen and gold goes up in perfect lockstep this year, negative rates came in. that is a warning sign that we have gone on to the end of that particular -- tom: yesterday with jeff rosenberg, the five-year real return. write that down and look at the thickness of zero return within repression.l is janet yellen going to adapt and adjust to the outside negative rate world? think the united states is going to move to negative rates because i think we will continue 1% to 2% growth. the fed will consider that better than a negative rate

regime. if you were to move to negative rates, i think we would have a vast increase in the price of risk hedges like tips, like the yen, like gold, and that would give us a situation where risk would become unmanageable and markets would have a crisis. francine: seth, i guess this is the biggest concern, right? know much -- no matter how much research and no matter how much you know a company inside out, at the end of the day it is policy mistakes that will impact you and her you the most. david: i agree with you completely. world trade volume is 0% growth year on year. price terms, they get a 12% year on year. that is a recession by any other name, and the thing that worries me the most about u.s. markets its at the biggest disappointments are not in the energy sector, they are in core consumer names like disney and gap and apple and so forth. i do not have a real job.

you and i are going to continue on radio. david goldman, thank you so much. just brilliant this morning, particularly on china. seth masters with us from bernstein. tomorrow on the program, who do we have? ambassador hormats will join us. from kissinger associates. and adam simmons gay will darken the door. he is brilliant on the excel spreadsheet of supply and demand from oil. from goldman and masters to hormats and simmons key. they do not even have to pay me here. this is awesome. "bloomberg surveillance." the penguins won. ♪ iaae-m"

jon: losing the magic touch. shares of disney slumped 5%. staples-office depot merger collapses.

thinks tradesachs pricing with bed action -- fed action. to our viewers worldwide, welcome to "bloomberg ." i'm told david westin is on assignment. in las vegas. you reckon there is a conference there? >> there will be evidence later today that david is hard at work. to one analyst who has a sell rating on disney. with more than $180 billion in management, mike siegel on where he is seei o