Stocks Approach Record: Surveillance (05/22)

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May 22 (Bloomberg) -- Full episode of “Bloomberg Surveillance.” Guests include NYU Stern School of Business Professor Michael Spence, Yale University Senior Fellow Stephen Roach and David Strasser, analyst at Janney Montgomery Scott. (Source: Bloomberg)

31 are killed in the west am a beijing is called anti-human and anti-society in the stock markets advanced higher as janet yellen considers a considerable time.

Mcdonald's wholesome and there'll shareholder meeting as protesting employees scream that we are worth more.

Good morning, everyone, this is "bloomberg surveillance." it is.

Thursday, may 22 i am tom keene and joining me is scarlet fu.

And adam johnson.

Data was positive over night in china with the pmi rising.

In europe, the services sector rose to the highest in almost for years.

If there's a caveat, it's just that we are starting from a low base but the data is getting at her and you cannot deny that with futures up again.

We have housing coming up later.

That's 8:30 a.m., last week it was under 300,000. we have manufacturing pmi as well and it is the bloomberg consumer comfort index at 10:00. the new york fed had had, so apple of days ago.

. we also had the kansas city manufacturing number.

Why do they do regional numbers?

If you add them up, you get it picture of the country as a whole.

. we are federalists.

Earnings before the bell, best buy, scarlet fu will break that.

After the bell, the gap, hewlett and packard and obama is speaking in cooperstown today.

That's because the orioles are in first place.

Let's do a data check.

We look at equities, bonds, currencies, and commodities.

The equity markets have a surge.

The euro is weaker and nymex crude is elevated big-time.

The vxx shows under 12. the euro dollar is so important.

There is iron ore.

In shanghai.

I have no idea what the number means but iron ore is cheap.

This is the volatility in the market.

It is gone.

This is the 25 year average.

Here is big angst over the last five years and down we go bearing down to a new complacency.

This is the conundrum.

Thank you central banks and janet yellen yesterday saying " considerable?" we are moving to our focus on the front page.

The news broke yesterday that we got more color on the natural gas deal between russia and china.

It's all over the cover of "the washington journal." gazprom sold a deal to china to supply natural gas.

I was tweeting about this last night.

President obama to japan without a trade deal but vladimir putin goes to china and comes home with a deal.

I was being a little snarky.

This has been in the works for a while.

. just across the terminal, you can see it is now formal -- thailand has another military coup.

Mark mobius was adamant that this is business as usual.

They have had a lot of political trauma in thailand.

The issue is whether it spreads beyond their borders and whether uc unrest through the rest of asia.

They had imposed martial law and now the coup has happened.

This is 24 hours after the army said it was not a coup.

Stephen roach will be coming up in the next hour.

We need to talk about one specific company, a chinese e-commerce company begins trading on the nasdaq today.

Jd.com posted an ipo and raised 1.8 ilium dollars and their business model is similar to amazon.

2.3x sales versus amazon which is a higher value than amazon.

I listened carefully to bloomberg television.

All my radar is up.

I just don't get it.

It is valued more than amazon?

I don't know, i just don't know.

It's the promise and the potential.

We are in frothy times.

Let's get to where third front page.

Banks are backing away from market-making activities.

Goldman sachs is selling his rights to operate as a market maker in more than 600 new york stock exchange listed stocks.

Bank of america is dismantling an electronic market that was only set up last year.

Increased scrutiny from regulators -- and scaling back on list like morgan stanley said.

One by one, they are following suit.

It is a new era.

Don't you feel we go into summer with the banks trying to figure out?

The banks are utilities.

We are at a critical juncture.

Those are the front page stories.

It is an international day today.

Let's be a little bit of mastech.

We begin with michael spence as one of our guests.

You live in italy and you are focused on china.

You are the authority on risk.

How distorted is our central bank system at this time?

It's quite distorted.

I don't think europe will recover unless there is a significant weakening of the euro.

Very reluctantly, the ecb is about to move into that territory.

Japan is a question mark.

Growth in europe is low and the fragile five are recovering as i expected.

They were put off balance by the spill over from abnormal monetary policy.

It's a very unbalanced world.

We think about foreign-exchange -- can a central bank push the currency weaker or stronger?

Yes, it can, absolutely.

I think marriott draghi intends to do that.

He will probably buy assets like sovereign debt.

He signaled clearly the ecb would be ready to move-in jim.

Given that he has signaled that, will have much effect?

It's hard to know how fast it gets priced in.

There is still uncertainty because there is a couplet in the relationship between the ecb and the germans.

There is not a certainty about what he will do and how aggressive it will be.

I think you'll see a movement once he actually does something.

Professor, we have john taylor on the show from time to time.

He makes the point that when you don't have inflation, it's pretty hard to push the currency down.

With no inflation in europe, you cannot push it down, so how do you do it?

That's a good point.

I think we are in uncharted territory.

The problem for europe is that notwithstanding the previous bout of systemic risk, this is a place where money is going.

People look at the united states and say that does not look good and the emerging markets are not understood.

Where does it go?

It piles into europe.

It's a little ironic that the money is flowing into the economic basket case of the global economy but that's what it is.

I don't have a job.

I get to talk to steve roach in the next hour and yesterday scarlet spoke to mark mobius.

Do you agree on a structural and permanent optimism on emerging market shares?

Should our viewers in america be investing in those countries?

The basic answer is yes but you are needing to invest with a knowledgeable advisor.

You need someone like mark who knows what he is doing who has experience and can assess the environment.

That is the particular companies or securities.

If the growth story is right and i think it is, the long-term growth story -- with the downward reset of the asset prices, i think there is a real opportunity here.

Michael spence is with us for the hour.

Dr.

mark mobius floored me, 30% is the emerging markets.

We have reports of a deal that could shake up the tobacco industry.

Reynolds american is in talks to buy lorillard.

The combined company would be number two in the industry that is led by altria.

Blackstone group is the largest landlord of single-family homes and now a starting a company to buy apartment buildings.

The properties were valued at $2 billion in the head of the units as blackstone is constituting an urban areas where there is not much new construction.

Carnival cruise ships are going greener.

They will spend up to $400 million on new exhaust heating systems that will allow carnival to meet air pollution standards for u.s. coastal waters.

This is thailand and the military coup that we are following now.

You see some of the emotion.

It's frightening.

Coming up, mcdonald's is planning to hold a shareholder meeting today.

Protesters are causing some trouble outside company headquarters and we will talk about the fight for higher wages in the fast food industry.

That brings us to our twitter question of the day -- this is "bloomberg surveillance," on bloomberg television, streaming on your phone, your tablet, and bloomberg.com and now available on apple tv and amazon fire.

? good morning, everyone "bloomberg surveillance." coming up, the former america online ceo stephen case.

He had that big transaction a decade ago and he is live "in the loop." we have an incredibly busy morning.

I am with scarlet fu and adam johnson.

This is a fascinating domestic story.

It's a busy morning for the executives at mcdonald's because they are holding their annual shareholders meeting in illinois this morning.

They have been dealing with protests from fast food workers rid their own workers as well as others, about 2000 protesters demanded wages of $15 per hour and the right to form a union.

It is very specific.

These guys want $15 per hour and the right to form a union and were joined by the president of the service employees international union and an official from the naacp which is the country's oldest civil rights organization.

Professor spence coming you did -- you were awarded the nobel prize in 2001 -- the link between higher education not because it makes you smarter but what it says about your worth to an employee or -- an employer -- help us understand how fast food workers presumably don't have as much education try to justify their worth.

The general situation we have is becoming increasingly well understood.

We have a combination of technology and globalization stripping out routine jobs, low value added jobs.

The nonroutine jobs in nursing homes and fast food restaurants and so on is a buyers market.

There is lots of people who cannot get jobs elsewhere.

It is a world in which there is a huge premium to higher education because it moves you up into a different segments of the labor market.

All those forces have put workers in a situation where the median income has not gone up for two decades and there is a kind of stagnation.

The minimum wage is not gone up for almost two decades now.

I think you will see more of this.

This is grassroots objection to the distribution characteristics of this economy.

The composition of the fast food workers is different and now it's older adults as opposed to teenagers.

The numbers are staggering -- 16-19-year-old made up 16% of the workforce versus 1/4 back in 2000. people are trying to make a living off these chosen they cannot do this.

That's absolutely right.

It's a combination of a long-term trend and the hit we took in 2008. the combination of the two has put lots of people in trouble and that's where they get work and they don't like it but it is a buyers market.

Going back to your work at stanford years ago as a means to capital and labor, i would suggest if you look at the share price of mcdonald's, the capitalists have been winning.

Within the broader american, i -- the american economy, what is labor get their fair share?

That's a good question.

Let me modify what you said.

Can the nobel laureate modify what i just said?

I think so.

You have the floor.

The return to capital however you measure it profits people who own stocks and the return to human capital is where the shift in income is flowing.

If you throw in human capital its dramatic.

It's flowing away from lower skilled and lower education parts of the labor force.

Where in that spectrum do you strike the balance between market forces and public policy?

That is the single hardest problem we are wrestling with.

This is not going to stop.

First we had globalization and then we have automation of things and now we have robots.

Everybody is celebrating because robots will bring manufacturing back.

They will go back to the market and china -- but at the expense of jobs.

To the profound simple question, doesn't it stop at the voting booth?

That's where a lot of america that is not enjoying these games will go in and they will vote and turn out the capitalists at some point.

Yes, that's a good observation.

A legitimate concern is that you fracture what europeans call social cohesion, the thing we think we share, in terms of values.

If you go on this path too long, you don't know where it will break up.

It will break down.

Can the plutocrats get through 2014-2016 before the greater tensions take over?

Yes, probably.

I agree.

The tensions will remain.

We've got more coming up on "surveillance." stephen roach will be with us in the next hour.

Asia -- we will talk about the china-russia gas deal.

This is "bloomberg surveillance," on bloomberg television, streaming on your phone, your tablet, and bloomberg.com and now available on apple tv and amazon fire.

? good morning, everyone.

Scarlet fu and adam johnson have joined me this morning and futures are up2. adam johnson has top headlines.

In western china, a series of explosions in a market killed 31 people and wounded 90 more.

China blamed wieger separatists.

There was some horrific violence about two months ago.

The ukraine pro-russian militants attacked a checkpoint.

At least 11 people were killed in fighting and witnesses say about the ukrainian troops were you -- wounded.

In the nhl playoffs, the los angeles clippers scored -- the los angeles kings, forgive me, beat the chicago back -- the chicago blackhawks.

No one at the front row at a kings game has btootox.

6-2 last night and the series is tied.

How many goals?

Five goals in the third.

. period.

We go to the rangers expert scarlet fu.

They are at the garden tonight at 8:00 for it lets let the series go to seven games because the rangers will clean it up.

I might be getting ahead of myself.

"the new york post" is pushing spirit and wear blue.

It has been 20 years since we won the stanley cup so the timing is perfect.

Let's get to the morning must read.

I chose one that's a little touchy-feely but it jumped out at me.

It's from thomas friedman in "the new york times" - what are we left with?

The nails it sometimes.

I think he does.

Everything is focused on bigger urban areas.

Think of the conversation this morning like deals with china and russia were violence in china and the coup in thailand.

Michael spence is with those who went from the urban landscape of palo alto to new york city.

What was it like moving from stamford to nyu?

You've got a very different feel about what life is like in a city like new york.

It is alive and has life on the street.

In palo alto, you have to get in a car to get a loaf of bread.

It's an exciting place but if you drive through it, you cannot see it.

I think we are probably moving in the direction of more urban and america.

From one big city to another, we are going live to st.

Petersburg next.

? good morning, everyone.

Let me do a data check.

Futures are up two, the yield moves higher and europe is a headline number.

A backstory into a three-day weekend in the united states, oil is moving higher.

That is american oil.

He has been busy with two outstanding interviews recently in russia.

Ryan goes to saint it is bird.

The biggest meeting of russian leaders is happening and ryan chilcote is with us.

The story is who was not there which are american financial leaders.

How much have they messed?

-- missed?

They are more missed more than they have missed.

Among the no-shows you've got everybody from the ceos from goldman sachs to visa and mastercard and everybody that was supposed to come from the u.s.. the white house told caterpillar to stay away and they have.

A lot of the european ceos have stayed away as well and some of the international organizations like the ifc.

This is a clear message being sent to president vladimir putin that if he goes further in ukraine there will be isolation and this is what it looks like.

What is the goal of the meeting?

I think president vladimir putin wants to come here tomorrow to say that the ceos that have not come to this meeting, we are not going to penalize you are punish you.

We don't think what your governments have done by suggesting you not come is right but we would like you to do business in russia.

He will try to reassure them there will not be any retaliation.

I was talking to some people who are familiar with american business interests here and they say they are concerned that they will lose market share.

He will probably make a reference to china and that just deal, $400 billion come a that russia has options.

It's kind of a limited option, really.

$400 billion between russia and china and vladimir putin is probably taking a victory lap of what kind of conversation are you picking up on this deal?

The big thing today is everyone is asking what price russia will sell the gas for.

That was identified as a commercial secret yesterday.

It's not that common that information is kept secret.

Everyone is talking about maybe the prices lower then they are selling to the europeans.

The only thing they have kept it secret, this is speculation, is because the russians are embarrassed about the price.

They needed the deal because they have been pursuing it so long and they wanted to send a message to western europe but if you want to diversify away from russian supplies, we can diversify as well.

Do you sense a pivot from the russian ceos given the fact that so many american and european ceos are not present?

That's a good question.

Yes, when president outin went to china, he brought a big delegation with them.

When it comes to the far east of the country, china is their neighbor so there has been a little active visitation or a little bit more initiative on russian companies to engage with the chinese.

As we talked about yesterday, the russians are still anxious about letting the chinese too far into the economy.

They don't really trust china and the not that many russians and the parties and their concerned about the far east of their country being overwhelmed by china which has hundreds of millions of people right across the border.

Ryan chilcote joining us from st.

Petersburg this morning and he will interview the ceo ofseversol, the biggest russian steelmaker.

From st.

Petersburg, let's move south to kiev.

Ukraine will hold an election in four days and confusion and violence reign with no apparent leadership.

Villa marks as the latest on the ground but he has recent travels to eastern ukraine.

It's a pretty chaotic part of the country.

There is this new people's republic that is being formed a few weeks ago.

The guys running that aren't interesting bunch of people and one of them is a moscow resident.

He has been announced as the new prime minister there.

There is a lot of military activity outside the main city.

We heard this morning there are 11 ukrainian army soldiers found dead.

We visited quite a few of the checkpoints around the city and it was not there as to who is in charge of the city.

What is the military might of the separatists?

What do you see in terms of military armament?

There is the odd guy standing on a street corner with an ak-47 or another kind of rifle and over the last few days, there have been more armored vehicles traveling around the city.

To be honest, they are not very well organized.

We spent some time and one of the checkpoints and the guys there have a very interesting range of backgrounds.

One guy was a former it worker.

That was representative of a lot of these guys who are professionals and have taken up arms and the separatist agenda.

I would not say they are well-trained and there is not a huge amount of heavy weaponry but outside the city, that seems to be a different story.

We've got russian helicopters invading ukraine in the last 24 hours.

Things seem to be staying relatively hot.

I'm curious what the agenda of the militants actually is.

His association with russia or independence from gf or is there something else?

I would not say there is a unifying message.

It depends on who you talk to.

Some guys said we really want russia to come in and help us out and support the ukrainian government and kiev but some said this is about their city.

There was no unifying message.

It's difficult to discern what the long-term game plan is.

Willem marx joining us from ukraine.

Coming up, we will talk about our single best chart -- indian stocks are soaring and may need -- it may mean bad news for chinese stocks.

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

Let's get to our top headlines.

The u.s. is sending 80 troops to help in the search for the kidnapped schoolgirls in nigeria.

Most of them will be involved with operating unmanned drones.

Almost 300 of these schoolgirls of being held by an islamist military group called boka ha ram.

In thailand, there was a military coup.

The army declared martial law two days ago in thailand has been embroiled in a political crisis that has spent the past six months.

Billionaire donald sterling is fighting to hold onto the los angeles clippers, he is adding to his real estate portfolio at the same time.

Since last year, he and his estranged wife have bought $59 million worth of residential property.

Futures are up one and dow futures are up 16. scarlet fu has a wonderful international report.

Some analysts call it the moti effect after his sweeping election in india.

Indian stocks have outperformed chinese stocks over the past decade by the most in 20 years.

It has come at the expense of china because there index has climbed 400%. what's curious is that the economy in india has lagged behind china.

If you look at gdp, it is the inverse.

China is outperforming india.

There is a recovery from the recession but the white line has consistently done better than india.

Michael spence is with us with his focus on china.

We have spoken to professor ba gwhati.

What is the new prescription for india?

They have to restore reform momentum and start investing in infrastructure and things like that at a much higher rate.

This is what got bogged down and discourage investors.

The good news is that modi has come in with enough credibility any of -- and enough of a mandate that people think it is happening and you are seeing an uptick in the markets.

If you go back to nehru, there is always a debate over foreign direct investment.

Is that the single immediate value you can add?

Can you say to general electric or nestle's come a, then.

? it would be nice if he went in that direction.

It's not a big bang solution overnight but when he was campaigning, he went in the other direction and pulled back on some of the retail openness which is a sensitive area in india.

I think he is a more fundamental problem.

He has to restore a sense that this is a good place to invest.

In the markets and businesses and public/private partnerships and he does that right, and starts to open various sectors that have been closed off, they will do fine.

I think india will go above seven percent growth again.

That's an exclusive, michael spence says go long india.

You look at how indian stocks have done well at the expense of chinese stocks.

Is money that goes to india simply come out of china?

It's not a zero-sum game.

The problem with chinese stocks as it does not really track the economy.

There are some in a peculiar characteristics.

People pilots of the stock market because they don't have other things to invest in.

The shadow banking system is giving them other options.

The correlation between economic performance in the stock market in china which will become higher has been very low.

The indian markets are more advanced and so the stock market is coming closer to reflecting the economic reality.

Between the two, does beijing know where to bet is on the map?

Certainly.

Within the border tensions between the two nations -- this is a huge issue for india.

Yes, it is.

The territorial issues are by far the most dangerous thing in east and south asia.

There is the india-china tension , there are these islands and china's tension and the asians are very worried.

. stephen roach will join us the next hour.

Right now joining us are three killer photos.

Jeremy picks these photos every morning and we have three.

Fast food workers from mcdonald's are protesting at the corporate campus in oak brook, illinois at the annual shareholders meeting today and they are demanding higher wages.

They want to be paid $15 per hour.

Mcdonald's closed down there corporate headquarters.

They told some employees not to go to work because of the protests.

It is very real.

It's a question for all of us -- would you rather pay more for a big mac and simple pay more money or not?

They had very specific demands.

They do, $15 per hour.

And the right to form a union?

Mcdonald says they do not have a corporate policy but 80% of the restaurants or franchisee-owned.

The number two photo -- this is not darth vader - this is the kiev mayoral candidate for the internet artie.

-- internet party.

He is pledging antigravity tripods for journalists.

I have no idea what that means.

How many people were killed in the eastern ukraine overnight?

11. i get the campiness and it's great except it's not campy.

There is nothing funny about this.

Why would you dress up as darth vader.

Maybe there is a subtlety we don't understand.

Our number one photo of the day -- the september 11 memorial and museum opens to the public yesterday.

The firemen hold the night -- national 9/11 flag before was put in the permanent collection and the flight was found buried in the wreckage of ground zero.

It's quite a photo.

That's a terrific job.

I have to mention michael mckee who was directly involved with 9/11. he was at the bottom of the towers.

He was one of many of thousands covered from head to toe in soot, like he was spray painted white.

He had terrific perspective on the opening of the museum.

Now everybody can see it.

It's open to the public so maybe one day we will make it there.

I cannot do it now.

Give me one year.

The emotions are still raw.

Many people say they cannot bring themselves to get there.

Coming up, global growth stalls -- should the u.s. fear inflation risks?

We will discuss that with michael spence next on "surveillance." ? whether republican or democrat tom a this is eric twitter question of the day -- that's enough to keep a barbecue going memorial day weekend.

More and more adults are using fast food jobs as their primary income.

It space to part-time america as well.

-- it speaks to part-time america as well.

This is "bloomberg surveillance." let's get you company news -- vivendi is selling half of its stake in activision.

The price tag is more than $850 million.

It used to be there controlling shareholder and it had most -- and it sold most of its stake last year.

More cost cuts at some night -- the ceo will cut expenses in the electronics unit -- the sales unit by 20%. sony plans to start a new television business on the company has lost more than $9 billion in the past six years.

Chinese online retailer jd.com begins trading on the nasdaq today.

They raised one point $8 billion in his public offering yesterday.

The shares were priced above the market range.

That is today's company news.

Did they have a conference call?

Yes, you have to.

I would love to be on that.

We have all been talking about alibaba and suddenly jd.com slips in there and it is much more like amazon.

Ellie babbitt is much more like ebay.

The valuation of jd.com was pretty high compared to amazon.

It is getting a richer valuation.

I want to get on their conference call.

Your first question will be who is your auditor.

9 let's switch gears . "what you wish for -- -- be careful what you wish for.

Bill gross suggests all economies will trend toward lower chair director ray.

With a new neutral, will or be more risk in gyrations in the market?

The world's expert on this is michael spence for years at stanford university and now with new york university and an esteemed laureate on these matters of risk.

There is this assumption of a dampening of a lower animal spirit.

What does it mean for markets in how we assess prices everyday?

There are two big influences on markets -- one is the monetary policy and the other is what's going on in the real economy.

The american economy looks to be pretty stable but growing at the low potential.

It might be 2.5% at most.

That is actually quite comfortable for the markets with accommodative monetary policy.

When does it become uncomfortable?

When there is a suggestion that this is somehow a defective pattern.

There is social unrest, a break in the policy structure -- something disrupts this sort ofcamlmness.

Paul krugman would suggest we need to do more.

To jumpstart us out of these challenges.

Do you agree?

I agree with a general statement but i think what he and i think ought to be done are different things.

The main problem in america is on multiple dimensions, we are under investing.

I think paul thinks if you inject enough aggregate amount in the system you will achieve something frequently called escape velocity.

I think it's a more fundamental problem.

It's just flat-out underinvestment in the public sector.

He would argue the government spending and you would argue private investment?

Investment is important but the reason it's subdued is the government below where it needs to be.

This is too much, we need this to be algebra-freight.

Let me explain -- most people think investment means private investment.

There is a hugely important public-sector investment component.

I think the partition between private and public is key in the goes to the angst we get when we talk about infrastructure.

Is escape velocity of meth?

No, but you don't want to pick one model or another.

Animal spirit matters.

Rejecting confident -- injecting confidence into the system and getting a sense the trajectories different is important.

So is creating the rock-bottom foundation on which an economy generates growth.

That is human capital, infrastructure, and then follow-on private sector investment.

Water banks doing?

They are getting out of certain market activities but does debt -- but does that reduce risk?

It probably does not change the risk profile.

That business is a response to an unstable financial system that we had before.

I don't think that will increase the risk in the system, to be honest with you.

It's just an adjustment in the way the financial system is configured.

You have less of these entities that do everything with embedded conflicts of interest and so on.

Michael spence, thank you so much on this international day.

You spend the summer in italy?

Part of it in the united states and part of it in italy.

The forex report today -- i am looking at the euro -- stephen roach, senior fellow at yale will be joining us in the next hour of "surveillance." ? this is "bloomberg surveillance." beijing calls the act anti-human and anti-society.

Stock markets advanced higher as janet yellen considers a considerable time.

Best buy reports at this moment.

We look at their first-quarter gloom.

Good morning, everyone.

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

Joining me, scarlet fu and adam johnson.

How does this hour, perfect timing, stephen roach, from el university.

-- yale university.

Best buy earnings are crossing as we speak and it looks like a mixed bag.

Scarlet, can you help us make sense of them?

Earnings-per-share coming in at $.33 a share.

Analysts were looking at $.19. when you look at comparable sales, same-store sales, down one point nine percent.

Analysts were expecting a drop of .9%. revenue is coming in later than anticipated as well.

Piper jaffray said that the first quarter is more important than you think.

There are issues of smartphone -- maturation of the smartphone cycle.

In other words, no new products.

In addition to the weather challenges the retailers have told us about.

The overlay of international, sales down over 5%. juxtapose best buy versus what we saw yesterday from tiffany, which was a home run.

Best buy gets 85% of its revenue from the u.s. it will not get that much of a boost from the overseas numbers.

As mr.

Jolie told me a couple months ago, it was sales.

Trying to get the sales and the fact that he has got to compete with amazon on price come that is the real problem.

David's strasser with us here in the little bit.

We will talk to stephen roach about american consumerism.

Overnight we got some positive economic data from around the world.

In china, a 5-multi-, sending asian stocks higher.

That is in part while he -- why we were up yesterday.

8:30, we get the chicago fed activity as well as initial jobless claims.

The bloomberg consumer confidence index.

Existing home sales at 10:00. i think the fed is looking at housing.

You just really wonder what is going on.

A few other items to note.

Kansas city fed manufacturing activity comes out.

And we discussed best buy.

We will have someone from hewlett-packard on gamestop.

And the president will be speaking at the baseball hall of fame.

There are some reports out of a deal that would shake up the tobacco industry.

A quote into "the wall street journal," arnold's american is -- reynolds american is in talks to buy lorillard.

The combined company would be number two.

Blackstone has created a new company to buy up apartment buildings.

Last year they bought up apartment properties valued at more than $2 billion.

The head of the unit says that blackstone is concentrating on suburban areas where there is not as much new construction.

Carnival's cruise ships are going greener.

They will spend up to $400 million on new exhaust winning systems for ships that would allow carnival to meet new air pollution standards for u.s. coastal waters.

What a wonderful set of tests today.

-- guests today.

Terrorism in china.

Ancient and present tension.

The uighurs and han chinese have become more than a distraction.

Stephen roach, you are thinking about the sprawling cultural variants of china, and he joins us now.

Is western china unbalanced?

A little bit, tom.

Ethnic violence is much more of an issue in challenging the fabric of social stability in china then is, say, the rise and fall of employment, which many in the west tend to focus on.

The government is certainly nervous about what is going on in sheen john province.

You and i have talked about your phrase "labor arbitrage." is that labor arbitrage going to go in land to the west or doesn't migrate to other countries -- does it migrate to other countries?

Coastal china remains much more competitive than we tend to think because the wage gains are being offset largely but not completely by rising productivity, so the unit labor costs are up a little.

There is a migration of production platforms to central china.

But not to the far west?

Not yet.

And not nearly exiting to other countries, as many surmise.

Give us a sense of how important xinjiang is to the chinese economy.

Very little, but it is a concern to the beijing readership, and they clearly indicated through a security alert that this is something they are focused on a lot.

Do they have the potential to contribute more?

They have the resources and potential to contribute more from that point of view, but it turns out my production, the dental is relatively limited.

-- potential is relatively limited.

There is a massive question about stephen roach on china optimism.

I met with mark mobius yesterday and spoke with him at length.

He is a china bowl.

-- bull.

Do you reaffirm that?

I am still constructive.

I will leave the markets to mark.

They have underperformed the last two 6, 7 years.

The economies at a critical transition point.

It is going much, much better than is widely surmised in the west.

Services-lead, consumer-let, taking over from the export-led.

This is not widely appreciated in our markets are by the western critics in china, of which there are so many.

As the economy.

-- as the economy pivots from infrastructure to the middle class, what is the long-term trajectory for gdp?

Consumer-led economies grow more slowly.

I think that right now china is in this sort of 7-7.5%, probably bottoming out a little bit.

But over the next 10 to 15 years , the growth rate will slow well below that.

See for china is to they grow rapidly enough to continue to absorb surplus labor -- bodies employed.

The answer is they do.

It is far more labor-intensive than manufacturing-led growth.

You can do labor absorption with seven percent growth that used to take 10% growth.

The president wants to give it -- wants to pivot to asia.

We are working on a trade agreement with 12 other nations, but not china.

Is that a mistake not to include china in our debate on transpacific trade?

It is a mistake for the u.s. china has a comparable agreement, rcep, regional cooperative economic plan, that excludes the u.s. both of these multilateral agreements are exclusionary and run the risk of diverting trade from either the u.s. or china.

It is in everyone's best interests to fold these 2 together and have one pan regional, pan-pacific agreement.

That should be much more important than excluding one or the other.

International day for "bloomberg surveillance." much more with stephen roach of yale university on china.

We did best buy earnings earlier but this is an m&a deal.

They're buying the hess retail operations.

$2.87 billion.

This adds to the 1.7 trillion have seen in global deals this year.

What this speaks to is hess wanting to be an exploration company.

It got rid of its refineries and now it is spinning off retail.

Marathon splits from being a major into a refining company.

Adam, you will go your hands like this, i will do my hands like this.

Vertical versus horizontal, i don't know which is right.

What a mess this is.

Stephen roach, you have the oil dynamics between russia and china as well.

What was your reaction to yesterday's headline announcement?

$400 billion over 30 years.

Look, i think the guy who moved was putin.

There is a growing sense of desperation, being cut off from europe and the west.

He needs an ongoing source of revenue.

China is a huge bonanza out there and the chinese struck at a moment when putin was willing to concede on the terms and this is good news for them.

It also reflects the fact that china is diversifying away from the u.s. probably morgan stanley was the lead underwriter.

Great firm.

Our twitter question of the day we want to hear from you.

We will be right back.

Good morning, everyone.

I am tom keene.

Stephen roach of the yale looking at individual stocks and china.

You know alibaba and all that.

"the economist" things that what is going on in china is more than just a stock story.

Tell us about this right now.

Why are you focused on alibaba?

China is focusing on a developing consumer society.

We had to build stores and malls.

They don't have to do it.

This is a shortcut from the emergence of the middle class to ebay shopping.

E-commerce volume right now in china is exploding.

That is what alibaba and these other internet platforms is all about.

There is a huge aversion to shopping in a limited bricks and mortar type establishment.

E-commerce, in terms of its offering comments its delivery system, it's cash payment system , is a very powerful catalytic force.

As chairman of morgan stanley asia for years, do you have confidence in their accounting system, they're auditing system, and how they bring that over?

Hong kong said no to ali baba.

Can the new york stock exchange or nasdaq say yes?

Hong kong said no because of the partnership agreement, not because of the transparency of accounting.

Most importantly, tom, chinese consumers are saying yes to ali baba, yes to a whole variety of e-commerce choices that they are using now to build this consumer society.

We talk about a slow transformation of china to consumer-led growth.

The internet is catalytic and excel earnings development.

Yesterday in my conversation with mark mobius, he put forth the rule of law.

What is the state of rule of law and china as we look at their markets?

It is weak, but this is a point of focus.

There were additional reforms that were ratified in the meeting of last november, taking the judiciary out of the party structure.

They have a long way to go in this regard and they need to certainly focus on that as they work on developing a better framework for property rights and consumer rights protection in a legal system which is only partially developed.

What do you look for from their government as we go through 2014? what is the message we will see from beijing?

The message will be, number one, focus on the structural transformation from manufacturing to services, from exports to consumption.

Number two, focus on a more disciplined approach to limiting reforms.

They are putting in place a new system of governance right now.

Coming up, best buy has a struggling first-quarter.

Good morning.

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

With me, scarlet fu and adam johnson.

Here is adam johnson.

We will start in western china, where a series of explosions in a market killed 31 people and wounded 90. china has blamed uyghur separatists for similar attacks in the xinjiang region.

In ukraine, per russian militants attacked ukrainians at a military checkpoint.

Witnesses say about 30 ukrainian troops were wounded.

In thailand -- yes, we are completely international here -- the military has staged a coup.

Thai army chief took control of the government pulled up the army declared martial law 2 days ago.

Thailand has been embroiled in a political crisis for the last 6 months.

Amazing how there is so much happening around the world.

There's some serious -- over the oil -- the chinese putting an offshore oil rig effectively and what the vietnamese are claiming as their territory.

All of this as markets drive ever higher.

Isn't it incredible?

44 directions this year in emerging markets.

-- 44elections this year in emerging markets.

Awol before it -- a wall of worry.

When you talk to scarlet fu there is a wall of joy.

Best buy sales fall short of analyst estimates and the stock is falling this morning.

Joining us is the managing director and i widely followed retail analyst.

What is the problem with best buy?

There is a lot more fear out there than the published number.

I don't think this is that at a number.

The issue -- i'm sure they will talk about it on the call -- is that there is nothing exciting in ce right now.

They're doing all the right things as a company but it is a tough category right now.

There was this 6-point land that the ceo put in place and it boils down to 2 bullet points.

They have got to lower costs and they have got to integrate the internet into the brick and mortar how are they doing on both of those?

Costs were far better than we thought and growth on the internet was 25%, a tad under 30%. those are both good numbers.

Those are the real structural issues at best buy, the underpinnings of what will drive the future for the company.

When there is no product out there, these guys are going to struggle.

You look at their competitors, a lot of smaller companies closing out there and a lot of guys like hhgreggs and sears, they are doing a lot worse than best buy.

It sounds like best buy is vulnerable to the smartphone and housing cycle.

What can the ceo dude -- within the ceo -- what can the ceo do?

As relates to the housing slowdown, there's not much you can do about it.

We are seeing that all across retail with slower numbers.

As far as product cycle-wise, there's always the strategy of hope for a better product cycle in wireless, but i think what they are doing is trying to figure out opportunities in the store -- they announced deals with samsung and sony to put stores within stores.

I think you will see more of those types of partnerships -- maybe a google, and expended or upgraded partnership with apple as the year progresses.

They are not sitting still and playing the game of hope.

They are really out there trying to figure it out.

Staples was a great example of an attempt to really drive consumer products in the store to drive traffic in the store.

I think they are really searching and trying to figure that out.

The real story at best buy is going to be the holiday.

Last fourth quarter, the gross margin was the problem.

Walmart crushed everybody.

My sense is that the stock stays in some sort of trading range until we get real clarity around q4. we are also joined by the former head of morgan stanley asia, now a professor at yale.

There is a deeper issue here.

The american consumer is stock in a balance sheet recession.

We have had 6 years were consumption growth in real terms has averaged 1.25%. this is the weakest period of consumption post-world war ii.

All we have got is qe for wealthy people.

This is critical come on michael spence spoke about this in the previous hour.

The real economy here is a steve roach economy.

You have mailed subpar growth -- nailed subpar growth on the backs of the subpar consumer.

And we see that in best buy.

When does labor get their fair share?

The consumer balance sheet repair by my calculation is looking at debt and savings ratios and is at best halfway there.

Subpar consortium -- consumption growth could limit -- brilliant.

David, how does your retail world adapt to steve roach's world?

I have to tell you, we have written -- you have done it in much more detail than we have done it, but it is our biggest fear out there.

We are worried about student loan debt, worried about those things.

The reality is you are seeing companies really look to cut back square footage, really try to optimize the assets of they have.

We are seeing real estate -- it is one of the best things you can do in that respect.

Last night you saw william sonoma have very good numbers will stop why?

-- have very good numbers.? why?

It is the high-end.

David strasser, thank you as always.

Just absolutely critical.

Fannie mae underscoring this yesterday, 2 americas.

This is "bloomberg surveillance." i am scarlet fu, along with tom keene and adam johnson.

Bank of america is getting rid of an electronic market making unit just last year.

The decision comes as regulators increase the scrutiny of whether trading in the stockmarket is fair.

More than 100 mcdonald's workers were among those arrested at a protest at the company headquarters in chicago.

They are demonstrating in favor of 15 dolly -- $15 an hour pay and the right to form a union.

And the twitter ceo wants to reassure stockholders, saying that top executives are holding onto their shares and are committed to the business.

Twitter held its first shareholder meeting.

The stock prices have fallen 50% this year.

Even though a lot of the insiders do not sell their stakes, you saw the stock react as they did.

What is the minimum wage for san francisco?

$40 an hour?

That as president obama's whole point, you need a federal minimum wage that is higher because there's is so much fragmentation around the country.

Ok.

cyber security is a big headline these days.

Both the u.s. and chinese engage in cyber spying.

According to the u.s., the goal of our spying is due, terrorism.

My morning it is -- my morning read is how china does not make that distinction.

It is from ian bremmer.

China doesn't seem to recognize that distinction.

What kind of had a response has washington opened up -- what kind of pandora's box has washington opened up your?

Complex cultural issue.

Stephen roach, what is your take on this?

First of all, scarlet, criminal activity from anyone needs to be prosecuted to the full extent of the law.

But number one, these charges that are in the indictment -- you brought the indictment with you.

Such a nerd.

Has nothing new in it.

It was all in a report -- the leading service agreed from published at 17 months at -- the leading cyber security firm publish it 17 months ago.

Absolutely nothing new in the indictment.

This fine line between national security and competitive packing is a blurred line, to be certain . who are we to call -- pop callin -- pot calling the kettle black, given the egregious violations -- by the nsa.

On formulators, for negotiators, and our own population.

How important that there be other announcements from other nations on us?

They are all in these various cyber security ports.

Whether it is a verizon report issued annually or even in this report.

The leading hackers around the world are, number one, china.

Number two, i believe, romania.

Number three, the united states.

The thing that worries me particularly about this u.s.-china issues that it comes 6 weeks before the scheduled strategic and economic ballot between the u.s. and china slated for early july -- no, this is slated for early july in beijing.

It is a big meeting between senior delegations of both countries.

This is the forum to discuss these issues intensely behind closed doors rather than go public with most wanted posters and other sensationalist documents that were leveled in the political arena for these charges.

This is politically motivated, then what should china's response be?

China's response needs to be more measured and mature.

I read some of the state press responses yesterday.

They were not along those lines.

We need much more collaboration on cyber security between our military, their military.

We were making progress there . those issues have been temporarily canceled and hopefully they can go back together.

Feel free to take me through this?

Yeah, please do.

When i heard about these charges against these chinese officials -- with the nsa, we just don't have the credit to go criticize someone else for kind of doing -- am i way off base and saying that?

You are not.

We make the distinction because it serves our purpose is that it is fine for us to do it because we are just protecting our people from some type of foreign incursion or invasion of our rights, but they are going after our companies.

Who's to say who is right or wrong in this context?

Again, we have really pushed the envelope.

We have also gone into companies like petrobras in brazil, companies in china, under the guise of national security.

Is that truly national security?

I mean, come on.

What is your real prescription for president obama?

If you need to provide leadership on this issue, what is stephen roach's test outcome for the president?

Collaboration and cooperation, building means of communication, at the military and civilian level, on all of these issues, whether trade or cyber security.

We need to share information and come together to a more sustainable resolution.

I think we're making some progress in that regard, before we blew this thing wide open with this doj indictment.

Who do you fault?

I think the doj was overly aggressive in bringing out evidence that was really in the public domain 17 months ago with this report.

Steve roach with us on china and others have the security.

-- another cyber security.

More and more it looks like workers to buy stocks are likely to be independent.

The number of independent advisors has risen by almost a third over the last several years.

Superb article.

You and i know this well.

People may switch firms or may just exit the big firm business.

That is the basic thrust of the article.

Steve roach with us, decade at morgan stanley.

As arguably the guy who invented morgan stanley economics, is the retail model broken for wall street?

You have lower yields, can't make money on bonds.

Will you see the institutional on the retail world split apart?

I sure hope not, top, because my former firm has made a big bet -- james gorman has made ita huge bet on this.

I think what most would concede, if retail is going to add value, it will be through strategic advice rather than plain vanilla-type transactions.

I think financial advisors are definitely moving in the direction of offering far more than just the ability to execute a trade at the lowest possible price.

It is a different -- creating trust, etc.

Trust, or follow management, planning, longer-term help -- i recommend anybody on global wall street review this article.

Superb article about the actual decision tree of how people leave a morgan stanley -- part of it is the technology that has made possible because smaller firms have access to the same platforms as the big wall street banks and they are not as disadvantaged as they were before.

You are getting tired of all the red tape that they have to jump -- they don't have the advice from morgan stanley european economics.

People don't understand, steve roach invented what we are talking about about economic advice -- it is out there for everybody.

The internet allows connectivity and advisers to analytics all over the world.

It is pretty easy to do.

Go back to 1995, roach invented this before the internet.

Oh, i invented the internet, tom.

I never knew that.

I was before al gore.

[laughter] great article today in "the journal." i wonder if it makes james gorman nervous at any level.

Although he has pivoted to equities, leblanc fine, jamie dimon have got to be looking at this with a very weary i. -- weary eye.

They made a strong strategic that post-crisis, and morgan stanley is turning out good numbers in its private manager business.

Contrary to the rest of this treat, the latest report was very strong.

Our erik schatzker had a number of interviews with mr.

Gorman.

I thought he was the exact -- executive of the year, the way he has turned morgan stanley around.

What about any given firm, with china right now -- morgan stanley billboards would greet you.

Does american backing still project to china?

Look, china has a huge opportunity for the world and for global financial services.

The key for non--chinese financial services is access to those markets, tom.

Morgan stanley had first joint venture and is now a new platform and everybody else is trying to get into that market.

Steve roach on wall street and china.

Coming up, this is leaders gather for an annual conference and ryan chilcote is there for us and will be ringing is a conversation with a billionaire.

You do not want to miss this one.

Good morning.

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

Futures flat, dow futures up 7. business leaders and billionaires are gathering in st.

Petersburg, russia, for an annual economic forum.

Ryan chilcote is there and is joined by billionaire alexei mordashov of severstal.

He is worth some $12 billion.

Take it away.

I would say one other thing about alexei mordashov that you may not know that she is a big player in the american steel market.

He spent 10 years buying american steel plants.

That is one reason it is nice you could join us today.

I want to ask you about the steel plants you have in dearborn and columbus.

You have said, severstal, recently that you are considering options for those 2 plants.

What are the options?

Basically, there are 2 options.

To save it or dispose it.

Because, it is a very good set of assets -- very profitable.

And in country standards.

Of course, it is small for, how say -- four big potential consolidation in the united states.

Anyway, but we don't have any pressure to dispose it.

You got an offer from u.s. steel?

We have different options -- they did make an offer?

Genuine and strong interest from all interested players.

May do an offer and how much.

Clearly, they have offered you enough yet.

Well, it is a process.

We are quite optimistic about interests, which we see.

But we will see.

A good possibility and good opportunities and options.

I know you were weighing your options with the steel plants before this geopolitical crisis developed.

Nonetheless, resumable or something that you have to pay attention to it -- presumably something he that you have to pay attention to.

Russia is the big bogeyman and you are an oligarch, a russian billionaire.

A few years back you apply for government loads for your plant to provide lightweight steel and you do not get the loans.

How much does politics figure into the equation of whether you sell these assets -- these plants?

Not at all.

Graphically comfortable doing business in the united states?

Absolutely.

I don't feel any inquiries to us from any authorities in the united states, in the united states or in russia.

We are doing normal business to contribute to the wealth and posterity of stakeholders and shareholders will.

In general, what is the consequence for severstal and your businesses, the sanctions we have seen so far?

You are not sanctioned, obviously.

Severstal is not either.

Nonetheless, the ratings have gone down, presumably borrowing costs have gone up.

We don't feel it yet.

On specific sites, we don't have any short-term consequences, at least yet.

Options have a more general political type nature.

What is really remarkable -- this is really important and might have long-term consequences.

I hope there are no fundamentals for these functions to stay forever and the genuine interest between europe, united states, russia, to collaborate.

You have a very small, 5% stake, if i'm not mistaken, in the first russian bank ever to be sanctioned by the united states.

As that caused an

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

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