John Kerry in Israel on Peace Mission (7/23)

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July 23 (Bloomberg) -- Full episode of "Bloomberg Surveillance." Guests include Douglas C. Lane & Associates Portfolio Manager Sarat Sethi, Willis Sparks, global macro director at Eurasia Group and U.S.-China Business Council President John Frisbie. (Source: Bloomberg)

This is bloomberg "surveillance." and erika secretary of state travels from egypt to israel and set up a cease-fire -- america's secretary of state travels from egypt to israel in search of a cease-fire.

Flights stopped to israel.

How to conduct business in china.

Live from our world headquarters in new york.

Wednesday, july 20 third.

Joining me, scarlet fu and adam johnson.

Let's get to our morning brief.

We start in england.

The bank of england has kept rates at .5%, a record low, as the governors are no longer saying a rate increase would hurt the economy.

Is this a surprise?

The fact that they held rates steady, no.

What is different is that they are signaling a willingness to effectively increase rates down the road, which was what mark carney told us at the last meeting.

That caught people off guard.

He has other -- other people offn board.

1.71, berry expensive for you to go to london and by suits.

Earnings?

Boeing, dow, delta.

After they'll come, at&t, facebook, and e trade.

Stocks, bonds, currencies, commodities.

Futures continue to advance, we look at the vix in a moment.

10 year yields below two point 0%. the vix tells a story, that is one of our themes.

The quiet on wall street, 12.24. the 30 year bond, not the 10 year, wow, 3.29% to 3.26%. blended dollar indesx way up.

Scarlet fu's single best chart.

This is a german 10 year yield with all sorts of ocean, including mh17. down below the eight month trendline.

Dramatically lower yields than what we see in the u.s. a host of reasons but one of the indicators of drama as europe debates sanctions.

We have looked at the newspapers and the webpages.

Here is scarlet fu.

Secretary of state john kerry stepping up his push to broker a cease-fire between israel and hamas.

He flew to israel as the faa imposed a 24-hour ban on commercial airliners flying into ben-gurion airport in tel aviv.

The death toll is almost 700, 651 palestinians and 31 israelis.

Every day there are another 50 or 60 palestinians as well as israeli soldiers.

You do not think of israeli soldiers as dying, you tend to think of them as able to -- to protect themselves.

Even the israeli military, for all its capabilities.

I saw one article.

From the israeli view, it is not mission accomplished.

Much more complex.

There's a long way to go to the lemonade their major tactical objectives, the tunnels.

It is much larger than anticipated.

We will be speaking with experts on the ground in a bit.

Our second story goes over to ukraine, to military aircraft carriers carrying the bodies of the victims of the malaysian airlines crash have left ukraine.

The investigation comes as u.s. officials lay out their most detailed case yet that russian separatists -- russian backed separatist were responsible for shooting down the flight.

They are saying russia probably provided the missile system.

The intelligence was not just about the lipsticks or poetry of a rocket -- the intelligence report was not just about ballistics of the rocket.

It was the base russians had to assist separatists within ukraine.

They went much further.

All these intercepted phone calls, messages, etc.

Really creating -- what am i trying to say?

Almost a patchwork, a quilt, weaving it together.

Weaving it together from a distance and not with outright allegation.

Muddy trying to figure out how to do what.

Eu fails to ramp up sanctions on russia.

The sanctions issue is really front and center.

Our last story, back to the u.s. and focusing on something domestic.

A blow to president obama and the affordable care act.

Two appeals courts issue conflicting opinions on subsidies available.

D.c. court of appeals is in validating -- richmond reach the opposite conclusion.

It said consumers that rely on the federal marketplace could receive subsidies.

It will escalate a legal battle and could increase the cost for consumers.

I urge people to go to nora feldman -- i urge people to go to noah feldman's article.

From this ruling to the d.c. court.

The wide presumption is that this goes to the supreme court.

34 out o 50 -- 34 out of 50 states use the federal exchange.

With secretary kerry does sangwon yoon.

What is the message for the israelis?

The secretary arrived in israel about two hours ago and is currently meeting ban ki-moon.

As part of those discussions, the secretary will reinforce the fact that the u.s. continues to support the egyptian proposal for a cease-fire that was made last week.

He is also going to spay to israeli prime minister -- he is also going to speak to israeli prime minister benjamin netanyahu.

How far does he see the ground mission in gaza?

Was it mission accomplished, did the team meet any goals as they travel to cairo?

Hard to say.

For the past two days, he brandished his personal signature method of diplomacy -- marathon meetings with egyptian officials, a number of phone calls with world leaders.

The state department, the message coming out of the state department and from the secretary is that this is going to be a long process and will take several days.

They have moved the ball will go forward and they see that there is a way forward but they cannot commit to any progress made.

We assume there is still warfare going on in gaza.

That creates the urgency of this.

Does the secretary, does israel, does hamas -- do they have time?

I am sorry, that was the secretary general walking by, could you repeat the question?

I know it is very busy there.

Do they have the time of two days or three days to negotiate given the warfare we are seeing in the gaza strip?

That is the reason why the secretary came out to the region.

A lot of critics are saying the u.s. is getting involved too late, that they should have done this a week ago or even a week and a half ago, before israel launched the ground incursion.

There is a heightened sense of awareness among officials traveling with the secretary and with the secretary himself of the humanitarian toll.

That is the same message he will push with various palestinian leaders and the israeli prime minister that he will meet today.

How does the prime minister -- how does the participation of ban ki-moon, u n secretary-general, change talks this go around?

The u.s. recognizes that this round of mediation is a lot different from what happened in 2012 when hillary clinton took the lead.

The role of the u.n. is crucial in the sense that the u.s. wants to see more of the international body playing a bigger role.

Baker is not the right wall, playing a more robust role in meeting with various players involved.

It might have to do with this recurrent theme from the obama administration.

That the u.s. is trying to pull itself out of various overseas crises.

Safe travels.

She is with secretary kerry in israel.

Secretary kerry flew into israel as the faa imposed a ban on commercial flights into tel aviv.

This after a rocket landed in yahud, an hour north outside ben-gurion airport.

It was more far-reaching than most rockets in the past.

This raised concerns about the safety of landing in this area.

Yesterday, a delta flight was in route to tel aviv and diverted to paris.

After that, the faa imposed the 24-hour down.

Delta was on its way to tel aviv and then it turned around and moved back to paris.

Then delta cancel all flights to tel aviv.

Then the faa came out and said u.s. flights have been banned from flying to tel aviv.

Michael bloomberg, the former new york city mayor and the owner of bloomberg lp put out a statement on this.

Here's what he said.

He said "i will be flying on el al to show solidarity with the israeli people and to demonstrate that it is safe to fly in and out of israel.

The flight restrictions are a mistake that should be lifted immediately.

This band is for 24 hours.

Let's go to flight trader.

Tel aviv with the emptiness around it.

Here is the landing path of three of these el al flights.

Code names, not flight numbers.

Another el al as well.

Expand out.

Other way.

See the traffic within the eastern mediterranean.

How busy we are over here.

Dubai and air emirates, etihad, qatar up here.

Quiet in israel.

Tel aviv is not the hub like doha or abu abu dhabi.

El al cannot with a profit warning a few days ago.

Let's pose our twitter question of the day.

Was the faa's flight ban to tel aviv the right call?

Tweet us @bsurveillance.

Mr.

bloomberg disagrees.

He is en route now.

Michael mcdonough, chief, economist at bloomberg.

The federal reserve continues, undeterred by what we're seeing on the ground in the middle east and ukraine.

There's not a lot the federal reserve can do anywhere else in the world.

All they are liking at what is happening domestically.

It is a little bit concerning.

You have growth.

You did not have the recovery people were hoping it would have.

There is no clear sign that is about to be a ramp up if you look at underlying indicators, there might be pressure building -- good pressure like growth pressure?

No, bad.

In the u.s., you have prices starting to rise a little.

We have not seen any wage inflation.

People said it is not a big concern, wages are not going to go up.

There is a disconnect between -- with labor slack.

There's the word of the moment.

Talking about slack.

We will talk about this more.

The idea of cost inflation.

Cost push inflation.

Cost what?

Cost push.

Red sox infield.

They've done pretty well recently.

Ex-im -- no cost push at apple.

Apple earnings last night, they were very strong.

We will talk about it.

Facebook earnings come out tonight.

We run you through all the technology headlines.

Tech bonanza.

Tech-palooza.

This is bloomberg "surveillance" streaming on bloomberg.com.

We will be right back.

? good morning, bloomberg "surveillance" in new york city.

I think you'll say a little bit about dodd frank, bart chilton of dla piper.

Four years on on dodd frank, "in the loop" this morning.

This is bloomberg "surveillance," adam got us starting on earnings.

Huge news out of apple, back to 20% earnings growth.

It is also back to all-time highs.

Here are the highlights.

Mike, maybe you can speak to this.

China, ipad sales up 51%. india, ipad sales up 45%. you lived in asia a couple years.

That appears to be the engine for apple, is it the engine?

I've spent a lot of time there.

From my personal observations, if i were apple and china, the demand you would see when the original iphones were released, there was celebration and people at the stores.

Everybody was trying to sell black-market iphones.

That has died down a bit.

There's not as much excitement over apple products in china as in the past.

There is still a lot of market share.

People are making more money.

What are they excited for?

In light of the samsung products are more exciting.

There's a lot of local brands.

Xiaomi, for example.

You go to beijing, shanghai, you don't have the same sense.

A lot of anticipation for the new iphone six.

Gene munster at piper jaffray says you are seeing a push by apple to get people into a new iphone, the slightly larger screen, away from the ipad mini.

Margins are better on the ipad.

I was fascinated by the blue-chipedness of this earnings report.

Before their autumn and school and holiday season.

6% of the growth, double-digit earnings growth, and cash generation off better margins.

$164 gazillion.

They could buy this company, this company, this company, even uber, and have money left over.

The other one, moving forward, facebook reports tonight.

People love apple, 47 buys on apple.

Facebook, 43 buys, nine holds, zero sells.

Earnings expected to show 69% year-over-year growth.

Pretty impressive.

Goldman, rbc, expect growth everywhere.

What are they going to do with whatsapp?

Tell us what you are doing.

Cantor fitzgerald says what are you doing with oculus?

Trading higher, up .2%. apple down .5%. we get sarat sethi's take, joining us and hour of bloomberg "surveillance." this is bloomberg "surveillance," streaming on your tablet, your phone, and bloomberg.com.

? good morning, bloomberg "surveillance." good morning to all of you worldwide.

Time for our morning must read.

Morning must listen, has to do with herbalife.

Bill ackman gave a three-hour presentation yesterday on why he believes herbalife is a pyramid scheme, he even got teary-eyed.

Listen to what herbalife's ceo john desimon was saying.

Talking about plans to sue bill ackman.

We may, that's an option.

The case gets stronger every day.

What has stopped you, why not slap him with a lawsuit?

To datem,, the company has performed well.

It is something that we talked about frequently.

I will leave it to the lawyers but it is a possibility.

Herbalife has been a losing bet for bill ackman.

It is probably the worst performing part of his investment portfolio.

Great that stephanie had comments from the chief financial officer.

Our matthew levine at "bloomberg view," i really urge you to look at this piece.

I took a little bit of it for my morning must read.

Quite raise expectations so much and then show up with anything short of proof that herbalife shakes are made of ground-up orphans?

He tilts towards mr.

Ackman.

Maybe bill ackman is going about it the wrong way.

It was a rambling, three-hour walk through of power points.

It did not have the certitude or aggression.

At one point, the stock traded as low as 52 and finished up at 67. on 27 million shares.

Not convinced by bill ackman.

I am bored by the soap opera but i am fascinated by the definitions of pyramid schemes.

Herbalife states that it is a legitimate business, a multilevel marketing business.

We will follow this story.

Coming up on bloomberg "surveillance," one week away from the fomc's next decision on interest rates.

What should we expect from janet yellen and company?

We discussed with mike mcdonough, bloomberg's chief economist.

This is "surveillance," tom, aj, and i will be right back.

? good morning, bloomberg "surveillance." and other beautiful day.

A little hotter in new york city.

It was heating up over the new york mets, nine games back with the washington nationals.

The yankees putting it on, playing five-15 baseball.

Everybody except 18 northeast of new york -- they are struggling.

This is bloomberg "surveillance," i am tom keene.

With me, scarlet fu and adam johnson.

How about a data check?

Not much to talk about.

A little bit of economic data.

Feature go up for, we continue to advance.

Yields lower as well.

From the 1960's, the early 1970's -- cost push inflation.

Cost push inflation, it is a challenge for american business.

Rising wages are a cost and selected economists are starting to worry about inflation that leads to more inflation.

They have rocks in their heads.

Michael mckee donna -- michael mcdonough is chief of rocks in your head for bloomberg.

David rosenberg is out there as well.

It is a lonely group.

Worried about wage inflation.

I think the fed may join them.

If you look at the headlines, it is not there.

If you start digging a little bit, you start seeing things -- there is a survey put out that says do you plan on lowering wages over the next nine months, it is at levels not seen before the crisis.

It has come up significantly.

It usually leads wage inflation.

I've personally been trying to hire programmers.

I cannot get them.

There's a mismatch between the skill set available in the labor supply and what companies need.

Critically, looking at alan krueger at princeton.

Is the cost push inflation that could come a separate part of america or is it millions of people who have subpar wages?

There is a bifurcation taking place.

The people who are going to benefit, one of the best statistics i have seen -- last month, a record number of people resigned.

At least in 2008. it was a long time ago.

People losing their jobs, most likely to get other jobs.

Companies are not hiring.

There is a huge supply of people who have not had jobs since the crisis occurred or have been partially employed.

There is a mismatch between that skill set.

People are being forced to get people from other companies, pay them more money.

That is in a pretty nichey area, programmers.

It is a variety of skill sets.

The labor supply does not match labor demand.

You will see aggregate wages rise despite it only benefiting a portion of the country.

Seeing this and other parts of the world, and the u.k. has its own employment conundrum.

Is that the case?

The u.k. is a bit of a different story.

That is a different housing story.

Focusing, looking at the u.s., back in may 2013 when ben bernanke first indicated there may be tapering, the temper tantrum, rates went searching.

You could chart the number of times "taper" was used in bloomberg stories versus the 10 year yield.

There was a huge correlation, it shot up.

There is a period of complacency now.

Once people die just inflation could start rising, you are going to be able to do the same thing with right high court tightening.

As discussion of that goes up, you will see the 10 year rise, the vix will not be at 12 or whatever you mentioned.

We're going to see something that looks more like the summer of 2013 then the summer of 2014. when does this happen?

If you look at what the fed is doing, you said they are meeting soon.

Not going to be much change.

They will continue tapering.

It will end in october.

You don't really have to worry about talks are further tightening until tapering is done in october.

The end of this year going into early next year, you're going to start seeing debate over whether or not -- meanwhile, the 10 year is 2.46%. how do you explain the massive wrong call by smart, well-meaning bond experts in the last six months?

It surprised me.

Has a you explain it and why should this move to higher yields?

People thought tapering would have more of an impact on the market.

Nobody thought u.s. gdp growth was going to contract as much as it did in q1. everybody blamed snow.

Housing starts in the south were down, snow.

It does not snow in the south.

Growth has not been as robust as expected.

Inflation, on the surface, has not been as high as expected.

This is an environment where rates will stay low and equities will benefit.

That will and.

Is the federal right when it cites housing as a concern.

We have seen things stabilize a little and the focus shifts to inflation.

Housing is critical to support a recovery.

I do not think you need to be too concerned about housing.

I think people overestimate of the recovery in housing.

A lot of institutional investors went in to buy housing.

That gave people a false sense of optimism.

Housing is not going to rise and be the big prize everyone expected.

It will be nice, steady gains.

I would not be too worried.

We did see a problem when rates did start rising, that had an impact on housing demand, that is totally a risk.

Something we will monitor as the fomc gets ready to meet.

The other part of your wheelhouse, china.

You lived in hong kong.

Could the chinese government the on the verge of a relapse after a rebound in growth yet that we will discuss.

This is bloomberg "surveillance." we will be right back.

? good morning.

Bloomberg "surveillance," i am tom keene.

Let's get to our top headlines.

What is left of typhoon matmo , it has been downgraded to a tropical storm with rain and gusts forcing fishing boats into port.

Still reeling from last week's more powerful typhoon.

The death toll rose to 56 people.

New roles for trains carrying flammable fuels.

Several fiery crashes prompted changes.

Measures include speed limits and testing for tanker safety.

President obama's own party is not onboard with his plan to solve the border crisis.

Senate democrats are joining house republicans to cut his emergency spending request.

Obama won a $3.7 billion.

-- obama wanted $3.7 billion.

Our single best chart.

Focusing on china.

A recent rise in iron ore prices in china, this is raw material to make steel, could signal something about the current government and whether efforts to support growth are working.

Let's look at the chart.

It is from mike mcdonough, our guest host.

The white line is chinese iron ore prices.

Tell us what this indicates.

Here's why this is important.

Iron ore prices in china, you get a daily spot rate, which is unusual.

You get the daily spot iron ore price, and important input for the real economy.

It is daily, industrial production, it is monthly and on a lag.

They are highly correlated.

You start saying iron ore prices go up and you know based on that relationship and its importance in the real economy, industrial production growth is going to follow.

Not necessarily good news.

It is basically indicative that the chinese government set this 7.5% growth requirement.

At first they said as long as growth is around 7.5%, we are happy.

Now, it must be.

They are putting up stimulus packages and basically setting aside the reform rebalancing agenda for a while.

Wasn't the point of china's economic push for the next five years really to put the burden on consumers to spend more as opposed to overall -- china's push is always stability.

They're going to do whatever they need to do to make sure things happen slowly.

Within your prison, is there a global -- within your prism ans a global economist, how long have you spent in hong kong at the?

Six years.

People follow iron ore.

Analysts are getting more optimistic, where is michael mcdonough?

I don't think there is upside to a lot of the metal prices, iron ore, etc.

I do not see china's demand surging like it has in the past.

I think it will grow a little . there's limited downside.

We have dug up -- this is what i am told.

A lot of the sheet, raw material metals have been dug up.

The break even cost is higher than it had been.

There is some downside protection.

Michael mcdonough, our chief economist at bloomberg.

Photos.

A lot of them, we picked three.

One that is kind of a mystery in new york.

A police officer causing on the brooklyn bridge following discovery of a pair of white flags that appeared overnight.

Usually, they are american flags.

Somebody went up there and replaced the huge american flags with these whitewashed american flags.

They look like bleached versions of the u.s. flags.

No one has claimed responsibility.

You wonder.

They don't even have video.

Is a trying to imply some sort of surrender?

I do not know.

It happened yesterday around 3:45 a.m., 4:00 a.m., when we get to work.

I rode my bike across the brooklyn bridge last weekend, i cannot imagine climbing that thing.

Stay tuned as to why somebody chose to do that.

Our number two photo, the wreck of the costa concordia carried away.

Incredible image.

The ship's final journey is going to take it to genoa for the scrap yards.

Who is writing the check?

Presumably insurance companies, but also there is a lot of scrap value.

Really?

Yeah, melt steel, copper.

Mind-boggling.

Have you taken this in?

I've never taken a cruise.

A lot of people died.

Three dozen, roughly.

It got too close to the rocks.

Number one photo of the day come pretty amazing.

In 1903, today, ford sold its first car, model a. 1808 units were sold.

Tom, was that your first car?

No, my father had one in the driveway.

I knew you'd have a story.

That's how my father learned profanity, my grandfather would kick it and swear at it.

I grew up a four family.

Ford man or chevy man?

The whacko across the street was a chrysler man.

Lineal is what answer they are bus pass people.

Why own a car when you can zip it?

Was the faa's flight ban to tel aviv the right call?

Because of rockets that landed near the ben-gurion airport.

Was that the right call?

Tweet us @bsurveillance.

? bloomberg "surveillance" with red, white, and blue over the brooklyn bridge.

Outrage and stunning surprise, the flags switch.

In the middle of the night.

Fated american flags.

Security authorities in new york city are concerned about how this happened.

Back to normal on the brooklyn bridge.

All is well.

Garlic will be running from 59th street later.

Bloomberg "surveillance," good morning.

Good morning, i am scarlet fu it with tom keene and adam johnson.

Some company news from the files of bloomberg west.

Apple being taken to court by workers.

The lawsuit could include 20,000 employees.

It claims apple does not give lunch or rest breaks.

It includes an antitrust suit over wages.

Microsoft's takeover at nokia not adding up.

The software maker this estimates.

The mobile unit drags down results.

Most of microsoft's 18,000 layoffs last week were linked to nokia.

Stub hub says cyber thieves broke into more than 1000 accounts and made fraudulent purchases.

Arrests are expected.

That is this morning's company news from the files of "bloomberg west." have you used stub hub?

I have, i liked it at fenway park, you can pick up your tickets.

You cannot do that at yankee stadium.

The yankees are behind.

You should be able to get it on your mobile phone.

Have you done a boarding pass for a flight on your mobile phone?

I don't trust that, i've never done that.

Let's talk about china.

China's economy no longer growing at breakneck speed.

Where does that leave u.s. companies?

Entrepreneurs looking to tap and maturing market.

The challenges are many, corruption, pollution.

A firsthand look with president of the u.s.-china business council.

You just returned from a 10 day trip to china.

What did you see on the ground versus the better we get from the chinese government?

Is a good distinction to make.

I think what is often lost in the rhetoric here is a very fundamental point.

China is at least a 300 billion dollar market for u.s. companies today.

Probably more than that.

It should be even more than that , if there were not some of those barriers you mentioned.

It is delivering growth when many parts of the world are not delivering as much growth.

That growth is moderated son, but for ceos looking at the world, china is delivering pretty good growth for most of them.

U.s. investment in china fell 9.3% and the first five months of this year versus the same time last year.

Is the golden age for multinationals in china tarnished, if not over?

Too soon to say something like that.

We just completed a survey, revenue growth last year for nearly half the companies was still double digits.

Maybe it was 20% year over year, that is in-line with the moderating gdp growth as china matures.

The ceu views -- the ceos view it as a growth market.

In may, exports were up 7 percent.

The importance to the u.s. economy is a story that is missed over here.

You're a spokesperson for business over there.

I think of james macgregor, the same thing.

To gregor talks about the idea, we get to shanghai and hong kong, that is as far as we get.

What is the penetration of american business and you west of china -- into the west of china versus the cities we know on the pacific rim?

What is happening, a lot of companies that have been there for a while, our membership is pretty much sure, they have to move into third and fourth tier cities.

That is another element that comes at least talk to executives on the ground.

The synchronous but there is rising position for domestic companies.

Rising costs.

That accommodation is squeezing margins.

Profitability, yes.

But the margins are down.

Michael mcdonough of bloomberg economics, i think of jonathan anderson, years ago at ubs talking about you have got to get into this third or fourth tier city.

To the chinese want us to do that?

Yes, i think so.

You were just in shanghai, i attended a conference on the shanghai free-trade zone.

No one knows anything about a free-trade zone.

What are people saying about it?

You have to look at the shanghai free-trade zone as a proxy for the reform debate in china right now.

The reform debate in china is a little unclear in terms of its to direction and impact, particularly on american companies.

Look at it as a proxy for the larger reform debate.

I was in china myself a couple years ago.

The growth was staggering.

What amazed me, when i came home and spoke to hank greenberg, who formerly ran aig and he said in order to do business in china you have to win their confidence and it takes 2, 3, sometimes five years.

Why is it so hard for american companies to grow in china?

American companies are showing growth, that is a story that is lost.

It is a very different market.

Coming out of a socialist background.

A lot of vestiges are still there.

They are not fully yet a market economy.

We will like to see them move faster.

That explains some of the differences between how you do business there or the rest of the world.

They are becoming more international.

There has been a bit of stagnation, to be honest, in the reform process.

That is why the new government that came into years ago, it has been so important to understand where they want to go with this reform drive.

The uncertainty is the other part of our survey.

Policy uncertainty amongst executives.

What is coca-cola doing?

They are an international company.

Scarlet was to interview their ceo right now, what are they doing in china?

Coca-cola has a big footprint in china that goes back a few decades.

They are still seeing growth is my understanding.

Not just in soda products but water, juices, and so on.

China has been a good growth story.

20 years ago, if you are a u.s. company and you want to do business in china, you had to form a joint venture.

At chinese accounting -- has chinese accounting improved so forming a jv is no longer the gamble it once was.

That is an outdated concept about china.

Three quarters of u.s. investment that goes into china today and for the last decade has been in 100% foreign-owned entities.

U.s. companies will own 100% there.

Joint ventures are required in many industries.

Investment barriers are market access barriers.

That's why we focus on the bilateral investment treaty, allowing more growth in services sectors.

President of the u.s.-china business council.

Our forex report, the yen turning, the euro weaker at 1.3471. surveillance" next, the american equity markets.

? this is bloomberg surveillance.

But america's secretary of state arrives in israel in search of an elusive cease-fire.

The netherlands and europe confront harsh reality confronting russia.

And it is not just the summer doldrums.

We are live from our headquarters in new york.

It is wednesday, july 23. i'm tom keating and joining me, scarlet fu and adam johnson.

Our guest for the hour, willis sparks, eurasia group global director.

The bank of england has decided to keep rates at a record low, half a percent.

The members of the pink -- bank of england are no longer saying that a rate increase witnesses early hurt the economy.

It might be paving the way for some sort of subsequent rate increase.

Stay tuned into the fall.

Economic data in the u.s., we just got the mortgage applications that come out.

That is a weekly number.

Up 2.5%. last week, it was down 3.6%. any comments, scarlet?

It is a volatile number that we continue to monitor.

Every week am i goes back and forth between gains and losses.

Yes.

Earnings before the ball -- before the bell today, knowing, dow chemical, and after the bell, at&t. pepsico just out moments ago.

$1.32 versus a consensus of $1.23. and pepsico just raise their guidance.

Nine percent earnings growth and that has been a surprise.

And just a couple of days ago, coke showed earnings up four percent, better than three percent.

I know it's not a lot.

What else do you have four company news?

In terms of company news, let's start with the banking sector.

Inaccurate and unreliable.

That is what the wall street journal has called deutsche bank's financial reporting.

One of the problems mentioned, week pathology.

In japan is suspending import from china over me port -- meat imports.

U.s. faster giants have stopped orders from the company.

And more ignition switch problems, but this time not from general motors.

Chrysler is recalling almost 800,000 suv jeeps worldwide.

The ignition switch could shut off the engine and disabled the power steering and air bags.

Elliott gotkine has given us terrific average from tel aviv.

He is himself down toward gaza to ashkelon, a biblical city.

Mr.

gotkine joins us now.

Elliott, the secretary of state is in israel.

Was his trip to egypt successful?

[laughs] well, if it was successful, we don't know yet.

He is again in israel to try to push forward the cease-fire proposal.

He says progress has been made, but there is still work to be done.

In that sense, we could have a cease-fire.

Color for us the way the secretary will be received by mr.

Netanyahu and his team.

I don't think there is any and necessarily bad blood from secretary of state carries ill-fated attempt -- or secretary of state kerry's ill-fated attempt to broker peace.

If the israelites are going to listen to anyone, it will be the u.s. and they are putting forward their argument that u.s. flights to israel should not of been canceled.

I think you will get a warm welcome, as he always does.

He will be told in no uncertain terms by the israelis that this is the war of defense and that israel is defending itself from rocket attacks via subterranean tunnels.

I'm glad you bring up the flight ban, because mike bloomberg actually fell -- flew to tel aviv yesterday from new york.

Listen to what he said before he took off.

It is safe and efficient and a great way to travel.

I want them all to be able to fly around the world and land safely and in peace.

Israel's airport authority said it is they've to land in and five from the airport.

Ll is still operating as normal, but this has got to have an effect on israel's economy overall, the span.

And that is not -- this ban.

And that is not something that israel wants.

It is giving the prize to terrace, in their words.

-- to terrorists, in their words.

There are more than one international airport -- there is more than one international airport, but this is the international airport.

I've been there, and i've -- i can tell you it is not a pleasant airport and is not a large airport.

Correct me on the distances, but i believe tel aviv airport is 53 kilometers from gaza and a rocket has gotten within one or two miles of the airport.

What are the israeli people actually thinking?

I sent a text message to a friend of mine this morning.

And he said, tell mr.

Bloomberg -- it is a loose translation, but basically it means that he is a great guy.

I think israelis appreciate the support and hope the automatic 24 are banned by the u.s. faa expires.

The problem is there are is psychological damage as well.

If people have to go there and they realize there are rockets flying over israel, maybe the will think about not coming.

That is not what israel wants.

Can you tell us how secretary -- how ban ki-moon's presence changes the complexion of the talks echo we talked to ban ki-moon in cairo.

It is right simply, stop fighting and start talking.

That was his request and pleading to both parties.

Both parties will reinforce the fact that the world wants a cease-fire.

The israelites and said that they will agree to a cease-fire.

, spain -- hamas has rejected it.

Elliott gotkine, five miles north of gaza in ashkelon, israel.

Good having him on the scene to bring us up to date with what is happening.

This brings us to our twitter question of the day.

We are getting a huge response.

People are either vehemently for or against this.

Again, was the faa's flight plan -- flight ban to tel aviv the right call?

Eurasia group global macro director, why don't we start with you?

Secretary kerry was in egypt yesterday.

He's in cairo -- he was in cairo.

Is there reason to believe that by going over to ground zero, to gaza, to israel, that he will be able to accomplish anything?

Obviously, u.s. leadership will be required if we're going to move this thing forward.

But we have a special problem that we did not have two years ago, the last time there was an israeli move into gaza.

That is, we have a government in egypt that is not only not sympathetic with hamas, but actively antagonistic with hamas and there is no peace with the muslim brotherhood.

They are trying to eradicate them from egyptian politics.

What you don't have is an ally in the egyptian government and willing to craft a compromise that, spain feels -- that hamas feels they can accept.

What amazes me is that the process never seems to move forward.

You can be -- speak to this.

The israeli market has been completely flatten the last couple of weeks.

How do you quantify the risks?

At think the israeli market is also export dependent as well.

The question will be, if you get more of the travel ban happening, will international commerce stop?

Will people stop coming in and out?

That will have a longer-term effect.

Shorter term, people are looking to this to say, the companies in this are so international, i think longer-term people will be moving out of israel.

And that is mr.

Bloomberg's point.

Let me do a quick data check here.

An amazing turn.

After 193 dutch nationals were killed when the malaysia flight was shut down over -- shot down over the ukraine, what responsibility -- what response will they have to the disaster?

? domestic airlines are packed and profitable.

Why are they going up?

Because i cannot find any to go?

Anything you want, whether food or baggage, you will pay extra.

And it will not stop there.

They will find more ways to make money from you, especially with premium seating.

And even frequent fliers will pay more money.

And they are talking about changing frequent-flier miles.

Are these structural changes?

These are structural changes.

These are long-term changes.

You could go to the capital markets and raise money, but today it is the other way around.

If you look at delta's balance sheet, they are paying down debt.

That has never happened before.

Why can't that entrepreneur come in and compete with them?

Is it because of date limitations?

-- gate limitations?

It is, but also for the first time you have capital markets that are not going to give you money to raise to start an airline because they will see the competition going on.

Where are you going to put the planes anyway?

And then where you actually going to get the management who will do this because the management running these airlines are running them for profit for the first time.

I think the cheapest one is probably united, because it has the most -- is it a value trap?

It potentially could be.

We don't think it is.

They still have to merge their systems.

It would be united first, then delta, then american.

All three are great guys in the longer-term.

Does food matter?

Food is necessary, but it will not change the needle.

And what they've done is they've made sure they do not have food on board that they will not sell.

That is the other he issue, there used to be expensive there.

They can raise the prices on food, but it is really ancillary , baggage, etc.. how focus is wall street on this?

Wall street is so focused on earnings that they are ignoring the macro effects going on.

25%, that is a much trading in u.s. government bonds has dropped in the last few weeks.

If you look at the bond market, the move index, the vix -- we will talk about empty floors all across all of global wall street.

Stay with us.

Good morning.

It's bloomberg -- "bloomberg surveillance." ? good morning, everyone.

Bloomberg "surveillance" question of the day is free of charge.

Was the faa's flight ban to tel aviv the right call?

We want your response to our twitter question.

It was for 24 hours and enacted yesterday at 12 noon eastern time and will expire today at noon eastern time.

El el is still flying.

British airways as well.

I'm talking here with scarlet fu and adam johnson.

We have the global to manager -- global director and manager of the equity group for eurasia with us.

Let's get to the headlines.

Southeast china today after a tropical storm sweeping across taiwan.

It has been downgraded, but still knocked out power.

The dell -- the death toll for this 1, 56. the obama administration will put out tougher standards today after several fiery crashes prompted the changes.

It will include speed limits for take -- tanker safety.

And president obama is not on board with his parties plan to solve the crisis.

Senate democrats are looking for cut in the spending request.

A deal before lawmakers start before vacations next week?

Not likely.

One of the headlining stories, ukraine and russia, and where to draw the line.

Horror over the downing of the mh 17. the outraged dutch have run into a conflict a global response from the french, manufacturing the warships and shells.

You are the global macro director of the eurasia group.

In all of this cacophony is no one saying what they will do?

There was a fabric -- fabulous article today around the dissent around mr.

Putin.

Is he acting unilaterally equity responding to the sanctions?

First of all, in any major economy in the world, there is no country that is truly led by one man and russia.

Mr.

could drink, the former finance minister carries a lot of -- mr.

Could run --kudrun, the former finance minister, carries a lot of weight internationally.

But he is a trained economist and one of yeltsin's strongest supporters.

Does he have any voice and is that group of people have any voice in russia?

He is speaking for the anxiety of a lot of people.

It may embolden other people to speak out over time.

Does this matter to putin?

Probably not.

Ukraine is far too important to putin to accept criticism that will allow them to get away.

How much of what he is doing is for his demented audience?

A lot of it is for the domestic audience, because his ultimate fear is, if ukraine follows in the path of poland and becomes more prosperous and safer and more secure and more european, russia's own people will be watching that.

Mr.

putin knows they may demand things the ukrainians have been demanding.

Can there be a middle ground for a future ukraine?

There can be a middle ground, but it gets harder every time mr.

Putin overplays his hand.

The middle ground would be if the russians can persuade enough europeans to craft a deal with the ukrainians that they change their constitution, that they empower regional governments to give them more say in trade policy, foreign policy, which would essentially give russia a veto over the ability of ukraine to move west at the pace at which it does.

This plane crashes not in any way helping them.

The president of the council on foreign relations effectively telling us yesterday that the world community somehow needs to figure out and offramp for putin.

If you backing into a corner, it gets ugly quickly.

Is there an offramp?

It is already ugly.

And offramp would be some kind of diplomatic deal you could impose on ukraine, a solution that allows them to coexist between europe and russia.

The problem is, the new ukrainian president is under plenty of pressure of his own.

He is a newly elected president and he does not want to be seen as backing down in the face of russian pressure as one of his first acts.

Cover for us the netherlands and their relationship to germany.

Is the real power negotiating over hydrocarbon?

How can the netherlands -- as it was called the other night, having their own 9/11, how can they recover in this debate?

A tougher line on russia has come in the wake of this crash.

And what we see is yesterday, when foreign ministers met, it was the brits, the polls, and the netherlands -- poles, and the netherlands who are leading the way to try to toughen sanctions on russia, even towards sectoral sanctions we could see in the fall.

Of got 20 seconds.

Hours possible are the french, given their warship transactions with russia?

Very responsible, but there may be a move behind nato to try to compensate the french if they cancel the deal.

That will be something to watch.

We've got to talk about the investment angle as well, because those sanctions are hurting russia's economy as well as foreign companies.

Coming up, apple shares are up 26% since its last earnings report.

This is bloomberg "surveillance" on television and radio.

We would back.

-- we will be back.

? good morning, everyone.

This is a shot outside of producer courtney collins apartment.

A nice view of the american flags.

The american flags are back.

A modest upward suit in the city of new york.

But the megan flags are over one of the world true iconic engineering accomplishments.

Let's talk about the bond market because it does not pay to be a superhero in the bond market right now.

That is the lead story that lisa brummel with rogue yesterday.

She wrote that -- lisa haberman with -- abramowitz wrote yesterday.

Everyone is waiting to make a move.

Where is the incentive to trade?

On the one hand, you have bond loads that are pretty close to record lows and trade yields that are getting close to inflation.

There is an inherent war going on there.

And then you have the central bank leading to this malaise.

Traders are sitting around going, why should i do anything?

And the implications could be far-reaching because if and when there is a problem, some kind of event command people do rush for the exit, that could create a backlog of people trying to get out of securities.

But there is the risk that there could be jamming at the exit.

There is also a risk that even a single amount of trading, even not that much trading, could lead to severe moves in the market.

Volatility.

Volatility that could spur some of this exodus.

If there is a huge plunge in valuation, even momentary, they will say, ok, maybe there is riskier and i should pull out.

Is there a lot of leverage in the bond market right now?

Are some of the investors taking more leverage than they should?

There is definitely more leverage.

It's not at all like 2007. the question is, where is the leverage echo it is not the same kind of leverage as in 2007, but there is inherent leverage in the companies and structures.

How artificial is a high yield market right now?

That is what a lot of people are wondering.

The question is, what does it mean to be artificial?

If you have the federal reserve holding benchmark rates at a certain level, if that is the artificiality, then if that is more healthy than companies that inherently should not exist.

There is a question of whether these companies will be obsolete and they will be key defaults, even in the slow cycle.

If overly spooked the market.

Is your equity space leverage?

In the equity space, what has happened is so many companies have gone out and pay down their debt and then refinance at such low rates that some of the issues we had four or five years ago, you do not really face that . they got cash on their balance sheet.

That is what is leading to the m&a, because it is secreted.

-- secreted -- secretive.

What is the best use of cash right now?

Quick acquisitions -- acquisitions.

We cannot tell now if this is two or three years of from now going to say who is making the better acquisitions.

Here's the thing, though.

If you actually get annualized -- which we can in july.

If you analyze -- annualized total deal volume, we are running double the all-time high set back in 2006 of 1.8 trillion.

Do you just assume lay-ups on wall street, or have they already happened?

Is there another round of dickstein, and foreign exchange layouts due to a lack of education?

-- another round of lay offs due to a lack of education?

Probably yes.

So gloomy.

I just got an e-mail yesterday that said, why are your stories so gloomy?

There is a certain gloom over the market right now.

The fixed trading is down.

Fixed income trading was and is down as much as it could have been.

There were more dead sales and more trading in june.

-- there was more in debt sales and more trading in june.

These banks don't want to have it on the balance sheet anymore, so you cannot do that.

It's a different ballgame.

We have sarat sethi with us here along with willis sparks.

Applications rose 2.4%, our only data of the morning.

Futures are up by almost four percent.

Good morning, everyone.

Look to our digital space.

I love saying that.

That is what the techie guys staples of our digital space -- that is what the techie guys say.

Look to our digital space.

We bring you willis sparks, global director of eurasia group as well as sarat sethi.

Last night, apple report earnings.

Up about 20%, rallying to its old all-time highs.

Thank god you did not sell with all those two men glimmers.

-- gloom and doom are.

I think what it showed was that apple gross margins held up.

That is where all of the bears were on apple.

79.4%, which is as close to the trend as we've seen.

Most analysts were thinking that over time, you will get more and more margin compression.

What apple basically did now is said, look, we will wait until the fall to see when the new products come out.

That will be interesting to see.

But to hold gross margins there and so have iphone sales increase, that was a good apple standard.

And the comments out of gene munster at piper jaffray, one of the good -- the go-to guy, he said that the margins will be moving away in the fall from the the ipad mini.

I agree.

Those are not high-margin products.

When they sell the new iphone, it will be larger margins anyway, because you will not be able to spread it across such a large unit base.

I don't usually do this, but i'm going to rip up the script and do this now.

Ipad sales are down, but the air book is in the mac division and computers are still selling.

I would suggest that people are buying air books and not ipads.

I don't think tim cook careful to be just wanted in the store.

But the reason ipads are not selling well as you do not need to upgrade every year.

You have one and it will last for four or five years.

The mac air is the in between . the fablet, etc.. i hate that word.

What is that were?

I did not make that up.

It is a phone/tablet.

I would be careful to see what happens after the next product launch.

We should talk about big tech as well.

Not only them, but bigger companies as well.

You've got to look at big tech.

The resurgence of oracle, intel, microsoft.

Yes, cisco, microsoft, these are companies that are selling at the discounts over the market mobile goal -- the market multiple.

But they do have big gross margins, too.

A company like cisco, like microsoft, i would be a little bit more wary of ibm and oracle.

It got to go back to breaking news stories in ukraine.

The ap is reporting that rebels have shot down to ukrainian fighter jets.

To ukrainian dish fighter jets -- two you take ukrainian fighter jets have been shot down by separatist rebels.

Two were shot down and one was probably damaged and another shot down.

It just doesn't ends, does it?

There is a war going on.

And one of the reasons why it does not end is because we have to accept that putin has less than perfect control of these guys.

They are doing a lot of things on the ground that are clearly not in anyone's interest to muster li na imprudent's interest.

-- not in anyone's interest, certainly not in putin's interest.

Kiev is still being very aggressive.

They see an opportunity and are trying to grab it, but the fighting is intensifying and not going away.

The german bond moves a 10 year yield lower.

Rebels, separatist shooting down to ukrainian fighter jets, according to the associated press.

This is bloomberg "surveillance." ? good morning, everyone.

Coming up on dodd frank, bart chilton in the loop with betty liu.

This is bloomberg "surveillance," and i'm tom keene.

It is time for morning movers.

I'm going to get us started.

Here is a name you almost never hear us talk about.

It's not apple or facebook or microsoft or ge.

Uma biotech is a small company, 49 employees, based in los angeles.

The shares are up 250%. up to $206. this is after positive trial results of a breast cancer treatment.

Yesterday, it closed at $59 and is now trading at $206. these biotechnologies are lottery ticket, essentially.

And he goes to what yellen said about biotech being overvalued.

People paid up.

They had a great shares show -- airshow in the united kingdom.

That is right.

Let's mention are bloomberg's leading edge to let you know what is coming out after the bell.

At&t, facebook, and qualcomm, and tomorrow, ford, amazon, and starbucks.

Usually, you get at&t before you get apple.

You get a sense of what apple is going to report based on what at&t says.

Here is the german 10 year that you did so well yesterday.

And here is the news of the two fighter jets down in ukraine.

We bounce off of that a little bit.

But you can see how the market rip -- how the market does react to the news in ukraine.

It keeps going down, and now we are at an -- a record low on the german bund.

A few years ago when mario draghi said, whatever it takes, that was the new low.

And the news on the two fighter jets, this is from the donetsk group, from the rebel leader -- but there is a lot of knowledge of him being a russian citizen for moscow.

And the ukraine ministry has no information on casualties from the downed fighters as well.

They do not have any information on it.

The associated press reported that two ukrainian fighter jets were down.

Also, this later posted on his social media change -- page, the social -- the social network: a facebook in russia, that the planes were downed.

In 30 seconds, what does mr.

Putin do now?

He keeps doing what he's been doing, doubling data strategy.

He continues to want to destabilize ukraine and put pressure on ukraine, and by extension put pressure on the europeans to try to do a deal to rewrite the ukrainian constitution that allows him to allow -- to continue to have influence in ukraine.

Nothing we are seeing today will change that.

We come back, peter cook will join us from washington as well.

Stay with us.

? good morning, everyone.

Really looking forward to this tomorrow on bloomberg "surveillance," mark mobius on the global emerging markets.

Mark mobius of friends in templeton, look for that tomorrow in the 6:30 a.m. our of bloomberg "surveillance." our guest host for the hour, willis sparks and sarat sethi.

Let's get you some company news in the files of bloomberg "west." a lawsuit could include 20,000 apple employees that claims apple doesn't give lunch breaks.

Microsoft's takeover of nokia not adding up.

The software maker missed estimates in the first -- in this latest quarter.

Most of the lay offs were linked to that picture of nokia.

And the online ticket agencies says cyber thieves hacked in to make purchases.

And we want to recap the breaking news from earlier.

About 10 minutes ago, the associated group -- associated press reported that two ukrainian fighter jets were shot down by the rebels.

We've also seen the rebel leaders make the same claim on his social media change -- page.

He said one was down and the other was probably damaged.

And if the soviet aircraft from the 1980's vintage.

-- and this is soviet aircraft from 1980's vintage.

This is not state-of-the-art technology.

And it is in the region where there has been a lot of fighting.

Speaking of aircraft, we want to point out this just crossing the tape.

American airlines is client -- is canceling flights from philadelphia to tel aviv.

It may resume tomorrow, but will not do so unless the faa gives approval.

I believe el el and british airways are the only went flying.

But i believe so, too.

Let's bring in peter cook, our chief correspondent joining us from washington.

What have you learned as we look at these headlines?

I know you've got some reporting done that indicates new intelligence.

First of all, no new intelligence on this shootdown of these two fighter jets, if indeed it happened.

But it does highlight that tensions have not gone away.

The fighting has continued and there are still some ability for the rebels to take down aircraft in that area, even if it may not it in the same kind of missile launch that has been in play with the aircraft here.

It is not the first time that is too coy -- a fighter jet has been brought down.

What i can tell you is that the intelligence committee has put forward its best evidence as to what to laced with the downing of mh 17. and that evidence that they released yesterday, the american intelligence official, points to a missile strike, a service to missile strike bringing down that plane.

They do not have definitive information as to who pulled the trigger.

They do not have definitive information that the russians played a direct role, but they do have circumstantial evidence that the russians provided

This text has been automatically generated. It may not be 100% accurate.

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