♪ world most of valuable company says that it will pay a $38 billion tax bill. the president praises the move. china's gdp picks up for the first time since 2010. and getting real on the rally. the chairman of vanguard ying thatinvestors, sa he sees a slowdown after years of return. ♪ good morning everyone and welcome to "bloomberg surveillance."

this is what we are synced across the european stock market. a little bit of a lift. it is the first time that we are seeing stocks here in europe. we will get at robinson to explain exactly what is behind the latest move on bitcoin. we were talking yesterday about whether this was the end of the bubble on bitcoin. you can see the u.s. 10 year yields, pretty much unchanged. according to a lot of people, that should stay close to that 2.6. coming up, we talk markets and chinese gdp, then a little bit later on we will have an exclusive conversation with italian businessman about his new venture. then we'll talk about brexit and

the outlook for the u.k. economy. let's get to nejra cehic. nejra: sarah saunders has said president trump will support the leadership plan for government funding. speaker paul ryan is trying to bring reluctant conservatives on board. they are trying to avoid a shutdown by temporarily funding the government for 4 more weeks. theresa may's hopes of solving withawing frosty relations president trump looked to be fading. her team wanted to schedule a conversation between the two leaders during the annual economic forum. bitcoin's roller coaster start

to the year has seen more while the moves, plunging below $10,000 for the first time in 6 weeks. the digital currency was pushed across a trading range of more than $1200. bitcoin is still up 1000% from one euro ago. bojrnal discussions among policymakers with the need to eventually start discussing policy normalization. according to people familiar with the talks at the central bank, some of them inc. that the change is natural given the improvement in the economy. nestle wants to -- to sweeten japan's downtimes day. the company struck a deal with --, giving it exclusive rights

to the breakthrough product with the pink hue and sweet flavor. they went on sale today in japan as well as online. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. bloomberghic, this is -- i am nejra cehic, this is bloomberg. francine: it does not get better aan eight pink kit cap -- kit_kat. mackenzien china, tom joins us from beijing. it seems like the markets are not taking much notice of this. visit -- is it because it is pretty much broadly in line, or is it because they do not trust the numbers. >> i think probably because it is broadly in line and you had flagginggging to this

this -- flagging this. is noteworthy that you had china coming up at the beginning of 2017 saying that they would see a moderate slowdown. you have a very focused tackling, in terms of the regulatory environment on financial risk. with also point -- we also point out that we have things like 2017.l growth, up in that helped with the profitability of china's corporate sector. consumption plank an increasing role for the economy as well, coming about -- carving up about 60% of the growth picture. there wasf the risk,

not a great deal, but as you point to, the questions about the data itself has resurfaced. keenuthorities here were to stress that they are working on that. it is suspect in many people's minds that you have a picture of 6.7%-7% growth in 2017 in china. that has braced -- raised some eyebrows. francine: so china's gdp grew more than expected, what does that mean for the global economy? gentlemen, thank you both for joining us. for 2018? positive massive --there is a of the japanese business cycle

chinese -- chinese business cycle. if you look at the hard data that the economist came up with, that plunged in 2015. it boomed over the last 18 months and it is rolling over again. we saw the big upswing in chinese and global growth. now the tightening policy is up again. everything is stable. >> i am completely with trevor. i would add that the pickup in premier xiall about taking control of the country. he made it clear that they need to manage the financial stability of the system. growth rates will slow down.

i think the market is getting excited over an old story. is kind of done -- it is kind of done. >> some of the heat will be taken out of interest rate rises. don't worry about slowdown. to aine: we were speaking chief economist yesterday and you look at the composition of gdp, and china will probably be less of a supporter of global economies. do markets realize the different china that we will see in 2018? >> i don't think that they do. one challenge is that the goldilocks economy that we have been enjoying, the porridge could go cold again. if it does go cold, it will be china. happening, itped

feels like the second half could be a different story. francine: you look at some of the manufactured in china, how long does it take for this economy to focus on consumption? >> i think it is happening gradually. i think the idea that china will -- dominantinance consumption economy is probably at least one decade away. the key thing for me is that if china slows down, they slow down on infrastructure, that has a much bigger impact on the japanese and european economy, plus of the emerging-market economies. they sell it elsewhere? the trade between china and some of the neighboring countries has been quite significant. >> i think america is going to

be strong. to a certain extent i think the trigger for this upswing in all of the economies was the china slowdown in 2015-2016. we've seen china related upswing globally. for the moment i think there is some self feeding growth in america. becauses harder to say, credit growth in europe has flattened out. europe is growing very strongly at the moment. francine: thank you both. both stay with us. apple says that it will bring hundreds of billions of overseas dollars back to the u.s. to pay eight $38 billion tax bill to invest in domestic jobs. guest.now joined by our

who is set to win from this big spending plan? >> the money is going to be in many different places. $30 billion over five years. 10 billion alone is going to data centers in the u.s., which makes sense, because this is a company that is going to need more data centers. and are doing more content, of course icloud itself. that seems like a natural progression from apple. another 5 billion is going to a fund specifically for advanced manufacturing in the united states. think that we will also see maybe around $10 billion to try manufacturers

to the united states. there is a whole list of suppliers that supply to apple and of course president trump, tim cook, many others want to see more manufacturing done in the united states. that is essentially non-us companies doing this manufacturing. they will probably try to bring some of them over to the united states. wencine: does it mean that are going to see more companies set up in the united states? >> i think we will see more, but not eight rush of them -- a rush of them. i think that many companies, even if they are getting many incentives, they realize that it is a risk, because apple is just one clients. one client is not going to be enough to sustain them in the long-term. --re will be a long-term they have to make sure that there will be a long-term option for them in the u.s.

they will be willing to have that conversation with tim cook, donald trump, and many others in the united states. francine: up next, getting real on the rally. joinsairman of vanguard us. talk about his outlook on the equity markets. we will ask bob and trevor to weigh in on apple. this is bloomberg. ♪

♪ economics finance, "bloomberghis is bitcoi surveillance." bill mcnabb expects more growth

this year. concerned that the u.s. equity market has become irrational. he made his comments during an exclusive interview in beijing. >> it is not coke or pepsi. we are 20% of the u.s. mutual market. i actually think there is quite a bit of opportunity for us to continue to take our message. we pay attention to word-of-mouth. the loyalty of our clients has driven growth. many of our investors keep putting more with us overtime. it is less about attracting brand-new investors and just building deeper relationships. >> equities have plunged in 2018. at what point does it become irrational? >> i think we are getting close in the u.s.

valuations are very high. every piece of news seems to be priced in. for the first time since 2007, we are actually looking at a situation where a balanced portfolio my outperform an overall equity portfolio over 10 years. nobody can predict what is going to happen in the next 12 months. having said that, i am sure the equity market will continue to skyrocket. we are expecting the next decade to be very modest on the equity side in the u.s. a little less so in asia and europe, but it is still overall lower than long-term historical averages. >> how do you think the markets are going to digest the expected fed rate hikes? >> very carefully. i think they are built-in at this point.

it drives a pullback from the rate hikes or on acceleration of the rate hikes. i think the thing to watch our wages -- are wages. that all of a sudden hikes unexpectedly coming you will see eight pullback in the market. >> in terms of the tax cuts that we have seen in the u.s., how are those cuts starting to play out for corporate's? how are they going to spend that cash? >> it is too soon to say, but certainly we have seen companies doing hiring. we have seen companies talk about putting more money back, factory openings in the u.s., and so on and so forth. this is the first time in many firmswhere i think u.s. feel like they are on even footing globally, from a tax

standpoint. i think you will see reinvestment. my guess is that you're going to see some potential investment that could drive productivity up. views onre your cryptocurrency? >> i think the blockchain technology that underlies cryptocurrency is one of the most exciting development in technology. there are many potential uses for it and applications that we're just beginning to talk about. the cryptocurrency trading that is going on worries me. i think that is a lot of leverage and speculation. someone saw me early in my career that is something seems too good to be true, it probably his. i think it is a strong idiosyncratic risk. >> that was bill mcnabb on the u.s. equity markets and current

strategy. back to talk the future of the fed, bob and trevor. bob, when you listen to the chairman of vanguard, he was cautious on the markets, but is also saying that there are a lot of positives out there. are we in bubble territory now? of depends. to me it is not very real. i think the interesting market and the one that will define the outcomes is the bond market and how quickly and aggressively that market read prices -- re-pr ices. that will drive everything else. on the longer-term horizon, it

is the bond market. the fed is kind of predictable. it is the bank of japan and the ecb. buzznk that is the little of excitement in the market. maybe we are a bit too complacent on the ecb. that's where the shock may come from. francine: we had the chief economist of deutsche bank est to that the bigg the economy is the sudden re-p ricing of bonds. because communication would be defined by the ecb, is there a danger? >> there is always a danger. i think equity markets are on the expensive side now. it is at 33 times 10 year average earnings.

i don't see why it should not get into that territory. this is already the third longest cycle since 1850, another 18 months and it will be the longest cycle. real interest rates are zero or negative. if there are surprises that cause a sharp correction, they are probably central bank surprises. at the moment interest rates are just too low to slow these economies down. francine: what if we do not see inflation? >> that extends the cycle. there is a possibility that china cools down and commodity prices drop again. suddenly we are talking about the fed doing 2 rate hikes. i think there is a real chance of that happening.

>> if we do not see the inflation, that means wage increases are coming through. that leads to other kinds of social issues. this demand for inflation means wage inflation. worker starts to benefit, we are going to slam the brakes on it. that is a real challenge. francine: there is no risk of reversal at this point, right? are we beyond that because of the cycle that we are in? >> my personal mission for the at ayear is to buy bonds significantly higher level. a 10 year time, i am going to be able to bite bond yields at perhaps 3-point-something. inflationhink global

over the next 10 years is going to inflate that for me. >> people are not bind and utes buyinging utes -- they are abecause fixed income investment, and people are living longer. i would agree that wage inflation is critical. comcast increased the pay of their workers because of the tax cut. that is interesting. a stimulus like this could be risky, because the central bank wants to take the punch bowl away and president trump is putting some vodka in it. francine: on the tax cut, we were talking about the apple story. are we going to see a wave of companies come back to the united states?

does that support the stock market in the united states? >> i think it does. i think the tax cut has the potential to supercharge animal spirits, the potential to increase capital back in america. i think it is generally the kind of thing that can turn a sort of mid to late cycle rally into something quite positive. francine: what about the flipside? where you see the canary in the comite -- coal mine? >> i think the bond market is a trigger. i think the market getting more concerned about chinese growth is potentially a trigger. i think crude prices is potentially a trigger. i think there are a lot of triggers. i can make a case that if italy votes a certain way, it is game on again in the eurozone. >> investigators have indicated

that they are -- at the moment. >> i was involved in a risk call yesterday. my colleague highlighted that perhaps for the first time in the last 10 years, the message from investors is all in. sentiment is all in and positioning is beginning to get there. >> company directors in america are all in as well. that might be rational exuberance at the moment. francine: we will have plenty more of this spirit conversation with trevor and bob. we will talk about brexit next. this is bloomberg. ♪

♪ economics, finance, and politics. i francine lacqua here in london. is nejra cehic with the bloomberg first word news. nejra: sarah sanders has said

that president trump will support the house leadership for temporary government funding ahead of friday's it shut down. house republican leaders are pressing ahead with a plan to avoid a shut down by temporarily funding government for 4 more weeks, but shutting out democrats and their demands for a deal on immigration. bitcoin has seen more wild moves over the next -- last week for hours. it took the world's biggest digital currency across a trading range of more than $2600. bitcoin is still up 1000% from when you're ago. vanguard group's chairman has d concerns that the u.s. equity market has become irrational. b made the comments in

an exclusive interview with bloomberg. >> valuations are very high. every bit of good news seem to be incorporated into the market prices right now and there is not a lot of room for bad news. 2007,e first time since we are looking at a situation where a balanced portfolio my outperform an overall equity portfolio over 10 years. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. cehic, this is cehicerg -- i am nejra and this is bloomberg. francine: theresa may and the french president will meet today. the leaders are expected to discuss bilateral issues including the issue of migrant mps. the specter of brexit will hang

over the meeting. will be -- this be the least contentious meeting on her plate? first of all, they are meeting in the royal military academy, not london. >> the message is that british troops fight alongside french troops all over the world. we remain allies and we will work together even though we are outside of the eu. don't worry, friendship will continue. francine: but they are divorcing. [laughter] what does theresa may need out of macron? dish need a better leader that will give her a better deal out of brexit? >> while she does -- she does. although there has been a nice

gesture, a lot of the top has been that britain is going to give a little bit more money towards security around the kelly and dealing with refugees around their -- there. theresa may wants to persuade macron that a good brexit deal of their interests. sort of seean also that may be a good deal that is a bit more on our way, you can see how that might be in macron's interest. francine: how awkward is davos going to be? president trump is speaking on friday. will they meet? >> we do not know. the signals that we are getting difficult is terribly

to arrange to meet people at davos. the security is always moving people around. if they really wanted to, i think the americans could facilitate a meeting. it appears that they are not. it is still quite awkward. francine: is it really a big deal if president trump gets invited to the royal wedding? >> theresa may was asked about this yesterday. she said that it is not my problem, not my guest list, which is the right answer. [laughter] as you know. it is clearly the kind of thing that trump would like to come to. the problem is that anything that trump does in the u.k. now risks being mobbed by protests. the last thing that the royal family wants is a controversial wedding. this is supposed to be a unifying moment for the nation.

for is what diplomats are for, to find a way around this problem. is there interesting to see theresa may wash her hands of the problem. francine: is this an indicator for trade or is this completely far-fetched? >> it is the biggest bit of nonsense that i have ever heard. i am not entirely sure what good os inver come out of dav the long run. i think that behind the scenes, for example with brexit, there are a lot more pragmatic

discussions going on. i think behind the scenes, already so far in the last year, we have had a lot more progress than people thought we would. likewise with trump, he has lasted a year longer than most people thought he would. the market is generally saying that we like this guy. i think a sense of perspective is important. >> we are going to start disagreeing there. francine: and it was going so well. >> i agree with some of that, but i think that the markets beyond brexit are still quite bipolar. there has been straight mainly because the dollar has been weak -- strength because the dollar has been weak. a no deal brexit still seems plausible. they andbility that

upstaying in the eu -- end staying in the eu. the market is stuck right in the middle, because it does not know which outcome. if you're a u.k. based in festered, you should make sure that you have a a lot of sterling in your portfolio. francine: what is your base? we have ing and jim o'neill says that we could go to 150. could have more dollar weakness than pound strength. >> the pound's side of the argument, it fell 15% on the referendum results, i still think because it go down by

10%-15%. there is still big two-way risk. >> for the last 10 years, the fed, bank of japan, ecb have all attempted to use the policy of the valuation -- devaluation. having a weak currency probably reflects something. goodine: i actually have a trade weighted euro to show you second --ond -- and a in a second. i had someone come on who said that the chance of a fresh general election have increased? what are the chances of that? >> i would say about 20%. there is a small chance of a big think happening.

that is one thing that those of us british people struggle to get our heads around. where used to a sort of mainstream, stable, everything is basically all right sort of thing. now the labour party thinks that there will be another general election. they thought there would be general election in the second half of last year. the conservative party really does not want to have one. on the other hand, can you theine a scenario in which government collapses absolutely? it is possible to imagine a scenario where the government collapses. can you imagine that leading to a general election that the largest party does not want to have? yes. you can sit there and play out this scenario. i think -- do i think it will

happen? no. and that is because lots of people do not want it to happen. you would be a full to say that something will not happen in british politics. francine: what does that do to stocks or u.k. assets? >> we are in a world of a lot of volatility, so i would rather not get into that. this is a great joke. francine: thank you so much. thank you for coming in this morning. bob and trevor. up next we have an exclusive conversation with the italian

businessman. we will talk of elections, npl's, a tight credit, and the future of italy -- italian credit, and the future of italy. this is bloomberg. ♪

♪ this is "bloomberg surveillance" and i am francine lacqua here in london. was ceo ofthis man --. company launching on the italian stock exchange, his company will finance the development and a restructuring

of small and medium-sized businesses. welcome to bloomberg. >> it is special because we already know what we are going to do. special because investors and sponsors are very aligned. the sponsors will make money only if investors make a lot of money. the target is very clear. wayorting smes and a smart -- in a smart way. francine: are you buying anything? >> we will buy a little bank to

speed up the process in order to be operational from the very beginning. before the end of the year we will be on the market. that will not be the target. millionbe putting 500 into this bank to create a special bank -- a specialty bank. i strongly believe that in the future the industry will be led banks androng generic very specialized platform banks that target one segment of the market and serve it in an excellent way. francine: do you think that the current italian banks, the bigger banks, are not lending enough? >> there is room because there is a second layer of sme's. there is room for a bank

sme's.ng second-tier sme's that have the potential to express. byy are very much disturbed the leveraging. the industry is going through a total redesign. banksopinion, specialty will have a major role. fully digital banks will enjoy it quite an advantage. if you do not have a legacy with the past, you can really design yourselves for your customers. francine: do you want to be fully digital? >> fully digital and excellent in terms of professional skills. we will have some of the best people to lend.

considered at are likely -- unlikely to pay back by banks, but have potential. we will service npl's in that area. francine: so you are starting from scratch? you are buying a small bank with a license and then starting from scratch? >> it is a startup. with alerated startup clear ambition. francine: you are confident that businesses are getting stronger and you are not to worry about politics? >> as far as politics, i believe that sme's will be a priority for any government. as far as the growth of the country, we are back in the positive area, and that is good.

investments are eventually increasing again. that is also thanks to a number -- smart tax measures tax measures that the government has taken. it is a smart move to encourage investment. exports are growing. the system isat supporting companies investing 2d getting international are good moves in the right direction. francine: is the ecb doing the right thing? >> i think that the pressure is right, because we have to accelerate the cleaning of the italian banks balance sheets. that certainly creates a number of problems in a number of banks. the actionacilitate of a bank like ours that targets

exactly those kinds of customers that are thrown out by other banks. [laughter] francine: thank you so much. he stays with us and we will talk more about the landscape for italian growth. will this mean for the future of the european union? we discuss that next. this is bloomberg. ♪

♪ economics, finance, and politics. i have francine lacqua here in london. opinion polls suggest that the country's political system could be paralyzed after elections in march. the right coalition is leading with about 34%. it would mean that no single party would have a majority to govern. this raises concerns across several european countries. our guest is still with us to talk of elections and the future of europe.

i guess the concern for a lot of investors is that i have half of them come on and say italy will be fine and the other saying that if it derails the reform, it will hurt initiatives. >> italy will not derail from reform -- the reform trend that we have taken. we have to be more courageous and aggressive. what the government is doing to foster investment is very good. to foster innovation is very good. majors that are really pushing the economy up in a structure away -- measures that are really pushing the economy up and a structural way are very good. francine: why not wait until march? i am presuming that during

this fundraising, most of the money will come from outside of italy. that means that if you have a good project, the trust in the country is significant -- sufficient to put the money. italy has done quite a good job in the last six years. i remember when we had to create the emergency government to tackle the heart issues -- hard sues. we saved the situation and kept italy independent. from that time a number of reforms have been made. people believe that the country is on the right track. francine: at the time when you are in politics, how much more difficult was it than you thought? i will say something that is

probably not obvious, but i spent 2 parts of my life in the public world. the post office was considered the impossible task. we proved that bite doing the right thing -- by doing the right thing, we turned a very old public body into a very aggressive kind of company. when i was minister, we realize that if you are courageous enough, you can change things. we liberalized the credit world and the energy market. did a lot of things. francine: it was not long enough to see what the next phase was.

we need to finish by talking about bitcoin. what are your thoughts? >> blockchain is a technology that will help the world in a number of industries. currencies are very dangerous. they are a very dangerous investment object. francine: thank you so much for joining us. formerly the italian minister of development. "bloomberg surveillance" continues and the next hour. tom keene it joins me in the next hour. we will be talking brexit and will also be talking davos. will president trump and theresa may meet?

francine: the nation's g.d.p. picked up for the first time

since 2010 in china. we're live from beijing. apple's cash back. the world's most valuable company said it will pay a $38 billion tax bill as it sends hundreds of billions of dollars back to america. the chairman of vanguard autions investors after he has seen a slowdown after record returns. good morning, everyone. francine lacqua with tom keene. tom is getting ready for davos. it is going to be amazing. we're most looking forward to. this is a little bit on the gossip side when it comes to davos. if you're theresa may, do you try to meet the president there? om: this is the reality with davos. how do you turn left on promenade street on thursday night? the traffic is always horrific.

francine: the president i'm sure will be on complete lockdown. that is a very good point. take a map. i enjoy tom keene in here. tom: i'm been walking around the new office. watney street. it is a narrow street. you really capture the spirit of it. francine: you're in london. et's get straight to the first news. >> the rate of economic growth in china sped up. 2016. road 6.9% in that gives chinese authorities more room to get rid of expected borrowing. exports were better than expected last year and so were household income. republicans are betting that

democrats won't force a government shutdown over immigration. the government runs out of spending authority tomorrow. they are on track to pass a one-month spending bill today that would force any to decide whether to block the measure and keep undocumented immigrants from deportation. there has been an internal discussion on how long the current stimulus program should remain in place. according to people familiar with the matter, they believe they eventually need to start talking about exit strategies. still b.o.j. officials see a long way to go before they reach their goal of 2% inflation. lobal news 24 hours a day by analysts in more than 120 countries. tom: thank you so much. equity bonds, commodities, bordering what is going on in the marks.

we'll catch up with bitcoin. not much going on in oil. next screen. the vicks showing the challenges -- vix showing the challenges. a little bit of angst in the market, even with the close of 26,000. the story, grinding higher. alberto gallo with us at this hour. 2.5%. there is your obligatory bitcoin quote. francine: european stocks climbing with the euro. ay be averted. goldman sachs flat. tom: the view from 60,000 crypto -- the view of bitcoin is simple. this is back to 2010. it is remarkably on the trend that it has been on for those many years. it has been a gradual trend up. the moving averages are set way,

way low. down at shocking levels like 2000. it is the most interesting shot. you're not going to trade off that. this is with bitcoin with a little bit of lift as well. we got some news. francine: we certainly do have some news. this is emirates airline. a-380's worthrbus $16 billion. this tom is significant. we spoke to guy johnson. had they not had a big order from emirates they may have scrapped the a-380. it seems they are staying live. tom: it is a huge thing for airbus. 16 options as well as part of that 36 units. francine: significant. again, it looks like the a-380

will survive as it hinged on some kind of deal with emirates. let's get back to another top story this morning. glpped sted full year picked up in 201. we're now joined by bloomberg's asia news desk editor. based in beijing. this seems pretty much steady as she goes but we also understand the composition will be different. >> yeah. work constant state of in progress you could say. they are always working on the data looking at the competition and trying to make it more representative of the burjonning economy here. the world's second largest as

you said. i mean, it certainly has the makings of a very good news day. the headline g.d.p.. both on the quarterly level and annual. side. ating to the top showing in the composition a real sort of pivot that they are aiming for here that switch away from the smokestack, old economy industry seems to be taking place. we saw retail sales growth outpacing that fixed asset investment and services playing a really big role in driving growth and supply here. francine: what can you tell us about deleveraging and how soon can we have a new pboc chairman? >> it seems from the consensus of analysts that this number for

2017 does give them room to sort of push a little bit harder on the deleveraging front. their aim has been for the past year to cleanse risk from the financial markets that has taken many forms. most of it targeted at trying to slow this really rampant credit growth that has taken hold in china since the global financial crisis as they basically leveraged or spent their way to that really strong growth rate or stable growth rate at any rate. in terms of where we are at with the pboc governor, there hasn't been any word on that we have the national people's congress coming up at the beginning of march and there are some expectations that the new governor will be replaced. -- announced. tom: on a relative basis, that seems outstanding. do they treat sub7% g.d.p. given

the global economy with the same enthusiasm they treated 8% g.d.p.? >> yeah. there has definitely been a managing of expectations over the past couple of years by the state media. vie aia the regular thration policy makers and regulators have been giving. it is definitely conveyed as being a success but also the lower levels, transforming the economy. it is given a positive spin i suppose. it is moved away from this very export-ledlow end manufacturing economy to this high end tech logical economy they hope to achieve. francine: thanks so much. joining furs the hour is alberto gallo. good morning u.f.o. when you

look at figures coming out of china today, were you not expecting any ugly surprises from china? >> yeah, you don't want to be a china bear. there is a lot of leverage. there is 3 trillions of reserves and 23 trillion dollars of private savings. that's what normally economies forget. you take a very small part of the private wealth, through the pension funds and government, you can recapitalize banks and you'll probably have a less dovish pboc chairman. tom: your great claim is relative strength of nation to nation in the debt markets and particularly the stressed debt market. what thermometer does alberto gallo use to measure china's financial system. ot that you check it every

morning. what measurement do we use to judge their financial markets? >> it is not the same as other once. tom: agreed. >> because it is not a free capital market and not a democracy. you really want to look at capital which you can try to estimate in various ways looking at reserves and flows. but if those 23 trillion dollars of savings stay in china then they get reinvested in the banks and state-own companies and they allows for deleveraging. you can have a very large equity base against the 1.5 trillion of nonperforming loans and bad bank assets that you have. francine: talking about trades, it seem that trade has increased between china and some of their neighbors. if china changes the competition, that is going to impact the u.s.

this will impact some of the manufacturing in europe. >> we are worried about the countries that have become a satellite of china over the last decade. particularly to the industrial complex of china. australia for example is one of them. australia's mining and metal export made around quarter to a third of total exports. they are trying to engineer an economy. they benefit a lot from china's inflow boose property but it takes a long time. other economies that are very linked, for example, brazil or some of the african countries. china is able to engineer itself towards a more consumer-based economy. they have a lot of private savings. they don't have made them overly dependent to the chinese industrial countries and those are those are the ones we are

worried about in the emerging markets. focus on countries that are more diversified. they didn't rely on china over the last 10 years. francine: coming up, we speak with anthony gars inner. former u.s. ambassador to european union. 5:30 a.m. in new york. 10:30 a.m. in london. this is bloomberg.

>> this is bloomberg "surveillance." emirates may have thrown a lifeline to airbus' struggling a-380 program. they have ordered 36 more to have planes at a list price of $16 billion.

airbus said they risked being shut down if they didn't get an order from emirates. they are the biggest operator of a-380. tom: thanks so much. jet lag, folks. i'm still on the three-day jet lag. thank you so much. on a bigger topic than stephanie baker is used to pitching to us, apple. it is not about the iphone x. does the president take a victory lap because actually we're seeing something a lot of people never thought would appen, kajillions of dollars migrating back to the u.s. >> he has said how great his tax reform package is. to give him credit, this has been underestimated, the impact of this tax bill on multinational corporations like apple, amazon, google and how it

will change their behavior. tom: what i noticed, it wasn't like -- it was oking we're going to build a new spaceship in some american city and everybody goes oh, that means construction jobs. at the minimum they are going the spend money buildings things, right? >> they are going to build a new campus and plan to create 20,000 new jobs that they will contribute. $350 billion to the u.s. economy over five years. so it could have very wide-ranging effects. they are also going to increase their domestic manufacturing fund from $1 billion to $5 billion in an effort to show not all apple products are made overseas in china. tom: $58 billion in free cash flow in the next 12 months. >> will other companies follow apple or is apple so different because they are seeing so much cash? >> they have the largest cash

pile. it will have similar if he cans on, you know, the likes of amazon and google, how they will react to it still remains to be seen and will change their behavior. it will result in repatriation of cash and higher tax bills. and stock buy backs and increased dividends. francine: when you look at the news from apple, and also wal-mart and other retailers trying to increase wages, who kind of mix does that give for inflation? >> there is the potential for a capex resurgence. we're very late in the cycle already. it hasn't happened yet. cash coming back to the u.s. and higher minimum wages could create some upset for inflation. we're looking at this. it is consistent with the recent moves we're seeing in the treasury curve. tom: i want to get to the upside for general kelly.

why is the chief of staff of the president knee deep in the immigration debate. he is supposed to be on the sidelines. general kelly is not on the sidelines is he? >> i think the democrats requested a meeting with him and he made a comment yesterday about how some of trump's campaign promises on immigration were uninformed and that was a headline takeaway. they remain so far apart on agreeing on an immigration bill. this has ramifications for whether or not they keep the government open, do the democrats stick to their guns and say we're not going to agree to spend aing bill, even a short-term one without an agreement on immigration and shut the government down or do the republicans get enough democrats to vote for their spending bill. tom: to be clear, what shouts down if the government shuts down? even a mueller investigation

keeps going if there is a shutdown. i can't get into jellystone national park if i want to? >> thousands of government workers will be furloughed. treavor: the bureaucracy essentially is furloughed. >> we haven't seen a government shutdown since 2013 when the republicans shut down in opposition to obamacare. republicans control the white house, both houses of congress. if the government shuts down, can they really blame it on the democrats? tom: we need to get to the idea over the wisconsin election. stephanie baker, thank you so much. greatly appreciate it. we'll continue. we want to talk to him about disstressed investments. in the next hour, he has been an articulate and sharp critic of the president. he has written a blistering

book. thought from mr. klaas. stay with us. this is bloomberg. ♪

francine: breaking news. emirates has ordered some 36 airbus a-380's worth $16 billion. doesn't mean they will pay $16 billion. that is list price. joining us is guy johnson and

our expert alberto gallo still with us. guy, this is a huge deal. you spoke actually to mr. lehi on monday. he said a-380, if emirates makes a big order then we'll keep it alive. guy: yeah, and if they don't, we'll kill it. he staked his reputation that he could keep his reputation alive. he probably got the deal of a lifetime here. he is in charge of emirates. if they reengined it, he said he would order 200. that hasn't happened. that has been a really big problem. francine: when you say this is the deal of a lifetime, do we have any idea how much he is paying? guy: he is not paying $16 billion. he wanted to get it done before

he left. francine: for his legacy. guy: he is handing over the job next week and before, they want to keep the program alive. he is in the drive's seat. tom: am i right the airbus, the big a-380. there is a 114 seat difference. what does that mean financially for all the different people that use the 380? guy: people love the 380. tom: the public loves the 380? guy: everybody loves flying on the 380. the problem is the real number that makes a difference is two and four. tom: what is two and four? guy: airbus that is 380 engines. tom: it is a psychological big deal? guy: it is a problem. four-engined aircraft tend not

to be as efficient. the 380 was built for flying into a big airport like heathrow. tom: emirates to the rescue with all the different politics here involved. who is the next vendor or airline that you see going jeez, we need to do this. we need to see some 380's? i can't get there? guy: that is problem. tom: china? guy: maybe. macron, the french president went to china and then he backed down. tom: guy johnson, thank you so much for your airline wisdom today. as well. llo with us as well. this is bloomberg. stay with us. ♪ stay with us. ♪

tom: good morning. bloomberg "surveillance". good early morning in america from our studios in london. francine lacqua and i'm tom keene. the snow in davos.

looks to be a lot there. monday we will be with you from davos. we'll be there for the entire week at the meetings of the world economic forum. right now in new york city, here is taylor rmp iggs. >> british prime minister hoped to repair relations with donald trutch next week in davos but a meeting may not happen according to people familiar with matter the matter. their time there will overlap by only a few hours. the president told reuters what china is helping us with russia s denting. he has backed off punishing trade measures against beijing he promised during his campaign. rex tillerson promises u.s. forces will stay in syria to counter the islamic state.

according to the pentagon, the u.s. has about 2,000 troops in syria. an i.m.f. managing director wants germany to boost government spending to boost growth. they should invest more in infrastructure and roads and railways. she questioned why so many german households save so much and invest so little. 2700 journalist and analysts in more than 120 countries. tom? francine? francine: thanks so much. vanguard asset management approaching $5 billion. chairman expects further growth this year and that would be driven by the company's infiltration in emerging markets but he is concerned that u.s. equity markets are becoming irrational as he told bloomberg in an exclusive interview beijing.

>> it is not coke and pepsi. we're 20% of the u.s. mutual fund market. wore only a couple of percentage points of the overall market. i think there is an opportunity for us to continue to take on message and word of mouth and the loyalty of our clients is what has driven the growth. we have many investor who is just keep putting more with us over time. it is less about attracting brand new investors in many cases and just building relationships deeper and deeper. >> equities have powered in 2018 after a very strong 2017. at what point do they become irrational? >> i think we're getting very close in the u.s. the evaluations are really high. every bit of good news seems to be incorporated into the market prices right now. there is not a lot of room for bad news. you know, for the first time since 2007, we're actually looking at a situation where a

balanced portfolio, 60-40 stock bond might outperform an equity portfolio over 10 years because what we do know is no one can predict what is going to happen in the next 12 months. i'm sure the equity market will continue to skyrocket for the next 12 months. we expect the next decade to be very modest on the equity side in the u.s. less so in europe and asia. but it is still overall lower than long-term historical averages. >> how do you think the markets are going to digest the expected fed rate hikes? >> very carefully. i think they are built in at this point. the big thing you got to worry about is the factor that drives a pullback from the rate hikes or an acceleration of the rate hikes. i think the thing to watch there are wages. you know there is some upward pressure on wages.

we're beginning to see that. if all of a sudden the fed hiked unexpectedly you'd see a pullback in the markets. i think the market is assuming it is going to be very gradual. >> in terms of the tax cuts in the u.s., how are they starting to play out for corporates? how are they going to be spending that cash? >> there is a lot of debate going on now. it is too soon to see. we have seen companies doing some hiring and seen companies talking about capex and putting more money back and some factory openings in just. i think companies are going to be pretty thoughtful. this is the first time in many years where the u.s. domicile firms feel like they are on an even footing globally from a tax standpoint. i think you'll see more investment. will there be some stock buybacks? probably but my guess is you're going to see some potential investment that could drive

productivity up. >> what are your views in terms of crypto currencies? >> i think it is one of the most exciting developments in technology. i think there is all kinds of potential uses of it and applications that we're just beginning to talk about. the crypto currency trading that that is going on worries me. i think there is a lot of leverage and speculation. an old investor told me very early in my career if, something seems too good to be true, it probably is. >> is it systemic risk? >> i don't think it is systemic. i think it is strong idio sink -- tom: we bring you alberto gallo. he slices and dices opportunities with a fixed income and in particularly the disstressed markets and corporate debts as well.

this is not market priced to perfection. we do interview after interview after interview over the challenges of bonds, higher yields, lower price, doom and gloom. are you preparing for a bear mact or is there an opportunity here to capture coupon and make some total returns? >> we are in a position position for a market where yield also rise. is it because inflation is rising and central bankers are more hawkish? you can still hedge that risk and try to hide. tom: this is brilliant. how do you hide as a mere mortal watching this program? how do you hide in the bond market? >> in the sectors, in areas of countries that are -- last year we saw portugal doing very well. greece is starting to recover. tom: what is the coupon in greece? >> between 3% and 4%. 12-18 months ago, the yield was

9%. same as some of the high yield countries or latin american countries. on a relative basis, it is pretty high. banks going into debt in europe gives you 5% growth, 3% elsewhere. tom: how do you respond to other interview where's we do where basically their hole portfolio is to gain the fed? to try to figure out in the short-term paper market, if powell does this, i'm going to do this. it is totally different from your world, isn't it? >> we are trying to be humble here. don't know what is going to happen. tom: alberto gallo, humble. we're working on that. >> we don't know what is going to happen in the next 10-12 months but we know the risk return in bond, in a good year, you can make five. in a bad year, the tail risk is 10% to 15% loss. in equities, the bad return is more like two times the gain in a good year.

we have shifted to equities. lower exposure to spread movements. we're still focusing on some high yield opportunities which are unlocked by the market but we are buying upside. we have been buying upside in equities. francine: when you look at the bond's face. is a repricing that could -- the most significant risk of the market? >> there is a repressing in the cards. mr. dragic is going to leave. the vice president is going to leave. we're going to have a very different e.c.b.. probably the e.c.b. is being quiet now because there is -- but at some point you see them, you will hear them talking more hawkish. tom: do you buy airbus debt? have you been able to be ob tune isk before this emirates trade? what do you do with airbus? >> we are a multiasset firm. we are buying equities, not

debt, equities of industrial companies linked to capex. defense, infrastructure. boeing or s like airbus are some some of the companies we have been buying. tom: this is what we like to do atsur sur. a conversation with someone making news. john levy will join us. can the chief operating officer of airbus. an important transaction for airbus. they do business this morning th emirates of the unite emirates republic. stay with us. from london, this is bloomberg. ♪

>> this is bloomberg "surveillance." let's get the bloomberg business flash. rupert murdoch has settled phone hacking claims with four celebrityity. no news on how much newscorp will pay over algailingses that journalists and those working for them hacked their voicemail. ready for its i.p.o. in the second half of this year according to the c.e.o.. the oil giant is looking at the possibility of -- locally at first and then having an international i.p.o.. . on the e not decide yet what could be the biggest equity offering ever.

nestle will share chocolate kit kats in japan. ruby chocolate has a pinkish hueand a natural berry flavor. blackrock is taking a page from the silicon valley play book offering unlimited time powerful that is a benefit appealing to younger workers. in the past they allocated vacation days based on seniority and job title. this is all about attracting and maintaining millennial talent. what struck me here is blackrock is a traditional wall street firm and said they want to compete for younger talent and it sends a signal to silicon valley as they try to be become a technology firm. tom: you're out of your mind. you have to stutty for the c.f.a. and work 80 hours a week.

come on, taylor. it is a meritocracy. >> people are less likely to take vacation when it is unlimited time because they feel guilty. tom: we'll go to francine lacqua. francine: i would gladly give you my holiday time so that you recuperate. tom: i have my organic hand sanitizer here. blackrock accepteds it over to sterilize me because i'm giving fran seen the -- francine the plague. seriously, that's all we do. we're animals. we studied 80 hours a week trying to get an edge. right? >> yeah, i mean -- tom: you're italian.

what are you asking him -- >> i don't think millennials just like holidays. tom: thank you. do you agree, guy? guy: absolutely. avocados lately. francine: "surveillance" exclusive. we're talking the holiday. we'll have plenty more on your markets. a little bit of movement on the euro. a little bit of movement on euro trade. we'll be back with alberto gallo. this time won't be talking holidays. we'll be talking treasuries. this is bloomberg. ♪

tom: bloomberg "surveillance." good morning everyone from london. francine lacqua and tom keene. alberto gallo with us. we were talking about trying to do something with the vacation days. anthony gardiner didn't believe

in it. 're thrilled that he is here as often as he can. ambassador, good to have you here this morning. to me, it is a collapse almost of the washington consensus. do we blame president trump for the destruction of what all of us believed in and were taught for years or was it going to happen without the president? >> well, he is going to davos as you all know and he is going to give the tail-end speech and it will be an interesting comparison to speech that was given exactly a year ago by the chinese president. he said china is adopting the mantle of global leadership. nation should not blindly follow their self-interests and protectionism is like locking yourself in a darkroom. it is counterproductive. trump is going to go there, he has a very different view of the world. he is going to say america is

back. he has made america great again d you should me for making profit better. you and davos have been talking about equality and the consensus. i listened to those frustrated angry people and i won the election because of it. you should be listening to me. tom: did you help president obama with his acclaim berlin speech? >> not in that one but several others. he spoke particularly about trade, about those left behind. those left behind who are frustrated that the globalized elite, the davos elite, they are the winners. a lot of people feel ter they have not participated in that. francine: a lot of people in davos are also from charities and trying to do a little bit of good. how will he be greeted? >> i don't think he is going to be pelted with rotten tomatoes.

they will listen to him with deference. he is still the leader of the -- the world's leading power. but a lot of skepticism. a lot of people in room will think this is not the way to precede. what he is doing is leading to a greater fracturing of the world community. we need to work together on many over the challenges we're facing. climb change, iran. it is a long list. they are going to be saying your answers to these ills of society are the wrong answers. tom: the two of you, alberto, with your service in the italian navy. an important question on immigration, migration, all themes of europe and things a the president mustard. the adriatic sea is one contention point. how do you perceive the different debate on immigration within europe compared to what president trump will address in davos? >> europe has made some steps forward.

there are differences between how different countries share the burden. spain, italy and greece have to 500,000 00,000 mige rapts per year. they often get stuck at the borders. the countries today that are poorer like greece, they are just recovering, end up with the burden of also assimilating the migrants. this is -- this has been shared by germany but not completely by every other country. francine: is the u.s. and europe -- what are their commonality? if you look at the u.k., they are going to have to negotiate a trade deal. will trump give them a trade deal? >> i think the chances of a trade deal between the united states and the u.k. are almost nil, for a bunch of reasons. francine: the royal wedding?

>> that could have an impact on the deme. the u.s. can't really have serious discussions let alone have a negotiation before it is clear what the future partnership between the u.k. and the european union will be and that will take some time. the second, a lot of issues weeper dealing with are still around. they have not gone away. agriculture is also still there. tom: the new embassy that we're building in london, were you involved in that? rdiner moat? the ga can you explain to our public, particularly the american public, how dangerous the embassy was? >> it was exposed. it was definitely exposed. we had similar problems in our embassy, the u.s. mission in bill russellles. we were concerned and hence we are moving our embassy in brussles to a different location. similar to one in london, it has

set back in case of explosive devices. unique it is a president of the united states, they have no clue that the danger in every city that we face, do they? >> no, they don't. it was a sal tory reminder, a tragic reminder that many people who came to brussels from very dangerous posts, it was going to be a curby assignment danger is everywhere. risk is everywhere. we're exposed. ancine: what is it like, protectionism, if president trump lace out his agenda like that, we'll be back in 2018? >> this is our biggest worry, medium term. inequality. polarizing politics. polarizing politics means

naturalists, mill tarrists and rotectionists. paradoxically, europe is a more stable region because of welfare. less people have been left behind in the recovery. in the u.s., you can find a lot of divided parts of the country. this undermines democracy. francine: so this is kind of you know going back to protectionism and trade, if you look at growth in europe, it has been pretty solid can the euro derail that if it gets too strong? >> they will try to maintain a path of depreciation. however we think euro will end the year at 125 or perhaps as high as 130. it will take some steam off of the equity market. the euro is exposed. there are a lot of exporters. the euro-dollar fair value is

higher. europe is stronger. two years ago in the u.s., people were discussing not whether the eurozone would break up but how. tom: exactly. you quickly, who are focused on in all of o your reading and experience. what is the thing you're keeping your radar on this year? >> well, iran. first korea, north korea, iran, obviously. i would want to agree with alberto. many people are assuming that just because the bite has not been as bad as the bark on trade, they are assuming there is no risk but i think there could be a risk. it is crunch time. tom: thank you so much. we continue. this is bloomberg. ♪ ♪ retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. ♪ tom: this morning, the bond

vigilantes pressure chairman powell. the two-year yield grinds higher , 2.05%. a plunge in bitcoin. london investment and building booms, the future british empire. various and the sundry attacks on democracy, the fury in washington. we are live from our world headquarters in new york. this is "bloomberg surveillance." i am with francine lacqua. i will say this again, there is a new bustle in london. forget the gloom of brexit. there are cranes everywhere and things are happening. >> that is the explanation of brexit.

blackpool is a .ity that has no hope it is different from london. tom: that is a view from our london office toward st. paul's. what lee i wondered the lane and played tourist and took photos today. she is not a tourist. she is in new york city. taylor riggs. taylor: the rate of economic 6.9% inn china sped up, 2017. that gives authorities more room to get rid of excessive borrowing. better than

expected. republicans are betting democrats won't force a government shutdown over immigration. pass ase is on track to one-month spending bill today that would force democrats to decide whether to block the measure in a bid to gain leverage. the new taxse overhaul to bring hundreds of billions of dollars to the u.s. it will pay a $30 billion tax bill and spend billions on jobs in manufacturing centers in the u.s. employeeslso giving at $2500 bonuses. over howj, a shift long the current stimulus should remain in place. of policymakers believe they need to start talking about exit strategies.

doj officials see a long way to go before they reach their goal of 2% inflation. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. i am taylor riggs. tom: thank you so much. bonds, currencies, commodities, not much to talk about except the two-year yield. euro has done nothing, oil has done nothing. i am bored. the two-year yield -- and this is important -- it barely moved day after day after day grinding higher. francine: the euro strengthening, stocks higher. some strength out of asia,

mending the growth story momentum. one of my favorite stories is about the president of the bundesbank hitting back against criticism of germany's current account deficit. spending toic tackle the issue would be the wrong way to go. you have the standoff between the u.s. and germany and germany and the imf. we talk about currency moves, higher levels. we brought it back to 1994. if you look at it trade weighted, it is a different picture than currency pairs. tom: it really has not moved yet. it is different than some other pairs we are following. deutsche bank looking at 1.30 on euro, 1.50 in sterling against a weaker dollar. this is bitcoin, but bitcoin

from 60,000 crypto feet. it is amazingly on trend from the lower left to the upper right. what is amazing are those moving averages, set way below the log surge. bitcoin has all sorts of room on the bottom. feet?" like "crypto francine: very clever. tom: it took me three gibsons to get to "crypto feet." under 7% on gdp on a relative basis, a banged up number. what did china get right in their managed economic growth? >> it is quite a result when you consider the view a year ago in china.

the world has been given a lesson in political economy to some extent. china is in a sweet spot. domestic growth is on track. they have not had the real estate crash predicted. they have managed to slow credit somewhat. i'll importantly, the great rebalancing -- all import and lee, the great rebalancing happen ando consumption is driving things. more people are buying chinese goods. 2018 and the start of 2018 and something of a sweet spot. tom: is the currency out of whack? it out of line from where it should be given a relatively buoyant economy? >> they are concerned it is too strong, i would say.

they are not pushing the currency down for competitive purposes. china didn't get much competitive gain from the current levels, but going is theywhat we do know will continue to manage in a range. dollar isainst the one they will keep a close eye on. there is a view they won't let it go too far and will intervene to avoid capital outflows and the like. depending on what happens with the dollar, which is out of china's control, china would like to have the yuan broadly stable where it is. francine: i can't believe you are in new york and tom is in london. the world is upside down. tom: it is a global company with a global product. he is in new york. francine: i wish he was on set. will the buying from the chinese

slow down? doubt about it. in 2015-2016 when they burned through a trillion dollars of reserves, they gave an example of how powerful china is in the global treasuries market. now, perhapsight china is looking for more diversification. perhaps they are conscious of the trade tensions with the u.s. and that it is a weapon they have, but i don't think we will see them operating deliberately. to be ay if they were net seller, we would know about it pretty quickly. tom: thank you so much. our chief asia correspondent. it is called the morning porridge. it is william blaine.

it is widely read on the london street because it offers common sense and a depth across assets. mr. blaine darkens the door with us this morning. you talked about the great bond rout. it is not here yet. if there is to be one, can you see it coming? recession, or can you see yield up, price down? --i think what we will see by the way, it is bill, please. the thing about what will happen with the bond market is the spectacular gains we have seen as a result of qe and the spread compression between the various sectors in the credit markets, that will stop and we will see

it start to reverse. see anat mean we will immediate step back and yields? that depends on how we see other factors develop. key one to watch his inflation. managing institutional retail, scared stiff. , managing for coupon or do i have to worry about total return up or down? rates are likely to see rise, therefore unlikely to see any gain in the price of the bonds you are holding. earlier, there are segments of the market that may have some value you can still play because we might see some compression. francine: you can also rotate into something else. >> rotating out of the credit markets into the government markets is a possibility because

we will not see the decompression between credits and companies. fixsecond possibility is to things completely come and that is where we see problems emerge about the potential for a overvalued stock market. that is the obvious place to go. let's think about what of the things you could be buying. real assets, one of the ones people look at is housing. housing returns very strongly come up it is difficult to buy. other assets like shipping and aviation are providing real returns. tom: we will come back. bill blain with us. a very important interview today. he is the president of the united states.

look for the 8:00 hour. this is bloomberg. ♪ stay with us. ♪

francine: good morning. this is "bloomberg surveillance." i am francine lacqua with tom keene in london, then we go to davos. theresa may is also heading to davos. a lot of the gossip is whether she will meet with president trump and how brexit negotiators are going. negotiator has been working with pro-european mps hoping for a soft brexit. the chairman of the leave party .s with us ,hen you look at negotiations

are you concerned that u.k. is trying to have two soft of a deal? >> i think they have been push towards a soft deal. the negotiatory has taken the line he has. he wants to avoid this russian to the single market. it will be difficult to get a lot of derivations on what they are planning at the moment. that makes a soft deal like staying in the european union altogether. francine: what would you do? you met with the chief negotiator last week. how did that go? can he get softer as the negotiation's go on? >> there is some possibility of is undere, that he pressure from the eu 27 not to do so and has to keep these 27 countries behind him. singleucture of the

market internally is important to you negotiators. it is difficult for the u.k. to agree with them in the way the single market operates, which is what a lot of people in this country want. coffeeu spend a cup of bigix months at a multinational decades ago. how do you kate multinationals work within the new united kingdom? how do the bigt, companies of the united kingdom deal with the new realities? >> i don't think it will make a huge difference to them at all. whatever the outcome, brexit difference massive to the growth or non-growth. a lot of corporations like eating in the european union because the regulation suits

them well and discourages people coming in, but i don't think it will make a huge difference. tom: i was trying to think of unilever. how would they compete with unilever if they go it alone? >> i don't think it will make that much difference. the u.k. market is 64 million market.a big the economies of scale are substantial already. i don't think you're looking at a huge division that will make a great deal of difference. francine: should labor support a second referendum? we heard it from nigel farage, which was unexpected. >> i believe nigel farage has backed off the idea of a second referendum. it is expensive. it caused 18 million pounds to run that referendum. i don't think there is appetite for another one. what is possible is that we will

run into difficulties towards the end of the period. it willit is possible turn out to be unacceptable to parliament. in which case come all bets are off. tom: we are seeing a stronger sterling stunning people. do you know one i are seeing a stronger sterling? brexit, ortament to something that can derail the negotiations to come? >> i have fully's been in favor of a lower value for sterling. tom: you want to give us a number on cable? >> i think we need roughly parity with the dollar if are going to re-industrialize the country. reindustrialize the country, i don't think this is sustainable. why it's going up now is because people think they are heading towards a soft brexit.

athink it is because you have huge amount of capital coming into this country despite what everybody said about the economy turning down. it hasn't happened. francine: this is the euro -pound. we were on an upward trend, then it fell off. 1.50, or is that crazy? >> it is somewhere in between that and your number. what we need to look at is we will get something, so let's get on with it. andeconomies of the u.k. europe will find their level and get on. britain needs to become more productive, and that is happening. the day, once that is sorted, we will have a more productive economy. tom: we will come back. bill blain and john mills with us. ,ots to talk about this morning economics and a recalibration of the fed.

it is a good time to speak with adam pozen. we will do that at 1:30 new york time this afternoon. of the peterson institute. stay with us. this is bloomberg. ♪ this is bloomberg. ♪

tom: and now you're morning dose of intelligent conversation on bitcoin. the corealks down

ridors, the music chimes when you walk by. what did you learn yesterday under $10,000 from the acolytes bitcoin? what was the gossip, the backstory of the people certain of bitcoins value? >> it was a dose of fear for the newcomers who piled in and started to get their first taste of volatility. bitcoin has done this before, but never at that scale in terms of overall value, so to see it plunged below $10,000, there were frightened investors out there. tom: at the end of "the big short," atebody who got into this $17,000 or $18,000, where they out on the balcony yesterday? tended to be season

develops. they knew it would be volatile going in, and they went in anyway. we had expiration on the first contract this week. the volume there is still so small it probably can't move the whole market, but there are people looking at those expirations as a factor. francine: i'm looking at the story about the start of -- startup, $61 million, so are people looking at technologies or companies like that? >> the ico market continues to churn ahead. raise $1s trying to billion. tom: does it have a prospectus? >> it has a white paper. tom: that sounds like tom brokaw a million years ago. it is not a public offering. what is it? >> it is public, and it is an

offering. it is not regulated. companies are printing script. tom: thank you. script. >> digital script. tom: what are we going to trade? oyster shells? francine: if you can coin it. bill, are you interested in bitcoin? ,> let's be brutally frank bitcoin zero future, cryptocurrencies, yes. francine: we will be talking more about assets. this is bloomberg. ♪

♪ tom: good morning, everyone, bloomberg "surveillance ." francine look lot and tom keene. taylor: british prime minister theresa may hoped to repair

strained relations with president trump in davos next week, but a meeting may not happen. the leaders' time will enter lap -- overlap by only a few hours. president trump is accusing russia of helping north korea evaders united nations sanctions. he told reuters -- what china is helping us with, russia is denting. he has leaned on china for support and in return he has backed off the punishing trade .easures in beijing secretary of state rex u.s. forces will stay in syria to counter islamic state and urged patience in waiting out bashar al-assad. the u.s. has about 2000 troops in syria. imf managing director christine lagarde wants germany to increase government spending to boost growth.

she says germany should take advantage of its budget surplus to invest in infrastructure and questioned why german companies and households save so much and invest so little. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. riggs.ylor this is bloomberg. tom: thank you so much. thisresident tweets morning, there has been a set of tweets and the fake news uproar how about thisut one on nafta? let's do international macro economics with the president of the united states. the wall will be paid for, directly or indirectly, through longer-term reinforcement by mexico, which has a ridiculous $71 billion trade surplus with the u.s. the $20 million -- $20 billion

wall is peanuts compared to what mexico makes from the u.s. nafta is a bad joke. really has to follow the economic politics in washington, and he joins us right now. go away, will not it? is there any feasibility of capitol hill tilting 10 feet of wall? kevin: i am not sure if there would be 10 feet of wall, but republicans are very much on board with president trump's plan. the president is frustrated with nafta. there have been several reports about the deteriorating talks about nafta. i am told by several sources that bilateral talks between mexico and canada have actually intensified over the last couple of weeks, with the full expectation that president trump will ultimately decide to get out of nafta. should he ultimately rip up the trade agreement, he would

apparently still use the crux of that to begin those bilateral agreements between canada and the u.s., and canada and mexico. i am confused. is he pulling out or not? if he says it is a bad joke, does that mean he will pull out, and what we find out in davos or next week? kevin: the timing of what he pulls out is very unknown. if he decides to stay in, this is where i redirected the reporting, because he would aid asknow -- get what is known fast-track authority through congress. congress would have to give him approval of renegotiating nafta, and there is a deadline written in law. he would have to do that in the next month or so, so the signal of him staying in would be whether or not he goes to congress to ask for fast-track authority. that is what we will be talking about the next couple of weeks. when he decides to get out of

it, we should note he campaigned this was a very bad deal. he called it a lot worse on the campaign trail than a bad joke, so this is a reiteration of what he said on the campaign trail. francine: why pick on nafta and mexico, if they have a much bigger problem with china? kevin: great point. in the united states, the workers, particularly in trade unions, have been hammering against nafta ever since its .nduction decades ago it was a critical point for hillary clinton on the campaign trail. bernie sanders ran against her on that issue, in addition to dividing clearly the republican party. traditional republican business groups like the chamber of commerce are for it. when president trump campaigned, he ran against it. he grant from the grassroots

community in the same way that bernie sanders did. interesting issue that crosses political lines in the united states. tom: if brian klaas or michael wolff were rewriting at blogs to their box, they would have to talk about a chief of staff who yesterday stuck his neck out. president's comments on the wall are "uninformed." is general kelly's job at risk? kevin: regarding that report that general kelly saying that it was misinformed, uninformed, it is unclear whether or not other outlets will match that. bloomberg has not matched that report. i think it will be interesting to see today the pushback that the administration gives on that, because as of that report, general kelly was in very good standing with senior administration officials, but it is trump world so you never know

who is up or down. tom: kevin cirilli, thank you so much for the briefing from washington. if you need a briefing on what is going on in washington, there is the uproar of michael wolff's book, and here is a guy who has been grinding it out every day. it is about "the apprentice" and donald trump's attack on democracy, brian klaas has been one of the most consistent and intelligent voices in criticism of the president. as the president ever come back to you? has he blocked you or banned you? certainly, but i would welcome a tweet about the book. tom: your book is more of an academic treatise on donald trump's attack on democracy. what do you think of michael wolff's book?

does it fold over into your book? he exposes the secret in washington that donald trump is unfit to be president, and the people around him leave this but do not say so publicly. my book is predominately about how he is out of step with democratic values and is attacking them on a daily basis. people say the checks and balances are working, but we have to take seriously that this that arehaves in ways typically not in accordance with democratic values. tom: from some people, trump supporters, i got a vicious response yesterday to the work of james whitman, focusing on the 1920's and what america did in the 1920's on race versus what the president is doing now. can you be that bold and say you see that element of pre-world war ii america and that debate

going on now? brian: i think there are parallels with what authoritarian leaders do. presidency out of the gate was divisive. he is not even trying to unite the country, and that is really striking. he is using race as a touchstone . francine: why does he have a shot at a second term presidency? he is unpopular but still has the support of a lot of people. brian: he is the most unpopular president, first year president in history. francine: but he could be reelected. brian: all bets are off, because somebody can bounce back. trump's negatives are so high and strong that those are happening in accordance with a strong economy and no major international crisis. it is hard for people to bounce back when i have fundamentals that are strong, which trump has, and the economy will likely sour in the next three years. he can win if the democrats are

divided against him. the values of are american society that are changing, and certain people are not realizing? brian: this president is facilitating the change. the checks and balances are doing their job, that there are one third of americans cheering attacks on the press and have no regards for government norms, so i think he is transforming american public ticks -- politics in ways that will change things. month-to-month budgeting, all of this is accelerating. tom: the president goes back to something which has worked every time, which is the wall. one of the other things he goes back to is a big, fat stock market and better gdp. is he allowed to take a victory lap on markets priced the profession?

bill: a lot of the points brian makes our fair. he is actually changing things. tom: you think he has boosted the economy? bill: he boosted the economy. .e just had a massive spaceship yes, it has had an effect on the stock market. the bottom line is trump is actually getting things done. we may not like them and we may complain, that we have moved away from nothing happening to the markets having something to react to. what ever you say about the inequity or inequality he is creating, we are having things for the market to work on. tom: have you worked through yet what you think any liberal party in any society should do to push oninst the despots attack democracy? what should democrats do in america to respond? brian: i think they need to win an election first. wisconsin.ust won in

brian: they need to take back some of the democratic norms that are not lost. trump is able to get away with these attacks because they are soft. we need to talk about solutions to solve these problems. the long-term drivers of economic inequality have not been dealt with. the problems of automation and future challenges have not been dealt with. the wall will not do anything to change this. we are sleepwalking into long-term crises of american democracy and economics that people are all too happy to enjoy the stock gains but are sleepwalking into disaster. tom: i just picked up eric passmore and read about fascism. are we launching back to neo fascism of 1910, 1890? brian: i think it is alarmist to

make those parallels because i do not think it is as bad. tom: on tv, we are alarmist all of the time. brian: trump did reach we a neofascist hate group in britain , did not apologize for it, did poison transatlantic relations. that is something we have to pay attention to. tom: brian, thank you so much. you could read this in tandem with another book. donald trump's attack on democracy, brian klaas with us from the london school of economics. we will continue with william blaine and talk about central bankers here, there, and everywhere. your morning briefing, bloomberg "daybreak," the davos plague. karen moskow, bloomberg "daybreak," bloomberg radio coast-to-coast and london as well. this is bloomberg. ♪

♪ taylor: this is bloomberg "surveillance," i am taylor riggs. rupert murdoch's british universe -- british newspaper unit has settled four hacking scandals. no word on how much they will pay. celebritiesmber of sued over voicemails. saudi aramco is ready for its ipo in the second half of this year, according to the ceo. he says the state owned oil giant is looking at the possibility of listing tiers locally and having an international ipo. they have not decided whether to list shares overseas and what could be the biggest equity offering ever -- f or.

-- offering ever. francine: breaking news out of opec. opec does this almost on a monthly basis, a monthly report where they look at their demand and supply and rivals. opec today boosting the supply outlook. this is almost mechanical, and we knew this would happen for some of the shale producers are -- as soon as the prices hit $68. i want to show you a really good chart that one of our viewers sent. tom: we have viewers? francine: looking at rigged pound and --rig count. you can see basically that there is definitely a tick up in shale reduction as soon as there was a swing in oil. tom: bill blaine lets us. $70 a barrel on brent.

are we at the top of a range or are we seeing a global commodity lift after all of these years? .ill: two things going on this business of u.s. shale producers coming in as soon as we see an increase in price, that will count, but we have this global macro alignment of growth all across the globe. that will have the effect of pushing up commodity prices. there will be cap's. francine: what is the biggest risk to the world economy? is there a danger that monetary policy gets raised too much and too quickly? does the world economy as a whole really warrant normalization right now? bill: what would trigger central banks into acting precipitously to raise rates too quickly, knowing that would have a negative effect on markets, the thing that is most likely to do that is going to be inflation.

certainly, i think that is what everyone will be watching to see how quickly inflation pressures rise. when you have the whole globe heading in the same direction in terms of growth, people will be watching very carefully for the signals. francine: inflation has been lagging. bill: certainly has. has increasing wages in the u.s., so if you are a central bank, how do you think about this? do you need to preempt, or the danger that you need to act as a heavier hand if inflation goes up too much? bill: perhaps that is why central bankers are paid so much. francine: are they paid that much? bill: not actually, maybe that is the problem. they have a difficult balancing act to play. the key thing they will avoid is being precipitous. tom: a chart we use on our fed

coverage in the united states, let's do it for a global audience. go,two-year yield, up we taking out above 2%, up to 2.05% . the blue fan is simply a guesstimate. is this a vigilante speaking or are they adjusting and adapting to what we see? bill: the two-year rate is a real u.s. rate, and when people are talking about the curve flattening as they were some time ago, eating an indication of future problems, they are neglecting the fact that longer-term u.s. bonds are basically the reserve of offshore buyers. there has been enough loss of distortion, because of zero and negative interest rates have been forcing buyers to buy the long end of the u.s. treasury for yields. the two-year rate which is far more reflective, is telling us we are beginning to see rate pressure. tom: you wonder at the nominal

and real level as well. though blaine, thank you so much. ,our morning briefing, tv this has proven to be very popular with bloomberg terminal users. in america, you can get a morning briefing. come over, get an old topic, bring it up, and you can steal that chart if it makes it to tv . that is a huge benefit to your global wall street morning briefing. coming up, the earnings and revenues of fortress gorman. this is bloomberg. ♪

♪ good morning, everyone, bloomberg "surveillance." we await morgan stanley, lots to talk about there. single best chart in a moment. laura keller is with us in new york. what we you be watching for from morgan stanley? i was just looking to refresh my memory on what

goldman sachs did for fixed income trading, the does this could be a quarter where morgan stanley which has pulled back from bond trading, could surpass goldman sachs in terms of that revenue gain from trading bonds and currencies and fx. goldman yesterday posted $1 billion and the estimate i have here that we collected from our 1.026 billionr dollars at morgan stanley, so that could definitely be a beat and something i will be watching. tom: the single best chart, which really does not show what we see within wealth management and this does not include morgan stanley, but includes other banks. jpmorgan and belt -- wells fargo as excellent, citigroup and underperformer. while's management has been a major triumph of mr. gorman. is it still a business? laura: that is the other thing we should be paying attention

to. this is where citigroup used on smith barney, morgan stanley purchased it, and they have been seeing record pretax earnings. billion,urpass $4.22 that would be the fourth quarter of record pretax earnings. francine: laura, i think we are just getting some breaking news out of morgan stanley. i think it is coming. we are kind of waiting for it. fourth-quarter earnings per share, $.29. investment banking revenue -- that is a lot better than estimated. tom: goldman sachs was a better investment bank, but we still have to dig into it. as you mentioned, the trading losses as well. yesterday with goldman making headlines worldwide, it was extraordinary. sachs, it isn intense how the bond trading is working out. investment banking is very good for goldman.

that was fantastic. interesting to see hear from morgan stanley, their revenue is also beating on the investment banking line. overall revenue, $1.55 billion. quite a good quarter for morgan stanley as well. takei would note that they 200 basis points above citigroup on return on equity. francine: investment thanking better, earnings-per-share better, and the discrete tax provision is $1 billion. tom: stay with us. this is bloomberg. good morning. ♪

♪ pedestal,ked off its morgan stanley's market cap climbs above goldman sachs for

the first time since 2006, shares up nearly two and a half percent and 1% in premarket. apple is repatriating hundreds of billions of dollars in a win for president trump, but a government shutdown still looms. 2017, the 6.9% in first acceleration since 2010. his inflation the next stop? david: i am david westin along with alix steel, and morgan stanley is the big story. when you adjust earnings, it is $.84 as opposed to $.77. they took $1 billion. alix: revenues are coming in at $9.5 billion, but everyone wants to know ficc, coming in lighter than estimates, and that is