francine: i prefer to learn as we go. the boe advocates a gradual brexit response. the pound sinks for a fifth day. to returnes tax cuts the u.s. economy to precrisis days. obstacles asces oil drops from the highest close in two weeks. this is bloomberg "surveillance." i am francine the london with tom keene in new

york. i think a lot of the markets are nuanced and i would point to pound weakness for the fifth day of the linchpin of what brexit tears get right and wrong. brexiteers get right and wrong. tom: there is a lot of now what? francine: if you look at emerging markets and india, that is what is going on. let's get to the bloomberg first word news. taylor: turkey's prime minister goes to moscow for talks with vladimir putin. it is his first trip out of the country since last month's attempted coup. the meeting comes nine months after he imposed -- after putin imposed sanctions on turkey. small business and manufacture groups are praising donald trump's tax proposal. he called to take the corporate tax from the highest to the

lowest among developed nations. belgium, the refugee who attacked police officers with a machete had been ordered to leave the country two years ago. his residency application was rejected twice. he was shot dead after injuring two officers. dauntingay faces demands from eu nations. drawn,he red lines being for of movement and continued protection for eu citizens living in the u.k.. those demands could run counter to what may host to achieve post brexit. lilly king won the gold in the 200 meter. on the metal scoreboard, the u.s. leads with 19, china has 13, and japan and russia are tied with 10 each.

global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: let's look at equities, bonds, currencies, commodities, low-volume yesterday. the summer doldrums kicked in. futures are not right now. the 10 year yield, 1.57%. euro-dollar is not interesting. the fix is extraordinary. -- the vix is extraordinary. sterling is killing me 1.29. the theater of a 1.29 sterling is gone. united kingdom yield are jaw-dropping as maybe they begin to tilt toward a negative right possibility. francine: you know what struck me, that is my chart of the hour. spanish yields at a record low

below 1%. is it is boring, i do not put it on the board. i only have interesting stuff. oil, $42. the pound is back at 1.30. great minds think alike or maybe fools never differ, i also had the vix index. tom: it is a great asymmetric chart of vix's lack of fear. we go the other way today. let's go to the bloomberg right now. this is a killer chart. this is trade weighted sterling back in 1992. john majors on the left side of the chart. week sterling in the early 1990's. sterling strength, money pouring in. there is the 2007 and 2008 crash. red circlek, and the is where we are now on trade weighted broad sterling.

the blue circle is a quick interpolation of where the u.s. dollar is. it is a guesstimate of where trade weighted u.s. dollar would be versus trade weighted sterling. that is a chart that really shows attention that prime minister -- shows attention that prime minister may faces. francine: i love that chart because we talk about brexit and the pound, but today is the first time we hear euro drafting the red line. they are getting ready to negotiate with theresa may but there are some things they say, do not touch fisheries, freedom of movement, or the sovereignty of gibraltar. out, moreat i picked of a plain vanilla chart but it goes to the heart of how we are pricing risk in periphery countries. this is the spanish 10 year yield. this is the axis, below 1% for

the 10 year. the circle on the far left corner is 2012. that is almost the heart of when we had the crisis going into austerity. back then it was 7.5% and now it is below 1%. it is all about qe, right? that is how you price risk. let's bring in david stubbs. i going to talk to you about field in the second but i want to start off with pound. how further lower can the pound go? did mark carney preempt too much? david: i do not think so. our target on the pound is 1.25. another rate cut is going to support that. i think mark carney was smart, using foreign guidance. most of the committee thinks we are going to go lower by the end of the year and even though the positioning of

sterling is extreme in terms of some of the lowest short position we have ever seen in the current the, i think as we get some kind of look at the hard data to show the scale of the actual slowdown in the economy, not just the survey data or backward looking data. as that comes out in the scale of the slowdown reveals the health, i think the sterling will go lower. francine: i know tom will ask you more about the markets but we heard from ian mccafferty saying he wants to wait and see. i do not know if this fills you with confidence but he is waiting for signs of what brexit entails. they have not started negotiations. david: i think a couple of things. they had to act at the meeting and had to act fairly aggressively to get in front of a slowdown that they do not know what it will be like. ok.ink it was quite

it is ok to sit on your hands the next and wait for report, and you will have a lot of data and new projections saying, did we do enough or did we do too little? if you put a lot of stimulus in the system, let's see where we are in the autumn. you get the autumn statement and the fiscal response. stabilize will kick in if unemployment starts to rise but are we going to get discretionary policy out of the may government? tom: let's talk about politicians acting like bankers. i know we are going to do this later in the hour on brexit, but can prime minister may act after the fact? data,e act after seeing after seeing the political debate, after having coffee or tea? they do not have coffee, they have tea with mark carney. can prime minister may be post?

-- bx post? david: i think she can and she will want to act in the framework of the uk's fiscal system. i cannot think and emergency package is going to be appropriate in this situation. i think that will add to the sense of worry of where the economy is going. i would expect some kind of discretionary fiscal response, try to bring forward maybe some infrastructure spending or something else in terms of the benefit system to hold up consumption. maybe even a tax cut. the nature of it is certainly up for debate and the scale is as well. i think she actually will then join the fight. "scale"ike your word which brings me back to 2007 and 2008 and misjudging amplitude.

let's look at the amplitude a sterling rolls over. we showed this yesterday, this is the 50 day intraday. there was the drop in brexit. i am sorry, we are rolling over. i do not want to know about 1.20 or 1.15. what happens when we get to 1.28? david: we gradually drift lower and i think you will have a few things pushing against sterling. the policy responses, qe starting up. the prospect of further monetary easing that the bank of england strongly hinted at. ,he actual hard data itself there is going to be a clear slowdown and all of this in the context of an economy running one of the largest current account deficit in the developed world. certainly reliant on capital. there are many reasons why capital will still come. this is an attractive place to invest but at the margins, that

is where things really imagine -- where things really matter. i think it is going to be somewhat challenged in the currency should stay lower. tom: david stubbs at the margin. in the next section, he will say on the other hand. i like the idea of scale. what will be the scale? that is a great mystery for the united kingdom. our mystery in the 6:00 hour is what to do with overpriced u.s. blue chips. adam parker, always interesting, always smart and pushing against consensus with morgan stanley. this is bloomberg. ♪

francine: this is bloomberg "surveillance." look at that, london. beautiful weather. it is gorgeous and meant to be a little bit like the italian riviera. i am francine the clot in sunny london, tom keene -- francine lacqua in sunny london, tom keene in new york. we do not know what it is like in new york because the sun has not risen. tom: it has been lovely. taylor: british regulators want to cap fees that banks can spend -- charge customers who spend more than the amount in their account. in 2014, british banks took in one and a half billion dollars from those fees. the biggest apparel focused retailer in the u.s., gap, posted estimates -- numbers that missed estimates.

its stores may not improve as much as expected later this year and that means they may not get a bump from back to school shopping. francine: thank you so much. the world's second-largest economy is showing signs that it is stabilizing. china's factory gate deflation has eased for the last six months. enda curran joins us. if deflationary pressures are getting better, it is better for the world. enda: it is potentially good news if the trend continues. factory gate deflation or falling prices has been a big drag on chinese economy and the policy makers have not been able to crack it. we are starting to see a significant harrowing in the declining of those prices -- significant narrowing and the decline of those prices. the reason why we cannot write

home about it just yet is because a lot of this pick up in prices is down to the improvement in commodity prices rather than internal structural reforms being driven by china such as cutting back on excess supply. a lot of it really hinges on what is happening in the commodity markets and until the authorities tackle those underlying problems, they will not have much of an impact on the rest of the world. we have to see if this trend emerges. francine: how significant is it that we are seeing the leadership change, i believe it is next year? how does stable growth mary with changes at the top? enda: it is quite significant because what we have coming up in china next year is somewhat of a midterm reshuffle, being described by some analysts as potentially a historic change in

the number of leadership positions that are up for grabs. when you have got a big political shakeup like that, it typically means there will be a ghost lender on the reform side because politicians are politicians and will be reluctant to take on unpopular changes, such as shutting down a local coal mine or factory that is relying on debt to keep going. while this political changes in the air, there is a feeling that reforms will be put to one side. tom: one of the things outsiders have always gained is a soft or hard landing. do people in china actually try to speak of the economy and this idea of a soft or hard landing? enda: i think there is even some debate about what constitutes a hard landing. some people might of said once upon a time china slipping below 7% have constituted a hard landing. of course, let's not forget that

even though the economy is fragmented for many different reasons, some parts are going ok. i think policymakers and the chinese public are probably content to be where they are because things are a lot more stable than where they were at the start of the year. tom: enda curran daily from china giving us support on certainly the elephant in the room. david stubbs with us in london you when you look at china, i like what he said about policy makers. is it policymakers or triage week to week and month to month? david: in theory to have some very advanced forward-looking policy thinkers. this is a company that operates through five-year plans that are privilegeded, economic stability above all else, and ambitious in terms of

improving their environmental performance, the productivity of the country. the robotics industry has been epic over the last few years. it is part of that strategy that they are well aware of the excess in some sectors. this producer pricing inflation is mainly about commodities. is actually only present in a handful of sectors and if you do not have the overcapacity, you do not have the impaired profitability and asset in credit quality that everyone works about so much in terms of a wave of default wrecking the chinese banking system. tom: i am totally with you where you are going on profitability. profitability is key and the artificiality of of it with china. radio up, our bloomberg

always contentious. we get a huge response when he joins us. dennis garman, we are all whip sought in this market. ♪

tom: good morning, everyone. tom keene in new york, francine lacqua in london. she is celebrating an important interview with the leadership of credit suisse. this is published today and you will see it over the next couple of days.

with a lengthy quote on the challenges he faces. he gets testy with francine lacqua. the share price is the most important thing. i feel sorry for our shareholders that we are at this price level and remember i am a shareholder to. i firmly believe that it will be corrected. you spend an inordinate amount of time with him. when is he going to merge with ubs? he has 47,000 employees. ubs has 60,000. and then they can compete. did that come up? francine: this is something we touched on briefly. het he wants to do and what was trying to justify was the strategy that he puts in place. he raised capital and before we talk about any m&a or consolidation, which seems very

far-fetched just because the swiss regulator would probably have a fit, he wants to get the bank in a better place so they start beating on him and start believing in the bank. it is a legacy issue. he wants to leave it in a better place than where he found it. tom: we always look at the european banks like the italian banks, the world is coming to an end, deutsche bank. this is credit suisse by itself. this is not so hot. what is he going to have to do to get this going? all of the different trips you have taken to zurich, what is the catalyst to turn this beast around? francine: overall for the magazine, all of the time we spent was in london and it was 90 minutes each time twice. was giving himi

tough questions about the investment bank and his relationship with it and the shareholders. he stops and chose me a share price and it is basically the share price that you put up on the screen. give me a little bit of time, i have been in the job for 13 months. sk and then i can grow. he took it back to 2008 and said, look at the trend. and i downward before me did not completely destroyed the bank in 13 months. it goes toward the sentiment that he wants to fix it. you can check out my conversation with credit suisse ceo tijane thiam in the bloomberg magazine. we are back in two. ♪

tom: good morning, everyone. bloomberg "surveillance," francine lacqua in london, tom keene in new york.

francine was not with us yesterday because she was stuck in a terminal. taylor: delta is still struggling to get back from that computer glitch that grounded hundreds of flights. the delta ceo apologized. fee is inaving change fair differentials for passengers for flights that were delayed or canceled. in brazil, a vote on whether to put dilma rousseff on trial. she is expected to lose the vote which only requires a simple majority. they would need a two thirds majority in the trial to keep her from resuming office. hospitalrn syria a from doctors without borders was destroyed. the hospital is in an area controlled by rebels. syrian and russian planes have been blamed for destroying hospitals.

casting doubt on china's promise not to militarize a chain of disputed islands. reinforced aircraft hangers are being built on the islands in the south china sea, and the center of strategic studies say they have room for the chinese air force. singapore is not saying when it may revive its efforts to buy the lockheed martin jets. the f 35 is the most expensive weapons system ever. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. francine: thank you so much. our next guest says if he were a bank ceo, today's competition would keep him awake at night. kevin rodgers was at deutsche bank 15 years where he served as the global head of fax. he left the financial world

altogether and published a book shoutinghy aren't they ?" it is a page turner and a fun read that you want to worry about the global environment and how you deal with day to day. general think banks in are facing a very difficult environment right now, particularly since the zero interest rates. we have effectively a global interest rate policy and that is a terrible problem for most banks. the second is as i mentioned in the book, the new competitors coming into the market in a market that is very heavily dependent on tech knowledge he, adjusts better technologists

than the banks. francine: you know what i hear over and over, why does facebook not have a bank? if i am a millennial and asset managers. if you have a google or apple who says, i'm going to give you a bank, with at work or is regulation to tough? kevin: it is difficult to say, but what is clear is banking is now almost weightless. -- it would be perfectly feasible should it be economically viable for an apple to do this extremely well. tom: congratulations on your book.

i know you drove a red ferrari and saying base their town. -- saying base their town -- barritone. maybe canties or maybe bonds, foreign move over to a more entrepreneurial, more supple, smaller platform from the major banks? kevin: i never owned a red for ari. red ferrari.ri -- the problem with market exchange, it is a heavy technological kind of cost to be defective within it. tom: all that means is you buy more bloomberg's, right? kevin: naturally. that the the reasons industry got very concentrated was this effect of having to

spend in order to be effective and in order to be able to compete. i think that is changing a little bit. you are starting to see hedge funds, not just in foreign-exchange but also in the fixed income markets, not set to take risk but market make. that is a big departure so it is perfectly possible that with increasing this technology, the market will start fragmenting again in exactly the same way as you suggest. francine: i feel a bit unfair because david is here and we are not talking about you, but in your first chapter you go and cnx colleague and say, you are trying to make my mother hate what i do for a living. do banks need to be liked? david: i do not think they need to be liked as such but the way the financial crisis went wrong needs to be discussed a little bit and has to be a little bit

fairer and more balanced than it has been since 2008. that, myad on from response to them is saying you did not really have a choice. you have to compete using this technology because otherwise you were out of a job. francine: the response is, at least you please the shareholders, but can the two marry? pleaseit is important to shareholders and keep the staff happy. david: you mentioned the 2008 era. do you think the response has been too much, too little, and is it over? kevin: i think we do not know. the real problem with the banking industry and what the book points out is if you believe that it has been destabilized in some way by technology coming into it, that is not going to stop.

there is no point at which you say, we have sorted all of this out. regulation, some of it is clearly going in the right direction. it is good to have high capital ratios but whether that is sufficient, i do not know. having ratios consistent between the u.k. in europe and the u.s., that is a recipe for disaster. tom: i think of the heritage at deutsche bank. they have great people now. is there going to be a brain drain out of the major banks because they have become utilities? i think that is definitely a danger. i think you can over exaggerate it. earlier, as i said when i first started out, investment banking was the place to go if you are a smart graduate. i just do not think that is the

point -- the case anymore. the people who are in established careers within banking will stay in, but the real issue is trying to get the new leaders of banking in from the great universities. tom: kevin rodgers, thank you so much. this is a naked book about wall street and the foreign exchange business, i cannot say enough about this, that in the days when people cared about far -- var. parker --t hour, adam adam parker of morgan stanley. the equity markets have been beyond difficult. adam parker on your bull market. this is bloomberg. ♪

francine: this is bloomberg "surveillance." francine lacqua in london, tom keene in new york. taylor: car sales in china rose the most in 17 months, up 23% in july. dealers offering discounts helped reduce inventories and sales were helped for china's decision to cut taxes. more data suggesting the british economy lost him and him before the brexit vote. industrial production barely grew in may. manufacturing fell for a second month in a row and nine at of 13 sectors declined with transport and equipment being the biggest loser. talks between opec members will than 1% infell more

new york after rising almost 3% yesterday. opec members are meeting in algiers . that is your bloomberg business flash. francine: we have a little bit more on oil. when you look at oil, it had fallen quite a lot yesterday on the back of this informal meeting of opec. it brings us back to where we were september and october of last year with a were meeting and the market jumped the gun and assumed they were going to do something. tom: you have stability right now. i think it is a radically changed discussion. as always with oil, i am baffled by where we go. the consensus is clearly here, right now. ofo not hear a lot conviction banded higher than $50 a barrel but i do not see a lot of conviction banded beneath. ,here are believes -- beliefs

they are adamant oil goes lower. citigroup goes the other way. i am bewildered. francine: i agree with that. i covered opec many years and it is a supply demand issue, but you could have huge disruptions like we saw in venezuela and nigeria that come almost completely out of the blue. indian bonds have been rallying after the governor said central banks will conduct more open market purchases of debts and the rates were left unchanged. joining us is bloomberg's executive producer. his legacy? he was known as a genuinely great governor. excitingt has been an time for the governor of india in the last three years.

in september 2013, india was facing a current account deficit. that is when he assumed office. we have seen the r.b.i. take a series of measures to build the watches the foreign-exchange reserves to the tune of $355 billion. he was instrumentally introducing new ideas like inflation targeting that was completely new to india, a monetary policy committee similar to the fomc, and some of the members will be appointed later this month. he brought confidence and credibility in the markets. francine: the problem is that he did not get a second term because he got in political hot water. he was trying to please certain people that thought he was too tough. how likely is it that they have

another type of governor that is much more in bed with the government or will they stick with the firepower that rajan has in naming his successor? harsha: there are two challenges. some critics said he was way too hawkish or wait -- for way too long and the interest rate should have gone down. since january 2015, the rates have come down. they felt he was too outspoken. onoften offered his views areas outside the ambit of monetary policy which did not go too well with the establishment. we do not know who the successor will be. it could be the deputy governor. or even the former deputy governor. we do not know who the likely successor is but we do know that september 4 will find a new one and hopefully he will play ball. tom: we talked yesterday about

, and like stan fisher with his tour of duty at the bank of israel, these are western heavyweights. how does the indian elite take the idea that india has to go out and get a bunch of american academics to run their central bank? is there a pressure to keep it domestic for the next guy? harsha: there are two aspects. one is there is a view that getting someone from the west will allay some of the concerns of the internationally invested community. deciding on the fund flows coming into india and that is a critical piece. why do we need american economist? there's enough talent locally. that view is exactly what the establishment is sort of inkling towards. there is enough talent locally

and the domestic demand is far greater for the economy. that is the pressure point at this point in time. tom: while we have you here, i want to rip up the script. in the west, we ignore eastern hemisphere terror tactics. 69 people were killed yesterday in pakistan. give us the tone, the desperation of the suicide attacks in india and pakistan and over to afghanistan. harsha: i think this is a significant political risk from an investment business standpoint. to be fair, what is happening does not affect business here in mumbai or new delhi. the fact remains that it is something we are getting used to every day. security measures have been businesses,ut most markets have taken in the strife. the situation in pakistan and india are very different.

we live in a far more secure environment. tom: greatly appreciated from india. david stubbs continues, from jpmorgan. you hear a global tone. let me bring india over to your world. can you be longer emerging markets? they have had a tough go the past couple of years. david: absolutely. in the last couple of months we have removed the remnants of our underweight from the european equities and the number of our portfolio. we have been talking about an emerging entry point for longer-term investors into the emerging equity space using an yieldsstrategy that quite impressive yields in the equity space. if you look at the fixed income market, one of the best-performing subsectors is the local debt in emerging markets.

in a world of crazy low yields across the board, you can understand why people are looking to emerging markets to diversify. francine: how do you choose whether to put your money in india or not? the inflation as high and we lost the governor that owned the respect of the rest of the world. multicurrency depend on who they elect to succeed? david: he was feted as a tremendous choice when he took over and he has been clear. for medium and long-term investors, india is at the top of the pack if you have to pick an emerging market economy. because it is still quite low on a historical basis, the growth is 7%, the demographics are almost second to none in the developed world. his biggest impact was the impact on the institutional framework and the entire debate of monetary policy in india that

was not anywhere near it is today when he took over. hopefully that will continue. francine: we will be back with david stubbs. this is a picture of your asset classes. in europe we are seeing a buying territory but the pound is sinking for the fifth day. i want to go to the new england dollar and the rand. this is the picture for the oil, 42.90 and the vix index lower. ♪

francine: bloomberg "surveillance," tom keene in new york. i am francine lacqua in london. we have talk about the consequences of brexit. theresa may aces lots of demands from the eu -- faces lots of demands from the eu. european leaders are laying down may'sown red lines as team plays out with they would like to see in the brexit. the sovereignty of gibraltar. david stubbs is back with us. , ityour note this morning

was great because you laid out the four phases and it is almost like the phases of a breakup. you have the immediate reaction and you weighed through until you understand the long-term impact. how far are we away? david: the geographical impact of the phases shifts as we move pack them. the first phase was the shock. the second phase is confidence affects the economy and that seems to be concentrated in the u.k. we will wait to see how big an impact that is. intriguing is phase three happens during the negotiations of article 50. it is going to be politically contentious when it happens and that sets off a third phase where you get an awful lot of further reactions in terms of potentially activity leaving the u.k. as those negotiations come up. a long way from some kind of

final settlement between the two parties. tom: i love the idea of a plan and thinking this through. as you know, overcome by events. let's look at the major event, the current account deficit. the purple line is goods and services and the white line is the actual current account as a percentage of gdp. if that breaks lower, does that speed up the timeline or slow it down? the currentnk that account deficit is very likely to revert in the next few months and quarters. the bank of england is expecting it to heart from its present economyriven by a weak and some slowdown in the domestic economy, etc. we think if we move away from the a current account to the u.k.mic situation, if the

forces a recession it will put prime minister may under enormous pressure from all sides and make our negotiating position even more week than it already is. there are going to be some people saying, you do not trigger article 50. you have the impact on the economy and there will be many other people saying, by not doing this, she is going to be under enormous pressure during the early part of next year. tom: david stubbs, j.p. morgan asset management. coming up, adam parker will join us from adam stanley. we cannot speak about david price of the boston red sox. parker, equities. ♪

tom: this morning, pound-sterling tests new weekend

-- new weakness as prime minister may has a plan to strengthen the british economy. to 2017.brate forward mr. trump -- he stays on message and resets trump economics. good morning, everyone. this is "bloomberg surveillance." our worlde from headquarters in new york. i am tom keene. as always, renting likewise in london. .e behaved himself yesterday it was a different donald trump. francine: there are so many leaders of the republican party now talking against him. i am not sure how that -- you can be a candidate but you do not have the support of the grand old party, or the great old party. tom: grand old. toncine: then he goes back saying things that benefit the elite. first wordnow on

news, here's taylor riggs. taylor: delta airlines is still struggling to come back from the computer failure that grounded flights for several hours. the airline says it is reducing the morning schedule so it can reset. that means 250 flights are being canceled after thousands were canceled yesterday. the airline is waving change passengers whose flights were delayed or canceled. small business and manufacturing groups are praising donald trump's tax proposals. he called for the u.s. to take its federal corporate tax from the highest to one of the lowest in developed nations, from 35% to 15%. the national federation of independent business calls his proposal a home run. in belgium, the refugee who attacked the police officer's with a machete has been ordered ordereds leave -- was to leave the country two years ago. he was shot dead after injuring two officers. british prime minister theresa

may faces a daunting array of demands from european nations when it comes time to negotiate the you k's exit -- to negotiate the u.k.'s exit. to demands could run counter what she hopes to achieve with brexit. at the summer olympics, american swimmer lilly king won the gold in the 100-meter breaststroke. on the metals scoreboard, the u.s. lead with 19. japan and russia are tied with 10 each. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. this is bloomberg. valeant, the soap opera continues. they reaffirm forward. it is convoluted to say the least. 1.40 off 1.47

this morning. equities, bonds, currencies, commodities -- we have adam parker on. we will get to him in a moment. flat, flat. vixvix, we have a great chart. sterling is weaker in the last hour. that is important. the low yields, francine, in the united kingdom -- stunning. francine: you have stolen my charts. the pound dropping at the bank of england. it has fallen for a fifth day let me point you to commodities. bonds overall are climbing. you can see oil at $43. tom: we are going to talk to adam parker a lot about the markets and their linkage into bonds, currencies, and commodities. trade-weighted u.k. back to john major, over 1992 in the left corner. -- in the left corner.

strongerring in, sterling. lehman lows, we curve over, and the red circle is where we are now. we are back to john major. the blue circles are a quick interpolation of where the u.s. dollarrade weighted would be. the massive gap between a strong u.s. dollar and a crushed pound-sterling. francine: overall this is the spanish 10-year yield. this is where it is at, just below 1% for the first time ever, at a record low. .heck out 2012 the drop highlights were local political risk is being offset by monetary easing of central banks. it marks another milestone in the four-year rally, i would argue, in european periphery yields overall. tom: that is one of the themes of morgan stanley, dovetailing

with ellen zentner's call. what do you do if you run equities? adam parker is at morgan stanley, the chief u.s. equities strategist. what do you do, sit in the office when ellen zentner comes in, and say they are not going to raise until 2020? a lovely soup of the morgan stanley strategy. when -- we have a lower oil call and a stronger dollar. normally we sit that out and say that is a bad cocktail. what matters is you can be afraid of an earnings collapse, that something make me panic and earnings will collapse. i am pretty optimistic. tom: for those of you interested in the market, this is the real deal. a guy like adam parker has to live with the house call. did you amend your call given the low yield persistency?

adam: we have to think about what it means for the -- a lot of times it is the undercarriage that you have to change around. has been dead right to be bullish on treasuries, and we have been optimistic on u.s. equities. it does not matter if you grow 1% or 2% on earnings. what matters is, are you afraid of a collapse. tom: let's go to the single best chart. i love doing this with adam parker. .ere we are, the vix usually we look at the top of the chart, the fear of the angst. here is the optimism of the vix. we are back to a complacency that is unreal. i'm mean, what does that signal to investors? lighten up, go to cash? adam: i think it is hard to do that.

the have the scent -- you have the central bankers there, you have the potential for fiscal stimulus around the world. i am complacent for a reason. every time i worry about something, it was a bonding -- it was a buying opportunity for u.s. equities. francine: talk to me about u.s. equities. as alk about u.s. equities general, but you want to make sure that companies that you choose first grow in sales and have healthy profit margins. who are they? try to do is make sure we are not impregnating huge they -- huge bets on portfolios. we are always going to be trading around those key macro factors, so we are overweight on utilities, underweight on staples. why? utilities are cheaper than stables -- than stables on the same rle. we are going to be trying to

balance rather than making a huge bet on one of those factors. francine: how do you factor in currencies? adam: hans redeker has a strong dollar call over time. we try to make sure we do not have huge bets in machinery or chemicals or select staples, select tech were these strong dollar will her the earnings, and make sure we are more balanced against that. it is hard to get away from that strong dollar call if you look out 12, 18 months. francine: do you have a call on pounds? do you even care about what pound is doing? adam: not that much. we have a screen of 15 or 20 stocks in the u.s. with high u.k. exposure. write-down from the debit cigarfrom the davidov score. i want to talk to you about multinationals. is this a nifty 50 pricing, or

are we not even there yet? adam: i do not think we are there yet, but we could get there. you talk about below 1%, this is one of the pigs of a few years ago. you get forced into u.s. equities because there is a 2% dividend yield, over a 2% net buyback. tom: is a 30 multiple historically doable for a portfolio of? adam: i think it is possible, tom. i really do. it sounds crazy, but i did not know there would be 15 bips a year in france either. tom: if we -- have we forgotten what a correction is for a bear market? it has been a hell of a ride -- not everybody, but i give you great credit for never saying go to cash. go to cash. it is like death.

what a ride. what an unloved bull market. what do you tell morgan stanley producers and clients? adam: our basic call is a simple bull car. call.imple bull bottom-up earnings expectations are pretty low the next couple of quarters. like the best region of the world, and nobody is really positioned for the big up market. no matter what you look at, futures, options, etc. the u.s. adam, i know is positioned to be the best region in the world, but the fed has not started tightening yet. if the fed tightens, it is the u.s. versus the rest of the world. adam: the fed has been tightening. doing theertainly not purchase programs you are seeing in the u.k., in europe, and in japan. sometimes people say -- i love when people say, who are usually

very young with little performance track record, the fed are the dumb people. the market is at an all-time high. wascine: for the record, i by no means suggesting that the fed is dumb, but it is tough because it is pretty lonely. in this cycle you have everyone throwing the kitchen sink because of cheap money. i understand the argument that the fed is tightening, but they have only managed one tiny interest rate rise, so there is divergence that could send the dollar higher and heard earnings. adam: the question i would ask would be, if i get zero earnings for the next two years in the aboutut i am not afraid earnings collapsing because they are gaining share, maybe i would pay 20, 25 times that. zero withoutnteed fear of collapse, i think i am

still good for a lot of u.s. equities. europe's earnings are supposed to be below next year where they were seven years ago. tom: it is and extort and are a moment, adam parker with us through the hour. on radio this morning, we will continue this conversation. you know where dennis gartman is in every moment. worldwide, this is bloomberg. ♪

"bloomberghis is surveillance." let's get to the bloomberg is flash with taylor riggs. taylor: the pharmaceutical company is facing pressure to cut prices and give larger

rebates on its drugs. they reaffirmed the outlook on its entire year that valeant gave in june. and charging customers more than they have in their checking accounts -- the competition is recommending a limit on overdraft charges and a great show for customers to avoid them. in 2014, british banks took in $1.5 billion from fees. that is your bloomberg business flash. blistering, scathing. i put a part of it up there. this is from megan murphy, in charge of the presidential campaign for bloomberg in washington. my deepest sympathies, megan. the senator from maine. it was his attacks directed at people who could not respond on an equal footing. either because they did not , ore his power or stature because professional responsibility precluded them from engaging at such a level that revealed mr. trump as unworthy of being our president. megan murphy is with us now.

i have never, ever seen an essay like that. megan: it was a day yesterday for the trump campaign that is so emblematic of what the campaign is for. he tries to reset with an economic agenda. the very same night we see susan collins deliver that was to attack, and let's not forget, 50 securitytional officials say he would be the most reckless president. tom: love it. when do the domestic republican elite come out with their foreign-policy brother and, like nick burns? murphy kill i think they are making a calculus of whether it makes sense, or if he is such a distraction that they need to save the race, that they need to almost ignore him instead of making a forceful con been a nation -- a forceful condemnation of him. toncine: i want to come back the 50 gop leaders who say he is

unfit to rule. he is the candidate for the republican party. there is no way, unless he steps down, that anything can change. megan: he is not going to step down. one thing that the establishment of the republican party may miscalculate is whether or not this portrays into his strategy. if he is portrayed negative by the party elite, there is possibly something positive in their bank for him. a popular figure in maine, a state he really wants to win, to come out with these personal attacks, attacking not only his policies but his character is unprecedented. francine: and yet, with his economic speech, what he is trying to do is woo the elite. -- you saw yesterday megan: you saw yesterday policy that would benefit the top 5%, 1% of americans. gone were his promises of upping

the standard deduction for families and individuals as much as $50,000, something that would have lifted taxpayers out of that. there is no question he is drinking the supply-side philosophy. tom: you take a net present value of the end of the death tax, we are all going to solve corporate taxes by the end of august, etc. how does the market filter in megan murphy's world? adam: it is really hard. our municipal bonds strategist has done the most work on this. at the market level, i remind people when we sat here in august of 2012, the overwhelming consensus from investors was, if mitt romney wins, that will be great. if obama wins a second term, that would be terrible for business. suites ---- the sea it should still be in our minds

that 2013 was the best year ever for the s&p 500 ever. bottom left, upper right all year. maybe it is hard to call right now. we have to take a step back and say let's not make a wild call on what happens. tom: the sharpe ratio is not a letter opener over on k street. thought here, quickly -- how does secretary clinton respond to the truck economic policies? megan: she is going to hit hard how it will not do enough to boost lower and middle class workers. the estate tax, $5.45 -- ion, i believe forget about washington for the next number of months. megan murphy, running our shop, our bureau chief in washington. we are going to come back with adam parker, an important

conversation on the pricing in this market. tonight you get your reset on american politics. , "withn and heilemann all due respect, coke say enough about the tough questioning of important guests. good morning. this is bloomberg. ♪

tom: good morning, everyone. "bloomberg surveillance." it is cross moment august, and we have the number one guy in the street on this, adam parker. adam parker is the statistics university boston

and a few other shingles as well. go right to the screen, anthony. it is the adam parker world. i took this off youtube, a great chart on youtube on the central limit and the four cross moments. my question is, none of this matters with the distortion we are in right now you look at real interest rates and where the pe world is, and you can have all the statistics you want. none of it matters. adam: we have been arguing that in order to call the market, you need to know where the price-to-earnings ratio is. historically when we had yields at zero -- the 10-year is at 1.6 -- at zero it was bad for market multiples. we were arguing that had broken the cycle. what you have now is people being forced into buying u.s. equities because that is the alternative. tom: what do portfolio managers do?

they take your advice and other people's advice. their actuarial assumption is shockingly low and what do they do? adam: it depends. you try tolong -- own stocks. maybe we could go to 20 or 25 times. if you are long-short, i think you have been more negative and that is why the performance of the industry in the hedge fund industry has been poor this year. they keep shorting stuff against a market that is at an all-time high. tom: use of cash -- does the religion continue? adam: it has to be very tactical when you do that. tom: how can corporate officers buy back their stock at these multiples? adam: i guess they have to do the math on whether growing the dividend makes sense, whether doing the buyback makes sense. i do not think they will invest in growth when -- tom: i want to pick up on one stock, apple computer. think what you are

really talking about is you have some stocks that look like they are devalued. what is the catalyst to get those things working? usually it is martin -- usually it is market expansion. give him parker, i great credit for his statistics as well. francine and i will return with paul sweeney with a look at the film season and walt disney. i think they are making another "frozen." i will not sing "let it go" today. screen, ae worst totally boring data screen, on "bloomberg surveillance." ♪ [ hip hop beat throughout ] [ fans cheering ]

♪ olympics 2016, let me get you on my level. ♪ ♪ so you never miss a moment, ♪ ♪ miss a minute, miss a medal. ♪ why settle when you can have it all? ♪ ♪ soccer to wrestling. track and field to basketball. ♪ ♪ fencing to cycling. diving to balance beam. ♪ ♪ all you have to say is, ♪ "show me," and boom it's on the screen. ♪ ♪ from the bottom of the mat, ♪

♪ to the couch where you at? ♪ ♪ "show me the latest medal count?" ♪ ♪ xfinity's where it's at. ♪ welcome to it all. comcast nbcuniversal is proud to bring you coverage of the rio olympic games. morning. it is tuesday we thought we would forgo the beautiful picture of st. paul's to show you the beautiful bloomberg building.

we cannot say much more about it, but we keeping a close eye on it. this is "bloomberg surveillance." think it will blow you away and let's get to first word news with taylor riggs. is stillelta airlines struggling to come back from the computer failure that grounded flights for several hours. the airline says it is reducing the morning schedule so it can reset. that means about 250 flights are being canceled after cancellations yesterday. refunds for passengers. in brazil, the senate votes tonight on whether to put on the rousseff on trial. she is accused of breaking the budget law. she is expected to lose today's vote, which only requires a simple majority. opponents would need a two thirds majority to keep her from resuming office. in northern syria, a hospital withoutd by doctors borders was destroyed in a

series of air strikes. at least 13 people were killed. it is not clear whose planes hit the hospital. the hospital is in an area controlled by rebels. syrian and russian planes have been blamed for targeting hospitals and rebel territory. u.k. thatarning the relations between the two hang on the fate of the hinkley point nuclear power plant. china has a minority stake in the project. china's ambassador in london says cancellation of the power plant could affect trade with britain's second-largest trading partner outside your ear the british government says it will decide next month whether to build the plant. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. bring back that shot from london of our new world headquarters. this is gorgeous, folks. it sits atop roman ruins. this is a reconstruction of roman ruins -- what i love is to the left there with the cranes,

where surveillance sikorsky goes to get you to heathrow quicker. francine: i am so glad we thought of that. for a moment i thought what -- i was not sure -- we will be all over breaking news. tom: really historic and we are beyond excited about the development of this project. right now we need to look at the development of a project which is a fractured blue-chip. that would be disney. anthony, bring up the chart. this is the under performance from the peak of disney to white line versus the s&p 500. simply, disney has struggled to keep up with the market. paul sweeney with bloomberg intelligence with us. adam parker of morgan stanley. what is the backstory on a couple of quarters for disney? adam: when they reported earnings last year, they shocked -- they cited the fact that espn actually was losing subscribers.

that really brought home the whole concern for media investors about the whole cord cutting issue. if it could affect espn, it can affect the whole industry. tom: i want to get to nbc and the olympics at the end of the block. there has to be an action plan to recover from that shock. is it evident? paul: what the company and the industry are doing is trying to make their content available on as many devices and platforms as they can. so you are seeing time warner make investment in hulu, which is kind of a netflix type competitor. a traditional media, replacing capital in the over the top type of business. disney is thinking about, what do we do with espn? is there a model to bring it directly consume -- directly to consumers over the internet where we can attract new viewers and advertisers and subscription revenue? francine: i love having you want because you make us smarter.

how should they make from hotel bookings? paul: the parks and resorts business is a big business for disney, one of the best are they double down on the business with the investment in shanghai. we see a lot of the terrorist issues in the last six months, it does have a chilling effect on global consumer spending and travel and so of course walt her big resorts, are exposed to that a little bit, particularly in paris. but overall the parks business will be strong for them going forward. what investors are focused on -- you spend $5.5 billion in shanghai. do you have some initial news coming out of shanghai in terms of attendance, as they just opened the big park there? francine: some of these big-ticket movies such as "finding dori," "finding nemo,"

they are not going to be taken into account this quarter, right? to beit is actually going a big quarter for the studio here. investors feel very good about the film business for walt disney because they have marble, they have the pixar businesses -- they have marvel, the pixar businesses. if you think about the next five years for walt disney studios, investors feel very good about what is coming out, the profits coming out of that business. tom: adam parker, help me here. there weighted average cost to capital is like a ticket to disneyland. should they just do more debt? is that what we will see across paul sweeney's world, debt up because yield is so cheap? adam: morgan stanley's cable media analyst has been on the forlines, but generally

these companies to work you need to get margin expansion right, so i think they are worried about growth and margin expansion, and most companies -- tom: so it is a revenue growth, a revenue confidence story. have good operating leverage and they can translate that too low to mid teens. the real question is, what do they do with the cash flow? tom: i want to know with the strategy is, paul sweeney, after one year of heartbreak. paul: coming out of the financial crisis, these stocks have performed extraordinarily well. they learned from their mistakes of the past in the 1990's when they made some bad acquisitions. a lot of these companies have taken that free cash flow, levering up and returning cash to shareholders with buybacks and dividends. that has been a good recipe for the big media stocks. about thetalking olympics, nbc overpaid for them. don't they have ads every five minutes? paul: i am not sure they overpaid for them.

they are out there saying they are going to make a profit on the rio olympics. they say they made a $100 million -- $120 million profit. they have 6400 hours of streaming programming coming out of the olympics. plus all their broadcast and cable networks. so you can find pretty much every event live, and the good news for them is they are selling advertising against all of that. they actually sold out there advertising inventory much quicker than they did in london. the advertisers are still stepping up for the olympics. tom: paul, i totally get that. the ratings suck, am i right? paul: the overnight ratings are 30%, 35%.25%, our people viewing this stuff a couple days later? tom: are you saying this is a structural change in how we watch these big events because of digital? paul: absolutely. people are spending more time watching content digitally with streaming.

the olympics are being streamed over all kinds of devices, and that audience has to be counted and monetized. you will have to wait and see a couple of days later, not just the overnight. you watch the world series two days later? tom: i would not. i want to see david price of the red sox lose two days later. on the north carolina same set -- duke and north carolina were on the same set, and they were well behaved. paul: i am lost, but i understand this is a "surveillance" exclusive. we are back with adam parker of morgan stanley. coming up, we talk more about the olympics. later today, bob iger will talk with david westin this afternoon on "bloomberg west," at 6:15 p.m. in new york, 11:15 p.m. in london. this is bloomberg. ♪

francine: "bloomberg surveillance." the bloomberg business flash. taylor: valeant surprised investors by reaffirming its full-year guidance. the pharmaceutical company posted second order sales and profits that missed estimates. is another sign that china's economy is stabilizing. factory gate deflation eased for the seventh straight month. 1.7%ser price index fell in july from a year earlier, the smallest inclining klein in china in almost two years. there is growing skepticism that formal talks the between opec members will lead to any production cuts. that has a price of oil dropping from its highest close in two weeks. futures fell 1% in new york

after rising almost 3% yesterday. opec members are meeting in algiers next month. that is your "bloomberg business flash." tom: it is olympics time in brazil. give is a book that will you perspective on the surreal nature of brazil. riding -- alex cuadros writing on the brazilian billionaires. alex, wonderful to have you here. we would like to have the power to fix everything that does not work in brazil. work.w what doesn't we are watching it in technicolor on nbc2 how do they fix it when the olympics are done? x: obviously the challenges that brazil is facing are immense. but i think what is happening now with the corruption investigations that we are seeing is part of the solution.

for most of brazil's history, anduption has been endemic, there has been this culture of impunity where you basically -- you had no fear of punishment or any kind of penalty from -- for stealing from public coffers. that is starting to change. even leanerg construction tycoons facing 20 prison, like one who is the heir to the largest construction company in brazil. , changingon here is the incentives of the political class and the business world -- tom: is that within the constitution? is that something that some -- is that something that the selected elite pick up on? catalyst in this case has been a group of prosecutors and investigators and judges.

they are part of a new generation in brazil that has grown up in the 30 years that brazil has been a democracy. was a military dictatorship for two decades until 1985. they have a different division -- they have a different vision of what society should look like and what should be the relationship between money and political power. they have really been spearheading this change. you know, as they have targeted some of the richest and the most powerful people in brazil, thanks to the gradual maturing of the institutions in brazil, thanks in part to pressure from the public, they have been able to continue these investigations without them being smothered, as has so often happened in the past. francine: the senate starts

voting today over whether to impeach president dilma rousseff or not. does she need to be impeached to show that brazil means business when it comes to corruption? alex: that is a great question. the really surreal thing about the impeachment in brazil is rousseff, despite her party's clear involvement in this multibillion corruption scandal at petrobras, she herself is not accused of any personal involvement or any personal enrichment. whereas the guy who is currently , who is mostl likely set to become full president when she is ultimately impeached, probably at the end he does face more concrete accusations in this

corruption scandal. just this weekend a story ran aroundthat he asked for $3 million in under-the-table campaign donations from a construction tycoon. francine: this reminds me of 15, 20 years ago. do we have a younger, cleaner political class that can run? is this the only way to show investors that you are strong against corruption in brazil? alex: well, this is a great question, and this is one of the great problems in brazil. we have one of these new generation of prosecutors, people who want something different from their political system, something different from the way business has always been done in brazil. at the same time, you have a political class that is still of thish representative corrupt, old establishment and this old way of doing things. this kind of disconnect in the country between different parts

of the government -- there is a dearth of new leaders in politics who can represent this feeling and start to take the country forward in the political arena. francine: congratulations on the book. alex cuadros there, author of res."ew book "brazillionai this is a picture for your asset classes. tom keeps saying there is not much market movement. i tend to agree in part with pound, down significantly because the boe announced something on thursday. look at crude. 43.24, now above $43. this is bloomberg. ♪

tom: sterling, sterling, sterling p let's get to the foreign exchange report. yen churning, a little stronger again today. i stand corrected. sterling was weaker earlier, but 1.29 is a big deal. there is euro-sterling, which

normally i did not give a damn about, but i put it in for francine anyway. francine: i am honored, tom. comes up shortly is "bloomberg ." alix, what do you have on the show? alix: we are looking at the big themes in the market. the first will be equities. we have seen revisions from analysts for earnings for the third quarter, now expecting a .6% retraction. a .6% contraction. talking about a bond buyers strike -- when do we see that and what are the ripple effects? we will be dissecting donald economic plan. economice senior advisers to trump, what his plan would do. tom: what is the consensus call in oil right now yeah cap i cannot make it out? --

what is the consensus call in oil right now? i cannot make it out. we have what i call a double breaking pot. he is bearish in the new term to a kind of q 117. tom: i want to know your point estimate on "surveillance." q 117.lower through tom: alix steel this morning with david malpass to explain trump economics. adam parker is with us this morning, from morgan stanley, dealing with a 1% yield call, dealing with ellen zentner's delay, delay, delay. it is an unloved bull market. how do you handle the evolving worlds of worry? adam: what ultimately matters

is, do you think earnings will decline materially? every big correction i have seen, every down market has had two features -- hubris and debt. too much capital spending, too much hiring, too much inventory, a fancy new or. that kind of stuff. generally outside the energy patch in the last 18 months you have not seen a lot of management arrogance. hiring is somewhat muted. i am not that afraid of a big earnings collapse in a zero-revenue world. that keeps me constructive trying to find those that can gain share. francine: i am looking at a bloomberg story. that a is telling me is lot of analysts are expecting a sixth straight forfeiture of decline when it comes to earnings in the u.s. are they wrong or are they looking at something different

than what you are looking at? the bottom consensus is about zero earnings growth year-over-year. 6% x15 earnings grew energy, so we think growth is possible here. on the one hand you could say earnings expectations are more achievable now print on the other hand, you could say macro conditions are not great. i think you have the chance for growth in a number of major sectors in the market. dollar rates in oil -- that is what introduces volatility estimates. the base case should still be for modest earnings growth. it is the bear case that matters. francine: so you have ever higher stocks yet profit contraction. when do the two worlds meeting at? adam: i think it is what tom and i were -- i think have seriously or not totally seriously talking about half an hour ago, could you go 25 or 30 times earnings

for the market? grows,have 2% yield that an option of earnings growth -- what else around the world is big and liquid that gives you that kind of yield? that is why you get forced in more and more. tom: this is the perfect example of it. to help you out, in asia, the cost be is the roulette wheel. at the end of the quarter you have to play the dax. they just go into a bull market, up 20%. everything went wrong in germany. migrants, refugees, this, that, and the other thing. once again, there is a market confounding. can you switch to international to find value, or do american investors really have to stay u.s. centric? the: when you look at earnings outlook, our strategists are below consensus or have down earnings in every region of the world. down 20% below consensus. tom: and yet there is your bull

market in germany. europe isiew has been for vacation, not for stocks. that is my personal view. earnings have not grown in seven years, so i need to have better earnings growth before i get more excited. tom: adam parker, thank you so much. we will continue with dr. parker on radio this morning. francine, i look at the german news on the dax, and i find it absolutely unique, the separation of finance from politics in europe. francine: i agree. i do not know how we are pricing risk anymore. it goes back to what we were saying about bond yields. an exciting asset class, tom. equities. tom: stay with us through the morning. this is bloomberg. ♪ . .

jonathan: sterling falls for a

fifth day, its longest losing streak since may. the bank of england taking further stimulus methods. david: analysts forecast a sixth straight corner of negative earnings growth. alix: and the republican nominee pushes an old-school tax plan and lighter regulations to bring growth back to the economy. jonathan: a warm welcome to "bloomberg ." i am jonathan ferro alongside david west and alix steel here in new york. of much news, but plenty headlines coming from the market with the dax back in a bull market, and politics in the u.s. building momentum. david: sterling is moving, but donald trump yesterday, alix, laid out his economic plan finally. now we have details. alix: what we will be tackling is -- what does this plan due to the debt ratio here in the u.s.? what are