♪ francine: save the date. be u.k. and eu are said to planning a meeting in november to sign a residue. -- tominister theresa may sign a brexit deal. prime minister theresa may faces challenges within her own party. downward dollar. bracing for hurricane florence. the category four storm has towards the u.s. east coast -- heads towards the u.s. east coast. good morning, everyone and welcome to "bloomberg surveillance."

i'm francine lacqua here in london. we see the stoxx 600 getting a little bit of a left, 0.6% in asia. -- indicese indus is continue on a losing streak. i am looking at the u.s. two-year yield, and pound, which was actually getting a little bit of a lift from a possible amicable divorce between the u.k. and eu. 3030.an see currently at 1.

lehman brothers. we will have an interview with larry summers. let's get straight to the bloomberg first word news in new york city with taylor riggs. taylor: hurricane florence is expanding on its relentless advance towards north carolina. oil prices have jumped in the face of what may be the most part for hurricane to hit the state in 64 years. at least one million people have been warned to leave the coast and local businesses have shut down. boeing has halted work at its plant in south carolina. hurricane florence and other tropical systems that will soon impact the united states and its territories. the safety of the american people is my absolute highest priority. we are sparing no expense. we are totally prepared, we are ready. we are as ready as anybody has ever been. taylor: i the same time, a super typhoon in the pacific is gaining strength and forecast to barrel through the philippines and taiwan before heading to hong kong. it is classified by the hong kong observatory as a super typhoon. it is expected to have winds of 250 kilometers per hour before gradually weakening.

saudi arabia's sovereign wealth fund will sign a loan this week. global lenders, including goldman sachs, hsbc, and jpmorgan are providing the loan. it is said to be priced at 175 basis points. -- is proving incredibly popular " is proving incredibly popular. bob woodward's book has sold out in its first week. earliest buyers can pick up a hard copy in september. barnes & noble says the book is available in its stores and customers will receive orders on-time. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine? francine: thank you so much.

unionk. and the european are said to be preparing for a special summit in november to sign a brexit deal. bloomberg has learned that several key issues still have to be resolved, but brussels is ready to schedule a one-off gathering so leaders can actually formally agreed to terms of the split. plans for the summit may be officially announced at an eu meeting in austria next week. sterling has risen in optimism about the deal but how likely is an agreement and what does it mean for the markets? joining us now is michael o'sullivan, the chief investment officer for international wealth management at credit suisse. it's always difficult to keep up. we are kind of on the brink. suddenly it seems the two sides are coming together. >> that's right. it depends on what should newspaper you pick up this morning -- which newspaper you pick up this morning.

we will get some announcements very soon on this special summit that will be convened probably in november. we have had more positive signals out of the european union in the past few days. sterling took a bit of a bump from that. jean-claude juncker is making his state of the union speech right now. englished a section in to brexit in which he said he has been encouraged by this plan for a free trade area in the checkers agreement. more encouragement from the european side. putting that's a one-sided, we have to remember the real drama is still happening back here in london and in westminster. a lot of unhappiness on the brexiteers side, talk of a new the shirts -- a new leadership challenge for mrs. may. francine: not one day we don't talk about a leadership challenge. why is this different? >> she is still there. what is different now is that :00 -- is that the clock is

ticking. the brexiteers were saying before, she was going to have to change tactics. now we are getting more encouraging sites. from the europeans i think we're seeing more of a panic. i think it is important to also remember in all of this, we may have the numbers from the hard right of the tory party to challenge theresa may. it is a very different thing to actually unseat her. francine: what does it mean for assets actually? do you buy into pound on bids or do you stay weight -- stay away? >> we are buying the pound. you are really only two brexit processes, one within the tory property -- tory party, one within the eu. help center it on the

pound. if you look at the macro data, wage growth beginning to pick up. we are getting through the soft patch on macro data that we had early in the summer. if you look at position in sterling, it has been bearish. to seenot be surprised this rebound continued against the dollar and against the euro. francine: is it a deal theresa may can agree to? >> i think ultimately what the deal will look like is a soft brexit deal along the norway, sort of scandinavian model. i think it will be crafted in a way by the eu that will give her some political capital. she will be made to look like she has come up second-best. i think there will be writers in que, that if she is unseated the brexiteers won't be willing to negotiate. francine: is ireland the biggest

headache? how do we fix that? who is leading the leadership challenge? is it boris johnson? >> one of the interesting things the last few days, the real turmoil in the anti-theresa may cap, or the probe brexit camp, if you like. yesterday we had a presentation from the brexiteers about what was going to be there big alternative plan. it descended into shambles. it is clear there is no coherent agreement. they are not particularly organized, which is another reason why we may not see another organized attempt. on your earlier question about ireland, yes, that is still a big sticking point. issue that is standing in the way of a withdrawal agreement, but we are getting some signs from our reporters in brussels that there

is progress being made on that. the european union are saying some words that they want to shift their position slightly to try to make the backstop agreement what they call more palatable to the british government. yes, it is a big sticking point, but there is this expectation that some sort of warning that is especially word -- some sort wording that is acceptable to both sides will be found. francine: downward dollar. what that could mean for emerging markets. this is bloomberg. ♪

♪ francine: economics, finance, politics, this is "bloomberg

surveillance." i'm francine lacqua here in london. let's get straight to the bloomberg business flash in new york city with taylor riggs. sales growth may accelerate and profitability will improve as it expands more online and makes stores more efficient. this unusually explicit second half of forecast implies growth may have turned a quarter after weakening to the slowest pace in four years. general istorney exploring a potential investigation of social media companies. jeff sessions will be briefed on september 25 by republicans, who are already examining the firm's practices. the meeting, which will include a representative of the doj antitrust division is intended to help jeff sessions decide if there is a federal case to be made against companies like google, facebook, and twitter are violating consumer protection, or antitrust laws. to unveil itsted

biggest and most expensive iphone later today. it is thought to be part of a lineup of three models. technology giant is also expected to release a handset with minor updates to last year's model, and another version made of cheaper material. that is your bloomberg business flash. francine: thank you so much. double-blind capital's chief investment officer has said the next move for the dollar may be weakening. he said speculators alongside may end up wrong in part because president donald trump wants to see the greenback lower. that could bring relief to emerging markets. is he right and what does it mean for the markets? still with us is michael o'sullivan from credit suisse. when you try to figure out what the president wants, does it really make a difference on the dollar? michael: i would not be in the business of forecasting what president trump wants.

we are now long emerging markets it currencies -- emerging-market currencies. since may or june, you have had a breakdown of the correlation between emerging markets in europe and the u.s.. the u.s. has been much stronger. one of the things that is lurking under this is the weaker chinese currency, which tells us a lot about trade, about the fears of currency devaluation. francine: depending on what dollar does, if it goes up it will hurt emerging markets more. a lot of the markets, whether they have structural problems or not, have so much debt issued in dollar. michael: there are reasons to believe the dollar is maybe peaking. it is causing pain in other parts of the world. it looks like the interest rate market is picking in terms of rate expectations. we think they would do two more two next year.,

to get emerging markets really going i think you want to see clarity over trade, you want to see a rally in the chinese currency, and you want to see some of the specific weaker emerging markets take action, turkey being a prime example. francine: you see dollar weaker here. does that also have to do with political pressure? michael: i don't think so. i think the institutional system in the state is working pretty well. i think people and the fx market may be able to trade some of these, but i don't think that political pressure from the white house is necessarily going to weaken the dollar. i think the policy errors from the white house can weaken the dollar, but they are two very different things. francine: i have a chart i want to bring to you in just a second, but overall what would a policy error be? so hiking too many times? michael: that's a policy error from the fed. i think for example we are at the beginning of a policy error from the white house in terms of fiscal policy.

if you look at the cyclically adjusted deficit in the u.s., it is enormous by historical standards. francine: this is the chart that i wanted to show you, the o'sullivan chart, basically looking at markets sing the best chance of two more hikes from the fed in 2018. are you telling that a tax cut at this moment, when it runs out, if it is coupled with an cycle, which we could see, we could see the u.s. go into a recession and how quickly would that come? michael: we think it recession is not imminent. we are looking at maybe a year and a half or so. lots of people are trying to forecast that to a very fine point. i think the point is that there are lots of imbalances and risks built into the system now in the u.s. globalization is falling apart and trump is the architect of

this. in a flex -- it affects supply chains come up multinationals -- supply chains, multinationals. kind of thing that can lead to a dramatically weaker dollar. i don't see that right now but i see the dollar peaking and there are a couple of currencies that are very cheap. emerging market currencies and sterling. francine: which ones? michael: you have such intense volatility across the emerging markets space. we are advising our clients to hold a basket of emerging currencies. the brazilian currency this week, argentinian currency last week. the volatility is intensive so we hold a basket rather than try to pick portrayed anyone of the. francine: michael o'sullivan

there from credit suisse stays with us. we continue our coverage looking back at the collapse of lehman brothers. we would talk about risk and what we have learned. this is bloomberg. ♪

♪ >> i was traveling from zurich to frankfurt when i got a phone call from our u.s. head telling me it's over. that was really the worst case outcome. we hadn't expected that. my neighbor knocked on my

door and said i have money in -- she named a really important bank. she said, should i take it out? probably-- i said, you want to leave it in but if you have money in the neighborhood bank, take it out. >> i remember telling a friend of mine i am down on paper. it was not a pleasant experience. >> i don't think anybody in the world was prepared for the devastation that hit the morning after the bankruptcy of lehman brothers and the chaos in the markets. >> our bake is very lucky because they bought it for essentially have price only a few days later. the hank up on the barclays deal was that people in the u.s. wanted the british government to underwrite any potential losses from lehman brothers. >> i remember sitting down with mervyn king. we had dinner together on

september 23. it's pretty obvious that there were three levers available in that circumstance, either central bank liquidity support, or there are government guarantees of the liabilities of the banks, or that is recapitalization at the banks. >> we might be heading towards a great depression even, it if we don't act very forcibly. >> when you saw contagion from the u.s. to other countries around the world, and not just to other small countries around the world, but major financial markets around the world, and that's when he realized this was no longer a problem in the u.s. housing market, this was a global financial challenge. that completely changed the volcker. francine: we are on day three of our coverage of lehman's collapse. 10 years on it, those are some of the central bankers we have been speaking to. what are the next risks we should be looking out for? still with us is michael o'sullivan from credit suisse.

the concern back then was that there were vulnerabilities in the market that we did not see because we did not see how interconnected everything was. where do the vulnerabilities like today -- lie today? michael: i think the banking industry is better in terms of risk management. world debt to gdp today is higher than it was before the lehman of that -- event. that tells us the world financial system has learned relatively little about that bt taking.de for me the biggest risk is quantitative easing and the aftermath of quantitative easing. you don't do that everyday for 6, 7, 8 years, and that's essentially what the central bank seven doing. that itself has created massive imbalances.

the bank of japan owns a huge chunk of the fixed income in the equity markets. look at how it's conditioned the minds of investors. francine: are you telling me there are bubbles and that they will burst? and if so, where? michael: they don't miss their -- necessarily have to be bubbles. they don't have to be bubbles, but they are imbalances. they are lopsided trades were central banks have been dominating markets for four or five years. they have conditioned investors to do the same. people take a long time, and that will overtime create a down risk. francine: where do you see the biggest risk? is it china, if financial crisis, shadow banking? frederic: i think there is it -- michael: i think there is a number. in time you will see a number -- normalization of valuations and

fixed-income. there are parts of the debt market in the u.s., high-yield, that look very expensive, and were a lot of debt has been issued under the umbrella effectively of qe. when we get to the next natural recession this will come to their. francine: thank you so much for joining us on "bloomberg surveillance." michael o'sullivan from credit suisse. apple shares rise ahead of today's product launch. we will tell you what the latest models me for business. we will discuss apple, technology, and speak to a venture capitalist later on. he is at the crossover between technology and retail. this is bloomberg. ♪

francine: economics, finance, politics. this is "bloomberg surveillance." let's get straight to bloomberg first for news.

taylor: here in the u.s., hurricane florence is expanding on its relentless advance toward north carolina. at least one million people have been warned to leave the coast. local businesses have shut down. they include boeing, which has halted work at its plant in south carolina. florence and other tropical systems that will soon impact the united states and its territories. the safety of the american people is my absolute highest priority. we are sparing no expense. we are totally prepared. we are ready. we are as ready as anybody has ever been. taylor: is super typhoon in the pacific is expected to barrel through the philippines this week. the super typhoon is expected to

impact maximum winds before gradually weakening. the u.k. and european union are said to be preparing for a special summit in november to sign a brexit deal. bloomberg has learned that several key issues still have to be resolved, but brussels is ready to schedule a one-off gathering so leaders can formally a great to terms of the split. plans for the summit may be officially announced at the eu meeting in austria next week. sterling has risen on optimism about the deal. woodward's book about chaos and the white house is now only available through kindle and audiobooks as amazon rushes to restock. "fear" isoble says available at stores and customers will receive orders online.

this is bloomberg. francine: we are getting breaking news out of rolls-royce. it also does some of the -- it is involved in defense markets but also in some of the planes. currently falling to a session low. iberia hasnd that has one of its engines experienced an engine failure. rolls-royce saying they are aware of this shutdown incident. that is hitting rolls-royce shares quite hard.

apple is expected to unveil the latest batch of iphones later. ahead of its launch, the shares rose the most in five weeks yesterday and are now trading higher in the premarket. that is according to goldman sachs's analysts. joining us now is a tech columnist for bloomberg's opinions. great to have you on the program.how can apple get away with raising prices? tim: it sounds counterintuitive. it is a very difficult smartphone market out there right now.globally, there is a lot of pressure , not just for iphone but across the android ecosystem. they get away with it by adding more features. this is the one thing apple has managed to do. we are seeing it among other manufacturers as well. there actually managing to get away by selling more advanced

phones with better cameras, better screens, better battery life. what we are seeing now is that people are willing to pay more money for a phone. they just need to be shown some sort of value for money. they need to show that they are getting a good quality product. if they really believe they are getting a good quality product, they will go out and pay more for a better phone because it is such an important device for most consumers. it is the one thing you look at when you go to bed at night and when you wake up in the morning. francine: if they are raising prices, does it mean that apple up on markets? know, they are not giving up on emerging markets. you don't necessarily have as large a population will

percentage that have more money to spend on a phone. phones have been an android for quite some time. sim forcing dual markets where people have prepaid cards, and markets around the world are about prepaid rather than postpaid. in most markets, a dual sim will go down quite well. i think that is one of the key areas apple has understand emerging markets really want. francine: what more can we expect from apple throughout the end of the year? tim: it is going to be a really busy year for apple. you have these three phones coming out. where likely to see new iphone apple watch.

that is really the first big refresh for the watch for quite a while. we're also going to see an entry-level macbook that will come out. that will be aimed at education consumers are those who don't want to pay the whole amount of money you normally pay for an apple product. what is interesting is that we are going to see a pro focused mac mini. that is basically the box that comes out that doesn't come attached with a screen. we haven't seen apple spend much money on that space for a while. that is something we are expected to see out by the end of the year. francine: as always, thank you so much. let's get back to our coverage of the 10th anniversary of the collapse of lehman brothers. guy johnson spoke with the former bank of england governor and asked him when he realized the scale of what was happening.

>> right through 2008, it was clear that confidence in the banking system was taxing and waining, and only a serious recapitalization of the banking system in the u.k. and u.s. would resolve the problem. timeent a lot of the trying to persuade the government to do this and move ahead with it. britain was the first country to do it. 2008nk that the spring of failed. after that, one month look to be improving, the next month got worse. it was pretty clear in the summer of 2008 that we hadn't solved a fundamental problem. something deep would have to be done. i think lehman brothers was the top of most people's list as to which institution would get into serious trouble.

think we are adding to that. afterwards, it was clear that in his judgment, if the fed had not taken the dramatic action and took, every major financial institution in the u.s. could have failed. that is a pretty strong statement. i think that became clearer as they move toward the autumn. the idea that somehow on sunday the 14th of september, we were happy with what was going on, in the 15th we suddenly got bad news, that wasn't right. we knew the whole system was in trouble. people knew the banking system was in deep trouble. in the week before lehman brothers failed, there was concern about lehman brothers building up. i think the conversations that took place over the weekend were trying to find a solution to the lehman problem, not suddenly discovering that they were in deep trouble. not aehman brothers was watershed moment, but was

letting it go a conscious mistake? vyn: i think people in the united states worked very hard to find a solution to it. they put the view that they were not quick to cut public money into lehman brothers. options. for other they concluded that they couldn't lend to lehman brothers because there wasn't enough collateral. they concluded that a deal would be lovely. they couldn't find an american bank to buy lehman brothers. they were hoping that barclays might buy it. they bought it essentially for half the price only a few days later. the hangup on the barclays deal was that people in the u.s. wanted the british government to underwrite any potential losses from lehman brothers. since we knew at the time that we were basically underwriting barclays, we were issuing an policy by underwriting

the british government. i don't think there was any conceivable way that the british government could underwrite lehman brothers. that was the responsibility of the american government. they worked very hard to find a solution, but they concluded in the end that they didn't have one. lehman brothers went into administration. francine: that was the former bank of england governor speaking with our very own guy johnson. coming up, tech revenue may accelerate after a four-year low. ken., we sit down with you can also get questions into ken rogoff. this is bloomberg.

♪

francine: you are watching "bloomberg surveillance." news on theive european retail sector. the zara operator expands online and makes its stores more efficient. this looks like it has reassured investors, but is it enough? to andrea: -- andrea: no. there are bigger challenges out there and they're not going to go away with an upbeat statement.

francine: shares are up, but you are actually right. in the first instance, we saw that revenue may accelerate, but they had a pretty rough quarter, i think the worst sales revenue and about four years. what is underlying that? andrea: there are a few quarter specific things, the weather was hot, the euro was strong, but there are really underlying things going on. i think it is primarily the rise of the discount retailers, meme primark. primark. if you go into primark, you will see that everybody shops there, rich, poor, domestic customers, travelers, and some of those are going to overlap with zara. as primark tickets pretty trendy stuff in a nice store environment, that is going to me more competition. francine: thank you so much.

our next guest will help us make more sense of the retail sector. most recently, he is invested in a u.s. luxury retailer. thank you so much. we catch up with you every couple of months. you are almost like our barometer of retail meeting some of the technology. you are trying to get on the fitness bandwagon. three different investments were made recently. twonnounced investments in , which have an

interesting relationship with zara. angeles,sed in los more of a lifestyle womenswear proposition. one is based in toronto. with an international footprint for jewelry. both of them we found on instagram. creating brands connection to customers through the online connection. zara, for many years could do no wrong. i don't know whether it is oversaturation, but there is also always weather impact. brandsre brands -- your do well, this that mean people will increase shopping for everything they buy? zara has doneink

very well the past couple of decades. fashion was more generated by two collections a year. you would have the same things in the store for many months. zara completely change the pace. they wanted their customers to walk past their store 17 times a month. online comes until and then you are only one click away from the store. when you can get in front of that kind of virtual store almost every day using different mechanisms from search to instagram. francine: have you translate? there is a lot of traffic on instagram, but it doesn't necessarily translate into sales. frederic: you need to have a good product. that is why zara does very well. i need to inspire people. there ishat is where

more of a challenge for retailers. today, people want something different. with online, whether instagram are different tools, you can tell a story. that storytelling is extremely important in creating the emotional connection between the customer, brand and product. that is the challenge for zara and h&m as well. francine: analysts are worried silence theill emerging market. how must you look at the appeal of the brand and how much they want to sell the products that? frederic: there is no ideal price point.we are looking for a business that makes sense. you look at the value, the contribution margin, you look at

the cost to acquire customers. it is very different if you're looking at a luxury item where customers made purchase once or twice a year with you, or something much more extreme, very frequent where you might transact several times a week or days. is about the balance between contribution margin and repeat and the key number we look at is what we call lifestyle value of a customer. francine: talk to me about aleton. goop.e also into is health care the next frontier or doesn't overlap with lifestyle? everybody wants to

live a better life. goop is about having healthier care to from skin lifestyle. loton is about fitness. they basically offer a bike that that youted to classes consume within the media. you buy the bike and he a subscription just like you do with netflix. markete: is there a text -- test market? with the international team and u.k. team , where trying to support them. in the case of other brands, we invest in north america, mostly u.s. and canada. we are trying to be a good

partner, particularly when it comes to international extension, which is something we have seen from the beginning. francine: we talk a lot every day about the trade war concerns and supply chain. how much do you look at that before making an investment into a retail company? frederic: supply chain is what zara, for example has done extremely well. two of our brands do that extremely well. one retail model is based on the drop every week of a new product. that creates some sort of excitement with customers. reasons for people to come back every week. francine: as always, thank you so much for making us smarter on tech and retail. let's get back to our coverage of life after lehman brothers and the financial crisis 10 years on.

the former deutsche bank chief executive walks us through the moment he found out just how bad it was. we felt that it was very a mike leach to happen. we really thought that at the last minute, the u.s. government would champion. to frankfurt -- i was traveling from zurich to frankfurt. >> was the first thought that went through your head? do they deutsche bank, the wider system? josef: of course, you're not completely prepared. i was not so concerned about deutsche bank because i thought we had things under control. i was more concerned about the systemic risk. we had already been criticized by some people saying we should play the market and not ask for government support.

that the problem was so big that i think we couldn't have made it without that. guy: so you are aware of the magnitude of what was happening? josef: absolutely. this was a central player. .t showed a liquidity problem thate funding disappears, could happen to other institutions as well. then you realize how interconnected we were in the financial system. that was no surprise to me. guy: who do you call next? you had spoken to your guy in the u.s. josef: unfortunately, you called the risk manager and you recheck the central bank and other bankers. this was a lot of communication going on. guy: so you spoke soon afterwards? josef: very concerned.

banks.e head of other i think the bank of england as well because they were a key player in the british market. absolutely. guy: in terms of that linkage that you described, in the preparation that you put in place, how were you set up going into it? what did the counterparty risks look like? josef: you also have to look at t from a genetics point of view. is that something you can live with? always to be sure that they were overexposed to any counterparty risk. second, we thought we needed enough liquidity so we did a lot of funding before hand in order to be well prepared for that. the third one, you always try to have your market risk under control.

i was starting much earlier in 2007. i was fully convinced that it is not just something which will last for three months and disappear. things, in balances on the debt level and in balances in the real estate market normally, they match much longer. to find buyers for that and have , and we expected that as economists. we started to reduce our risks in 2007. i was also chairman of the global agitation of banks -- agitation of banks. i warned that we had to get ready for that and take the system we are operating. francine: that was the former deutsche bank chief executive. "bloomberg surveillance."

continues in the next hour. tom keene joins me out of new york. we will be speaking to a professor of economics at harvard university. we will hear what he has to say about global banking 10 years after the lehman collapse. european stocks advancing on wednesday. asian shares are extending a losing streak. changing amidrs lingering worries of global trade. yields edging lower after climbing a day early. this is bloomberg. ♪

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the u.k. and a you are planning a meeting in november to sign a brexit deal. prime minister may faces a new threat from brexit hard-liners in her party. downward dollar. may move lower despite what president trump wants. bracing for hurricane florence. oil and gasoline futures jump as the hurricane heads toward the east coast. good morning, everyone. this is "bloomberg surveillance." tom, we talked about trade in politics. i think the main focus today, if you are on the european side is probably also what is happening with brexit. we're less close. does theresa may face a rebellion from within? tom: finally, brexit really heats up. thought it was fascinating, particularly the response from boris johnson. over here, there is a whole swirl of back-to-school and back to september. our interviews of the season in our next half hour, kenneth

rogoff will join us. francine: let's get straight to the bloomberg first word news. hurricane florence has taken aim in north carolina in what may be the most powerful storm to hit the state in more than 60 years. the hurricane is expected to make landfall late thursday or early friday and stall. it could drench north carolina with up to 30 inches of rain and cause catastrophic flash flooding. store shelves have been emptied by people fleeing the storm, and companies are closing down factories. kim jong-un is holding up talks on nuclear weapons over one detail, he wants the u.s. to declare that the korean war is over. that could give president trump a headline grabbing moment weeks before the november election, but if the president holds back, the u.s. could win concessions in its goal of getting rid of north korea's nuclear arsenal.

canada wants to reform the wto in an attempt to counter u.s. protectionism. bloomberg has obtained a draft proposal. it calls for countries to restore confidence in the multilateral trading system and discourage protectionist measures. the u.s. has threatened to leave the wto. as you were mentioning, the u.k. and european union plan as some in november to sign a brexit deal. bloomberg has learned the meeting that could be announced within days. negotiators still have some resolve disagreements coming. meanwhile, theresa is facing a renewed threat from her own party. some conservative party members have discussed removing may from office. she hasn't strained their vision of a clean break from the eu. global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: thanks so much.

interesting day. it is another nuanced they were nothing is going on. you have the idea of futures up a little bit. risk on euro and oil turning. the vix has really come in showing that optimism, that risk on feel. 30 year bond comes out. , even with e.m. quiet, it's not. was a 52 andso blows out to a new weakness. francine: this is what i am looking at overall. my market here in europe are up. asian shares were actually down. they extended the losing streak as traders seem to be turning their focus off of monetary policy because they are getting more worried about global trade. treasury yields edging lower after climbing a day earlier.

europe paring a drop in the pound is significant because of everything going down with brexit. they seem to be continuing attempts to foster an amicable split. the jpmorgan chart, we have shown this many times. down,g down, to legs three legs down. this is a new stability. it's just a few days, but i guess we will take it. these three brutal moves. francine: that was an interesting conversation. this is my chart. there has been a winner over the past 10 years. we are celebrating the 10 year anniversary of the lehman brothers collapse. don't know if we are

celebrating it, but we are marking it. the winner of the past 10 years is the corporate sector, which has seen stock prices soar and prices rise. -- profits rise. we rg iii of our coverage. we asked -- we are day three of our coverage. we asked investors when they realized the scale of the lehman extent. >> i was traveling from zurich to frankfurt when i got a phone call from our u.s. head telling me it's over. that was really the worst case outcome. we hadn't expected that. >> it really came home to me when my neighbor knocked on my in, and said, i have money she named a money centered bank, a really important one, and said should i take it out? i said, you probably want to leave it in, but you have any money in the neighborhood bank? take it out. >> our member talking to a

friend of mine. the don't think anyone world was prepared for the devastation that hit the morning after the bankruptcy of lehman brothers in the chaos in the markets. >> they bought it essentially for half the price only a few days later. the hang up on the barclays deal was that people in the u.s. wanted the british government to underwrite any potential losses from lehman brothers. >> i remember sitting down with mervyn king, an it pretty levers wereee available in the circumstance. central bank liquidity support, government guarantees of the liabilities of the banks, or recapitalization of the banks. >> we are living through a financial process and might be heading towards the great

depression even if we don't act very forcefully. >> when you saw contagion from the u.s. to other countries around the world, not just other small countries, that major financial markets around the world. that is when he realized this is no longer a problem in the u.s. housing market. this was a global financial challenge. that completely change the ball game. francine: we are joined by ann ttifor. we were trying to frame day three of our lehman coverage. we had been trying to ask our guests what is happening next, where they see vulnerabilities, and lessons learned from the financial crisis. thank you for joining us. when you look at we are nine and a half years since the extra stimulus we saw in the markets.

how vulnerable is the market to a huge correction? i would refer back to your chart. in particularly, what you said about the focus on free money. we had qe coming from the u.s. qey years, qe from the ecb, from the bank of england and bank of japan. i think that is a huge cushion for the markets. if you look at the research we are writing, the way our strategists are looking at the world, i think we are more relaxed about things at the moment because of that huge cushion that we have in the market. francine: are you relaxed? ann: i think we are. we have had something like $13 trillion of qe and yet the global economy has not fully recovered. global debt has risen and nothing substantial has happened to transform the system that creates this massive and balance of debt versus income. global income is about $76 trillion.

global debt is nearly $300 trillion. that is a massive imbalance. that is just one of the many massive imbalances. tom: i think the ft has a fabulous chart. how we have gotten better with our visible banks about having them have mark cash on the balance sheet for equity. we have been a successful job there. where is the everything else right now in 2018? ann: for me, it is in the shadow banking system. we don't know. we know that the central banks are working closely with the shadow banking system and supporting what is happening there. not regulating it. not managing it. we don't really know. for me, that is a big worry. tom: within this, is the gyrations we are beginning to see. in your world, is the emerging-market gyration a symptom of what we are seeing with these imbalances?

steven: that is quite an in-depth question. i think the way we would look at it is, when you look at the emerging markets and what is driving this, we would come very much back to the trade tensions. particularly, the current disagreement between the u.s. and china. we think that is really what is driving emerging markets. if we were to take that a step further, we just published our global outlook for q4. what our strategists are saying particularly in emerging markets space is that if we do see a stabilization right toning down of the trade tension, we could actually see emerging markets rebound. the fundamentals are actually fairly robust. ann: i have to disagree with that. i don't think it is the trade tensions loosened i think it has to do with the fed. it is exactly the thing that

-- between 2003 and 2006, greenspan steadily raised interest rates at every single meeting until the interest rate became a dagger pointed at this mass overhang of debt. we see the same thing happening again. we see jerome powell now boxed in by his president, raising rates. this is strengthening the dollar and causing massive volatility in emerging markets. tom: we are thrilled you are both with us. as we drive forward the conversation to get you ready for the autumn and into 2019. for the entirer, hour, kenneth rogoff will join us.

different?is a stay with us. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." company luxury goods boost a strong sales in china. the stock market climb has investors in the luxury sector concerned. collett china's tesla -- call it china's tesla one of the. it raised about $1 billion.

the sale values the company at about $6.4 billion. singapore's sovereign wealth fund is interested in buying general electric's jet leasing unit. ge if it would consider selling all or part of the aviation services. ge owns almost 2000 aircraft valued at $40 billion. that is your bloomberg business flash. francine: taylor, thank you so much. the european commission president has rejected the u.k.'s bid to stay a part of the single market after brexit. >> we also ask the british government to understand that someone who leaves the union cannot be in the same position as a member of the -- as a member state. if you leave the union, you have -- you are no longer a part of our single union. andcine: meanwhile, britain

the european union are said to be preparing for a special summit in november to the sign a deal. bloomberg has learned that several key issues still need to be resolved. saywell andteven ann pettifor. i guess the concern is that theresa is not only negotiating with the eu, she has to also negotiate within her own party. brexit hardliners are trying to topple her. how do we know if it's true and what does that mean for her negotiations? ann: i'm not party to all of with shenanigans, but parliament, you have to get this through parliament. weview is quite certain that can either have a hard brexit, or none at all. i can't see the halfway move working. francine: you don't by the fact

that the eu will give theresa may some appoints so she can come back home, kind of claim of victory. ann: i don't believe that can happen. i think the northern ireland question is still unresolved. within this political milestone. given the cacophony of news in the last 24 hours, do you have a real view of sterling or do you just step aside? steven: good question. we have a strong view on sterling. the banks put out a sterling trade recommendation against the euro coming from our fx strategy team. the main view here, and accept to some extent what anna has just highlighted, negotiations are going to be strained. we think we are going to miss

that deadline that we have been speaking about. from our perspective, we will give you a complete target here, we have eurosterling rising to 9250 as a short-term trade. however, what happens after that is going to determine what moves on a longer-term perspective. there is talk of a november summit. if there is some kind of negotiations, if things look better over there, you could see stabilization. certainly, from our perspective, our strategy seems with the pound in the short-term. tom: that leads us to the argument of brussels, germany and france. don't they wait this out? is in the path for europe to wait? right.think that is i don't know that europe can make any more concessions without actually endangering its own existence. it is very affirmative about the northern ireland question. i'm not party to all of those negotiations, but it seems to

me, that it is very tough. i cannot see the prime minister getting a fudge through parliament, and i cannot see the prime minister getting a fudge through the eu. francine: thank you both so much. coming up on bloomberg daybreak: americas. the bridgewater executive officer. this is bloomberg. ♪

tom: is a magical morning of "bloomberg surveillance." later on, many important guess including kenneth rogoff. we are thrilled to have with us who got out in front of the financial crisis. i would also note her 2000 book -- as being incredibly important. defined for us how gilded is this gilded age? ann: it is a next ordinary care bank -- an extraordinary period.

whichtcome of the system, was gradually deregulated after 1971 after the next in shock. we have seen this inequality rise, but very dramatically. since the crisis, it has got worse because regulators have done precious little to transform the system. that traditional banking system is the same story. tom: the last war, i like that concept. the fact is, we are seeing a lot of political tumult. box overcomet the gilded age as it has done every time before, or the elite move beyond democracy? been e.onlite have

democracy for some time. they operate -- beyond democracy for some time. they operate in the stratosphere, but that could be brought down by politics. we see it happening. we see the rise of protectionism, not just in trade terms, but in terms of labor and movement of labor and the rise in europe of authoritarianism and even fascism. this was entirely protectable. -- predictable. if a society and, in particular our public authorities decided to allow the financial sector to detach itself from the oversight of democratic regulation. we let that happen. things have gotten out of control. we have global markets in money, trade and labor. these have diminished the role of democratic governments. people feel if their government

is not going to look after them, they're going to look for a strong man, it might be donald trump or it might be hungrary or mr. putin. francine: thank you so much. we have to get back and see how this has all been something else. steven and ann will be staying with us. linear technology will be on-site. -- bloomberg technology will be on-site. we look at apple and the new devices. will they hike prices and leave the emerging markets? we will talk about that next. this is bloomberg. ♪ this isn't just any moving day.

this is moving day with the best in-home wifi experience and millions of wifi hotspots to help you stay connected. and this is moving day with reliable service appointments in a two-hour window so you're up and running in no time. show me decorating shows.

this is staying connected with xfinity to make moving... simple. easy. awesome. stay connected while you move with the best wifi experience and two-hour appointment windows. click, call or visit a store today. tom: good morning, everyone. we are thrilled you are with us on the september day. here is taylor riggs. taylor: forecasters say north

carolina has not seen a hurricane like this in 64 years. wins with up to 140 miles per hour. it should come to shore late thursday or early friday. the storm is expected to stall once it makes landfall. people fleeing the hurricane have left store shelves there. trade association is joining forces to oppose president trump's tariffs. the group represents farmers, retailers, and manufactures. it is called americans for free trade. the coalition plans to highlight stories of business, farm, and consumers who have been hurt by the trade war. --e conservative economists claim that a corporate tax cut has already paid for itself. house is trying to

strengthen the president's claim that economic growth is due to his policy. and indeed asia, the finance minister once exporters to keep their earnings in the country. she spoke to bloomberg. >> the flow is not -- i just met the fund manager. the amendment is different. we adapt very quickly. taylor: global news, 24 hours a day, on air and on tic-toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg.

francine: thanks so much. let's get back to our coverage of the 10th anniversary of lehman brothers. joseph ackerman shared his recollection of the defining moment. >> we felt that this is very unlikely to happen. we thought at the last minute the u.s. government will jump in. i was traveling from zurich to frankfurt when i got a phone call telling me it is

>> what was the first thought that went through your head? what was going on? >> we were not completely unprepared. we knew that we had things under control. i was very much concerned about the systemic risk. at that time, it was a systemic risk. it was criticized by some people who said we should play the market. -- problem was so big that >> you were aware at that point of the magnitude of what was happening? >> absolutely. it was a central player. if the funding disappears, that could happen to other institutions. then you realize how interconnected we were in the financial system. that was no surprise to me. that was bloomberg guy johnson speaking with joseph ackerman. let's get back to our guests. thank you both for sticking around. we are talking about inequality. what the central banks need to

do -- what do central banks need to do? by him saying a came as a surprise to us. the first thing central bank should be doing is trying to understand and manage the system. the fact that they were showssed and i was not they were not doing their job. they were asleep at the wheel. they have to wake up. at the time, they had not seen the interconnectedness of the banking system. are you comfortable that they are on top of it now? >> i am not at all. for me, that is the big worry. how to defuse the bomb. we see that mr. powell is trying to do it. it is hard to know what they are going to do if they start unloading the assets on their battles she -- on their balance

sheet. it is causing turbulence. what happens when the ecb and other banks start doing that? i find it extraordinarily warning. tom: i will go to you. deutsche bank stock went from 90 to the fate that we have seen for the last x number of years. has the european banking system clear the financial crisis? have they actually cleared the system that mr. ackerman was talking about? >> i do not think they have. i find it extraordinary that german bankers talk about the anglo american crisis.

the little banks had all got themselves involved in the global derivatives. there is a complacency at a little bit of arrogance. there is also collusion. tom: is the complacency still there? i think they are all very concerned and worried. they have been playing with massive asset management funds. along and swapping the assets. central banks should not be doing that. they should be managing and regulating and not supporting them. did steve -- did steve stand up and leave? francine: he will if he keeps on being interrupted. look stephen at the --

when you look at the systemic risk, where is it? do you think central banks are on top of it? people are saying central banks get it all wrong. >> this is an interesting question. i think the way to answer it is to bring it back to financial markets. because wed timing just published our global outlook for q4. this is where it is very interesting. what are strategists are saying is that we are not having a systemic breakdown and emerging markets. we are seeing a repricing. highlighting are is that the countries with the biggest imbalances are the ones that are the most vulnerable. the two that stand out are the ones that have been hit already, turkey and argentina. it is interesting. ifncine: what i'm asking is

there is a huge get out there and we still have it with mortgages and people leveraging up, what are the chances of a sharp downturn in it the economy hurting financial institutions. there is something out there that were turn ugly. -- that will turn ugly. the fed was the first major central bank to go to qe. you could argue it was successful. they wanted to prevent the economy deteriorating. they did that. exited the qe in the eurozone. december will be the end. tom: leading into our conversation in the next hour, what is bnp paribas's view of the chronic negative interest

rates we still see in europe? >> our view is that things are changing quickly. they key point our european economists are making is that inflation is rebounding in the euro area. we think it is going to hit 2.3% by sete -- on cbi by the end of the year. that will mean that the ecb can exit in december and we think they will hike rates as soon as they can. they have promised us they will not hike and the summer. our economists believe by september of the next year, we will get the first ecb rate hike. that will put us back to zero rates in the eurozone. >> after $13 trillion of liquidity is pumped into the system, the cpi is only reaching --point something percent despite the massive injection of

liquidity, the economies of europe have not recovered. they are extraordinarily weak. i am worried. i agree that qe was the right thing to do. it was right to bail out the system and protect the public from the collapse of the system, but the question is that it needed more than qe. you cannot expect central banks to stimulate demand. warnedthe one that governments they cannot spend to revive the economy. they cannot spend to stimulate the economy. when they reach 90% of gdp, the world falls apart. here in britain, with public debt it 90% of gdp despite all of the cuts, the world has not fallen apart yet. mr. rogoff has a lot of questions to answer. the weakness in europe was because there is too much dependence on monetary policy.

francine: with all due respect, he was not a politician. he is coming up next, we will ask them. -- ask him. we are seeing pictures from ghana were high-level dignitaries paid their respects to kofi annan. he was the world body of the n.an -- of the u. he was 80. ♪

tom: it is serious to see a

storm in the united states. we were talking about the great hurricane of 1987 and of the united kingdom. we have the great hurricane of 2018. it is hurricane florence. we get a further update from our stuart wallace. stewart, give us a quick update on how it is halting shipping in the southeast imports. all of the shipping is trying to move out of the area. you have the commercial stuff coming out of the ports, but you have the navy there. you can see a lot of the applications on the terminal. the fleet of vessels moving out of their. sea andurther out to you are far less likely to be damaged. we need to think about what is happening on land. given the speed of the hurricane, there is a good chance it is going to knocked down a lot of trees and cause a

lot of damage to property. pretty much whatever the size of the trees, they all come down at the same wind speed. this is something that is been going on for centuries. galileo and leonardo da vinci started that. tom: what can you say about the depth of the rain? is one of the disadvantages of the scale that we use to measure hurricanes. it only looks at wind speeds. you have to think about the storm surge. what i've seen in the forecast is 13 feet. that is roughly four meters. that could go higher. that kind of storm surge is difficult to deal with. could it become less dangerous than expected? >> no. this is the strange thing. a good move slowly. it sits over north carolina for a couple of days.

it is a question of how much rain is a going to drop? -- is it going to drop? francine: we have reported on the ground and exxon mobil cars lined up quarter deep at the pump. what does that mean for shortages and gasoline prices? >> local gasoline prices are spiking. you do have shortages. hopefully they can be resolved overtime. it comes down to how can we get new supplies to the region. that is going down -- to come down to the state of the roads and railways. tom: thank you so much. stuart wallace with the commodity and energy linkages and what is a very serious storm. coming up, a really important conversation. michael mckee with william dudley of the federal reserve

bank of new york. not only is he working as a banker for the central bank but also with his thoughts of his time at goldman sachs and the financial crisis. the conversation with bill dudley at 9:00 hour. this is bloomberg. ♪

taylor: this is bloomberg surveillance. let's get the bloomberg business flash. u.s. attorney general jeff sessions -- bloomberg has learned that sessions will be brief september 25 by republicans who are looking into a company's practices. sessions will have to decide if there is a federal case to be made against facebook, google, and twitter for violating antitrust laws. the company that created oxycontin is offering free opioid abuse treatment in an attempt to resolve more than 1000 lawsuits. bloomberg has learned they will give away doses of a drug. the lawsuit accused the company of helping to fuel the opioid crisis. -- willwill help to

start offering fifth-generation service starting october 1. houston, indianapolis, los angeles, and sacramento will pay $50 a month after three months free trial. it connects up to 100 times faster than today's cable. that is your bloomberg business flash. francine: thank you so much, taylor. --discussed speculation that germany will not decide to nominate someone for the ecb but will instead focus on the european commission president. let's get back to stephen say well of bnp paribas. trade, whether a trade war start hitting carmakers and that will hurt the german economy.

who becomes the ecb president. should we become more optimistic than we were three weeks ago? >> the bank has written a lot about this. europe is a big focus for us. i would focus on the last topic you mentioned, italy. strategist our rate is that a lot of bad news is already in the price. you have already highlighted the italian government is not going to be as aggressive. when we do get the budget on september 30, our view is that it is likely to be below 2% of gdp. that is a good outcome. btpview is that we should spreads narrow on the back of that. you mentioned the effects. euroe more focused on

swiss here. euro-dollar is being driven more by trade concerns. euro swiss is being driven by political concerns. francine: where do we go from here? >> we think the swiss is likely to weaken from here. we think euro swiss will move higher from our perspective. bethink these metals could attractive buying opportunities. as francine mentioned, there are many others going the other way. which way do you go with? do you go with consensus? >> what we would say in the short-term, we would be constructed on the dollar. we think -- we would look at the euro-dollar to continue to fall.

as we have published, if you look with a more medium-term perspective, we have euro-dollar back up to 120. that is a weaker dollar going forward. the real direction is the dollar is likely to weaken. tom: does that come off a boom economy and the u.s. finally having away? -- finally ebbing away? what are u.s. economists have published is that we think q2 growth in the u.s. is as good against -- is as good as it gets. we think it flows at the second half as we going to q1 next year, we get to a one handle. we think slowing u.s. economy is the key. tom: thank you so much. a stimulating conversation is our -- this hour.

kenneth rogoff will join us. it was my book of the year year or two years ago. on the state of negative interest rates. we will leave the hour with professor rogoff on the new challenges to the emerging markets. let me give you some data. and lookinghe data at the foreign exchange and looking at the mixes out there today, i look at the data. out.hilippine peso coming the indian rupee as well. em still very fragile. francine: it is interesting. we had a great briefing on hurricane florence.

we are expecting america's east coast to be battered by hurricane florence. we'll have to see what that livestocksome of the and the farmers in that part of the world. i am looking at the euro slipping after a report that the ecb is set to lower the economic forecast. and then, the funeral of kofi annan down -- of kofi annan on. . good morning to all of you. he was a nobel peace laureate administer. he died at age 80. this is bloomberg. ♪

quiets morning, markets between a booming american

economy and emerging-market distress. guests together on this gilded age. diversions on european and american banking. this is "bloomberg surveillance" live in new york. francine, an extraordinary set of conversations today, 10 years passive lehman and driving it forward. francine: we are trying to figure out if you cast yourself back to 2008, there were signs there were vulnerabilities in the system. we are trying to figure out whether we still have fun abilities and whether we can prevent new vulnerabilities from cropping up. tom: the political landscape as

well. everything we have seen in europe and america the past two years. here is taylor riggs. >> hurricane florence taking aim at north carolina in what may be the most powerful storm in 60 years. the hurricane is expected to make landfall thursday and friday, then stall. they could drench north carolina and cause flooding. stores have been emptied by people fleeing the storm. companies are closing down factories. talkskorea is holding up over nuclear weapons over one detail. he wants the u.s. to declare the korean war is over. back, thesident holds u.s. could win concessions in its goal of getting rid of north korea's nuclear arsenal. the european central bank is 's forecast for

european growth lower. predictions for output have been cut starting this year. the u.k. and turkey are dragging on demand. mario draghi unveils the projection tomorrow. eu are planning a summit to sign a briggs a deal. the meeting could be announced within days. negotiators need to solve some disagreements. theresa may facing threats from her own party. conservative party members have discussed removing may from office. they think she is betraying their vision of a clean break from the eu. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. bloomberg. tom: thanks so much. , not much on the

screen. euro-dollar churning. philippine peso has broken out to new weakness, and the 10 year yield has surged. francine: european stocks up, asian shares down. traders trying to figure out the outlook for monetary policy amid global trade. treasury yields lower. pound will move on whether there is a deal between the eu and the u.k.. reports thepping on eu is set to lower its forecast. tom: we are thrilled you join us today as we consider economics,

finance, and investment. boardsthe great sounding book that change the debate of global economics. of cash, was curse my book of the year. he joins us this morning. i want to bring up a quote from 1995. this is a paper, one of many from the team. policy of 30's at the end of the 31 pages take a big risk to pin shiftingdibility on expectations about future events. fixeditgeist is it was rates then, floating rates now, so em is all clear. do you buy the line? >> floating rates would be blowing up.

dollarizedry economies, so when the exchange rate changes, it is painful. some would say the easy care is linked to the dollar, link to the euro. something, the solution is a link to someone? you would have one exchange rate crisis after another. now that idea is dead. it is not credible. getting rid of fixed exchange rates was a big help. brazil had its giant drop in its exchange rate. russia did not have a financial crisis when the ruble went from 30 to 90.

it is quite a cushioning mechanism. francine: good morning. what do you see as formidable in the financial markets at the moment? what should we worry about in 2018? >> the existential risk over lowncial markets is very real inflation adjusted interest rates have been propping up asset prices, bond prices in every class. we don't know one eyed went down so far. if they rise, that could cause pain from italy to emerging markets. with real interest rates this low, it is not easy to have a systemic financial crisis because you can borrow for so little, but emerging markets of the big vulnerability at the moment. francine: do you worry about shadow banking.

we don't know the extent of shadow banking in china. ini would include china worrying about emerging markets. different and i have a global crisis, it will come out of china. i don't hold with those who say this time is different and china will never have a financial crisis. they will have a lot of trouble keeping the growth rate up without having continue to rise. that is a point of vulnerability in the global economy. the spanishut tom: and the spanish armada trying to save medieval or early modern europe. i know this time is not different, but what do you look at in china when you try to observe instabilities? when you go to your three bloomberg terminals, what do you look at? >> we try to have indicators of when -- tom: we can't do that. >> we can't.

they are very weak. sort of ticking off everything. it is a centrally planned economy. they can quickly absorb government action. on the other hand, will it eventually have a big slow down for a couple of years? i think of course it will. tom: i want to take a moment. it is like barbra streisand singing when she was selling as though you and records. the two of you have been a piñata of criticism. i want you to respond to the numerous and diverse criticisms of your academic work. >> that is really hard to do. we have been attacked from the right, who said we were too supportive of the obama administration stimulus, and attacked from the left saying we were not supportive of enough stimulus. the thing that tries me nuts are

people that we had in a short paper that when debt goes to 90%, the world falls apart. our paper does not say that any more than a medical journal saying when your cholesterol goes to 200 that you will have a heart attack. we thought it was associated with slower growth, and it is. tom: we did criticize them when they would not do two blocks with us and i'll post -- in dav os. francine: when you look at economics and academics around the world, what are they getting wrong? >> i am sure there are a million things we don't get right. there is a shift in the debate, saying monopolies are a big part

of the problem, all the debate about inequality, which is a big problem we need to fix is beginning to focus more on wealth. let's fix things first like monopoly before we start saying we should move from capitalism to socialism. tom: within that, i want to touch on this in the next hour, where wages are not going up because of technological overlay and productivity of businesses. do you buy the idea that we just can't go up? >> there has been this trend going down. the u.s. economy is booming. corporate profits are booming. , but are starting to go up it has been a trend globally. it won't go on forever come but highereed to have

taxes to deal with it. dealing with monopoly would absolutely help productivity or inequality. it is a big issue. i see a paper every week coming out, economists are for starting to wake up. francine: we will get back to that shortly. thank you. you will be staying with us. dalio at 8:00 a.m. in new york. this is bloomberg. ♪

francine: this is "bloomberg surveillance" and i am taylor riggs.

hermes reported record first-half profit. it was boosted by strong sales in china. markets climb has investors concerned. car maker who shares begin trading today on the new neo, raisedxchange, funds at the lower end of its target range, buying the company at $6.4 billion. that is your bloomberg business flash. tom: thank you so much. greatly appreciate that. , but now we must turn to a study of our physical state. we will get that out on gtv . gdp.it to

this was the angst of the 1980's , the so-called clinton surplus. we rolled over with a vector migrating in another direction. slowdown, wenomic get a $2 trillion deficit. our listeners and viewers note that is not good. >> the fact is that right now interest rates are very, very low. part of the inflation of deficits globally, i would describe it as a response to the fact that interest rates are drifting down. on how bigts of work should your deficits get. it is hard to explain why they would get so big without political economy factors.

when the right is in office, the deficit gets bigger because of taxes. tom: there has to be fiscal responsibility at some point. they say this debt is the same. how different is the debt that mr. trump has given us? >> the government lives forever. tom: exactly. >> the government has a low touring rate. there is a broader notion of debt over the unfunded pension liabilities and such. it also depends on how you find it. if you are funding it with 30 year bonds, you will not have a run on your debt. a study by very summers and a former student of mine showed the duration of u.s. debt had reached a level not seen since the 1970's. that is partly a function of qe

that integrates the federal reserve with the treasury. at -- if when you look we bring you back to work the financial crisis should have taught us, do you worry about u.s. assets collapsing because of the late cycle coupled with the end of the tax cuts? big, systemicve a crisis like 2008, it takes a perfect storm. we are in a situation where regulators and politicians and investors and consumers are attended to it. they don't tend to happen close together. that said, we are deregulating at lightning speed. it is providing a boost to the economy, but that could race the red flag. amos last words, but the risk of a financial crisis in the near term, a global one, probably

more comes out of china than the united states, but absolutely, in 10 years to 20 years, who knows. it might come out of the digital currency world. knows? francine: if it could come from china, what form with the financial crisis take if it stems from china, that or something else? >> it would be a big slowdown in emerging markets. asia,erging markets and the global savings glut is holding down interest rates that denver 90 spoke about. it might lower global interest shrink,ut if it were to a lot of companies in europe, the u.s., get profits out of china.

tom: bring up the chart. cost of allinterest our debt together. is 2006-2007. down we go, then up we go. callu have a 10 year yield in your fed tipping point? >> i think for the united states it would take something really dramatic. tom: you are a market economies. >> the u.s. would have to see real rates go up by several .ercent the rest of the world would blow up if we go up 2% in real terms. we have to go.

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tom: by now you have heard it is serious. the heart of the matter is the stalling of hurricane florence once it hits land.

there is some specificity thursday into friday, but the real mystery is what does it do when it hits land. use there beginning to 40 number, 40 inches of rain. right now, we look at the gentleman who looks at the hurricane in washington politics, kevin cirilli. what are you focused on today? >> the presidents response to hurricane florence. it was remarkable yesterday to see the president surrounded by fema officials as the administration tried to send out a message that they are ready for this hurricane. the president going off script, he was confident and praised the response to puerto

rico. that contradicted officials inside the oval office, who said they were not as prepared as they should have been. pressure onot of this president and administration to be working with state and local law-enforcement officials to make sure the response is completely adequate. this is what people expect from the government when a hurricane hits their state. francine: what do we know about the response? are there worries that the president is saying the right things? >> there was chatter about the discrepancies between fema officials and president trump. this is a consensus that is a massive test for president handleo make sure he can hitrricane that is about to north and south carolina, even

potentially virginia. there is two feet of rain expected in virginia. the president has canceled a rally later this week, postponed a rally in anticipation of this storm. and a lotoving parts of folks monitoring the forecast. francine: thank you so much. that is kevin cirilli. next, the university of college london professor in the economics and innovation and public value faculty, the author of the value of everything. she will have some things to say about inequality. this is bloomberg. ♪ ty. this is bloomberg. ♪ xfinity mobile is a new wireless network

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.his impending hurricane emily of abc is with us now. there will be a lot of rain, want there? >> good morning. it is a beautiful morning here. people out here , and locals,urists who plan to stick it out. those rainfall predictions up to

40 inches. officials warning people to leave now because of concerns of flooding. far will of rain, how that floating go inland? >> we don't know. it, then dump that water. days,wer will be out for to to thinkou have about the flooding.

tom: thank you so much. right now, francine, why don't you pick it up here? francine: we have been talking about that. guy johnson spoke to the former boe governor and when he realized the scale of what was happening. 2008, it was clear the confidence was waxing and waning and only serious recapitalization in the u k and u.s. would result the problem. we spent a lot of time trying to persuade the government to move ahead with it. britain was the first country to

do it. stearns failed, then the next month it got worse. summer ofar in the 2008 net something deeper would have to be done. i have sinned of that, we would see the failure of another institution. worth adding to that that bernanke made it clear that every major financial institution in the u.s. could have failed. movedecame clear as we towards autumn. the idea we suddenly got news on

the 15th, that wasn't right. system was banking in big trouble. there was concern about lehman brothers building up. the conversations at the week and were trying to find a solution to the lehman problem. not aman brothers was watershed moment. was letting go a mistake? >> i don't think we consciously let it go. i think people in the u.s. work hard to find a solution to it. and they took the view they would not put public money into lehman brothers. they looked for other options. they couldn't lend to lehman brothers because the was not enough collateral. they concluded a deal would be lovely to buy lehman brothers.

they were hoping barclays might buy it. they bought it essentially for house the price only a few days later. the hangup on barclays was the people in the u.s. wanted the british government to underwrite any potential losses from lehman brothers. since we knew we were basically underwriting barclays, protecting the british banking system, that was the right thing to do. i don't think there was any conceivable way that the british government could underwrite lehman brothers. that was the responsibility of the american government. they worked hard to find asos solution -- find a solution. so lehman brothers went into

administration. tom: arrest was asian of what we have seen tenures on, i would give mervyn king great credit for an important book and his timeless speech in scotland in the heat of the crisis. this is a special moment. joining our guest is our guest from the university college of london, and an important and controversial book come the value of everything. the first 40 pages of this book should be read by every single economic student worldwide. it traces the history of economics. i want to go to ken. what she leads with is that history matters in economics, from mercantilism and on to the

modern age. i we teaching enough history and economics? economicsthink history is something before 2000 . ap is the idea here is you are touting some form of a marxist agenda. give us the nuance of inequality as you see it. valuet i argue is that used to be hotly debated between economists. now we have one theory of value. the debate has gone to business school. the word is talked about in terms of shared value, but we have a problem that we have this otology. allows lloyd

straight face a to say that goldman sachs workers are the most productive in the world. tom: that's harvard faculty, but we won't go there. thehis is why yesterday to head of nostrand from a surgical's with a straight face said he had the moral and increase the price of the antibiotic of his company 400% to please the shareholders. when we focus on maximizing shareholder value, which people have criticized, but they have not debunked the underlying theory of value. francine: good morning from london. forget shareholder value. how do you measure everything

around us? marks, but mentioned we could also go back to adam smith. they worried about production, the division of labor, mechanization and the effect on the profit-wage relationship. they had an understanding of value tied to the objective conditions of production. it held a fundamental connection this and produce organize production through the division of labor. the understanding of value determines the understanding of price. today we start with price. we should not throw price away. that is different from thinking and that prices themselves are what value is. measure gdp.ow we

cleaner, gdpyour goes down. when we pollute, gdp goes up because we have to clean up pollution. this problem has been talked about, but there is a difference between rinse and profits -- rents and profits. when we have a subjective. a value based on preferences, then it becomes easier for rent extraction activities to present .hemselves francine: does it mean we talk about redistribution? that it would help with inequality and populism? >> we should admit value is

created collectively. coming back to pharmaceutical people do die if they can't afford it, in the a year isbillion spent on research for these drugs. the prices should reflect the contribution of the taxpayer, which is enormous. set offew years ago a doctors in new york, including a father, who had the government support of medicine. she is saying it has evaporated. she is saying we are not using government like we used to use government. is that true? >> congratulations on a wonderful book. i agree that people should read it. there are two separate issues.

one is the rise of monopoly in the economy, which is producing rents mariana is talking about. amazon orined whether google is a monopoly? .bviously they are a separate issue is the government in a world of trade and technology is producing the things it always has, but faster, and taxes and transfers, or payments in kind, need to compensate for that. very good. touchant to come back in on the financial system and the still with us negative interest rates. another conversation wondering by lawrence summers of harvard university.

7:00 a.m. hour. ♪

>> this is "bloomberg surveillance" and i am taylor riggs. saysa's energy minister the country has the technical capacity to increase oil output, but no decision has been made on whether the market needs more supply. he spoke with bloomberg in flat about stock. >> we haven't taken any decisions on production growth. we just spoke about the potential and spare capacity that we have and is they are. we will be discussing these octobers in algeria in

when we meet with our colleagues. meeting with opec and its partners is later this month. that is your bloomberg business flash. tom: thank you for the many comments. tohave with us our guests talk about this economic moment we are in into 2019. so much of that economic moment is the linkage of economics into finance, the banking and finance system. we had one guest talking, rationalizing out 10 years. we have seen what deutsche bank and other troubled banks have done. u.s. banking and european banking, did you expect to see that five, seven come at 10 years ago? is so muching system bigger in europe as part of the problem, so they depend on the banking system more. regulation.ed

the at times would stress test the italian banks, the french would stress test the french banks. they are changing that. they put the ecb and charge, but it is having trouble taking the reins, so the european banks is a big part of why the recovery was so slow. francine: what does it mean? were central banks right to do that, or should they have done something else? is inequality due to central banks and what they did? find that hard to see. cutting interest rates is usually considered redistributing from those with money to those borrowing. i think i would have been more -- more radical. i wrote a paper in 2008 for

which i took a lot of criticism saying inflation is not the greater evil right now. you should worry about something much worse. i think they were a little cautious and reluctant to be more creative in their use of instruments. this goal policy could have done more, but in europe, that is not easy. i advocated writing down the debt in the periphery countries come and that would have been a good investment for germany and france. it did not happen. francine: mariana, do you agree with that? >> absolutely. the key problem is the source, things like private debt, not public debt, being out of hand, the ratio of private debt to disposable income in the u.k. is back to record levels. you have record level porting in the industrial sector, record level financial's asian, so

profits being used to boost share prices, stock options, executive pay, over $3 trillion spent in buybacks in the fortune 500 companies. we have not reformed the fundamental system. if you aren't creating opportunities in the real economy -- tom: i want to go back to 1974. they won a prize and it was so controversial. your latesthis in piece on how we did not clear the greece problem. why are we afraid to clear markets? why are we so tentative about clearing the greece problem, or clearing the banking problem? where does the fear come from, the timidity? >> the problem is how you define the greece problem. italy is much worse than greece. a lower deficit

than germany for the last 20 years. italy's problem was not the deficit. italy's debt to gdp is out of the roof. the private sector and public all sorts of parasitic relationships between them. there was lack of investment by players likean fiat. we send you had to invest in this country if you want fine, we so he said will. in italy, they didn't. the relationship between public and private is problematic. different?s time is this going to be the spain of 16th century? >> could be. as long as interest rates stay

this low, we will see a company not functional, not growing at the rate it could. italy suffered a lot from china. that's part of why they did not do well. if real interest rates were to rise, i don't expect that, then suddenly funding their deficit would be hard. tom: francine, jump in here. this is important. francine: does it depend, mariana, on whether the markets .re two short-term they want to know from the populist leaders if they will rules are not is that the wrong thing for the market to be focusing on? >> you cannot have a monetary union with the different levels of competitiveness we have in europe. instead of obsessing over the 3% rule him up what we should be doing in europe is to learn

lessons from each other. of investment in the private and public sector made in northern europe, and i'm thinking of the type of financial system in germany, where you have long-term finance enabling the steel sector in germany to transform itself. we don't have that in southern europe. we have consumption led growth. there isn't that level of ambition. we have a financial system which is short-term, just like the anglo-saxon world. the opportunity for europe is to think about itself as a hub of innovation, how does it differ from china and the u.s. in terms of the stakeholder governance model in northern europe? >> i would just say and second what marianna said, but emphasizing the fact the euro

was the mother of all mistakes. the euro,ren't on they would not have been sweden come but they have a lot of adjustments. it is very hard to do within the system. it is not just a fiscal deficit. four hours.d go for we want to get back to the theme of the gilded age, what we have seen politically with president trump as well? is there a persistency to this age?d can there be a persistency to the politics and culture donald trump represents? >> i hope not. in terms of the economy, what we are seeing is possibly sustainable. larry summers said we are in secular stagnation. i argued that after eight

financial crisis, you have slow growth, eight to 10 years to recover. ise of what you are seeing half of the financial crisis, and there is catch up. knock on wood, it could go on well for a while. tom: in your index, there is no donald trump. why not? mention it. he is very unique. i bet you did not know that. he is the first u.s. president institutions in the u.s. which have been key for u.s. competitiveness. literally the first month in office, he went after a sister inanization of darpa, but the department of energy. darpa has been a key source of innovation. in our phoneything

was funded by the u.s. government. he went after those organizations. china learned from the lessons of silicon valley. investing massively through different state actors and private actors in what will be the next big thing, the green revolution. they would not have been able to do that without the china development bank, increasing development. and talks hamilton, but trump is dismantling the multi-in -- hamiltonian legacy. the aspects ofut the u.s. government fundamental to the internet revolution, biotech, tesla would not have existed without the funding. , the curse of

cash in his 15th printing, a onve look to say the least the cash economy and the negative interest rate, and also this must read, the value of everything. agree come and disagree, scream at it, love it to death, the economic history you need to know. we are talking smart economics. the president tweeted. kevin cirilli nailed it, talking about that difference of puerto rico and carolina. please stay with us during the day. this is bloomberg. ♪ this is bloomberg. ♪

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will be lower. markets increase their fed rate hike expectations. , buy the rumor, sell the news. the stock popped. investors focus on how much these iphones can sell for. chessce, a deadly game of , hurricane florence could be the worst storm to hit north carolina in 60 years. welcome to "bloomberg daybreak." president trump tweeted about the hurricane, "we got a plus is on our work in florida and puerto rico." that is what the president just