Ukraine Fights Two Fronts: Surveillance (05/05)

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May 5 (Bloomberg) -- Full episode of "Bloomberg Surveillance." Guests: Tobias Levkovich, Mark Schoenebaum, Jeff Jonas, Robert Kaplan and Bart Chilton. (Source: Bloomberg)

This is "bloomberg surveillance." ukraine battles russian rebels on two fronts.

Trying to change the calculus.

Markets change -- u.s. treasuries are bid.

Alibaba hoping limited will show its cards.

It is monday, may 5. joining me, scarlet fu and adam johnson.

Let's get right to the morning brief.

Overnight, signs of global slowing.

China's factories slowed for the fourth month in a row.

The inflation was adjusted 0.8%. our inflation is about 1 %. those are signs of slowing.

The market of u.s. services -- we will also have a nonmanufacturing composite.

Earnings before the bell -- pfizer.

And there is a banker holiday in london.

It is children's day in japan.

In america, you do not have to speak to them, right?

Why isn't their children stay in the u.s.? every day is children's day.

Let me do a data check.

We look at equities bonds.

The seven-year-old was quoting the 10 year yield.

Prices are showing some of the tension.

Back over $100 per barrel.

The ruble is 35.82. that is a weaker ruble.

101.95 on the yen.

-- as you have it running is moving around.

-- that should you how big money is moving around.

Here's the trend from the financial crisis.

Growth is doing better than value.

We come over a little.

We will talk about this all across surveillance today.

We have to look at the front page.

Let's get started.

Violence in the ukraine is spreading.

It has moved from eastern ukraine to odessa.

Dozens were killed as russian sympathizers try to take refuge in buildings engulfed by fire.

You have fighting in the eastern region of the country as well as the government gets ready for presidential elections.

We will talk about this in a moment.

Nothing has changed from friday.

We saw the sell-off in s tocks.

You also talked about the 10 year yield.

That has been a key support level this year.

Dr.

falconer asked will be with us.

They're all busy at a party over the weekend.

They did not solve this on the sunday talk shows.

There are now riots in odessa, closer to europe.

I flunked the map exam.

The map has changeda a lot.

Serious issue.

The second story is pfizer's proposed takeover of astrazeneca.

The business secretary of the u.k. says that pfizer's bid raises questions of national interest.

The number one analyst and biotech will be joining us.

They have modeled cost savings from layoffs.

That is that they're worried about.

Some of this is cultural.

The brits feel that they own pharmacology.

We have the same here.

Over there, pharmaceuticals is a lot more personal.

There are a lot of questions about what culture classes might -- clashes might emerge.

Astrazeneca rejected their sweetened bid.

That has been turned down.

And the chinese commerce giant, alibaba, is expected to file soon for an ipo in the u.s. a lot of people here do not necessarily use alibaba.

This will be one of the biggest ipo's in u.s. history.

The timing is interesting.

There have been a flood of ipos.

There is a lot of talk that there are patterns that could result in an oversupply of stock.

What about yahoo!

They get all of the stock from alibaba.

In any case, those are the front page stories.

We need to make you smarter on business.

Let's get you started on the week.

Very ugly fashion.

Big money wants to own u.s. treasuries.

Diplomacy has been pushed aside by heavy fighting in eastern ukraine.

Richard falkenrath is with the chertoff group.

Good morning.

What has changed?

What do we need to know?

Friday was a real turning point with the spreading -- fi ghting in odessa and the death of 42 pro-russian separatists.

That has become a flash point.

It is playing out now with renewed fighting in the est.ast.

What does this mean for nato?

What are we going to do?

Is nato the body with which the west responds?

No.

i think the unanimous -- west is unanimous in his response to avoid military response.

They will try to deal with it politically and economically.

Those efforts have failed.

We have to conclude that there is no reason to think it will become successful.

Over the weekend, the new york times profiled some of the pro-russian militants.

They noted that it is not in favor of going back to russia.

They do not trust the government in kiev.

What subtleties might viewwe be missing?

There an excellent article in the times.

The pro-russian separatists are not unified in their political aims.

At least in that piece, there is no evidence of direct russian manipulation.

Elsewhere, there is direct russian manipulation.

They managed it to find the cell of separatists who are operating on their own and acting out of anger to a feckless government in kiev.

They all consistently labeling it fascist.

That term has particular salience this week.

They celebrate victory over not to germany in world war ii.

Of course, we are the fascist fighting against the people of the east.

The presidential election is scheduled for may 25. what is kiev's goal?

They're calling for a postponement of the election.

That is new over the weekend.

For the west, the united states and the european union says they will face additional sanctions on the outcome.

It is a very problematic date.

We thought it was an opportunity for the government to get in place new government with legitimacy.

They have no constitutional legitimacy.

It is not clear they will hold these elections at all with vicious fighting in the east and south.

Thank you so much.

We will speak with him later.

Our guest host this hour -- tobias, chief u.s. equities strategist at citigroup.

How do you filter news like this?

Your markets move off of geopolitical tensions.

The simplest way to think of it is as a risk premium perspective.

They're all is difficult to call.

There are issues around the world.

This one is more nervewracking.

Something we do not know how to deal with in 20 years.

The markets are worried about the economic consequences if it spreads beyond.

Sadly, not about the people who have been killed in the past few weeks.

The syrian civil war would be overwhelming.

We look at the markets with gold advantage.

The yen is stronger.

Prices are higher.

What is the correlation of those papers to the equity markets?

Bonds -- look at treasuries.

2.57% now.

There up over four percent.

This is a joke.

Like the boston bruins.

Stay with me.

He is referring to the collapse of the montreal ca nadiens.

The bond market doing better than the stock market is something that no one would have elected at the beginning of the year.

There was concern over what they would do.

This is a function of the risk premium coming back.

Even those comments before, nato not taking a military position.

That is something that the west does not want to do.

Sanctions would be the answer.

That lets some really bad consequences in.

Even that can lead you to -- how does it get?

People are worried about the effect it could have on the global economy.

How about the u.s. economy?

It seems to be unwinding from all that winter weakness.

Are we all clear?

The isn was stronger, car sales were stronger, the weather impact is dissipating.

Do we have the right economic conditions in place?

This seems to be a good indicator of activity.

If you look at the last economic conditions that i focused on -- the notion that capital spending is starting to get better.

We looked at 725 companies.

It is better and broadening out.

We will talk about growth here in a moment.

New details on how alibaba will structure the ownership in its ipo.

It may put too much control in too few hands.

You are watching bloomberg tv.

We are streaming live on your phone, tablet, and bloomberg.com.

Good morning.

Stephanie ruhle will sit down later that the -- today with bill ackman.

Up 20% or so for his pershing square.

I was in the case 12 months ago when he was getting beat up.

That is this afternoon at 4:00 eastern.

Good morning.

I am tom keene.

Joining me is scarlet fu and adam johnson.

Alibaba is filing its perspective for an ipo.

It may be one of the biggest ipos in history.

There are questions about the ownership structure of this company.

Our managing editor is here now.

This ownership structure is not quite dual class.

It is not quite one vote, one share.

It is halfway in between.

The insiders will choose the majority of the board.

The shareholders will vote on those numbers.

The rest of the board will be chosen by the shareholders.

It is not quite google or ford.

It is certainly not one vote per ownership, either.

Why does this matter?

Our company is looking at this as a precedent?

One of the reasons they will end up listing is the hong kong exchange was uncomfortable with the arrangement.

Whether it is nasdaq or the new york stock exchange -- it also matters because you could see another place the companies go.

If they do not want to do the dual listing, this is the third option.

I say to you, i do not know who this company is.

Are they out of the cayman isl ands, but in china?

Right.

Think of an amazon and yahoo!

Combined.

Do we know their revenue?

I think people are looking forward to the filings to see.

Now the numbers are like $150 billion.

The revenue was $3.06 billion.

It is a company that makes money.

It is a merge of all of these different entitieiss in china.

They also own mapping technology companies.

It is a large marketplace for a lot of firms.

Like an ebay or amazon.

It brings together a lot of companies we are familiar with.

One of the concerns has been internet stocks getting hammered.

We had a fun story is that in the last few months, the nasdaq is down the equivalent of alibaba.

So, it will be interesting with the numbers show.

One of the reasons we care is the size.

The other reason, yahoo!

Owns a percentage.

These investors that they would get a kicker.

They went to see how much yahoo!

Sells.

Alibaba has allowed just who to spend the money.

Who else also owns a big chunk is the founder of softbank.

They're looking at a deal with t-mobile.

Alibaba has been allowing others to look at deals.

I don't want to get you in trouble with citigroup.

I assume you're part of the deal.

In your securities analysis history, the heritage, does alibaba pass the smell test?

He is not trying to get you in trouble.

I will duck this one big time.

I have no idea if we are part of the deal.

I'm concerned that you think i remember the 1920's. i wonder about - is that just a stupid chauvinistic american bias?

Tom, actually, in your defense, you're saying that in the past we have seen massive ipos.

United was like ringing a bell.

When you see a company this big go public -- jeff talked about the internet stocks --cloud computing and the like, getting hammered.

Part of what you have been showing is that the initial spike was this grand enthusiasm.

There is a concept of tam.

It was about the size and potential.

'do valuations get ahead of that?

That is the correction you see.

All right.

Thank you so much.

? they play again tonight.

. coming up in the next hour, we have a new guest post with great conversation.

Bart chilton.

This is "bloomberg surveillance." ? it is the twitter question of the day.

Do you take your margaritao on the rocks?

No, what is the next merger you want to see?

Apple has a lot of cash.

What should it by?

As a fascinating question.

We're thrilled with what you have said into s -- sent into us recently.

This is "bloomberg surveillance." it is may 5. adam johnson has our morning must-read.

This is the wall street journal -- regulators want to be the gatekeepers for an ovation -- innovation.

" regulation should be the last resort.

Common law already provides remedies for innovations without imposing restraing on innovation." look at the typo i did this morning.

It is monday.

Would you think of all us?

I am more of a libertarian.

As far as regulatory control, it just creates new problem.

But we are seeing across a variety of areas.

M&a trasactions are a form of protectionism.

In this case, it is statism.

A cinco de mayo single best chart up next.

? cinco de mayo.

That building to the left of the empire state building their, best margaritas on the 40th floor.

Not the mexican national holiday.

It is about a battle the french or something.

Like 20 years ago.

Good morning everyone.

It is may 5, not may day.

We hope you have a good cinco de mayo.

I am tom keene.

With me, scarlet fu and adam johnson.

Are dated check is in.

We are picking up where we left off last week.

The 10 year yield is going down.

That has been a support level this year.

In terms of catalyst, the violence spreading in ukraine is one reason you're seeing weakness.

Also, chinese manufacturing.

I would say ukraine.

It is the carryover of ukraine.

Crude oil is up.

Vix is under 13. good.

The dow jones industrial average is at 17,000. still, the shift has been from value -- from growth, rather, to value.

Should you sell, or is this the best that?

We have citigroup's chief strategist.

How much of a move to value did we see?

Significant enough that we have crazy momentum coming of f. it is not about values?

It is about the extreme growth, the global innovative disruptors.

If you look at tech, for instance, everybody says tech is under pressure.

The place you do not want to be as consumer discretionary.

Those have been really crushed.

We used this phrase -- it is about selling april.

Sell in may and go away.

You see them going earlier.

We are in year five of this bull market.

I think it is a question of where you believe earnings will go.

One of the reasons we are not buyers is that you are likely to see economics trends where sell and go away would have been bad.

Most indicator say that we should improve from here.

That is the key factor.

There's no question the november through may was a better time to buy the market in may to october.

You can't game it.

You play the group -- brutes of winter.

The concept of --i figured you would like that one.

The boys of summer.

As you go through the almanac, the numbers are better.

You indicated that one year.

I thought you were talking about boys of summer.

You grew up reading balance sheets at the dinner table.

We did have conversation.

The s&p 500 is up.

Are you saying we should be buying?

The boring ges and exxons of the world?

We do light growth over value.

It is a question of which areas -- not runaway growth, but steady growth.

Without going into specific companies.

Bring up the chart again here.

This is the migration.

Tobias, we have never seen a chart like this.

I love a non-corrective market.

At the end of the day, is all of the stuff surprising?

Are you beholden to janet yellen?

I think there is way too much emphasis on the fed.

The fed and fiscal stimulus are always put in place are in recessions to try to aid and protect the downside of the economy.

The monetary stimulus will get cost and capital down so you can start the economic engine.

They have been doing that successfully.

At some point, you take that away.

That has always been the case.

People get too carried away.

If we overemphasize the fed, what about the under emphasis on the sidelines?

A lot of people have a lot of money in personal bank accounts.

The numbers are way beyond t hat.

There has been a lot of bad numbers out there.

There are a whole set of reasons why.

Over $9 trillion of household cash.

Much of that is in financials subsidieries.

It is not money for fun acquisitions.

If you think about it, a negative real yield is better.

Some of that is twice what it was 10 years ago.

I think the economy is very unloved.

The market got a little too loved.

We were in euphoria territory and have backed off.

Now, it is back in neutral terrioty.

We're watching actual money flows.

Investors are still framed.

If we make the assumption, correct me if i am wrong.

If we assume that a 257 tenure is -- 20-10-year is panicky, what is the implication for stocks?

This is ukraine, limited issuance.

Foreigners buying treasuries.

So, it is probably overdone on the bond side.

We are still looking for 3.25 by the end of the year.

I have a question from andy in the bronx on what to do with his stocks.

How exposed shoudlld we be in equity marks?

You want to be overweight equities.

Even in a bull market, you get some bad ones.

You had difficulties in 1984. troubles in 1994 and 1997. how do you respond to the gloom crew who says the vix is frothy?

Easily.

I am so frustrated.

If you buy the vix between 10 and 15, there's an 88% of market being up later.

I just want to give you one last number.

35 to 40, the market is up.

You have just heard from him.

Single most important thing you'll hear the rest of the week.

That is it.

That was outstanding.

We do futures because we have to.

We do the vix because that is what everyone follows.

You just heard, there is a correlation.

Tobias is our guest host for the hour.

We want him to weigh in on our single best chart.

I ate guacamole yesterday.

Did you drink because of the new york rangers?

They play again tonight.

The series is tied.

We are ok.

We are fans of the rangers here.

We are?

Two out of four.

We will be right back.

? good morning everyone.

The 10 year yield 2.56. boy, does that show.

Here's the twitter question of the day.

When is the next merger you want to see?

I think that is very open.

It could be an interesting question.

Send your responses in this morning.

What is the next merger you want to see?

Good morning.

I am tom keene.

Mr.

johnson has our top headlines.

Yes, sir.

A panel of experts is trying to figure out the back steps in searching for the missing malaysia airlines plane.

The plane disappeared two months ago.

They're reviewing to make sure they're looking in the right place.

Another recall for general motors.

This time, 52,000 suvs with flawed toolkit software.

The concern is that you run out of gas and you might crash.

Gm is being investigated over 2.5 million cars with faulty ignition switches.

The latest "spiderman" movie tops the box office.

It took in $92 million over the weekend.

That was the low end of the projections.

Sony is far behind -- i am distracted.

The other movies only took him $40 million.

-- $14 million.

Temper the single best chart.

We're getting ready for a b usy cinco de mayo.

I like the white label.

Boulder, colorado.

Green label, white label?

What $400 bottle to we like?

I have never seen a $400 bottle of tequila.

It is aged in old bourbon -- we have the founders of a tequila company that have been on bloomberg surveillance many times.

Our single best chart is a good one for today.

It shows that in the last 30 years, florida produced most of our limes.

That line dropped off almost entirely.

We get most of our limes from mexico.

The prices have gone up because of an apparent crop disease.

Suppliers and mexico have upped their prices.

This is a crop diseases.

Can you lick the salt without the lime?

Yes . betty liu would do a test.

I prefer margaret is made with lemons.

They are made with -- they are softer.

Totally serious.

Let's go to food prices.

Food prices are an issue.

I bought beef for the first time in ages.

Really?

$100 later.

There is inflation data.

You can get these spikes.

Our audience cannot take out food.

When you're trying to do a long-term trend, we are not the only one to do it.

You can get spikes all the time.

Inflation is the constant rise in price.

Is this why consumer staples are doing a little bit less than good?

There has been a change in the consumer staples in general.

There used to be great pricing power so they could charge you whatever.

It is 3/4 air, 1/4 potato chips.

That is hidden pricing.

We take a few chips out and the price goes up.

The reality is, the big-box retailers control of pricing and what is on the shelf.

They tell the branded food companies, here's the price that we're going to take.

They try.

Consumers are smart and they move onto other products.

That is the headline.

Consumers are smart.

How about some photos?

This is a pro-russian activists blockade in eastern ukraine.

I mean, i don't know what to say here.

The images keep pouring out.

It is tough to know what is behind it.

This is about revolution in ukraine.

Everyone is pussyfooting about militants.

It is about revolution.

It has moved west toward odessa, which is aligned with europe.

Into the early morning tomorrow, off of london tv -- all through the day.

Richard falkenrath will be on later today.

First to arrive, last to leave?

Janet yellen was at the annual white house association gala.

She was joined by mr.

And mrs.

Obama.

She does look pensive.

Everyone is in the lobby with 70 role.

-- stpeephanie ruhle.

Quite an image.

Good luck to whoever's on the other side of this ping-pong table.

Teaming up for another shareholder event.

Berkshire hathaway had its meeting in omaha, nebraska.

Kind of cool.

You could've beaten them.

I'm bad.

This is the effective advertising.

On the other side of the table is arnold schwarzenegger.

And the hockey that we have all been watching every third commercial is arnold schwarzenegger.

Those are the top photos today.

We're going to talk about m&a when we come back.

Heiser --pfizer is sweetening its bid for estrogenic a. they will report earnings in 15 minutes.

We will talk about big pharma and all the dealmaking coming up.

You are watching bloomberg tv.

We are streaming live on your phone, tablet, and bloomberg.com.

? this is "bloomberg surveillance." let's get you some company news from the files "bloomberg west." twitter's biggest investors plan to hang onto their stocks.

About 480 million shares became eligible for sale tomorrow.

The cofounder jack dorsey will be keeping his stake.

Apple won that patent suit against samsung over smart phone technology.

They were awarded $120 million of $2 billion that was sought.

That may not give an incentive to and therefore your long legal battle.

And nokia is joining google and others with self driving vehicles.

They are investing in companies that develop intelligent car technology.

They sold their mobile phone unit to microsoft.

That is the company news.

And the london subway strike has been suspended.

Not ended.

That is over.

Good morning to you.

That story is continuing.

The london stock exchange has closed.

The tube strike is suspended.

Good.

A lot easier to get to work.

Pfizer is reporting earnings in 15 minutes.

This is the 10th consecutive decline.

They want to buy u.k.-based astrazeneca.

They have rejected two offers so far.

They can -- mark consistently earns -- why is pfizer able to grow on its own?

I think the reason they want to buy az is not necessarily because it thinks it's portfolio stinks without them, but because they think it is better with them.

They want to split into three companies in three years.

Each of those companies will be a lot smaller than pfizer is today.

One of them will be very high growth and could be price to earnings ratio of close to 30. that will largely be a cancer company.

The hottest thing right now is what they call him you know oncology.

That is where you take a drug that ramps up your immune system and clears the tumor.

The data has been remarkable.

Pfizer ahas no immunooncology drugs.

You better have those.

Pfizer does not.

That is a reason they want to buy astrazeneca, who does.

The labor leader in the u.k. wants guarantees out of pfizer on a deal that jobs would not be cut.

There may be a 35% synergy analysis.

What would happen here if they happen to get guarantees?

As i understand it, the guarantees will be a certain percentage of employees that remain in the u.k. pfizer has a whole bunch of employees on the u.s. soil.

One way or another, they could probably achieve reasonable synergy targets as far as acquisitions.

Either by cutting on u.k. soil or u.s. soil.

If they have to do it through cutting on u.s. soil, they probably would do that.

I have to ask you about a transatlantic culture clash.

A lot of people are worried that that would be a disruption to the company's operations and perhaps affect research and development.

I think that is a reasonable risk.

You cannot dismiss it entirely.

The ceo of pfizer is a brit.

That should help to be used the culture transition.

Pfizer also for many years had a famous research facility in the u k that was fairly productive.

It was under ian reid's leadership and closed a few years ago.

I'm not sure the culture differences are all that different from an east coast company in the u.s. buying a west coast company.

They can be overcome with time.

You took your m.d. through the johns hopkins combine.

Great to talk to an actual physician about the biotech business.

Is anything going to change with these m&a transactions?

Will we get healthier or save people better?

That is a great question.

One of the things you learn is that the best way to generate evidence is a randomized control trial.

You do one thing to one group and do not do that thing to the other group.

You cannot have randomized experiments in france.

Pfizer cannot buy astrazeneca and then in another universe not buy astrazeneca.

It just cannot be done.

That is what people debate this.

There is still a lot of waste in a pharma and biotech m&a. when these companies start cutting, either right-click -- organically or through mergers, they need to cut projects that have less than -- that have a low probability of success.

That makes a lot of sense.

But you know that even things that have less than a 20% probability will work.

We will lose some great drugs, but the companies will be more efficient.

I was with yuki going.

They give for joining us.

Great to have you on the show.

Tobias, thank you so much for your wisdom.

Go canadians.

The yen is showing that slide in quality.

Ruble, 35.82. in the next hour, bart chilton will be joining us as guest host.

Good morning everyone.

? .. to eat and now odessa.

Washington tries to "change the calculus." ford provides a case study on leadership transition.

And if you do not pay them they will leave you barclays hemorrhages talent.

-- they will leave.

Barclays hemorrhages talent.

Joining me this morning, scarlet fu and adam johnson.

Our guest host, robert kaplan of harvard business school.

And the former cftc commissioner is with us as well.

Signs of global slowing overnight.

In the eu, they have lowered the information forecast.

Economic data at nine or the five.

-- at 9:45. heavy stuff but obviously very important.

Before the bell we have earnings out of tyson.

After the bell, aig.

I believe the pfizer earnings -- they just came out.

$.57 per share compared with the consensus of $.55. if this is correct, $11.35 billion misses the estimate.

Pfizer does reaffirm all parts of its financial guidance for the full year.

That is one thing that investors will be looking at very carefully.

Everybody is looking for some kind of commentary on the astra zeneca.

You typically wouldn't. astrazeneca rejected the 7.5% sweetener on friday.

This is very interesting.

Pfizer is not currently permitted to confirm or update its 2014 diluted guidance.

This is due to the applicability of the u.k. takeover court in combination with astra zeneca.

They are not going to report the diluted guidance that there are reporting other guidance.

That is the specific wording of their outlook.

As we heard in the last hour, the top rated -- this is all about pfizer getting closer to cancer drugs, which it would get reasonably by buying astra zeneca.

Astrazeneca has denied the bit twice.

I go down to the basics.

Viagra.

That's just o letto let us know you don't need it.

It continues to see buybacks of $5 million -- of five dollars per share.

Let's get to other headlines.

Another recall for general motors.

This time it is 52,000 suvs that may have flawed a fuel gauge software.

Gm is being investigated over why it took so long to recall 2.5 million cars with faulty ignition switches.

Siemens is on the verge of selling its airport units.

This is according to people familiar with the talks.

Siemens makes partial unit baggage handling systems.

A big onewin.

The win comes months after city created a unit that combines custody with financing and fund services.

That is this morning's company news headlines.

This morning big money wants to own u.s. treasuries.

Why the ukraine situation unraveled on friday if richard falkenrath joins us now as we shift from eastern ukraine to the southwest and the black sea.

Good morning.

What are the options that the white house and our state department has this morning?

They are very poor.

The main one will be to send observer groups into the area to figure out what is going on.

This idea of changing the calculus really doesn't make sense once the conflict default in this way, into a series of quite emotional local actions.

There is no longer one person pulling the levers, as his work.

-- as it were.

What did you learn from your meeting with angela merkel on friday?

They do not have any idea.

It certainly wasn't emphasized in their final statement.

Clearly the crisis should overshadow everything right now.

When two of the most important leaders cannot set out options, what it tells is they have so little leverage that they do not have a strategy.

Does that mean diplomatic solutions are off the table?

There is a diplomatic solution the concessions to russia by the ukrainian government.

The diplomatic solutions that consist of coercing rush into changing its policy, they have run the course.

The latest rounds of sanctions has been imposed.

They are affecting russian markets.

What that tells you is they have to rethink fundamentally what the fundamentals are -- what the objectives are.

President putin has been curiously quiet.

He doesn't need to say anything.

He is leading the ukrainians do his work for him.

It is the strategy, to sit on the sidelines and let the situation fester, humiliating the government, showing they cannot run their own affai rs, and painting himself as a savior, not instigator.

Thank you so much.

Our bloomberg attributing editor richard falkenrath.

Joining us this morning is robert kaplan, professor of management at harvard business school.

His books on strategy speaks volumes.

Bart chilton joins us as well.

One of the great commissioners and spokesman for the cftc.

Professor kaplan, let me start with you.

You own strategy.

I go back 14 years now to your first books on strategy.

What would be your advice to the white house on leadership or strategy in the geopolitical world away from the simplicity of the business world?

Flex i do not have anything real yet to add to what richard just set.

They have got to understand what they are and are not willing to do.

The only pressure, the only lever they have is the economic point with sanctions.

It is important to russia.

They have to think longer term beyond this first stage.

A pressure you can come up with an action plan but there are all these on -- all these unintended consequences.

Do you think we can put on the pressure and have mr.

Putin or any others surprise us with some consequences?

Absolutely.

You go back to grain embargoes and other things we have tried.

The unintended consequences of these things could come back to hurt you yourself.

I think the administration is doing the right thing.

It has to be a go slow approach.

I want to bring you back to the news we got this morning about pfizer reporting better-than-expected earnings and however one is looking ahead to any announcement on the process of its bid for astra zeneca.

Does it show that companies have maxed out on cost cutting and margin boosting and they have no choice but to go out and buy?

Flex i think so.

Their expectations are the market is going to be benign for the next two years.

Some industries like pfizer have to acquire research platforms, they really have to.

Growth is hard to come by right now.

I think you are going to see more merger activity in a number of industries in order to get more growth.

Flex verdure activity is up 70% -- merger activity is up 70%. isn't that a little concerning, companies can only grow by buying other companies?

It is what it is.

2.5%, three percent gmp growth may be the new normal.

I don't think we should expect some jump in gmp growth.

People are going to have to make strategic moves in order to get more growth.

Bart chilton is with us as well.

We tried to digest the job numbers from last week.

Does this signal that the pressure to regulate diseased just a bit?

Clock's i don't think so.

The collapse was so important for us to get a grip on what we needed to do that we brought light to dark markets.

I am encouraged by the jobs numbers and by growth.

I look or to a strong fourth quarter.

-- look forward to a strong fourth quarter can that our twitter question goes back to what robert kaplan was talking about, what is the next merger you want?

Tweet us.

This is bloomberg surveillance.

? this matters to our guest host.

Part children is former commissioner cftc.

He comes from a long line of engineers.

Mr.

chilton knows there is a need for engineering when it comes to high-frequency training.

You are as well-qualified as anybody, after michael lewis, after 47 op-ed's, what should we do when we do not do any harm?

I never said they should be an endangered species.

There are certain things they need to do in order to step up the plate and be a full partner.

I think they have been waiting back.

Some of them aren't even registered.

They need to have testing of their programs, they need to have kill switches, they need to have equal access to market information.

How do you respond to people who say you are right but the system will fix itself?

We will arbitrage away the problems and it will lead to a better system.

It did not work out so well in 2008. we had dark markets that needed to be rotten to light.

But because the financial collapse.

We see all sorts of technology glitches.

We socked with the faa having a glitch and the air traffic control system being shut down.

Their market manifestations all the time.

Unless something is done i am worried that policy will come out sideways, there could be a moment of negative political inertia that impacts them in a way and they are gone from the markets.

We see goldman sachs and lloyd blankfein lin stepping away from the darker pools.

What does it say when they are stepping away from the trading world you are trying to regulate?

Some of them are pulling back.

With record -- with regard to high-frequency trading, one thing a lot of people do not know is the banks have high-frequency trading programs.

Many of them have more than a thousand.

-- more than a thousand engineers were physicists working on the smart algorithm.

This will be part and parcel on a better market.

Will chicago set up a lines future exchange?

Do we need fruit futures?

Rocks there are fruit futures.

There is orange juice.

There are several others.

Everything should be traded.

You heard it first here, art chilton says we need -- art chilton says we need -- bart fcchilton says we need lime futures.

? [applause] futures at negative eight, dow futures -67. the yen is under one nil to.

-- 102. we're thrilled to bring you your week.

Robert celt -- robert kaplan and bar children that -- and bart chilton are here today.

And china, in other sign the slowdown may be getting worse.

Manufacturing fell the 44th month -- fell for the fourth month in a row.

This is the worst natural disaster on record.

At least 2000 people are believed dead after the side of the mountain collapsed.

And "the amazing spiderman 2," $90 million.

Far behind in second place is "the other woman." we saw it last week so let's address it now, leadership is about succession.

Consider season four of game of thrones.

Robert kaplan is that harvard business school.

We are getting a case study in real-time comparing and contrasting the ford motor company with what we saw an microsoft corporation.

I look at these challenges and i think the outcome microsoft will find -- the process is ugly.

How ugly is the process of leadership succession?

The first question is do have tenants you are cultivating who may someday run the company?

Microsoft did that very well.

In their case i think they felt the need to look outside.

Ford had much more conviction that they do not need to do that at all.

I think they both have a good outcome.

Was mr.

Mulally eased out earlier because of the back-and-forth between him and redmond, washington?

I do not know.

It may have had an impact.

I think he always planned on secession.

I think once worked got out in the market it was just moving along.

That is fair.

I wonder, how long is too long?

He has been looking into rethinking how much to stay on.

He has been on for 12.5 years or 13 years.

I think the key is are you developing potential successors?

Are you building a strong team?

I think it should depend on when the next person is ready as opposed to an exact time frame.

I think he will adapt his tenure to a reader extent to who he thinks possible successors are.

You just left cftc as the commissioner.

How did you decide?

Clock speed it was time.

-- it was time.

The administration was knocking at my door saying, we want you right away.

It seemed like a good time to go after nearly 30 years.

What can the world learn from your world?

The tough thing about the political system is sometimes you can attract integrates -- you can't attract a great successor.

Build a bench, cultivate people, and train people you can pull from other parts of government.

You are worried about 70 people who were unemployed at cftc during the government shutdown.

Why would anybody want to work in government?

It's a good question.

The cftc is considering unionizing now.

It certainly is something they shouldn't be afraid to pursue.

The fcc and other federal regulators are unionized.

If you have a job and you get laid off because of the inability of congress to pass a budget, it is certainly something you should think about.

You are now senior policy advisor at -- what is the single policy that is wrong right now in washington with regards to regulation?

We are ahead of all of the other nations of the world.

The eu is coming on with regulations related to the financial flats.

The law for -- law firm fda piper -- it's not only true but these guys had the ability to help harmonize global regulatory reform and help position themselves strategically.

Global regulatory form is a huge thing.

We just can't be the u.s. or the eu, we have to do it together.

Otherwise you will see market migration.

You will see companies go to where the rulebooks exist.

The regulatory world is an inner circle world where you have a lot of similar players.

Robert kaplan, as you are looking at companies making management decisions, what does it mean to go find an outsider versus grooming your talent?

Clock's it can work but you are -- it can work you are rolling the dice.

The danger is no matter how good somebody looks on the outside, you don't know until they come in.

It is safer, it is lower risk to cultivate your own successors.

If you have a company that is failing or you want to make a dramatic culture change, hiring an outsider might be the thing to do.

Bart chilton and robert kaplan joining us.

I know you're upset about this -- gary becker.

He was a warrior.

Professor becker was truly beloved by conservatives and liberals.

He is an incalculable loss for the economics of the 21st century.

And of course, for the university of chicago.

He was 83. this is is "bloomberg surveillance." some of the biggest names in the hedge fund world are gathering in new york for an investment congress -- investment conference.

Who are you excited to talk to?

Bill acumen.

-- phil acumen -- bill acumen.

You're going to see the market move within seconds.

David einhorn waived that magic wand and you are going to see big moves in the market.

Guys are sitting in the audience and live blogging.

It is one of the biggest conferences out there.

Bill ackman, how does he even have the time?

The guy works 24/7. when is that conversation going to happen?

We'll have that interview later this afternoon.

You are busy this weekend.

The president taking a jab at the rollout of the affordable care act.

We rollout healthcare.gov.

That could have gone better.

In 2008 my slogan was "yes we can." in 2013 it was "control, alt, delete." what got the biggest chuckle?

"orange is the new black." these days the house republicans actually give john boehner a harder time that they give me.

Which means orange really is the new black.

I don't know who wrote that joke.

He took the doors off.

He had to firms on either side of him.

Joel mchale was awesome.

Erik schatzker just asked me why i had a good time.

Beautiful parties and black tie, that is not the definition of really fun.

It corrects -- one of the things that works in the president's favor is he is a pop-culture junkie.

He gets the advanced copy of game of thrones.

He is up-to-date on his tv watching.

A bigger success, the bloomberg vanity fair after party.

I came home at 6:00 in the morning.

Is that where a -- you are able to go home and take a quick shower before church, right?

What's his take on the difference now -- out of the dough.

You are a jersey girl.

Chris christie took a lot of hits.

Chris christie was front and center.

He was getting abuse but he was having a good time.

What is your take?

Cooks just listening.

-- just listening.

The highlight for me was willie from duct honesty.

-- from duck dynasty.

That's the man he is.

They almost canceled the show.

I was surprised to is there front and center.

People were taking pictures with him.

I just want some back story that shows the backs dory and character -- the back story and character without all this celebrity garbage -- she spent the entire dinner, never touched her food, and took photographs with all of the military that were there with injuries from iraq and afghanistan.

There are a lot of stories about these dinners.

You don't see -- celebrity garbage.

Wasn't this guy on the red carpet for the game of thrones premiere a few weeks ago?

There are a lot of more stories going on as well.

12:00, mike nova gratz, bill ackman, we will be looking forward to it.

We have services at 10 a.m. futures are weaker.

They are weaker because of the continuing violence in the ukraine.

The fighting is spreading.

The yen is stronger as a result and the 10 year yield, 2.5 74%. crude oil above $100 right now.

It is bloomberg surveillance.

Bloomberg radio plus, bloomberg tv plus, look for our interviews.

I am tom keene with scarlet fu and adam johnson.

Bart chilton, he is the only one who has read dodd frank.

There may have been a fourth from barclays over the weekend.

This is ahead of a likely restructuring announcement that is going to be on thursday.

The bank is getting more focused as a result of dodd frank legislation.

What is the risk that regulations are actually driving talent, the people banks need the most, out of the banks?

Clock people are leaving banks but i'm not sure it has to do with the regulation.

In fact it is the other way around.

You have a love people that are in banks or other financial institutions that are hiring people for compliance.

Some of them are pretty complex.

Even though my former agent has done about 80% of the dodd frank rules, the rest of the other financial regulators -- they have only done about 55% total.

If you are wondering what is going on, there is still more of a story to be told, how do you work all this out to?

What is going to happen internationally?

How did international global businesses work to make sure that they are complying but also looking around the corner so they can be nimble and quick and have a competitive advantage?

You ran the cftc.

What is wrong with barclays being in commodities?

There's nothing wrong with them trading it.

My issue has been if they owned the commodities and they traded -- see control part of the supply and demand, you control orange juice or limes and you trade in it, then you have the possibility of -- when i was an old -- when i was an oil trader i have this big cash position.

This is an important point.

This is something a lot of people don't understand.

You're in a world of tangibles.

What you are teaching our intangibles, like financial markets.

Do you need a whole different body for intangibles?

I'm just making sure there's not some to the city -- some complexity there that is troublesome.

If you are an end-user, if you are minute maid or somebody that has a stake in the game, then it is a different story.

That has been my issue in general.

Your 30 year mortgage is based on a financial future.

They started with the energy and there are financial products.

The cheap money environment the central banks created would suggest there's plenty of the quiddity.

-- plenty of liquidity.

There's one issue that is not talked about very much.

Banks are cutting back their balanced sheet paid up we don't see it a because the world is flushed with liquidity.

When you have the next credit crunch, which we will have eventually, i will think -- i think we will see the broker deal -- and i think that is a risk we are creating for the future.

A shocking lack of volatility.

What would signal you to see fx volatility, bond volatility, they all come in, what does that signal?

There are still some outliers.

We talked earlier about high-frequency traders.

In the last 20 years we have seen big spreads reduce.

Electronic trading has reduced volatility.

I think lowering the volatility has to do with the flush of liquidity.

That is just why we want to have kaplan and chilton on.

We are continuing this conversation.

We want to bring in our twitter question of the day.

What is the next merger you want to see?

Tweet us.

? with me is scarlet fu.

Let's get started.

Adam johnson is our tough headline this morning.

Violence is spreading.

More than 40 people were killed in the black sea port.

Russian sympathizers were hiding out in a government building that caught fire.

Ukraine's and russians are each blaming each other.

Panel experts are taking the next steps to search for the missing airplane.

Hard to believe it has been two months.

Commuters in london are bracing themselves for another subway strike.

Two sides are holding talks just after it is set to begin.

Workers are unhappy with plans to cut jobs.

We will see how long that truce lasts.

They're just two completely different systems.

The tube opened today we are told.

I was tweeting this weekend.

I was juice cleansing.

He did that this weekend yack :00's how many daisy echo i did 12 hours and i was lightheaded.

On singled a mile we will do a margarita clients.

-- on cinco de mayo we will do a margarita cleanse.

You have some of the biggest investors not selling.

Even so there is a little bit of pressure on the stock.

My mover is disney.

Up $.19 on 200 shares.

Disney gets upgraded to a buy.

I just wanted to give you an opportunity to sing frozen for us.

Let out oh -- let it go.

Here is a case study.

The latest move in a can you top this game that is being played by airlines in the middle east.

Any airline would introduce full enclosed private bedrooms on a plane.

It would include a shower and a butler.

No word on how much all this will cost you.

Emirates has suites on many of its carriers.

These cost about $26,000 for a round ship -- a round-trip flight.

I would say this is just a sport here.

Robert kaplan is with us.

Prices all of a sudden are getting out of control.

The industry postures took her capacity as gone out.

-- industries -- industry's restructure capacity has gone out.

It does options on airline prices.

Lock in your price.

This is bloomberg surveillance.

Our guest host for the hour is robert kaplan of harvard built -- harvard business school and -- about 480 million shares the came eligible for sales later today.

Jack dorsey will be keeping his stakes.

Apple one that patent suit against samsung over smartphone technology.

A jury in the california oh awarded apple 150 million dollars of the $2 billion it fought.

Betting on self driving cars.

The company is investing in a company that develops car technology.

That is from the finals -- the files of the request.

I can't wait for self driving cars.

Pulsar a lot of -- that will solve a lot of my carpal problems.

I was driving on a highway, a guy hit a golf ball, it dodged my windshield.

It was scary.

I nearly had an accident.

That's because you hang out in these places where there is a golf -- i was china get out of that place.

I am embarrassed to admit i hit a car from a golf course and it was horrendous.

Luckily it hit the top of the convertible and didn't break it.

This was when you are the cftc commissioner.

Before that.

It was on a renowned golf course.

Your tax dollars at work.

Where were you in 2007? i was looking at a bloomberg terminal, absolutely thunderstruck at the outcome of the liquidity crisis.

How do you get into one of these major financial crisis?

Bart chilton with us, former cftc commissioner, and robert kaplan from goldman sachs, now business management professor at harvard business school.

What is a liquidity crisis?

Recently what happens is it is tougher to find a bit.

People pull back, they go to cash.

Overnight trust disappears.

Sometimes it goes to an extreme.

What will happen this time around?

Have all these things you have done and others.

I think the system is better.

It doesn't have to be overnight that people lose confidence.

It can be in a heartbeat.

Remember the flash crashed from 2010 when the dow dropped nearly 1000 points before recovering and when it cuts down there wasn't enough liquidity there.

That is why we talk about these high-frequency traders.

They are good and they are bad.

The market would have never gone down so that without them.

They created the bid.

They serve a purpose.

They actually saved it in the end.

There will be another crisis.

On the bigger nastier one, will you be watching?

Credit spreads.

You look at whether the credit spreads for government and companies -- how much they widen out and how fast.

My worry is we have improved the capital and financial systems.

We are dealing with interconnectedness to some extent.

One of the cap -- one of the outcomes us we are polling capital out.

In the next downturn credit crunch, the street won't play the role people are used to.

There's is so much liquidity in the system.

Thanks for listening and watching bloomberg surveillance.

Where were you in 2008? go back and look at the liquidity crisis of before and did the cftc get the job done?

You can say i was at the cftc.

The only regulator was there before, during, and after.

The problem is regulators were asleep at the wheel.

Can the regulators avoid the next liquidity crisis?

The danger is they are often fighting the last war.

They are trying to deal with congress and answer questions about what happened before.

We are maybe going through that right now.

Instead of trying to anticipate what could happen -- it is tougher to talk to congress and other supervisory bodies about what could happen next.

You are right.

There were two culprits to the calamity.

There were regulators.

But the second culprit were some of the large financial institutions that took advantage of the regulators being asleep at the wheel and operated in the dark with no transparency whatsoever, became overleveraged, and led to the crash.

One of the regulators may be to blame, the federal reserve for creating this environment in which liquidity may disappear.

When you talk off the record, and it has to be off the record was some of the regulators at the fed, they talked about getting home before congress and having to answer questions about the health of the banks.

We are so hyper focused, too focused now.

If they make a mistake like they just did or others, they can manage treated -- manage it.

I think we are creating the seeds of the next problem.

I would love to get both of you back together.

If we can get you to the prestigious golf course -- it was years ago.

We do need to focus on the stories that are going to shape the day.

President obama, president putin, where are they?

You can understand why mr.

Putin is pulling back.

He has taken a lot of heat from around the world.

What about secretary kerry?

What is being done to hunt the scenes to try to save lives?

40 people died in a fire in odessa, on the west side of ukraine.

They have to move sanctions forward, i do not see any other way.

That is the only weapon.

Let's get our monday started.

Look for that on bloomberg tv plus.

I know we have carl weinberg coming up on bloomberg radio as well.

The markets right now, straight through the markets have been a great.

I just can't convey, they have been the one source of stability in all of this.

Really watch what the markets do.

They are certainly not reacting so extreme to the developments in the ukraine.

My agenda item is ali baba.

It may be one of the biggest in history.

There have been a flood of ipos recently.

It will be interesting.

Will that mark the top of the markets?

I don't have anything intelligence -- intelligent to say but i have all the radar transactions.

One of the biggest ipos ever is the market is making an all-time high.

Just be aware of it.

You are a markets got.

All the signal say this is something to watch carefully.

Symbolic if nothing else.

We asked everyone what is the next merger you want to see.

A no-brainer, tesla and apple.

A lot of people compare him to steve jobs.

Tom keene and julia roberts.

Who came up with that?

That is a tom keene fan.

Is that matt miller's and new code?

Flex our last one -- that is a smart one.

We -- next time you are on we will go into that debate.

Thank you so much.

We greatly appreciated.

Bloomberg surveillance continues.

"in the loop" on bloomberg television is up next.

Alix steel is in for betty liu.

Have a great week, everyone.

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

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