coast, but that morning levels will -- warning levels will remain elevated. reportingfficials are o one storm related death. that brings the overall u.s. death toll from hurricane matthew to at least 21. wikileaks is releasing more e-mails allegedly belonging to hillary clinton's campaign chairman. one says "the less bill clinton because details about his private life could prove damaging." another reportedly calls chelsea clinton a "spoiled brat kid." nbc/ding to a new surveymonkey poll, nearly 70% of women say trump does not respect

them. before the video released of trump making lewd comments, that figure was 64%. hillary clinton would beat trump by five points. gary johnson gets 8%. jill stein is at 3%. vladimir putin says his country is willing to consider freezing or cutting oil output in cooperation with opec. president putin said he hoped opec would agree to limits on crude production in november. he said russia was ready to support that position. the largestom oil-producing nations are meeting in turkey this week to discuss ending a two-year supply glut. global news 24 hours a day powered by more than 2600 journalists and analysts in over one hundred 50 countries. i am mark crumpton. this is bloomberg.

>> we are less than 30 minutes from the close of trading in the u.s.. im julie hyman. e: i am joe weisenthal. mike: i am mike mckee. the question is, what did you miss? russia ready to join opec in limiting oil production. either a freeze or a cut sending crude to a one-year high. what happens when a highway runs out of road? we hear from the head of the bank of japan who says boj is in stimulus for the long haul. buffett releases

personal information saying he has never used tax carryforward. he is challenging the republican presidential candidate to do the same. julie: as we head toward the close, let's take a look at where the major averages stand. they are off their highs for the session but still gaining ground. they are helped in part by energy prices, which are lifting stocks across the board. is's get a check on what happening at the nasdaq specifically. abigail doolittle is there. it has been a good day for tech stocks. >> we do have a nice rally on our hands. the nasdaq is trading at a new all-time high. the composite index is not far behind, close to its all-time high. really, a nice rally for the nasdaq, and as we mentioned, it is being led by tech.

indexes include apple, .icrosoft, facebook we have bullish comments saying to meety are likely numbers for the third quarter. facebook has put up monster quarters, beaten at least the last nine out of nine quarters. probably not too much of a surprise there. perhaps a bit of a relief around alphabet, where he gets a little messier. facebook all year long has been thetop performer out of fang stocks because of quarterly performance. but just recently, amazon has caught up. this third-quarter earnings season we are entering into could be the dividing line. again, facebook has a history of putting up strong quarters. expectations are high. this could again be a dividing quarter.

we will know more in a few weeks. julie: i can see mylan over your shoulder. up today but down year to date. what is behind the pop today? a beaten-down specialty pharmaceutical company, but it is having its best day since november of last year after the company agreed to pay 460 $5 million in a settlement over epipen to the department of justice. however, the company is not admitting wrongdoing. , shares aretrength rebounding from a three year low. even so, the stock, as you mentioned, is still down more than 25% this year. nice boost, but not enough to push it toward the green. julie: thanks so much. joe: what you miss?

central bankers defending monetary policy over the weekend. the bank of japan director spoke with bloomberg in an exclusive interview. central bankers argue that short-term interest rates can be completely controlled while long-term interest rates are not. after the lehman crisis and the global financial crisis, all have beentral banks in the asset market to influence long-term interest rates. and they have been successful in reducing interest rates. , we are experience quite sure that this combination us able to control

not just the short end of the interest rate. i don't say we can completely rates, but from influenceence, we can and manage long-term interest rates. i think basically we have introduced some other majors. , we can cap the long-term interest rate to go

beyond our target. .e have introduced new majors when the boj introduces a te, how long do you think you will cap 10 year yields for? >> it depends on the economic life development. , we willime being , but if we are

achieving our targets, naturally, interest rates will go up, and we will allow that. , we keepime being long-term interest rates around , and if necessary, we can the target rate even lower than 0%. >> to what level? >> it depends on the economic outlook. if necessary, we can reduce both short-term and long-term interest rates. , then we are successful

up.ually, our rate will go >> but this is what the markets are trying to understand. they are concerned you will have to sell jgb's to stay around zero and that might be perceived ratesering, and send higher. >> with the last jgb purchase, coupled with negative interest rates, we have been able to smooth rate cuts. . don't think we can reduce we have to maintain this low toel of interest rate stimulate the economy and

achieve a 2% inflation target. >> are you telling me that even if the 10 year yield goes into negative territory, you will not sell jgb's? >> i think what we have made is change our monetary policy monetary-based -- control periods of the most important is the short interest rates. to achieve that, we could or decrease, but this not the policy intention. intention is to

maintain low interest rates from short to long. but what if it is perceived as papering and it goes higher? >> i don't see it as papering. , is a wayas you know to expand monetary policy by , but as i said, we don't intend to exit. we will continue to strengthen our monetary easing in the

coming months. for the time being, this will continue. this could go to less than 83 a important is most to achieve control. we can maintain and strengthen stimulative impacts over monetary policy. by changing the control, we have , and also, welity

marketress the financial situation. >> that was the bank of japan resident. gold futures are rebounding from the biggest weekly drop in more than three years. we will tell you what had etf's when we come back. this is bloomberg. ♪

julie: gold is staging a small come back today. themove last week was biggest weekly drop in more than three years. investors jumped into exchange traded funds backed by the metal. that lifted global holdings.

head ofblack rock's investment strategy about the rise in inflows. to considerou have gold is really having a role in portfolio construction. the world areound worried about equity volatility picking up ahead of the election and brexit. when they think about the lowest correlating asset, it is generally gold. a tremendousd vehicle to offset that volatility. julie: we have seen gold prices take a slump recently. we saw people put their money into the atf -- etf's. it sounds like you don't think people will get burned by having put extra assets into the etf's. >> i think if they are just looking for a pew or just pure alpha play -- just looking for a

could slowplay, that down by the end of the year, but if we think of it as a correlating asset, i think it is a good place to be. tool forthe etf world is a both institutional retailers and investors. do you think it's less a tool for retail investors and more useful for institutional? an interesting point. i think if we went back historically over the last 5-10 , most investors who were going to have exposure to the emerging markets did it through equity. they were not thinking about the retail or general public side of it. the when we look at risk-return trade-off, where the majority of the index is investment-grade credit, the risk return is really favorable. the search for yield is driving

them into that asset class. >> what you think we will see in emerging markets going forward? >> i think they will pick up. when people are thinking about how to appropriately use their risk budget, they are doing it not only with emerging-market debt, but also in emerging-market equity. i think the flows in equity and debt are going to continue. >> that was blackrock's heidi richardson. >> time now over a look at some of the biggest business stories in the news -- for a look at some of the biggest business stories in the news. deutsche bank agreed last friday on a 3% of extra yield above benchmark rate. a $3 billion private sale of unsecured bonds that nearly from augustspread

of 2015. duke energy agreed to sell its brazilian assets to china. the price? $1.2 billion. duke is also negotiating to sell its remaining holdings in central and south america. the company previously said it's $4.9 billion purchase of piedmont will accelerate its shift away from holt. of an acquisition of twitter appears to have waned. google, salesforce, and disney among the big names. those suitors unlikely to make an offer now according to people familiar with the matter. that is your bloomberg business flash update. julie: i just wanted to mention in regards to that last story, according to a headline from reuters, salesforce is said to

bid for twitter. a little bit of a leg down, but it still seems like there is a .ittle bit of skepticism joe: if we go into the bloomberg, you can see a chart, salesforce ticking down on the day. shareholders are not that enthusiastic about the price. coming up, as earnings season picks up, we will look at one chart that could signal the end of a recession. this is bloomberg. ♪

julie: we are on the cusp of a earnings season. all co-a is going to be reporting its numbers before the going to bea is reporting its numbers before the open tomorrow.

for the past five years, u.s. companies have beat analyst estimates by an average 3.6% margin. are predicting that the earnings recession is going to stretch into an 18th month. however, if there is indeed a margin of error, maybe there is cause for optimism. years,ack a couple of the earnings per share changes in the s&p 500. actually yellow, estimated in orange. if you extrapolate from the margin of error we have seen in the past five years, we could see an increase in earnings. a little cause for optimism, potentially. here is a chart of saudi banks. what a year it has been.

they were close to 1.4% at the beginning of the year. now close to 1.0. you kind of know the story already, or you should, about saudi arabia. the collapse in oil prices put a lot of pressure on funding. an unprecedented level of stress in the saudi economy banks to the -- thanks to the pressure being brought to bear combined with the collapse of oil. people betting on valuation several times. they are essentially betting that the reality the dollar will go down. this is another way of looking at stress in the market. >> i am looking at what is happening with the dollar, or

more accurately, what is not happening. very little movement today, which is what we have seen for months. thead a big run-up in dollar from 2014-2015 as traders positioned themselves for a big rate increase. look what happened when we actually got one. the dollar started to decline. predictions that a rate increase in coming did not move it june. oil politics have now moved it either. sent the pound crashing, but it has now moved the dollar index. if you are looking for a dollar move, it looks like you will be able to move with impunity. it does not look like the dollar is a constraint. >> the unusual thing is if you looked at a 10 year yield chart like that, you would see a

larger move. is not in step, curiously enough. seeing a half percent gain for the dow and s&p. the nasdaq has been the leader all session long. this is bloomberg. ♪

julie: we are moments away from the closing bell. stocks rebounding led by energy and run material producers. [bellringing] minute minute,ur market taking a look at what we saw in stocks today. all three major averages rallying, but the nasdaq was really the standout of the day, gaining more than two thirds of 1%, although coming off the high ofghtly by the close trading. you saw a bounce in oil prices. gaining on the day. even though the nasdaq composite record, thea new nasdaq 100 did. 500, again, energy

performing the best with that 1.5% gain. we saw industrials is the group that language to today -- today, little changed as we got disappointing numbers from dover, which makes a number of different industrial components. this follows on the heels of last week. we saw a rally among other kinds of disparate groups, energies, utilities, tech. we have not seen financials and utilities rallying together often. on the best and worst performer on the s&p 500. the plus side, mylan bouncing back after a three-year low on friday, the company coming to a settlement after pricing on its epipen.

and bristol-myers squibb following sharply after negative results from a drug for lung cancer. >> internationally, some interesting moves. the german 10 year yields are pushing further into positive territory, which is notable, up from 0.4-0.6 on the 10 year yield. saw the peso strengthened and after a pretty bad weekend for donald. the mexican five-year bond all so falling -- also up. >> we are going to do a deep dive on the peso in a moment. when donald trump goes down in the polls, the peso gets stronger. new polls show donald trump -- falling farther

behind hillary clinton. talk of an opec oil freeze getting closer. the norwegian krone getting hammered on week inflation numbers. same story for the russian ruble and the indian rupiah. >> on commodities, oil having a solid day. was a headline about russia being willing to freeze production. oil continuing to make a very nice move. another commodity that had a big day, aluminum. it has been doing nicely on perceived higher demand. a good day overall for industrial commodities. julie: let's take a deep dive into the bloomberg.

of the functions to follow the charts on your screen. looks over the last year of instagram and provides a break down of all the moves. in the middle, the central tendency is moves in the .1-.3 range. way over on the left, you can when dollar-peso is strengthening. if you look at the perception that the peso moves on trump, it fora pretty bad weekend trump. it was one of the best days for the peso in a year. >> remember the jobs report? there was no sex appeal, so

nobody reported on it. growth clearly deteriorated from the 200,000 plus we saw in the last year. very quickly, we will get that up. here we go. maybe. there we go. get this uphis and right. there we go. average, month moving six month moving average, my bed because i am doing the show for the first time in a long time. we see that job growth has come down. 192 and 169, and then they're red area there, that is the bege of jobs that need to recorded to absorb people into the workforce, people graduating and immigrants coming in. as long as those two lines are above the red area, unemployment --unlikely to fall, and that

on a claimant is likely to fall, and that keeps the fed on track to raise interest rates. even though we have ratcheted down a little bit, the fed is confident we can maintain this number. >> luckily, there was an in depth discussion of this matter last night during the debate. >> i missed that. >> yeah, wielded. -- yeah, we missed that. one other thing we watch is vix and volatility. year is inular orange. the middle line -- what this shows you is that the expectation is that volatility will pick up if you look out nine months. that's all the way on the right side of the chart. i wanted to compare this to other election years. the last election in 2012, going , thereis particular date

was more of an expectation of volatility in the last election cycle, and less going back to 2004. you can also include the financial crisis year, two thousand eight, but then that throws everything. it is fascinating that there is a lot of rhetoric about volatility picking up. the futures curve is not necessarily pricing and then. >> love those charts of vix term structure. julie: ccr v. that's how you get it. let's start with this matter of the election and how it is being priced into or not being priced into markets. do you think people are hedging enough against potential outcomes here?

>> earnings expectations are pretty high. valuations are pretty high. there are levels of volatility that are very low. you look around the world and uncertainty,mic and that's a dangerous combination. >> you have a chart. let's look at that. what is this chart? these are news mentions of economic uncertainty around the world. the reason it is so interesting is because when you back tested, it feeds directly through. this as talk about little further. we saw the charts that julie showed. there's not that much volatility projected out. there is no kink around when you

u might expect to see specific election hedging. even with central banks, the concern is that long-term yields may be pulling back. what do you think it explains the lack of hedging activity, given all this talk about risk? >> it could be a bit of complacency. the u.s. numbers are pretty low. they are rising, but most of the number is europe and china. a perfect's combination of that plus valuations, which are very high. plus earnings growth expectations, which are very high. you have never seen this level of earnings growth and a downgrade cycle with valuations this high. put all that together, and it makes it pretty vulnerable. >> markets like to climb a wall of worry. that says be worried.

is there a tipping point or a trigger point? will it be election day when the markets rollover if something goes wrong, or could they actually move before hand? >> third order, we had a big move in july. we have been flat ends. we -- since. worry. about a wall of but it is pretty much at average and has been for a while. anything, the vulnerability we see is that growth expectations are not too high. we are back in cyclicals, looking for 14% earnings next year. i think we are being set up for a little bit of disappointment. >> are you rotating back into defensive's? >> absolutely. we think, actually, if you look at the most under owned sectors

right now, they are all proxies because people have rotated back into cyclicals. the pushback is high, but this is where you see positive earnings and where the fairly high dividends are right now. >> to go back to us being on the cusp of earnings season once again, you have the election, but that's a little bit out. you have the fed, but that's a little bit out. earnings season starts tomorrow. do see companies beat by the same average they have been beating -- that's not the chart. byyou look at the margin which companies have been beating over the last few years, indeed, we will exit to the earnings recession or have quarter. in the third do you think that's what's going to happen or it you think specifically some of these companies will best it? my problem is not with this

earnings season. my problem is with expectations of 14% growth last year. with the samen, level of gdp growth, with fiscal spending, with bond yields and monetary policy, which has never been more stimulative, somehow, we think we are going to accelerate the 14% growth. >> what do you see as expected by the market right now, and what is your outlook for earnings growth, and why the ?iscrepancy >> to get double-digit earnings growth historically you need 3% gdp. that's pretty big. >> the macro environment just can't generate -- >> right. and we are getting the strongest fiscal expansion we have had over the last six years. >> historically, after a

presidential election, the markets go up because they are relieved it is over and we finally have a direction. >> i would just add to that the fourth quarter is normally the strongest quarter of the year. third quarter is normally one of the weakest. throng -- have had a had a strong third quarter and will have a week fourth quarter. >> coming up next, we will be doing deep dives and diving into politics. there is obviously a lot to talk about right now. this is bloomberg. ♪

house speaker paul ryan

has told republicans he will not defend donald trump. the speaker plans to focus on keeping the majority in the house. he says he will not revoke his endorsement of trump, but he will not campaign with him either. he held a conference call today with the house gop caucus. had this response on twitter. teachers with one of the nation's largest school astricts are hours away from possible strike. the chicago teachers union says its members are prepared to walk off the job as soon as tuesday morning. contract talks resumed in hopes of averting a walkout. hasuter rail service resumed at the hoboken, new

jersey terminal. eight of 17 tracks reopened today. the other nine will remain out of service as repair work continues. i train crash last month killed a woman on the platform and injured more than 100 others. u.n. secretary-general ban ki-moon is again pressing for syria to be investigated for war crimes. the u.n. chief told reporters today that he was deeply disappointed at the lack of unity on syria in the security council. news 24 hours a day powered by more than 2600 journalists and analysts in more than 150 countries. this is bloomberg. back to you. >> what did you miss? as we heard, paul ryan is telling republican lawmakers he will not defend donald trump.

warren buffett is calling out the candidate yet again for not releasing his tax returns saying -- here to break down the latest is been brodie from washington, d.c.. off it put his mouth where his money is today, but paul ryan didn't. it sounds like the speaker is trying to have it both ways and be a little bit pregnant. i am not going to defend donald trump, but i am not going to throw him overboard and take my endorsement back. >> it is not clear that withdrawing his endorsement would help his overall goal, control in maintain the house. if he were to reduce his -- two pull his support, it would be a major, major moment.

ryan is saying that hillary clinton is going to be president. he basically admitted that. denyid his members have to her a blank check. they have to stop her from having a congressional majority that could enact her priorities and legislation. that is what his priority is. julie: what is the likelihood of him succeeding in doing that now. we got the latest poll numbers on the presidential race that was taken not after the debate, but after the release of the on friday that showed the clinton had a 14 point lead. >> ryan has told members what they need to do in individual districts. it is very hard to get rid of an incumbent in the house.

these districts are drawn to be safe. we see a lot of districts continuing to be safe. there is a medium shot that the democrats can take back congress, but you also see that polls are changing rapidly, and it is not clear how much voters would be willing to vote for a democratic president and a republican member, essentially splitting their ticket. >> that's what i wanted to follow-up with. it sounds nice in theory for paul ryan to say, we are going to lose the white house, but let's protect ourselves, but our voters really going to respond to that? mostly don't they go down ballot regardless? >> usually. tickets planning -- ticket splitting is becoming less and less common.

for the most part, this could be the only plan they have left. it is their last best option rather than, per se, a great option. >> warren buffett put his money where his mouth is. he told us what he paid in income taxes last year. >> he did. he made about $11 million in had charitable giving. but he basically said hey, donald trump, you said you pay the same tax rates, and it's -- you said i take the same tax breaks, and that's not true. and by the way, you can release your taxes under audit. forhat are we watching next? >> donald trump is going to be going after republican leaders. he feels like he is in again --

up against a wall. it's unclear how he might lash out, but it's pretty clear that he will. it's also unclear whether we will be seeing more opposition research. fromve seen e-mails clinton's campaign chairman being released by wikileaks. there is more to come. julie: staying on politics, last night, donald trump got fired up about energy companies. mr. trump: energy is under siege, under absolute seizure. energy is killing these companies. foreign companies are coming in and buying these plants, and then taking care of their own. we are killing, absolutely killing our energy business in

this country. julie: but are indeed u.s. regulators solely to blame? we will look more at the energy sector next. this is bloomberg. ♪

julie: let's take a deep dive into the bloomberg. i taking a look at oil output i the two countries in the news today, namely saudi arabia and russia. saudi arabia and energy minister earlier today talking about his optimism surrounding opec in the agreement in principle to cut production. then vladimir putin coming out with a surprise and saying he was willing to freeze or even cut production. he was speaking at a meeting in istanbul. russian daily output is a little

bit above 11 million barrels. saudi output is a little lower. see both of them trending higher. russian output is at a record. even if they freeze at this level, as always, when you have ortoric or about cutting freezing production, is a going to make that big of a difference? >> the russian has become one of in most consensus currencies the world. i am looking at a three month measure of how much people are willing to play for relative downside or upside protection. you can see the big spike when the ruble crashed. people are paying a lot more for protection on the ruble. it's very quiet these days. even despite the oil volatility ofhave seen, there is a lot bullishness about the russian economy. there is a feeling they've got it under control.

has become one of the consensus long current seas. you can see there a minimal amount of activity. >> staying with energy. donald trump blamed president obama and by extension hillary clinton for the drop in coal usage. it's not just environmental regulation, it's fracking. gas declining a lot, particularly over the last 12 months. it shows the advantage compared with coal. natural gas prices have been higher. some companies may retrofit coal .lants instead of using gas >> is it regulation, or is it just economics? a look at we take passive versus active investing. our next guest says don't

believe the hype. passive investing is not taking over the world.

mark: florida's democratic party is suing to extend the state's voter registration deadline after hurricane matthew. refused rick scott to extend it. the deadline is tomorrow. the lawsuit claims many voters could not register because they faced a life-threatening obstacle. says colinginsburg kaepernick and other athletes for theot stand national anthem are "dumb and

disrespectful," but within their rights. she said "if they want to be stupid, there is no law that prevents it. if they want to be arrogant, there is no law that prevents that." say for buildings in china built in the 1970's were in a highly degraded state. poor construction quality in china has been blamed for oddly -- other deadly collapses. told acan mike pence rally in charlotte, north carolina, that trump stood tall. mr. pence: last night my running show the american people what is in his heart. showed humility to the american people and then he ought back and turned the focus to the choice we face, and i am

proud to stand with donald trump. mark: governor pence told cnn that being on the ticket with donald trump's "the greatest honor of my life." i am mark crumpton. this is bloomberg. julie: let's get a recap of today's market action. stocks fading a bit as the day when on. we went through last week without a daily swing in the market. we thought we were going to get one today and then it kind of faded as the day when on. it appears that the market goes up with hillary clinton's odds of winning, due to some believe that that would cause stability. not that investors necessarily

like hillary, but that is the status quo, and the status quo is good for markets. >> you could make the counter , if the that right now polls are to be believed, it looks like democrats could take over much of capitol hill, and then you would get an activist congress, and that is not good. >> that is not the status quo. our next guest says passive raretors are still a breed. so many people own s&p 500 and various bond etf's. but you made the point in a recent bond blog post that true passive funds would be owning the market portfolio, essentially owning all of the

weighted assets in the world. how big is passive indexing, really? about 10% ofnts the global equity market, but not much of it is really passive. said, the market funds are really tiny. investorshat index are not passive and how they build their portfolios. >> there is also home country bias, and you see that reflected in the etf purchases. people want to buy spider and the s&p because they know them. home bias is one of six reasons we talk about why investors are building their own portfolios away from market type -- margate cap indexing. in addition to home bias, -- market cap indexing.

in addition to home bias, most of us don't believe the markets perfectly efficient. we want more of one or less of another. there are tax and cost reasons all so that lead us to go with a more granular, homespun kind of portfolio. we are not really being passive and how we are doing this. >> define real quickly the market portfolio and a and explain to us, is it right for investors to deviate from it? portfolio came out of some research in the 1950's that led to a number of nobel prizes

in economics. the guy -- the idea is the only portfolio we can all hold at the same time is the market portfolio, which would be a market cap weighted index of all the investments available for us to on. the only thingt that consistently we could all alone at the same time, but in addition, it is also the most efficient portfolio as well. the guys who thought of it were smart and got nobel prizes for it, so it's hard to give it justice in just a minute or two, but it's a great model with terrific insight. but there are a number of in some shins -- a number of that are not completely appropriate and reflecting reality. it does make sense. the six reasons i was talking about a moment ago i think are reasons.

what we are seeing does make sense. peoples also a reason build these more granular portfolios that might not make a lot of sense, but by and large, there is a lot of justification for doing what people are doing. >> what is the take away? if the idea is that we are all active investors and there are few real passive investors, then what? what is the next step to what we should be doing? >> i think that are interesting implications from the onognition of what is going out there. there are people worried that all this extra indexing is going to lead to the markets behaving badly. i think that's somewhat misplaced. people are hanging their hacks

-- their hats on doing individual stock picking and doing something more sensible, but they are still active and not totally passive in picking prices. the second thing is -- and i important,is really is that investors, as they are building these portfolios, they could use some help and guidance in how to do it. the way that the industry has is helpingver time those who choose stocks, and the services for helping people to build portfolios and index funds. it's a growing and will be a rapidly growing industry that will provide a valuable service to people, and it's going to have to do it on -- do it at a really low fee.

people do not want to pay 10 basis points on average and then paste them at a 50 basis points to put the portfolio together for them. to see ae are going lot of disruption in the existing wealth management , and over time, we will see a very big growing segment of the industry that helps people to build portfolios of index funds and index etf's. on your point about costs, and i think that's important, a bloomberg reporter had a piece today that what seems to be happening now is that cost for a lot of people is the priority. i am curious for your comment on and how that could be changed if that is the wrong

direction? >> the thing about fees is its tangible and something you can control. the focus on fees and efficiency makes a lot of ends. investment decisions though our -- should be made on a forward-looking basis. performance, of course, is very important. if you save an extra 10 basis points in fees, that's different than a possible performance you might have, but the problem is, how do we really get our hands ?round performance past performance could be giving us the opposite signal to what we should expect in the future. i think investors are largely on the right track by focusing on cost and diverse occasion, and efficiency in terms of risk, and worrying too much

about trying to pick what going to outperform. that's going -- that's a very difficult task. >> but is this management structure owing to focus on that? most people buy these etf's and let them sit. but when you have market risk like the u.s. election, >> it, do you want to go in and change her portfolio? do you want somebody to tell you you should be doing that? we have seen so far in etf'sl with the growth of and index funds is very slow moving. we are not getting advice that's that's changing allocations based on daily changes and the prognosis for the economy or the political , but i think that we

are seeing a sensible and conservative sort of advice from these sorts of providers. >> fascinating conversation. we appreciate you coming on. >> this weekend, ecb president mario draghi says inflation in the euro should return to the bank's target by early 2019 at the latest. int we examine how this ties with the ecb's existing stimulus program. this is bloomberg. ♪

>> what you miss? with less then six months to go, is talking about

quantitative easing. our next guest says tapering would be all but impossible without a sharp tightening of monetary conditions. joining us is a senior economist. frederick, thank you for joining us. what is your prospect for the ecb? what do you think the market is specifically pricing in, and expect to happen? >> the big news last week was consensus.f possible if you read the story, there was no scoop. papering is no scoop. the timing of the story was a bit of a surprise. likely torket is extend as a first step.

>> if they are going to extend, how long are they likely to extend? they are running out of bonds to buy. >> that's true. a very important question in terms of inflation. , the real news was that the forecast would be extended in december. long-term inflation forecasts are for 1.6% starting in 2018. the question is longer-term whether inflation will go back to the target of president .raghi that's the trick for the ecb in terms of communication, to play with focus. julie: how much does market reaction factor into the decision-making of the ecb? there is a lot of debate about

that in the united states. how much do you think the ecb is weighing that, and should it be weighing market reaction? >> the ecb is in somewhat of a trap. the forecast is built on the assumption that market price in qe extension period the reason -- extension period the reason they did not extend qe was to announce some form of tapering. and may beo so, interest rates, than the currency will fit in to the forecast. difficulty. i think it's also may be the best option to use this

assumption in the forecast and to be as cautious as possible. >> if they do extend, how do they do it? how do they get around the fact that in the poorer countries they don't have enough to keep going six months longer? >> you have to look at the required information in terms of individual security. can look at the sheriff bonds and the total qe amounts. you can make an assumption in terms of how much cash at the share of bonds in the total qe amounts. -- you can look at the share of bonds in the total qe amounts. it's probably another six months of buying in terms of the german universe in particular. in december, they are likely to loosen those rules. , either youenough

deviate from capital, which is my favorite option, or you remove flow, which i think is the marketriced into right now. >> one of the things we have seen about concern of ecb germang is that as the currency rises, we see that mirrored in bond markets around the world. a place where anything is necessarily influencing the rate markets in all of those markets at the same time? >> absolutely. i think it's very telling. japan has a framework of monetary policy as well. may be the ecb could do something similar. i think for the ecb in particular, the big difference is italy, spain, greece, .reland, portugal

the end of qe will be a massive threat. in my opinion, at least qe has been efficient to boost inflation and create space for countries. that would be the big risk. countries. that would be the big risk. >> thank you so much for your time. we appreciate it. we will be right back with some comments from the fed -- on the fed. this is bloomberg. ♪

julie: there is a lot of speculation as to how the markets will react to a federal reserve rate hike. earlier today, we brought the topic up. at 10 yearook

history, there is absolutely no correlation between interest rates and emerging markets. it's really interesting. >> no temper tantrum in the past. >> exactly. but you see cases were interest rates went up and the market went up with interest rates. we could be blindsided if and when rates go up, and if they do go up, they will go up i have small amount, and i don't think it will be material. a lot of emerging markets are dealing with 5%, 6% interest rates. therefore, i am not that worried about it. haven't really been keeping up in terms of number and size. why is that? >> basically, because of the fear people have of markets, generally. but that's changing.

you can see more and more ipo's in china. is the emerging markets continue to outperform, you are going to see more ipo's. how do you choose countries? i imagine you choose structural reform. brazil doesn't look as good as mexico. how do you choose? >> refill is interesting because they are going through a reform process. small amount, and ichina looks. and india is very exciting. where we are in emerging markets and the politics folded in. how many basis points, how many percentage points in return do i pick up if i have the courage to be in emerging markets versus developed country stocks over the next 10 years? >> i would say a percent-10% difference.

-- 8%-10% difference. usually, the equities would be about double that. worldwidedy watching just leaned forward as you said that. our equities the new yield giver? if i am buying philippine stocks as a proxy because i cannot get a good yield stock? >> i think partly that is the case and part of that is the distortion brought about by central banks. by buying up so much government debt, they have really distressed yields. i think those who traditionally were buying domestic equities now have to look into the emerging world as an area to find both yield and potential appreciation. again, i think a lot of this is a distortion that starts in key markets and keeps spreading. you need to, what

know to gear up for tomorrow's trading day. this is bloomberg. ♪

i am julie hyman. alcoa kicking off earnings season before the open tomorrow. this will be the last conference call before the planned split of the company. >> tomorrow's news today. the federal reserve chair is ,peaking in sydney today tomorrow in their time zone. >> at 6:00 a.m. tomorrow, a big

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