now, marketsdy for may and the newy as investors brazilian president attend the u.n. general assembly for the first time. bolstering the balance sheet, deutsche bank is said to be working to securitize billions of dollars of corporate loans. i am francine lacqua in new york with tom keene. we talked about the bank -- the bank of japan and deutsche bank.

tom: you came in from jfk last night and got here barely in time for the show. francine: it is better to walk then to take a cab. tom: the president speaking this morning in new york as well. francine: i think a lot of focus on refugees and what is not going great in the world. tom: i'm going to go back 48 hours. yesterday, bombing the capture of the suspect, this was truly front and center. francine: let's get straight to the bloomberg first word news. taylor: north korea appears to have taken another step toward developing a missile that could affect u.s.. they have ground tested a new type of engine for long-range rockets. they conducted their biggest ever nuclear test last week. british prime minister theresa may shrugging off morning from

the eastern members that they will veto a brexit deal. name says it is in everyone's interest to reach an agreement. several countries are looking to block access to the single market. in afghan immigrant arrested the bombings in new york and new jersey is facing charges of attempted murder. two officers were wounded but not seriously. friends tell the new york times he had changed in recent years after a trip overseas. the president of brazil is confident lawmakers will approve a cap on spending at the end of the year. michel temer spoke with erik schatzker about brazil's economy and how long it will take to eliminate the budget deficit. >> likely to three years before re-totally eliminate it but i would like to say that some time

ago, i got very telling research finding indicating if we had set the spending ceiling four years ago, by this time we would have no deficit whatsoever. taylor: he says another big item on his agenda, social security reform, should be passed next year. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. riggs.ylor this is bloomberg. tom: let's get to equities, bonds, currencies, commodities. market,tleties to the the yield and euro doing nothing. oil was a 42 handle when i walked in. on to the next screen, the idea of the vix, 13.98. , 45.73.ude i put deutsche bank in here as really almost a global indicator of banking aches.

those are euros. it is the intraday low. francine: you are putting corporate's for glaxo because they have a new woman ceo. you can see european stocks not doing much. yen, 101.74. theresa may is attending the un's general assembly and crude, 43.11. wheeler willher join us in the next hour on deutsche bank. this is deutsche bank, the stock andhe credit default swap there is the lehman low in the middle of the chart. -- swap credit defaults as new angst, here we go to new highs and we have recapitulated what we saw a number of months ago. there is some real tension within one indicator. francine: it is clear that

something has to happen to reassure the markets and better sooner rather than later. i was going to do something on yen and then i decided to do something on euro volatility. droppedlar volatility to the lowest level in two years so the line you see charted is the euro-dollar one month realized volatility. it has displaced the danish krone is the most stable. this is, for me significant because it is after brexit and for the moment traders are pretty calm. this morning off the bloomberg terminal, this was featured and it is a cool chart. francine: joining us is neil dutta. great to have you on the program. we are talking about the fed and some of the currency moves. you have boj and the fed tomorrow. the one we should really be looking at is boj and yet

traders are just looking at the fed. that is fair, isn't it? neil: i think a lot of folks are worried about what the boj may do. there is no real consensus about what they may or may not do tomorrow. there has been sort of this piecemeal kind of leakage out of the boj. that does not really inspire confidence. sending out teasers to the market, negative rates, changing the mix of qe, moving to tactical gigi b purchases. jgbink -- tactical jg be -- purchases. i think that suggests they do not know what they are going to do. throwingy are just feelers out into the market to see what sticks. it is not the kind of communication strategy that inspires confidence. for the fed, i am a lot more confident about what they will do and that is not try to upset

the apple cart. you mentioned earlier, southside analysts calling for shock hike. that is an oxymoron. there is no such thing as shock hike. i do not think the fed is trying to surprise the market nor do they want to. tom: it is so topsy-turvy. i really did not know what this chart would look like. this is tokyo inflation back 30 years. there is the long-term deflation, disinflation. i was thunderstruck at what abenomics imputed into price change in tokyo. up, that green oval is the inflation that was invented by abenomics. and the recent rollover gets you back somewhere near trend. i believe i have never seen a policy deliver inflation like that chart shows. neil: some of that is just tax

changes. tom: i agree. neil: they had a consumption tax hike. one of the things that governor kuroda has been talking about is this sort of corman. the japanese -- sort of core measure. the japanese look at inflation different from us. the measure that kuroda has been looking at as the core measure, that does not look nearly as weak as the inflation number you showed on your screen, but it has been softening. given that the have a target of 2%, they are falling short. tom: it is almost like a cocktail, not that i would know how to do this. like a cocktail of monetary tools trying to reflate. it is not working. francine: can i show you my chart? this is the money chart in japan. tom: this is your delay at the midtown tunnel. and the: unemployment

white line is basically the boj balance sheet. it is a structural problem. tom: within the structural problem, what have we learned about reflation within these experiments whether it is the fed, the bank of japan, or ecb? neil: i think what we have learned, going to the unemployment rate it is the phillips curve across a number of economies is really flat as a pancake. that basically means you have to push unemployment much lower than you thought originally to move inflation up. is lowerunemployment now than at any point during the last expansion. francine: that we need fiscal spending. we talk about fiscal spending day in and day out. when you look at these charts, the boj needs to force the government to do a little bit more. they talked about fiscal spending and when you look at the details it was early stuff

they preannounced. neil: this has been a theme that has been out there for a while, monetary policy shouldering much of the burden of reef waiting the economy. now we are -- reef lading -- reflating the economy. you will see that in the u.s.. there has been a lot of talk about infrastructure but even setting that aside, we have a pro cyclical process in the united states. think about that for a second. we have a pro cyclical fiscal policy and we also have the housing market likely accelerating. slow employment typically do not happen. usually the housing market is rolling over when things are at full employment and today we have the opposite. that is going to provide more runway for the u.s. recovery and i think allow the fed to

normalize. tom: we will come back on this with neil dutta. fu,rrow afternoon, scarlet michael and myself will do the fed meeting. it is more than a meeting, they will move the dots. look for that at 1:00 p.m. ♪

francine: this is bloomberg "surveillance." i am francine lacqua in new york with tom keene. let's get to the bloomberg business flash. we start with a bit of corporate news. taylor: glaxosmithkline will become the only major pharmaceutical company with a female ceo. they named emma wildly to be the

next chief executive who will take over when andrew glennie retires next year. plunged inakata tokyo and bidders are said to concern -- consider some sort of bankruptcy. asked potential bidders to submit proposals this week. deutsche bank trying to offset -- offload risk by securitizing billions of dollars in corporate loans. they are under pressure to improve their balance sheet resort -- before resolving a u.s. negotiation that is likely to cost billions. moore,e: michael basically we talk about deutsche bank day in and day out. they need to show they are offloading risk. is this a significant move? michael: relative to their

balance sheet it is not enormous . it is a creative way to offload some risk and improve the capital position a little bit, but it certainly is not going to move the needle very much. francine: does it show they are trying to think of innovative solutions? is there anything we can take out of this as a real positive? michael: i think it could serve as a model. they have done this in the past, and it could serve as a model getting more assets off their balance sheet. you have seen them securitize assets. if they are not going to raise equity or selloff a major portion of the business than they have to do some more creative measures. tom: what is the likelihood of raising equity? what is our reporting on the great tradition of making five or six institutional calls to see if anybody will buy the shares, where does that stand? michael: i think it is still

unlikely at this point, given where the shares are trading. there at about a quarter of book. there is a lot of resistance to raising capital at that level. they have got a few things in the pipeline, selling a stake in the chinese lender, that could boost the capital ratio in the meantime. i think raising equity would be toward the bottom of their list of choices. tom: but the distinction to me become they have overcome by events. obe chart, a is an freefall heading for those two recent lows of july and august. intraday lows of 11.06 euros. we are getting there quickly. what is the triage with a plan if they blow through two new lows?

michael: i think you might see more tweaking of the strategy the way they have done but i am sure what the trigger is that would cause them to do a major rethink and do something drastic . you have seen cryan push back against the calls for more drastic edgers. -- measures. tom: i find it is our. -- bizarre. francine: if you look at monte paschi, when will they stop being overcome by events? have goti think they to answer some of the questions about this capital raise they are trying to do. there are a lot of questions whether they can get it done and awfully the risk, and get anyone to put any more equity into this bank. there are reports out of italy of them possibly doing a debt for equity swap and pushing down the capital raise to next year. they just brought in a new ceo

who was having to get up to speed so i think there is a lot of questions about this capital raise. they are trying to raise 5 billion when they are worth one billion. they need to show some progress toward that. francine: they are paying their bankers pretty handsomely for doing that exercise and the new ceo looks a lot like the old cfo. i was speaking to an unnamed source, and he was telling me this yesterday, but the market see this as to negative and we need to give time. and the italian banking problems will be solved. is this a fair comment? michael: i think there is so much in the italian banking crisis, so much of the politics wrapped up in that as well that there are a lot of factors. i think some of the banks are trying to see how those play out and how they inform their own strategies.

you are seeing unicredit move more quickly to try to sell off some of its non-core assets to raise capital. but there are a lot of things wrapped up in this that are out of the bank's control tom:. tom:you study this in the u.s. and in europe. in the u.s. the fed and other agency show up and say, we are here for the week. is there an agency in europe showing up and sort of walking in as the adult in the room, or the police officer? is somebody telling deutsche bank in the background what to do? michael: it is a little more complicated in europe because you have the ecb as the overall supervisor for the systemic banks, but you also have the national regulators that do not always the directly eye to eye with the ecb. bodies, moree

opinions in the room then perhaps when he just have the fed in the u.s. going to the banks. there are regulators watching these ins to touche and very closely -- these institutions very closely but there's more perspective. tom: michael moore, thank you very much. christopher wheeler will join us in the next hour. i am going out looking at stirling, 130.13. ♪

francine: this is bloomberg "surveillance." i am francine lacqua with tom keene. interviewn with an with the brazilian president for the first time attending the u.n. general assembly. here is michel temer. >> we are setting a ceiling of government funding -- spending that may be renewed based upon so previous year's inflation i'm certain that we will be able to pass that measure before the end of this year. the other reform is the social security/pension reform which will be submitted to congress this year but will certainly be passed next year, the first half of next year. francine: it was a most interesting conversation. he inherited a country on the

brink of recession and his main message is because he does not have any political ambitions, he can push through the reforms needed. tom: they have some challenges, to say the least. dollar-real, the rally in green and we are nowhere near that. as you say, he inherited this and he has to pick up the pieces. onncine: he inherited this august 31 after the impeachment of his predecessor and he says he does not have any political ambitions so he will push through the reforms which was a bit like we saw in italy with matteo renzi. you see a little bit of uncertainty flaring up and challenging his legitimacy. tom: all of these leaders in new york this week talking their book, what will be prime book?er may's francine: she is facing calls

from europe saying if there are three or four countries vetoing brexit then it cannot happen. she said it and will say it again, brexit means brexit. tom: i do not know where europe is on this. francine: which is what matteo renzi says, apart from a nice ride on the danube we did not achieve anything. tom: we will speak with richard haass, lots to talk about. he was just in ukraine so an update on his thoughts on the international relations of mr. putin and ukraine. it is a beautiful new york. francine walked from her uber. ♪

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four in africa summit. thank you for joining us. neil dutta with us with renaissance macro. right now we continue with neil on the fed. as well.n the dots you presume they will move? neil: yes, down. tom: down big? neil: it down a smidge. i would not expect big changes for this month. when you talk about the longer run rate estimate, it has dropped more in the last year than it did in the prior 3 -- three years combined. .om: bring up the dots the dots on the left are now and then out a year and then two blob, and this amorphous

longer-term. that is how long it takes teenagers to clean their bedroom, longer-term. ago, federal years officials thought the terminal rate would be something like four and a quarter. now the median participant thinks it is going to be three. i think what has been really interesting is to see how quickly it has come down and how much over the last year, and what happened over the last couple of years. the dollar has strengthened a lot and that has pushed down neutral rates. tom: tomorrow when they make these adjustments, are you telling me to watch the longer-term adjustment or than the short-term adjustments? neil: i would not expect that much in terms of changes. i think the median will probably stay around three and it will be more interesting to see what happens in 2017. and iis a wide dispersion

would expect participants to harden around one rate hike this year and two next year. tom: here is taylor riggs. taylor: law-enforcement officials say there is no indication that omicron ramani was part of a major network. he was arrested after being wounded in a shootout with police. romney was born in afghanistan is a nationalized u.s. citizen and traveled to pakistan twice in recent years. one of the most out speak in -- outspoken critics of the my than president -- 3000 people have been killed in less than three months since duterte took office. a wall street veteran who is president of peru is talking about a credit revolution. seven weeks ago

and is making his first official visit to the u.s. this week. he sat down with tom keene. >> we are largely an informal country. a lot of small businesses outside the tax system, outside the credit system, we are going to change that and lower their taxes so they become part of the formal economy. there is going to be a credit revolution in peru that will give it a big push. i think you are going to see a lot of investment in the financial sector in peru. taylor: at one time he was chairman of first boston and managing director of credit suisse. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. riggs.lor this is bloomberg. francine: if there is one place in the u.k. a definitely does not want to leave the eu is gibraltar. residents voted by 96% to stay in the european union.

we speak to the gibraltar minister for finance, albert isola. isn't looking more and more likely that brexit will be a hard one, and what does this mean for the gibraltar? i think we have done and evaluation since the original the scope ofg at our private sector and what we found is the bulk of what we do is u.k. centric and u.k. focused so the government -- the relationship we have with the government is very strong and it is more criminal -- critical then eu access. i think it will see us through the challenges we will face and ultimately one needs to think whether this brexit, whether it is hard on what it means, is an issue that we will deal with in the months ahead. ultimately it is for us, the critical aspect is the good

relationship we enjoy with the united kingdom. francine: a critical issue is whether you will have access to the single market, does this look more unlikely than a couple weeks ago? this seems almost impossible. albert: there was a report talking about a nasty divorce between brussels and the united kingdom. there are no winners in a nasty divorce and i think brexit, if it is a hard brexit, we do not know what that means yet. i think what the u.k. will not do is sacrifice single market .ccess for freedom of movement i believe the controls of the u.k., the ones they are serious about, we will see how this pans out. the impact on gibraltar as a business friendly jurisdiction for u.k. access, we know we will continue with it. constant are you in

talks with the british government and have they give you reassurances? with sovereignty, there is no change in no question. our chief minister has said no means no. co. sovereignty is not going to happen. our chief minister has met with the prime minister and philip hammond and the foreign secretary the mayor of london -- the foreign secretary, the mayor of london. we are comfortable where we are and where we are going and we are very much reliant on the support of the u.k. government to continue in that process. by whatm fascinated perpetuity means to gibraltar. it goes back to 1713. most of us have a scope and scale of world war ii or maybe

the patrick o'brian novels, the wonderful master and commander not a. -- novels. we'll perpetuity change because of this seismic vote? albert: absolutely not. i think there was a principal or modern perpetuity which is the right to self-determination and we just celebrated our national day where we expose the right of the people to determine their future. exercised by principal in 2002 where we voted overwhelmingly by more than 96% in the last referendum on the european union, to remain british with no co. sovereignty at all. with oure position relation to the united kingdom is very clear, we are british and brexit means brexit. tom: what will be your relationship with madrid and all of spain? how will that change in the

negotiations of article 50? albert: we hope it does not. we have around 12,000 people across the border who come from spain every day to work, including around 7000 or 8000 spanish people to have their livelihood in gibraltar. if there is any change it will not be from our side. we are as welcoming as we always have been. i do not believe we are living with a spanish government that is anything like it was 30 or 40 or 50 years ago with the franco dictatorship. i think a moderate attended -- a modern democracy in spain. francine: if we see a so-called hard brexit there will be borders and customs going up between gibraltar and spain. what does that do to your economy? albert: we are already outside the european union and that means the border today, between

gibraltar and strength -- and spain does have passport and customs control. there should be no change. spain has borders with morocco and those are open and fluid, so i do not see why there should be any change. tom: minister, thank you so much. coming to us from geneva. tomorrow, our federal reserve special will go through the process starting at 1:00 p.m., a lot to talk about including the mooting -- moving of the dots. worldwide, this is bloomberg. ♪

francine: bloomberg "surveillance" in new york,

francine lacqua with tom keene. oil falling today. the bloomberg survey ahead of the release showed stockpiles increased by 3.1 3 million barrels last week. here to talk about worries over the supply glut is tracy alloway. his oil declining today? question.t is an investors are always going to try to parse the smallest of market movement but it seems like we are getting problems on the supply side bubbling up. we had the u.s. oil rig count from friday showing that they are surprisingly resilient. we had saudi arabia confirming is pumping oil at a record pace, something like 10.6 million barrels a day. the combination of all this data suggest ongoing nervousness about the supply glut. francine: what does this mean

for the oil majors in particular? we have seen a lot of talk about what it means for countries, for budgets. less so on the oil major side. there was a really good note out from goldman sachs talking about the new oil order, how the flattening of the cost curve has changed the game for everyone involved, particularly the majors like bp, shell, and exxon. if oil stays around $50 a barrel, and that is what they are predicting as far out as 2020, then the oil majors will have to cut dividends, might see more expense trimming, but that might not be enough to satisfy investors. tom: i think you are dead on. is two prices of oil, the parlor game of where it will go before the next couple of coffee, and this odd thing, the

terminal value. that is what goldman sachs is talking about. what is the confidence in the terminal value right now within research? i do not see much. tracy: i think you are exactly right. it is not just in the research, it is also in the positioning data. we have seen wild strings -- swings suggesting that people are unsure of where it is going, and so much of this is turning out to be a binary that on what opec decides to do -- binary bet on what opec decides to do. we will see -- will we see strength in the face of u.s. shale? everything has served to turn markets on their head. it is difficult to parse two difficult sides of the equation, demand and of course supply. tom: neil dutta, i love what tracy says about binary bet,

just what our economics has come down to. within our lack of orthodox economics, we are grasping for a decision of for choices, and it never works out, does it? binary that's never play out -- binary bets never play out, do they? neil: i think it is picking your battles and the consensus wisely. i would tend to agree. francine: that means they are clueless. what does that mean? neil: there are some things we can say with some degree of certainty in economics, but i think where we are right now, i think there is increasing uncertainty about where we are going to go. francine: is there only one certainty which is this will and that late? badly?- and

neil: people away say that, and that has been with us year after year since 2009 and they have been wrong year after year. there analysts that come on this program and make wild claims about recession risk. this was something that was happening six months ago. how did that work out? how about the fed's next move is going to be to do qe and cut rates? extraordinarybeen about pushing against the every thursday and friday gloom articles to get you through the weekend. granted, things are not that bad, 1.5% gdp. this, slogging through which you predict it, with some good enthusiasm. the gloom crew has not had their

payoff, have they? particularly when you look at equity prices. neil: to the extent they have been right about the bond market, yields are down and they have been right for the wrong reasons. tom: i believe you own bombs and and mr.lling -- bonds schilling would say they have appreciated to a substantial capital gain. neil: look at the correlation right now, the links between core u.s. inflation and 10 year yields. it is inverse. want to be holding 10 year yields better yielding below the rate of core inflation, have fun. i will recommend something else to my clients. i think this whole notion of doom and gloom is getting tired and pointless. us, who hastta with been very good about the idea that things will move forward without the gloom.

the president will speak at the un's general assembly. look for that in the 10:00 a.m. hour. this is bloomberg. ♪

francine: from bloomberg "surveillance" in new york, i am francine lacqua with tom keene. the former prime minister finland wrote about a meeting last week. he said written needs to sort out what kind of relationship that wants with the eu and the eu needs to understand what life s like without u.k. thank you for joining us. i know you have been in london for about five days and talking to all sorts of ministers, former prime minister. it is unclear to me who is in charge of brexit. is it only what theresa may says that we should believe? alexander: it is three different ministries dealing with it so it is a little bit messy. it is the prime minister that will call the shots at the end of the day and she has said many

times that brexit means brexit. forve been roaming around five days and i certainly do not know what brexit actually means and i do not think anyone does. it looks increasingly likely that it is a hard brexit and that will mean losing passporting writes and the u.k. losing access to the single market. theander: you have hard-core brexiteers who want the brexit and those who did not want it calling for a soft one. i think this is a lose lose prosecution in general, the u.k. leaving the eu and we should make it as soft as possible. it should go in three phases. phase one is the referendum when article 50 is launched. phase two is article 50 and that will last a long time trying to negotiate.

phase number three is to define a new relationship between the eu and the u.k. i would like to see them as close to each other as possible. tom: within this is the idea of a europe in disarray. .e saw that at bratislava how do you perceive the british elite? you have been knocking on doors in london. what is the level of disarray in london? i think people have overcome the shock at this stage and are trying to figure out what has happened. i still believe the u.k. probably has the strongest civil service in the world. the fco is a good example but even inside the fco there is a feeling of dismay. these guys are professional and now they are trying to work the nuts and bolts. it took a decade to dismantle the british empire. it takes 10 years for a member state to become a member state

of the eu. how do you suddenly detach yourself from the eu? it is extremely difficult and i think we need more time. francine: the problem is the more time you take and the more the thinking is that we will see a hard brexit that it made fulfill itself. -- may fulfill itself. there is a danger that ceos that need to make decisions that cannot wait will make decisions to move out of the u.k. from anr: i think economic perspective i understand that argument, you the quick decisions but truth is that this is extremely complex and difficult and you cannot do hard things. it happens to the u.k. and customs union? what happens to the four freedoms and the internal market? how do you deal with justice and fighting terrorism? .ou cannot just cut off it is complex and it is going to

take time. finland has had a unique voice within european history, take or leave the border with russia. what did you learn at bratislava. will federalist europe survive or prosper? alexander: i am a strong pro-european but i've always felt the eu is more than an international organization and less than a state. i am sure the eu will survive that they need to focus on three things. .umber one, go soft on brexit number two, defend european values. if you look at the likes of trump and farage and marine le pen, we need to go back to the core stuff that churchill focused on. number three, we need to focus on the essentials because the eu gets stuff from what they can

do. tom: alexander stubbs, thank you so much. neil dutta, thank you so much for prospective particularly on the bank of japan. tomorrow, bank of japan out already by the time we come on air and then the fed. tomorrow as well, international relations, the president speaks today at the united nations. richard haass will join us in the next hour and michael porter with the harvard business school will speak to both of them on competition and competitiveness in america. from new york and worldwide, this is bloomberg. ♪

tom: the markets consider the unorthodox economics of the bank of japan and the federal

reserve. markets consider and collapse of european banking. oil continues its feed, west texas in the vicinity of a $39 handle. and the failure of american discourse. in this hour, michael porter and , trump,haass on clinton and american competitiveness. this is "bloomberg surveillance ," live from our world headquarters in new york. i am tom keene. you took the surveillance gulfstream in the last mile. francine: i did another three hours from jfk right here. tom: you should have taken cfrssador haass' black helicopter. it is an exciting week in manhattan, to say the least. here's taylor riggs.

taylor: north korea is protesting a new type of engine for long-range rockets. several weeks ago, north korea conducted its biggest ever knew their weapons test. the u.s., japan, and south korea are calling for economic sanctions. theresa may is shrugging off ,arnings about the brexit deal saying it is in everyone's interest to reach an agreement. several eastern european countries are saying to be willing to block a deal to give the uk access to the single market while preventing their citizens from moving to the uk charged inimmigrant -- he was wounded in a shootout with police. two of the officers were also wounded but not seriously. friends tell "the new york times" he had changed in recent years after a trip overseas. the president of brazil is confident lawmakers will approve a cap on government spending by

the end of the year. michelle tamer took office last month after the impeachment of -- mikael tamer took office last month after the appeasement of dilma rousseff. be two or three years perhaps before we totally eliminate the deficit, but i must say some time ago i got very telling research indicating the if we had expanded ceiling four years ago, we would have no deficit left over. r says another item on his agenda, social security reform, will be passed next year. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. tom: equities, bonds, currencies, commodities. we have michael mckee here to start us.

on to the next screen. the vix on the equity markets. i put up deutsche bank. 11.43, distant from what i believe is an intraday euro low. francine: european stocks are pretty much unchanged. it is down. the dollar is dropping. tom: christopher wheeler is scheduled to be with us in the hour. love his analysis of european banking. the equity chart. that is their credit default swap, the classic five-year swap. i have problems with the use and misuse of cbs, but this -- of

cds. protection oncent cds, and we will revisit that shortly. radar up as well. this will be a wonderful hour. ambassador haass is with us with the council on foreign relations. he is the only one who can get around new york this week. yesterday maybe was the worst ever, ambassador? haass: combination of the coming to town -- tom: michael mckee, we start off with -- michael: i got no breaks here. tom: to be clear, the bank of japan out late tonight, right?

it into the fed decision tomorrow. we have two primary dealers, bmp and barclays saying they could raise rates. the fed does not surprise the markets anymore. jim bianco of the >> research, 86 meetings. ,very meeting from ben bernanke the fed fund had priced every single decision. if there were not the is a prize, it would be a shock to the markets. do not expect anything from the fed. francine: what i don't understand is you argue that the fed will not move and the markets are not proceeding, but the fed has been in defense for such a long time that traders are this understanding. mike: it does not like the idea that it is being led around by

the markets, so there is the possibility that they could push back against that. they also started forecasting for rate moves, and stanley market couldthe move, too, so there is a little bit of a credibility question there. since august, we have seen the economy start to weaken. up wherelittle leg things in the last week or so have been better, but in general, the economy deteriorating on the market side , there will be a push back. ambassador, you're shaking your head over the power game. richard: this is not taking odds that the fed moves this close to the election, 20% is high. mike: there is an interesting sidelight to this. is dammed if she

does and dammed if she doesn't. if she comes out and says we are not moving in september but december is a live meeting, then you're playing right into donald trump's conspiracy theory that the fed is holding off to help barack obama and hillary clinton. and as soon as the election is over, we raise rates. the tinfoil hat crowd will have a field day. francine: you have these two primary dealers, barclays and bnp paribas. how would you explain the dissent between these two players? mike: if they wanted to move gradually, the economy is not bad enough to stop them. there are not external things to stop them. tom: lets rip of the script.

missed -- from your purview of international relations, is janet yellen a political beast? richard: she is an economic beast, but no one is purely one or the other. the idea that you will raise rates before an election, the markets would be upset. would probably help mr. trump and hurt hillary clinton. i do not see it happening. the battle with truman in 1951 -- where is the fed now? mike: it has come down a little bit. right now it has come down significantly because there is a lot of pressure from the republican right suggesting that the fed has become too politicized. they are arguing it is too politicized and it has absorbed too many powers itself. they want to push back and bring it under some sort of political control.

wouldn't it be good to the fed to apprise the markets? if there is too much complacency, you could argue that janet yellen is a little too much like janet yellen. richard: the long run would be good. the question is, what is the short run? my guess is, again, it might be good for the long-term reputation. mike: they would argue that politically they do not care because they do not get involved in politics. for them, the question would be, what kind of temper tantrum do we get. does that last? does it continue, or do they just adjust? tom: we will have coverage from the bank of japan. michael and i will have the show, and we mention that here a number of times this afternoon with scarlet. i want to stop the program for

maybe the most distressing thing i have read in the last month. the council on foreign relations and national geographic went out to 20-year-olds and 26-year-olds aboutked what you know richard haass' world. we fell off our chairs. you are living a toy for century life. tom: how did we get here? richard: you can go to the best schools in america, but there is virtually nothing required anymore. being a globale illiterate, and that is what is happening in america's colleges and we do not teach it in high schools or colleges, and if we teach it, we do not require it. at a time when the world is more important than ever before, young people know -- critical. is i hear this nonstop from parents

. ambassador haass, how do we get the rigor back in our civics, which includes your world? richard: the way you get it back is when the society demands it. employers give a premium saying we will give it vantage is to young people -- tom: we do that. everybody on our team is brilliant on international relations, except bowden, who is useless. francine: how do you push the agenda in schools for people to look outside the borders? richard: we had a conversation about stem a few years ago, where parents pushed more of a science curriculum. conversationional about civics and global awareness and geography, so parents who are shelling out $50,000 a year say you have to do this to the school. when employers say you will only be hired if you go to a school that requires these kinds of courses. tom: you agree with me, right,

michael? mike: the surveys show the majority of undecided voters this year are millennials, younger people. the younger people are the undecideds. tom: i see it every day. that young not people are necessarily less than the rest of society. college is the best opportunity to do something about it. right now this opportunity is being squandered. francine: there was a survey of 26-year-olds, where most of the women out there want to be -- a lot of people did not have the factual background. one of us had said that, we would be dead meat. the red light is going around up there. here we go. francine is in new york. that means there is an hr violation.

richard haass and michael mckee, thank you for being with us. tomorrow, after the bank of japan, with the fed. going to let us come on the air. a special at 1:00 p.m. tomorrow. worldwide, this is bloomberg. ♪

tom: "bloomberg surveillance don: so much going on this morning. we are looking at the fed meeting tomorrow -- tom: "bloomberg surveillance," so much going on this morning. when you are on the airplane, you parachute into keiev.

whatgreets you? richard: greets you is a country that is very much on the edge, concerned the you will get used to russian occupation of crimea. to the east and southeast, crimea, is that removed and distant, or is it removed from the capital? richard: you do not feel that you are in a country with a war footing where people are getting killed every day. the key there is the economy and politics. it is whether they can get out of their own way. francine: talk to me about the one world leader you would like to meet in new york. there is the u.n. national assembly, theresa may for the first time showing up. also the brazilian president. is there one or two people who

you would want to meet then anyone else? the short answer is donald trump. that is the person on everyone plus-minus, much more than barack obama. people are -- that is the person on everyone's mind. he is the topic of conversation. francine: if you look at the way the world is going -- and we talk a lot about europe and the fact that europe cannot get its act together -- but it feels like world leaders across the globe do not have any commonality. they have very little common purpose because they are looking inwards. forard: the principal theme venture team moon and others is refugees. he will talk about there being an international -- for ban ki-moon and others is refugees. the case of refugees and nonproliferation -- you began with the north korea story -- people wring their hands.

there is no consensus in the world about when and how to act. and speaker ryan came out people were lining up on the stage. henry kissinger walked out. he was late because of the traffic. vitalwas dr. kissinger, at 91 or 92. state -- the cacophony of news flow is remarkable. is it business as usual, or is it truly a new world order? richard: it is more like a new world disorder. it is nothing unusual. the bad news is that all of these other actors and players who have real capacity -- small --medium states like iran you feel like things are spinning out of control. tom: the populism of mr. trump's speech earlier this week was

just a markable. it is the message he has been giving, and it filters into your world. richard: we are seeing it everywhere. we saw it obviously in london, in england with the brexit vote. we are seeing crackdowns in many countries -- in china, in turkey, in russia. we are seeing these nationalist authoritarian leaders. the pushback against it is powerful. tom: richard haass is with us, from the council on foreign relations. the president will speak this morning, the u.n. general simply. we will do that on television and radio. worldwide, of course, this is bloomberg. ♪

tom: "bloomberg surveillance" in new york. how about a morning must-listen? by 146,000eats nixon votes. the same thing happen in peru this year. the presidency. i spoke with the president of peru yesterday. his advice to the next u.s. president? listen, guys, the whole world asia. just europe and think about latin america. we are next door, 3000 miles

away, but we are still kind of next door. , despite what donald trump says, have helped the u.s. because all of this immigration of lowered the average age the u.s. population, has created a lot of use, and that -- a lot and that has helped social security state financed. tom: a wonderful interview. what struck me was the pkfference in populism in pb to donald trump. a populisms doing that is completely opposite of this. richard: i never thought you and i would see the day where populism would rise in the

united states and decline in latin america. in populism.esting it is something we never expected. peru is a little bit different. there was the imf meeting 12 months ago, but they have a lot of things. i wonder how much easier it is for peru to attack that line when they are trading with china. is not just peru. we see it throughout latin america. we see an open more democratic society. they are on the decline, on the retreat. why i described latin america as one of the most promising parts of the world right now. it is much easier to have open borders if you have a content population, right? richard: absolutely. that is why we are seeing, by contrast, populism rising in

europe. is a back story today. coming up, christopher wheeler will join us from atlantic equities. very quietly, against all the backdrop of news -- the president speaking at the u.n. the european banks are more than miserable. no other way to put it. christopher wheeler with an update on deutsche bank. also, francine is most interested in the italian banks, really struggling this morning. , 14.81. worldwide, this is bloomberg. ♪

francine: this is "bloomberg surveillance," from new york this week. let's get to first word news with taylor riggs. taylor: france has arrested

eight people in connection with the truck attack that left 86 people dead. the suspects are linked with the attacker who was killed by police after driving a truck into a crowd in the city of nice. islamic state lames responsibility for the attack. law enforcement officials say there is no indication augment conroe money was part of a larger network. he was arrested after being wounded in a shootout with police. he was born in afghanistan and is a naturalized u.s. citizen. federal officials tell the new york times he traveled to pakistan twice in recent years. the kremlin says the hopes of restoring the same -- the syrian cease-fire are very weak. areian officials investigating an attack on a jim and in carrying aid convoy in syria. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. this is bloomberg. tom? francine?

francine: deutsche bank is said to be working to securitize billions of dollars of corporate loans. chris wheeler is an analyst at atlantic equities. and richard haass is still with us. chris, when you talk about deutsche bank, they need to find a solution to offload risk. but this is not the first time they do these kinds of agreements or deals. this does not seem like an inflection point. chris: i don't think it does. billions a deal for 5.5 euros last year. this is an ongoing process of taking some of the risk off the balance sheet with large corporates, which they are selling into the market. week,k i said to you last there need to be some small victories. francine: is it too small a

step? this is not a kind of specialized capital reduction effort we are seeing here with this operation. chris: i think it is an ongoing process of trying to remove two things from the balance sheet. one is risk. perhaps more importantly, it is also taking, if you want, assets off the balance sheet. he has been trying to do since he took charge at the end of last year -- francine: do you think deutsche bank is under any more pressure they european investment banks to bolster capital, or are they mostly in the same boat? chris: i think they are probably mostly in the same boat. we keep saying every time deutsche bank lays its capital, we have not had enough. the problem is, the goal posts keep changing. you probably saw the noise last week around the b i.s. trying to

calculate going back to the old standardized methodology rather than what became a more sophisticated methodology, because perhaps they want to make things, across the whole -- to make things common. in what share price in euros does deutsche bank become overcome? 11.40 3,the chart, at 11 .47. you can see the recent lows of 11.43, 11.47. chris: once you go below 10, people start getting concerned. do not just look at the balance sheet or the share price, look at the way that hopefully we are reducing our leverage, improving

our capital ratios. it is a confidence thing. that is what you are alluding to. it is all well saying do not look at that at the moment. but that also affects the credit market. before, it is increasingly a concern. tom: do you have a concern that there is not a financial institution policing the good intention emotion? there is no fed equivalent in europe? regulation --man the german regulator has a reputation of being pretty tough. having ongoing debate literally every single day in frankfurt to try to make sure that things are progressing at deutsche. there is no systemic risk. this is what everyone is worried

about, not just here. we see it in washington with wells fargo. wencine: there is not -- have a new ceo, the lender trying to put 20 billion euros of bad debt on its books. do we assume that it will be fixed so the market needs to give it time, or are we under met -- or are we underestimating the problem that the bank has? is scurryingan around trying to make sure that they can achieve that. jpmorgan was proud of making that point, about his commitment to europe. that is going to be very important. during the crisis, it has always been it is almost sorted out. it is really running out of time now, and it has to be a twist because otherwise it will have a

bigger impact in the broadest ability on the italian banking sector. the banking sector knows that and the government knows that. if the ceo does not move quickly -- christopher wheeler, with atlantic equities, thank you so much. richard haass is with us on the council of foreign relations. this is going to be really special. not only ambassador haass, but joining us, michael porter of harvard business school. i got "surveillance" goosebumps over ambassador haass and michael porter on america, our disarray and our competitiveness. this is bloomberg. ♪

francine: "bloomberg surveillance." coming up shortly, it is "bloomberg ." jon, it is so nice to see you again. jon: it is good to have you here, fran. francine: we will not talk brexit. fed and boj. jon: if you have ever approached heathrow, going round and round, that is what it feels like with the boj. newsve been in a lot of conferences, whether it is the ecb or the bank of england. i cannot think of one in a post crisis era where the expectations are like here but no one knows what forex -- no one knows what to expect. and no one knows what the market correction would be. francine: you look at currencies very closely, and i wonder whether it is a negative or

positive that the yen is trading on concern of the boj. chris: that is a question for the fx guest. it is not clear to what we saw through experience. our guest will talk about the fx market and the dynamics. and the other one is a ceo. this man coming up at 8:30 eastern. -- whenn we and message we invented "bloomberg surveillance," this is what we wanted. on the set this morning, richard haass. now joining us, the aerospace engineer from a school in new jersey, no associated with harvard -- now associated with harvard -- michael porter joins us. competitionok on changed how america thinks. i am dismayed by your update on

our competition. it goes into what ambassador haass talked about with our disarray you go right to the heart of it, and ineffective national discourse. what do you mean by that? michael: this is not new. we have had versions of this for several presidential elections going forward. thate have an economy peaked 20 years ago. in very much a poor performing mode. we know what to do to fix our economy. we have a very clear idea. there is universally almost consensus about only thoughtful people. we have to change our corporate tax mode, clean up the regulatory morass. there are things we know we have to a dress, but our political -- there are things we know we have to address, but our political system is solving none of those

problems. we have made no progress on anything in at least two decades. and the country, then, is just sliding forward in a very negative way. tom: do we need a crisis to get to that catalyst shift, the political process? michael: i do not think the crisis is going to do it anymore. in thisem is structured way. it is structured to divide us theygh the parties make -- make policy puzzles that make no sense, they are not implementable, actionable. it is all theater. it is not about coming together, taking into account legitimate points of view, and getting things done. coming up with a compromised corporate tax plan, dealing with high skill immigration in a way that we all know we need to do. tom: ambassador come you have seen this before. is it gerrymandering, the corruption of money?

has this brought us to professor porter's frustration? richard: it is all sorts of things. it is the way that we fund our politics, individual politicians are no longer dependent on parties. in some ways, we have the disintermediation of american politics. each political figure is his own scantarty, and there is incentive to compromise. if you do, you will get hammered arepecial interests, you more likely to face a primary challenge. i think professor porter hits it exactly right. we are likely to wake up regardless of who winwith a washington that is still divided government, and it is still going to be as difficult as ever to get anything done. francine: you could be talking very well about europe, about any western economy. is it something bigger, that we are losing competitiveness because we are still thinking

with things that we learned 40 or 50 years ago and the world has moved on? we are not china. michael: i think that is part of it. policy, hisr tax tax policy that might have made sense in a prior global world. but it makes no sense today. we have not modernized it. tom: can apple -- francine: can apple fix that? wehael: it depends on how fix it. if you listen to our political leaders, they say we are going to stop in versions. companies are inverting because they feel like it, to be evil. actually, companies are inverting because america has the highest statutory corporate tax rate in the world. we are the only economy that has a double taxation system on international income. companies are doing that because otherwise they cannot compete. instead of fixing the problems that allow them to compete, we

simply have this theater, with one side blaming the other. tom: michael porter stopped davos five years ago, your idea of a new capitalism. what happened yet did you go down in flames on that idea? michael: that is happening in the business community. tom: i agree with that. michael: "fortune" magazine has a "companies changing the world list." tom: i did not hear secretary tromp -- secretary clinton or mr. trump talk about this. stillne: there is short-termism. you cannot argue about that. when you talk about the amount of cash companies are sitting on and the amount of dividend they are paying back, you cannot say it is capitalism, even for big companies. michael: if you look at how our economies do, our investment is

low. most of what they are investing is to buy back stock. why? because they do not see growth economy.ties in the they do not see structural reasons why we will get out of very slow growth. do you know that a proportion of -- that the portion of americans actually working today -- we are back into the 1980's, the 1970's. productivity, growth is slowly declining in the economy. the what will you do about dynamics of capital investment, labor? ago, we atree years hbs doubt our eight-point plan. it is very simple. reduce the corporate tax rate, invest in infrastructure, ring down the regulatory burden. -- bring down the regulatory burden. we are the ones getting hurt. tom: ambassador haass, you have

a one-point plan. richard: one is tpp. substantively on trade and pass this. over the longer run, education and training. problem is that it takes two to tango. you can have an open america and the rest of the will is closed. that will not advance the u.s. at all. honestly,pp, quite the united states is already relatively open. tpp brings us to the point where we already are. this to me should be a no-brainer. where we need transitional assistance for those workers adversely affected, we should provide it to them. francine: this should be a no-brainer, but it is not. what are the underlying causes of what is going on? michael: our political leaders are just confusing the hell out of our people. they are saying somehow this is going to hurt us, when we are

already open. this can only help us. it is going to allow us to get access to markets that have been closed. why wouldn't we do this? instead of fixing the corporate tax system? -- instead of fixing the corporate texas and, we should -- the political leaders say that companies are abusing the tax system, not playing fair, they are cheating by not paying taxes. we have created a society where we cannot make rational choices about how to go ahead. francine: it is not that politicians are trying to move more right wing or left wing. politicians, such as marine le pen, donald trump, loads of them , are different, are popular. michael: no ideological position is ever good economic policy.

government is not good economic policy, big government is not good economic toss a synthesis of ideas. richard: those who feel they are hurt by trade are four more active -- are far more active. tom: do you advocate a new industrial policy for america? michael: we do not use the word "industrial policy," because i have been in this space long enough to know that is probably not the right word. we advocate a new economic strategy. the fed bringlet down interest rates, and we will hope something good happens. the fed cannot change this. we have a structural problem. we are not fixing our weaknesses. we are lagging behind the incomes of the average americans -- we are lagging behind. the incomes of average americans are not moving, with very few exceptions.

we knowot fixing things we have allowed to go wrong in america. until we do, we are going to be in a trading range in the economy, and it is going to be slow. tom: michael porter with us, and richard haass. we will shift from a domestic , on foreignworld policy and our competitiveness. tomorrow, the bank of japan, and the fed. tomorrow afternoon. this is bloomberg. ♪

tom: foreign-exchange with some movements today. yen, 101.85. the bank of japan, there wednesday morning. so, it has been ugly for the peso. sterling gets your attention with prime minister may attending the yuan meetings in new york. u.n. meetingshe in new york.

i believe there will be disarray in our debate on monday on foreign policy. what should we expect? >> you have two very different candidates. hillary clinton is much more of a traditional continuity representative. we do not know what we will get from a donald trump presidency, but he has put on the table fundamentals about not just post cold war, but our reliance on free trade and american activism in the world. francine: what is the one thing that, if you were in charge and what is thesident, foreign policy that you would implement a week after being elected? michael: i am thinking more about the economic policies that will be good for the world, good for america. i would start with this tpp and continue the trade opening

process, which has been stalled. america was the leader in we sorttrade, and then of shut that down. other countries took over. other countries have been very aggressive in signing agreements and doing deals and opening markets. that would be one thing. we do need to, again, restructure the international business taxation system. right now we are tangled up in a very complicated system, where everybody is having to do all kinds of clever things. tom: ambassador, should we fear bilateral negotiations? do they hearken back to the 1930's, or is this just where we are now? the grandeur of the wto is not going to return. tpp, thesomething like transatlantic deal, they are fine. what would be so good about passing tpp is not just the economic benefit. the strategic message it would

say about america is that it can operate politically and that our alliance relations matter. tom: it has been wonderful to have both of you here. the only reason i feel good is to be here, ambassador haass, with michael porter, with the red sox in first place. richard: i was going to say thank you, it was good to be here this morning, and now you have wrecked it. tom: was this ok? francine: it was fun. i am coming back tomorrow. on the boj and africa. tom: and the banks as well. this morning, the president will speak to the un's general assembly. we will have a life for you on bloomberg television and bloomberg radio. good morning. ♪

♪ jonathan: one days ago, the

dollar. a. policy decisions by the bank of japan and the federal reserve. david: holding senior management accountable for a scandal of unauthorized customer accounts. alix: deutsche bank is working to securitize billions of dollars of loans after its biggest day -- one day slide since june. jonathan: i'm jonathan ferro beside david westin and alix steel. two crucial decisions, i wonder if they will change anything at all. david: you said it. one is what will they do, and the other is how will the markets react. alix: u.s. markets, investors pulling money out of stocks. you take a look at the 10 year treasury futures market, they are the least bullish. wonder if i can draw