bloomberg is back "on the markets" in 30 minutes scarlet: coming up on "bloomberg best," the stories that shaped the week in business around the world. european banks work through some jitters. donald trump takes a shot at janet yellen. wells fargo's embattled boss takes a fallback. disney may have designs on twitter. opec jolts the oil market with an unexpected deal. >> it is opec managing the global oil market, opec bringing barrels out to raise prices. torlet: from policymakers movers and shakers, there is plenty of food for thought in the week's top interviews. >> i tend to be in the camp of normalizing sooner rather than later. >> economic consequences of a harder brexit will be more severe. >> there is always something to worry about. at the moment, there are a lot of uncertainties. scarlet: the world's most

influential financial actors bring market insight to a global summit. >> i think it is tragic that we have taken rates down this far. >> i have not seen bubble prices in most assets. >> the pressure is great on everybody. ultimately, you've got to produce. scarlet: it's all straight ahead on "bloomberg best." ♪ hello and welcome. i'm scarlet fu. this is "bloomberg best," your weekly review of the most important business news, analysis, and interviews from bloomberg television around the world. let's start with a day by day look at the top headlines. the week began with reports from germany that created considerable worry for investors in one of the world's largest investment banks. >> deutsche bank shares dropping to a record low in germany today amid further concerns about its

financial stability, whether the government will save the bank if needed. how long can the government distance itself from deutsche bank? >> well, so, it's a very complicated position, because we have an election next year, and we have ongoing talks with the u.s. over this fine, which, if it gets to $14 billion, everyone thinks deutsche bank would be pushed into a very painful capital hike. the german government is playing it in a very complicated but potentially dangerous way by saying, well, it's an election year, the potential game of chicken going on with the u.s., we don't want to put the taxpayer at risk. that is something that would surely lose votes and maybe encourage a steep fine from the u.s. deutsche bank is a huge bank. it has a huge balance sheet. it has $2 trillion in assets. there's no simple or logical backstop other than germany if ever it does find itself in trouble. >> we are just over 40 days

until the u.s. election, and last night marked the first of three presidential debates scheduled before the big day. one of the topics donald trump was not shy to touch on was yellen's fed. mr. trump: the fed is doing political by keeping interest rates at this level. believe me, the day that obama leaves to go play golf for the rest of his life, when they raise interest rates, you are going to see some very bad things happen. because the fed is not doing their job. the fed is being more political than secretary clinton. >> i think what donald is saying about the fed is that we don't understand the fed by design was a nontransparent entity. it was designed to be that way. the real issue to me is not a great person like janet yellen, because she is doing the best she can. it is that the process is not transparent. that makes it difficult for the world to understand where we are going. >> is it political, the federal

reserve as far as you are concerned? >> that's a resounding no. keeping interest rates low is better for the incumbent party, meaning a democrat. that is absolutely not the case. the federal reserve is keeping interest rates low because that is what is needed to support economic growth, create jobs, keep us moving forward. politics just simply do not play into it. >> josh earnest, the white house spokesperson, has said the assertion that janet yellen is political is prosperous. you actually agree, you think there has been a politicization of the federal reserve. >> i don't think there's any doubt. it's a byproduct of the private government and the extraordinary policy stance of the u.s. central bank and central banks around the world. we are going into almost our ninth year of what they continue to call extraordinary policy. at some point, it's no longer extraordinary. having said that, there has been a push from the republican hard

right to rein in the fed, if you will. i don't believe that legislation will be passed, but i certainly do believe if trump is elected, there will be members of the board who would ask themselves whether or not they would choose to serve, just as he would likely ask whether or not they would like to go. >> opec has agreed to cut production for the first time in eight years. this according to a delegate familiar with the agreement, that drops production to 32.5 million barrels per day, down by 750,000 barrels per day. this certainly is history-making. >> it is. and the real country that is making history is saudi arabia. two years ago, saudi arabia instigated an opec policy that said we have to grab market share, we have to defeat shale, we should produce as much as we can. that ended today. it is opec back to managing the global oil market, bringing barrels out to raise prices. it's a surprise, and it's a very big change.

>> does it tell you that the saudis are desperate? does it tell you they want opec to have a bigger, bigger influence? or does it actually tell you that they really think prices can rise? >> i think it tells us two things. one is that while the saudi's may not be desperate, they want higher oil prices and they need higher revenues. the economy is in trouble in the kingdom. second, the saudis really think that by cutting a relatively small amount of oil, they can drive the prices much higher. >> now, the challenges are far from over, because they need to figure out how they are going to distribute these production cuts. at the moment they are targeting , a range of 32.5 million barrels per day to 33 million barrels per day. they are currently pumping just short of 33.7 million barrels per day. that's unlikely to make a major difference, is what analysts are telling us. bear in mind that we also need to see what they say about the timeline when they need in vienna.

-- meet in vienna. how long is this freeze going to last, and is this going to extend to non-opec? scarlet: the dow losing more than 180 points in all industry groups in the s&p 500. health care financials were the big laggards. we have to talk about deutsche bank, a record low for its u.s. shares. a number of funds that clear derivative trades with the bank withdrew some excess cash. this is all according to an internal bank document seen by bloomberg. >> how concerned are you by deutsche bank? how much potential is there for this to spill over to the broader market? >> if it was ready to default like lehman, that would be a huge deal, but that seems remotely likely. what it seems is that shareholders simply don't want to own deutsche bank and bondholders don't want to own deutsche bank's credit. it's not clear you see the kind of stresses you would normally associate with a major financial failing.

normally, when a financial firm is going to the wall, first of all, there is an asset that is causing it -- mortgages with lehman, european sovereign credit in the case of mf global. you start to see a host of other prices start to move as the bank's concerns try to liquidate assets and raise cash. there is no obvious sign of that right now. if you started to have a run, if everybody started to pull their deposits from deutsche bank, then it becomes serious quite quickly. in a sense, it's an artificial crisis at this point in time, but it has the potential to become a real one. >> let's get back to deutsche bank now. the stock is spiking at the moment. the adr's in the u.s. are up at 12.4%. this is up almost 6%, trading above 11 euros. the latest news coming from agence france, reporting the bank is near a $5.4 billion settlement with u.s.

if this happens to be true that it is something like $5.4 billion, deutsche bank can afford to pay that out of its legal reserves, as we heard earlier, correct? >> yes. if that's true, then that is a big relief. let's not forget that, for all of the noise, this began with worries of a very big fine, bigger than expected, $14 billion, so it could end with a fine, it could end with a settlement. it's obvious that a fine of $5 billion is still a fine, but it's a lot better than $14 billion. analysts disagree, but technically, the litigation reserves could cover that fine alone, even if there are more potentially down the pike. >> would this deplete all of its discretionary funds? like, it can't get into any more trouble for anything for a while? >> exactly. there is disagreement over what the bank can spend before it gets into capital increase territory. you have everything from $4 billion in the view of chase

morgan analysts to the view of $8 billion to $9 billion in the view of others. i think ultimately you won't know until we get a settlement. i think investors right now just want the number. scarlet: still ahead on "bloomberg best," we have a powerhouse lineup of interviews, from cabinet members to central bank officials and legendary investors. the biggest names taking on the most pressing issues. up next, more of the week's top headlines, including the $40 million clawback from wells fargo's beleaguered ceo. this is bloomberg. ♪

scarlet: this is "bloomberg best." i'm scarlet fu. let's continue our tour of the week's top business stories in silicon valley, where there is increasing talk that twitter is preparing to put itself up for sale. on monday, markets were a-twitter with news of a

potential buyer. >> the walt disney company is said to be working with a financial advisor to evaluate a possible bid for twitter. will this move make sense for the media giant? what do we know? >> we know disney is working with a banker to evaluate a possible bid. this does not mean they have made a big yet, but they are very interested in twitter as a media property. we can speculate as to why. disney is getting a little bit more into streaming. they have noticed the cord-cutters. they are trying to figure out how to distribute their video content. for twitter, this is something they are into, too. they are repackaging tweets in video form first with their apple tv app and xbox tv app. they want to make sure people can get into twitter through live streaming. >> we are seeing an increasingly incestuous relationship between

the two companies. you have dorsey on disney's board. you have the two of them doing deals together on the content side through disney's investments in video streaming. so look, previously, we had said media companies are probably not the best to buy twitter because twitter has to stay agnostic, but i think disney could be the unique exception to that rule. >> it has been a tough year for hedge funds globally. and now we hear that the $11 billion hedge fund tudor investment corp. has closed its singapore trading desks. what background do we have here? >> it's a big story on downsizing and also restructuring. tudor is one of the oldest and most respected entities on the street with about $11 billion u.s. it has been in existence since 1980. it had phenomenal returns in the first years after it started.

however, the returns have been lackluster over the last year, and that resulted in pretty sizable investor withdrawals this year. as a consequence, the founder and billionaire, paul tudor jones, last month said he is going to cut 15% of the 400 plus workforce. on the other hand, they are hiring quant traders. it's a bit of a change in strategy for the fund. they are cutting on the training activities and expanding on the quantitative activities. and singapore is always affected by those developments. >> he announced they will close its main hedge fund after almost three decades. in a letter, the founder wrote, "although i continue to believe strongly in our team, this market environment has not worked well for us." we've seen a lot of these for a long time, hedge funds not being able to cut it in this environment. does this fit the general pattern we've been seeing? >> it is unusual to see that one

of the founding titans of the hedge fund industry is going to throw in the proverbial towel. we've seen a lot of restructuring. tudor cutting certain teams, shuffling things around. in terms of actually just calling it quits like this, this is quite a big one. and it does -- this was not a run on the fund, so to speak. it's not like there were no other options here but to close, but it's clear that he made a decision that this was the best thing for him and his employees at this time, and for his investors to kind of unwind that main fund. >> the big currency story today is the turkish lira. this is a wonderful wcrs function. all these currencies are rising against the lira today after moody's cut its sovereign credit rating to junk on friday evening.

it cited risks related to turkey's external financing needs and a weakening in its credit fundamentals as economic growth slumped. turkish assets today are falling the most since the attempted coup in july. how much pressure do you think the government will pile on the central bank to deliver more rate cuts? what's the read as a result of this? >> it will be interesting to see how the central bank reacts. it has been an easing policy, it has been lowering rates since march. will it be able to continue to do so if the lira depreciates too much? that is one question. the other is, what does this mean for turkey's growth? borrowing costs are going to rise. we know that banks will have to reprice their borrowing needs. it is also worth pointing out that a lot of funds won't be able to hold their assets after the downgrade. they require at least two of the major rating agencies to have an investment-grade ratings to invest here. there will be some forced

selling. >> not so weak now is china's growth in the third quarter, mainly driven by so-called "old economy." the latest survey from the china beige book says the government's attempt to wean the country off of manufacturing resources may have stalled. they may want to reposition themselves in the new economy, but they are going back to their old playbook. >> that seems to be the case. this beige book survey seems to reinforce that. overall, the rating isn't too bad. it's the competition that maybe is a bit of a worry. the old economy drivers are back in action, property-led recovery is boosting manufacturing, also commodities. it's the new drivers that are stalling. retail, services, transport -- all a little bit weaker according to this beige book survey. economists are ratcheting up expectations for growth this year. 6.6% is the view now. they are also dialing back their

forecasts for additional monitory stimulus. >> deutsche bank isn't the only lender wrestling with the united states investigation into toxic mortgage bonds. credit suisse group and barclays are also in settlement talks with the justice department. what do we know, and what kind of settlements are we talking about? >> this is the last set of banks going through the long-running investigations into how banks treated mortgage-backed securities leading up to the financial crisis and whether that harmed investors or other banks in terms of how they were packaged and sold. these are civil investigations. the penalties thus far with banks that have already settled have been very high. bank of america was close to $17 billion, jp morgan was close to $13 billion. goldman sachs settled for about $5 billion. you do see very big numbers. credit suisse and barclays, along with deutsche bank, are now negotiating to close this out and figure out how much they are going to have to pay for

this. >> what happens next? >> they have a long, painful negotiation to go through at the department of justice, where the department of justice typically holds all the cards. >> commerzbank said today it would cut 9600 jobs and suspend dividends as part of an effort to cut costs. >> is this what we expected, or is it more or less? >> it developed over the past few days. people were at first looking for something like 2000 to 3000 job cuts. sooner or later, it became clear that this was not going to be a job cuts or revamp program that we've seen in the past, which was addressing small steps. it's rather the new ceo at commerzbank trying to bring an end to restructuring and make one great move to finish it up. >> i'm going to ask you one question. does this organization reflect you?

john stumpf: i am deeply sorry -- scarlet: turning now to wells fargo. we have been hearing from john stumpf, really getting hammered. he has now given up $41 million that was clawed back. is that going to be enough to satisfy congress? >> i think the biggest problem for mr. stumpf is that this obviously makes really good theater. a couple of takeaways i have. they are calling for more hearings. there were calls to have the fired employees come in for hearings and some calls to have hearings of other bank executives to explain if they do similar cross-selling types of approaches. even putting some pressure on the board, saying, if the board hasn't fired you yet, maybe the whole board has to go. and that is definitely going to raise some eyebrows among the board, and board members across the country will take notice of the anger being represented here. >> we know they have said something about this clawback of $41 million. beyond that, he has not given up any ground in discussions of

giving up his role as ceo or chairman of the board. >> he is saying that is up to the board, i serve at their pleasure. >> he is also the director of the board. >> exactly. the clawback -- he agreed to that. it was not exactly a clawback. it was a voluntary forfeiture, that stock compensation. that was something they wanted to offer to the house today to say, look, we are taking this seriously on being held accountable. it's definitely not going to be enough to stop the rhetoric. ♪

scarlet: welcome back to "bloomberg best." i'm scarlet fu. a dozen years ago, raegan moya-jones was working in sales at "the economist." every night after she put her young daughter to bed, she spent

hours launching her business aden + anais, which now brings in $50 million in annual revenue. it's the subject of this week's edition of "small to big." >> i started the company in 2004, a year after my eldest daughter was born. i went looking for a blanket. it was very common back home in australia, and i was truly shocked to find out the nobody in america had ever heard of muslin blankets. that was my aha moment. in 2006, i went to market the old-fashioned way, walking door-to-door to specialty stores, saying, i have this product, would you like to buy it? i definitely got a lot more no's in the beginning than i did yeses. the people who did say take it sold through within a week.

then i started to attend trade shows. the first trade show we did, we got 86 retailers. no access to capital was far and away the most challenging thing in the beginning. i got very lucky in that the private equity firm that ended up investing in aden + anais came to me through a friend who had worked with seidler equity partners, and we just hit it off. they invested in my business. seidler equity were my first private equity partners. i am now with a company called swander pace capital whose focus is very much consumer products. seidler were instrumental in basically teaching me how to be a successful ceo, whereas swander has enabled me to truly scale. i want to get aden + anais to create a true global lifestyle brand within the children's space. we are in 65 countries. i now have offices in tokyo,

sydney, london, montréal, and brooklyn, new york. we actually have just incorporated in china because we have expansion plans in china. for the first five years, we doubled in size every year. we still have wonderful growth 10 years in, nearly 20% growth year-over-year. i don't see it slowing down anytime soon. i'm looking at acquiring companies now to continue with the growth. i can do that now because we have such a strong brand. there is never a dull moment. that is for sure. scarlet: we've got plenty left on this edition of "bloomberg best," including exclusive interviews with jack lew, george osborne, and philadelphia fed president patrick harper. he provides his insight perspective on the dissent at the last fomc meeting. plus, insight from bloomberg's star-studded global summit. stay with us. this is bloomberg. ♪

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♪ sec. lew: we know there are a lot of people in america who do not feel they benefit from growth. you can win the argument on trade that the economy will grow. but people will say, what does it mean for me? the answer is we invest in the things people see affecting their lives. we have infrastructure that needs to be modernized. that creates good jobs and tells people that we care you sit in traffic for two hours on the way to work. nobody enjoys being stuck in traffic for two hours in the

morning. we know people worry about whether their kids will have the opportunity they had. secondary education, primary education, technical education, we can help people get the skills they need. childcare is a burden that most working families struggle with. we have had proposals to deal with that. we have had some success. we need to do more. i think that if we send a message to the government and governments around the world send a message that we are determined to have overall growth touch your life, we could get back to a place where there was a broad understanding there is a benefit from the interconnectedness. scarlet: that was u.s. treasury secretary jack lew in an exclusive conversation with bloomberg television's david gura in mexico city. this week, we had an exclusive opportunity to speak with the former head of britain's treasury. george osborne served as chancellor of the exchequer until he was fired by the new prime minister theresa may following the brexit vote. in his first interview since leaving office, he discussed next steps for the u.k. in its negotiations with the european union. george osborne: we did put it to the british people. what we now need to determine is exactly what now is the trading relationship with europe. how do we make sure london will remain a major financial center in the world? how do we make sure britons can live and study in europe like european citizens can come to britain, but have answers to concerns the british public have about that? these are all crucial decisions. no one at the moment has perfect answers to all those things -- which is not surprising, it is just a few months since the vote. but we have got to work harder as the british government and

british parliament to get the right answers over the next few years. my broad view is we should be ending up with a -- to use the jargon -- a softer brexit than a harder brexit. the economic consequences of a harder brexit will be more severe. >> there is a suggestion that prime minister may should wait until next year to trigger article 50. do you think that uncertainty would damage the u.k. economy if we wait that long? >> these are some of the most important decisions britain will make since the second world war. it is vital we get them right. a point i made in a speech at the university of chicago just a couple of days ago is that frankly, europe is not going to be in a position to have this conversation with the u.k. until the french and german elections are out of the way next spring and summer. whenever you trigger article 50, the actual hard bit of the negotiation is going to have to wait for a new government. until the german government has come to a position, it is impossible to get a decision in europe. that is just a bit of real politics. scarlet: let's move on to more of the week's most compelling conversations, starting with another bloomberg exclusive. the philadelphia fed president had never given a television interview before sitting down this week in dublin with michael mckee. they discussed a fed decision and division.

mike: three dissents at the last meeting, highly unusual for the fed. how divided is this policymaking group? >> i think people do have different perspectives on the pace of normalization. i tend to be in the camp of normalizing sooner rather than later. i wouldn't say there is great dissent, other than the speed at which we move accommodation. but nobody thinks we should do that quickly. it will be a shallow path. mike: how fast, how far? >> not clear. that is a function of how the economy responds as we start to remove accommodations. mike: at least one of the dissenters, eric rosenberg of boston, said he is worried about bubbles developing in financial markets. other members have suggested the same. do you see monetary policy distorting financial markets? >> i think there is the potential for bubbles, particularly something we watch in the third district, commercial real estate. and we are watching across the

country. the other thing i worry about is the possible distortive effect we are having on corporate decision-making. it is much easier to do a stock buyback to increase your share price than long-term investing in equipment. i think that we have to reverse overtime. mike: how do you reverse that? >> as the cost of debt goes up over time slowly, that will naturally start to reverse. mike: is there a point where that happens? i am asking that because interest rates are so low, when does it start to have an impact on corporate decision-making? >> don't know until we start making that transition. i think a shallow path toward normalization, and then watching and be careful about not reacting too quickly. let's see how that plays out as we make those changes. i think that is the appropriate policy. >> generally, the european banking sector is perceived as

being weak. lots of concerns about it. from an ecb perspective, what more ought to be done to restore confidence in the financial system? >> we would make several points. one is capital rates have gone up in europe. compared to 2009, 2010, core capital has increased by several percentage points. number two is our ecb. market policy is a big lever at the moment, which is helping the european economy to recover. there are some side effects and low interest rates, but if we were not doing the kind of accommodative policy, the european situation would be worse. as we repeatedly say and mario draghi said on friday, europe, if you like, has an over-backed situation. there are structural problems. european banks have to consider

what kind of reforms do they need to do, what kind of business model adaptation is necessary? i think it is a mix of as the european economy recovers, bank profitability will recover with that. our core is to make sure the european economy recovers. on top of that, there is a reform challenge, which is primarily for the bank management and investors to lead in solving.

scarlet: when it comes to monetary policy as an ecb board member, we are curious to hear what you think about what the bank of japan is doing with the yield curve control. it is intriguing if not new. it would be difficult to implement something like that in europe. would you rule it out? would you say there's something europe can learn from japan? >> i think it is fair to say all of the major central banks look at each other all the time to pick up lessons. of course, we would look with great interest to have that unfold. the common element is the essential to return and targets. kuroda is committed to coming up with different ways to show that commitment. in europe, we consider the strategy to be working, but there has been overlaps since quantitative easing took hold in 2014. it is not the case with inflation targets. we need to continue with that strategy. >> if there is uncertainty, you have the fed and brexit. when you talk to clients, what are they most worried about? >> the funny thing is there is always something to worry about. at the moment, there are a lot of uncertainties. at the top of them is the fed, the elections in the u.s., the chinese economy. i would put those at the top three right now. but there is never a decade when there are not things going on. as business leaders, your job is to sort through that which matters from that which does not. not look for perfection in

making decisions, but move your organizations forward. >> you didn't mention brexit. with brexit, will the big banks move employees? >> it is not the top three. it is in the top 10. brexit happened, so we are dealing with certainty. we know that happened. as the rules unfold, we will see what we do in terms of where we keep people, headquarters, resources generally. but it is not a crisis thing. brexit will unfold over a couple of years. the election is going to happen. the fed will move or not move. and the chinese economy is the big enchilada. alix: you said before you might have to move 1000 workers. do you have a better estimate of what you may have to move if you do see a hard brexit?

>> not really. we keep studying. there is no question some of our control functions will have to do out of the european-style headquarters. whether that is the risk, finance, compliance, some of the sales coverage positions you will not be able to do remotely. you will have to do that in-country. we are sorting that out. but london remains the key financial center across europe. scarlet: straight ahead, more insight from some of the biggest names in business at the bloomberg market's most influential summit. >> when i buy a bond i do not think, what will it do tomorrow? scarlet: this is bloomberg. ♪

♪ scarlet: you are watching "bloomberg best." i am scarlet fu. this week, bloomberg convened a remarkable group of global financial luminaries for conversation, networking, and thought leadership at the bloomberg market's most influential summit, held in bloomberg, london, and hong

kong. we interviewed many of the featured guests on bloomberg television. here are some of our more interesting conversations, starting with tiger management's julian robertson, who shares his thoughts on investing in an era of historically low interest rates. julian: i think it is tragic we have taken rates down this far. i know the federal reserves all over the world are trying to ensure prosperity. but in so doing, i think they are ensuring a huge bubble which will be pricked, and we will all be hurt very badly by it, i think. i think the negative rates

completely stop saving, because you are not only not rewarded for saving, but penalized for saving. i don't think that is good. i also think it has caused a huge bubble in the bond market because people have nowhere else to put their money unless they buy a beautiful piece of art, like our ceiling or some pictures or something of that nature. >> where would you put your money now? we will get to the hedge funds later, but if negative rates have distorted the markets, if central banks have distorted the markets, how would you be exposed today into the end of the year? julian: i think the only game in town are equities, and we have to play in the theater. >> talk about china. what opportunities do you see there? >> as you know, they are embarking on the stock connect program. they already have the shanghai-hong kong connect program, now they are doing the shenzhen-hong kong connect program. it means we will be more easily able to invest in the chinese market.

that is very exciting because the shenzhen market in particular has a lot of tech names, a lot of small companies that nobody knows about. this will be a very exciting opportunity. >> do you think this new stock link will make it easier for china to be included in the benchmarks? >> it will help. it may not do the job, because they are very strict in ensuring liquidity and free flows. with the restrictions in the connect program, although it is better than the other, it is still a problem. >> how long will it take? >> i hope it will not take more than a few years for them to open up more. to be realistic, we are talking five years. >> do we need consolidation in the european banking industry and will we get it? >> i was interested in mario draghi's comment. he went on the record saying that there were too many banks in europe. it gives me the cover to talk

about that. i think if you look at wells fargo, bank of america, j.p. morgan's. in my career, i was personally involved in one of the largest mergers. those banks have been created largely through mergers. the thing with mergers is you can get too many features. you can extract cost-cutting and create a more diversified, stable organization. the differential impact on j.p. morgan's number of drops in equities, activities is

proportionate. they can solve it much more easily. clearly in europe, that has not happened. >> do you believe europe is over banked? >> i think it could benefit from consolidation. there would be a lot of upside. right now, every institution is trying to be on a restrictive diet and shrink on its own. i am arguing that is much easier to do with two institutions together, that kind of slimming down and taking out cost and inefficiencies. it is much easier to do. i don't think it is a realistic option at this point in the industry. >> because of regulators? >> yes. from the moment you say too big to fail, the notion you are going to create bigger banks is never going to be viable. people think banks are already too large. that is an issue. i think if you look objectively at the banking landscape, i think there is room for consolidation. >> you and i have compared the, i guess, continuum of a cycle to

a baseball game. in those situations, you were very much the last out of the ninth inning. where are we now? >> the upcycle, the good times are in the seventh inning. >> the seventh inning. >> in other words, the game is more than half over, the easy runs have been scored. when you are in the seventh, you could be in the eighth and don't know it. one of these days, we will be in the ninth. i don't think we are there yet. i am not seeing bubble prices in most assets. >> you are not? >> the s&p for one indicator

sold at 32 times earnings in 2000 and it is 19 today. there's a big difference between 19 and 32. >> what about the other side of the risk spectrum? what about treasuries? >> well, you see, i am funny that way. when i buy a bond, i don't think, what is it going to do tomorrow? i say, is it going to pay off? if you buy a treasure today to get 1.5%, if rates go up, you will have an interim price decline but you will not lose money if you don't sell it. if you buy it today at a yield of 1.5 and hold it to maturity, you will get paid as you expect and make 1.5%. the question is, do you want 1.5%? the strongest thing i argue is we should not buy 1.5% to get 3%. because that is folly.

if you are happy with 1.5%, today high-yield bonds yield 5.5%. if 5.5% plays a role in your portfolio, you can buy it. they may go down in the interim, there may be a better time to buy them later, but if you buy them today and they turn out to be credit worthy, you will get your 5.5%. today, 5.5% is pretty good. >> people say we are in a bond bubble. what do you say? >> the reason people say that is because everybody thinks everything is priced to perfection. if there is a problem, you're going to have real issues and everybody is reaching for yields. i get that. but at the end of the day, your choice is cash, which is zero, or invest -- people have to

invest. >> in some cases, not have investing would have produced a better outcome. look at harvard's return. >> yeah. harvard was down. 2% to 3%. they should have stayed in cash. and yet, yale is up 2%. the pressure is great on everybody. ultimately, you have got to produce. there are always opportunities out there. it is just -- people give you money. you've got to make the money. >> you are only charging on investment capital -- >> the vast majority of what we

do is investment capital. >> how much pressure do you feel to invest? clearly, the pension funds are under pressure to allocate capital. they have to generate a positive return. >> we don't feel that much pressure to invest because we are trying to invest in areas we know there's quite a bit to do. i think in energy, we think there is a lot to do. if you give us capital, we will put that money to work fast. i think i would feel under a lot of pressure if somebody gave me money to invest in areas where i did not think there is a lot to do, and then you have got all of this capital, and what are you going to do with that capital? ♪

♪ alix: i'm bringing the terminal up to show the longer-term rate. the medium-term is the green line. that came down to 2.78% in the last fed meeting. scarlet: there are about 30,000 functions on the bloomberg and

we enjoy showing you our favorites on bloomberg television. maybe they will become your favorites. here is another function, quic. it will take you where you can get important insight into timely topics. here is a quick peek from this week. >> these islands do not look like much, but they are at the center of a simmering dispute about who owns them. seven countries have overlapping claims. there is one common player -- china, which has been jostling with its neighbors over maritime territories for more than a century. recent tensions have threatened to boil over, potentially dragging in the united states and even talk about possible war. here is the situation. china claims more than 80% of the south china sea within a border it calls the nine dash line, whose legitimacy it says is proven by a 1940's map. about a decade ago, countries started making formal claims under new u.n. rules. that led to a move from several nations to show ownership. china got the most attention. it started to build islands, installing runways.

that led to the philippines challenging china's claims in an international tribunal at the hague. philippines won the case in july of 2016. china's reaction -- the order is null and void and has no binding force. the reaction of the u.s.? pres. obama: the u.s. will stand with allies. >> washington endorsed the ruling and called for peaceful resolve. beijing says it has no intention of preventing commercial traffic but is simply protecting its territory. 1000 miles north in the east china sea, china is also locked in a dispute with its age-old rival, japan, over another rocky outcrop. the u.s. does not take a formal

position on their sovereignty, but in 2014 president obama vowed to defend them. so far, the dispute has been confined to jostling for position by ships and aircraft. here is the argument. there's one big incentive for countries like china and japan to stay friendly. it is called trade. the south china sea is a critical artery of global commerce, hosting $5 trillion of trade every year. on the other hand, given how quickly china has been building its military positions in the south and east china seas and how nervous that is making everyone, some analysts say there is a significant risk of armed conflict, perhaps as a result of miscalculation or mistake. the u.s. has responded by upping patrols of its warships and surveillance planes. but greater resolve may mean greater risk for the u.s. and the region. scarlet: that was just one of the many takes you can find on bloomberg and bloomberg.com, along with all latest business, news, and analysis 24 hours a day. that does it for "bloomberg best" this week. thanks for watching. i am scarlet fu.

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