WEBVTT - Leo Melamed Sees Potential for a Global Financial Crisis(Audio)

0:00:02.320 --> 0:00:05.720
<v Speaker 1>Global business news twenty four hours a day. If Bloomberg

0:00:05.760 --> 0:00:08.840
<v Speaker 1>dot Com the radio, plus Globo lapps and on your radio,

0:00:09.119 --> 0:00:13.480
<v Speaker 1>this is a Broomberg Business Flash. Strom Bloomberg World Headquarters.

0:00:13.560 --> 0:00:17.280
<v Speaker 1>I'm Charlie Pellett. Move higher for US equities on this Monday.

0:00:17.520 --> 0:00:20.800
<v Speaker 1>SMP five hundred index on track for eight ten month high.

0:00:21.320 --> 0:00:25.480
<v Speaker 1>FED Chair Janet Yellen signaling the economy is still strengthening

0:00:25.600 --> 0:00:30.080
<v Speaker 1>enough to withstand gradual increases in borrowing costs despite recent

0:00:30.160 --> 0:00:34.159
<v Speaker 1>signs of slower job growth. SMP five hundred indecks up

0:00:34.159 --> 0:00:36.880
<v Speaker 1>twelve to twenty one eleven, a gain of six tenths

0:00:36.880 --> 0:00:39.320
<v Speaker 1>of one percent, and has stack up thirty two, a

0:00:39.360 --> 0:00:42.599
<v Speaker 1>gain of seven tenths of one percent. Town industrials up

0:00:42.600 --> 0:00:45.920
<v Speaker 1>one d thirty four points up eight tenths of one percent,

0:00:46.440 --> 0:00:49.320
<v Speaker 1>tenure down nine thirty seconds that yield one point seven

0:00:49.400 --> 0:00:53.000
<v Speaker 1>three percent. Gold up five seventy ounce to twelve forty eight,

0:00:53.240 --> 0:00:55.840
<v Speaker 1>a gain of five tenths of one percent. And crude

0:00:55.840 --> 0:00:58.720
<v Speaker 1>oil of a dollar ten a barrel forty nine seventy two.

0:00:58.800 --> 0:01:02.760
<v Speaker 1>That's a gain of two point three I'm Charlie Pellett,

0:01:02.760 --> 0:01:05.880
<v Speaker 1>and that's a Bloomberg Business Flash. Charlie Pellet, thank you

0:01:05.920 --> 0:01:08.080
<v Speaker 1>so very much. Time now for the e t F report,

0:01:08.160 --> 0:01:10.880
<v Speaker 1>brought to you by Van Eck Vectors et s expect

0:01:10.880 --> 0:01:13.759
<v Speaker 1>more from your muni's target tax exempt income by maturity

0:01:13.760 --> 0:01:17.400
<v Speaker 1>and credit quality, all with low cost ETFs. Visit Vaneck

0:01:17.520 --> 0:01:21.400
<v Speaker 1>dot com slash Muni van Eck access the opportunities for

0:01:21.560 --> 0:01:25.039
<v Speaker 1>a t F report. We bring in Catherine Calorie. There's

0:01:25.040 --> 0:01:27.160
<v Speaker 1>a new class of e t s. It's taking the

0:01:27.280 --> 0:01:30.920
<v Speaker 1>industry by storm. What we're seeing now with low volatility

0:01:30.959 --> 0:01:33.480
<v Speaker 1>products is what we saw two years ago with currency hedging.

0:01:33.920 --> 0:01:36.520
<v Speaker 1>It is the flavor of the month. Bloomberg Intelligence analyst

0:01:36.640 --> 0:01:39.200
<v Speaker 1>Eric Caltuna says, an example is U s m V

0:01:39.560 --> 0:01:43.360
<v Speaker 1>or the I Shares Edge m SCI Minimum Volatility USA

0:01:43.480 --> 0:01:46.600
<v Speaker 1>e t F. It's attracted five point four billion dollars

0:01:46.640 --> 0:01:49.080
<v Speaker 1>so far. They sere putting it in the top five

0:01:49.160 --> 0:01:52.960
<v Speaker 1>in terms of inflows. The reason Valtuna says, there's fear

0:01:53.000 --> 0:01:55.320
<v Speaker 1>in the market and this product basically is a minimum

0:01:55.360 --> 0:01:59.680
<v Speaker 1>altility products, so basically gives you SMP exposure, right, so

0:02:00.120 --> 0:02:02.760
<v Speaker 1>large cap stocks, but it is designed in a way

0:02:02.880 --> 0:02:06.000
<v Speaker 1>to give you less volatility. So it's about less the

0:02:06.080 --> 0:02:09.880
<v Speaker 1>ups and downs. It's basically like taking the edge off

0:02:09.919 --> 0:02:11.919
<v Speaker 1>of the marketer. It's like a diet coke version of

0:02:12.000 --> 0:02:14.840
<v Speaker 1>the market um in that you get to participate in

0:02:15.000 --> 0:02:16.440
<v Speaker 1>some of the upside, not all of it, but you

0:02:16.520 --> 0:02:20.280
<v Speaker 1>get less downside about and says, low volatility ets are

0:02:20.320 --> 0:02:23.800
<v Speaker 1>now big business, with about twenty five billion dollars invested

0:02:23.800 --> 0:02:27.720
<v Speaker 1>in about thirty five low volatility products. That's your Bloomberg

0:02:27.800 --> 0:02:33.160
<v Speaker 1>ETF report. I'm Catherine Cowdery. You're listening to Taking Stock

0:02:33.400 --> 0:02:38.120
<v Speaker 1>with pin Box and Kathleen Hayes on Bloomberg Radio. Volato

0:02:38.440 --> 0:02:42.200
<v Speaker 1>financial markets, unprecedented central banks over the past few years

0:02:42.280 --> 0:02:44.639
<v Speaker 1>that have taken us to places that no one could

0:02:44.639 --> 0:02:48.760
<v Speaker 1>have imagined, places like negative interest rates, the relation between

0:02:49.080 --> 0:02:52.040
<v Speaker 1>US and China, so many things hanging over the markets now.

0:02:52.320 --> 0:02:55.320
<v Speaker 1>Who better to ask where are we and where are

0:02:55.400 --> 0:02:58.880
<v Speaker 1>we going next? Than Leo Malomed. Of course, he is

0:02:58.919 --> 0:03:02.040
<v Speaker 1>the founder of finance futures, the man who went from

0:03:02.160 --> 0:03:05.680
<v Speaker 1>chairman of the Chicago Mercantile Exchange to create the International

0:03:05.760 --> 0:03:11.120
<v Speaker 1>Monetary market, leading the CME then in creating a number

0:03:11.200 --> 0:03:16.040
<v Speaker 1>of important financial instruments. Instruments from foreign currency futures to

0:03:16.200 --> 0:03:19.919
<v Speaker 1>T bills, Euro dollar stock index futures, he spearheaded the

0:03:20.000 --> 0:03:23.639
<v Speaker 1>world's first electronic trading system, Globex, and so much more,

0:03:23.760 --> 0:03:27.040
<v Speaker 1>and he joins me now on taking stock. Welcome to

0:03:27.120 --> 0:03:30.600
<v Speaker 1>the show. Welcome, I'm very happy to be here. It's

0:03:30.639 --> 0:03:32.800
<v Speaker 1>a real treat. So let's start with where we are

0:03:32.840 --> 0:03:34.800
<v Speaker 1>in the US when it comes to the Federal Reserve.

0:03:34.880 --> 0:03:38.200
<v Speaker 1>At this point, Leo, what should people be doing? Just

0:03:38.480 --> 0:03:40.600
<v Speaker 1>kind of putting you know, shutting out the Fed noise

0:03:40.720 --> 0:03:43.960
<v Speaker 1>or saying wow, Janet Yellen is still worried about the

0:03:44.040 --> 0:03:47.080
<v Speaker 1>labor market, doesn't sound very aggressive on rates. What what

0:03:47.240 --> 0:03:51.840
<v Speaker 1>is your take there? Well, you know, she she's between

0:03:51.880 --> 0:03:56.200
<v Speaker 1>a hard and a hard place, because it is it

0:03:56.440 --> 0:04:01.640
<v Speaker 1>is true that we are a part of international system.

0:04:01.720 --> 0:04:04.920
<v Speaker 1>It's not just to see it's not just the United

0:04:04.960 --> 0:04:08.680
<v Speaker 1>States by itself. It's a it's an ocean of problems

0:04:08.760 --> 0:04:13.160
<v Speaker 1>around us that that she has to deal with. And

0:04:13.640 --> 0:04:18.280
<v Speaker 1>our progress has been um really very very slow in

0:04:18.800 --> 0:04:22.960
<v Speaker 1>terms of recovery from the two thousand eight uh A crash.

0:04:23.480 --> 0:04:27.080
<v Speaker 1>And so yes we are and we're certainly on a

0:04:27.279 --> 0:04:30.200
<v Speaker 1>better trajectory than the rest of the world, but we

0:04:30.360 --> 0:04:33.680
<v Speaker 1>can't live alone. We are all our trading partners are

0:04:33.720 --> 0:04:36.880
<v Speaker 1>in trouble. Europe is in trouble, Japan is in trouble,

0:04:37.120 --> 0:04:39.440
<v Speaker 1>China is in trouble. Who who are we going to

0:04:39.520 --> 0:04:42.040
<v Speaker 1>sell our goods to and how are we going to

0:04:42.200 --> 0:04:45.560
<v Speaker 1>recover if if no one else around US does? That's

0:04:45.600 --> 0:04:49.520
<v Speaker 1>her problem, and I understand it well. Speaking of China,

0:04:50.240 --> 0:04:54.480
<v Speaker 1>the President is in China, the US China Economic Dialogue underway,

0:04:55.120 --> 0:04:58.800
<v Speaker 1>Jack Lou criticizing that, well, maybe urging the Chinese to

0:04:58.839 --> 0:05:01.880
<v Speaker 1>take some steps to signal more trade policy better those uh,

0:05:02.279 --> 0:05:05.840
<v Speaker 1>the islands that are disputed that they are becoming more

0:05:05.839 --> 0:05:09.320
<v Speaker 1>and more contentious all the time. What does what does?

0:05:09.960 --> 0:05:13.040
<v Speaker 1>Where is China now? And what you just mentioned the

0:05:13.040 --> 0:05:14.720
<v Speaker 1>fact that that they're not growing what that means for

0:05:14.720 --> 0:05:17.040
<v Speaker 1>the US and the rest of the world. That's right,

0:05:17.760 --> 0:05:22.880
<v Speaker 1>and I think in there they're trend of um lush

0:05:22.920 --> 0:05:25.880
<v Speaker 1>growth is going to continue for a while. You know,

0:05:27.279 --> 0:05:29.800
<v Speaker 1>we look, we look to be able to have a

0:05:29.839 --> 0:05:32.920
<v Speaker 1>two percent GDP. They're talking about a six percent. I

0:05:32.960 --> 0:05:35.760
<v Speaker 1>don't even think that they can reach six percent. So

0:05:35.960 --> 0:05:38.160
<v Speaker 1>it sounds like, you know, they're much better off than

0:05:38.240 --> 0:05:41.480
<v Speaker 1>we are, but they're not because they've they've got a

0:05:41.960 --> 0:05:45.840
<v Speaker 1>real bad issue in nonperforming loans which occurred as a

0:05:45.920 --> 0:05:48.800
<v Speaker 1>result of coming out of the two thousand mate um

0:05:49.880 --> 0:05:53.279
<v Speaker 1>debacle that the world had, and they sort of recovered

0:05:53.320 --> 0:05:56.560
<v Speaker 1>from that because they just threw money into the system. Now,

0:05:56.640 --> 0:05:59.960
<v Speaker 1>that was okay for a little while, but it's continue

0:06:00.600 --> 0:06:04.440
<v Speaker 1>to a point where the nonperforming loans throughout their uh

0:06:04.720 --> 0:06:07.760
<v Speaker 1>private sector is such that I don't know what they're

0:06:07.760 --> 0:06:11.520
<v Speaker 1>gonna do with that. So yeah, you know, one of

0:06:11.560 --> 0:06:13.600
<v Speaker 1>the things that they do is that, you know, you

0:06:13.720 --> 0:06:16.680
<v Speaker 1>may if you can't do something domestically, maybe you do

0:06:16.839 --> 0:06:19.920
<v Speaker 1>something internationally. And that's where the islands come in. So

0:06:20.040 --> 0:06:23.040
<v Speaker 1>they're gonna they're gonna be, you know, difficult to deal

0:06:23.120 --> 0:06:26.360
<v Speaker 1>with on that because they've got internal problems right now.

0:06:26.839 --> 0:06:30.120
<v Speaker 1>You know, just the opposite of what some people are

0:06:30.200 --> 0:06:34.320
<v Speaker 1>saying about China doing manipulations or eating our launchers things

0:06:34.400 --> 0:06:36.880
<v Speaker 1>like that. That's that's just simply not true. At the moment.

0:06:37.320 --> 0:06:41.640
<v Speaker 1>China is having a tough time just staying study. In fact,

0:06:41.720 --> 0:06:45.760
<v Speaker 1>they have to support their currency because it would fall

0:06:46.400 --> 0:06:50.360
<v Speaker 1>um much more if they didn't. So it's not I

0:06:50.600 --> 0:06:52.880
<v Speaker 1>wouldn't say it's in good shape at all. Well, you know,

0:06:53.080 --> 0:06:57.200
<v Speaker 1>quite apart from the economic fundamentals and and the political leadership.

0:06:57.320 --> 0:06:59.920
<v Speaker 1>There's a question of the markets in China and there's

0:07:00.000 --> 0:07:04.680
<v Speaker 1>structure as somebody who who revolutionized financial markets in the

0:07:04.760 --> 0:07:07.680
<v Speaker 1>US and around the world. What what is what is

0:07:07.800 --> 0:07:10.680
<v Speaker 1>China's big challenge now? What where are they and where

0:07:10.680 --> 0:07:14.040
<v Speaker 1>do they need to go next to really have mature, open,

0:07:14.720 --> 0:07:19.760
<v Speaker 1>you know, internationally powerful markets. That's a hard it's a

0:07:19.880 --> 0:07:25.160
<v Speaker 1>hard answer, the hard question to answer. You know, you've

0:07:25.160 --> 0:07:27.480
<v Speaker 1>got to understand that what they want to do is

0:07:27.560 --> 0:07:32.720
<v Speaker 1>to become a consuming society because they grew out of

0:07:32.840 --> 0:07:37.240
<v Speaker 1>exports and right now their exports, of course have diminished

0:07:38.000 --> 0:07:41.720
<v Speaker 1>considerably because the rest of the world UH situation, and

0:07:41.880 --> 0:07:44.920
<v Speaker 1>so what they've been trying to do is change from

0:07:45.000 --> 0:07:49.280
<v Speaker 1>an exports society to a consumption society. That's not easy

0:07:49.360 --> 0:07:52.040
<v Speaker 1>to do at any time because we're talking about a

0:07:52.400 --> 0:07:57.360
<v Speaker 1>you know, a huge, huge population. So um, it's hard

0:07:57.440 --> 0:08:00.920
<v Speaker 1>at any time, but harder yet during the time when

0:08:01.120 --> 0:08:04.680
<v Speaker 1>the conditions in the world are not that good. Now overall,

0:08:04.920 --> 0:08:08.600
<v Speaker 1>China has done miraculously well. We all understand that in

0:08:08.680 --> 0:08:12.720
<v Speaker 1>the past thirty years that their their ability to bring

0:08:12.800 --> 0:08:18.080
<v Speaker 1>out um their nation from poverty and from UH really

0:08:18.160 --> 0:08:25.200
<v Speaker 1>truly difficult UH economic world, to a competitor in the world,

0:08:25.320 --> 0:08:28.360
<v Speaker 1>to someone to a nation that is second to the

0:08:28.480 --> 0:08:32.600
<v Speaker 1>United States. So you can't deny that they are capable people,

0:08:33.040 --> 0:08:36.319
<v Speaker 1>and they are capable and they have capable leadership. But

0:08:37.400 --> 0:08:43.120
<v Speaker 1>you know when when a totalitarian type government uh that

0:08:43.320 --> 0:08:47.400
<v Speaker 1>can how how distance the rest of the world with

0:08:47.600 --> 0:08:51.120
<v Speaker 1>quick decisions and so forth, is a good thing at times,

0:08:51.640 --> 0:08:54.079
<v Speaker 1>but when it continues to do that and doesn't know

0:08:54.120 --> 0:08:57.760
<v Speaker 1>when to stop, it hasn't got the the kind of

0:08:58.360 --> 0:09:04.600
<v Speaker 1>um maysayers only disputing their their plan um. They don't

0:09:04.600 --> 0:09:07.160
<v Speaker 1>know how to stop, and that's their problem that they're

0:09:07.200 --> 0:09:12.360
<v Speaker 1>still continuing to throw money into um operations and buildings

0:09:12.480 --> 0:09:16.320
<v Speaker 1>that cities that are goose cities and so forth, major problems.

0:09:17.280 --> 0:09:21.280
<v Speaker 1>Do you see potential for another financial crisis? Japan can't okay?

0:09:21.320 --> 0:09:23.760
<v Speaker 1>Where how what do what do you see? Well? I

0:09:23.920 --> 0:09:26.640
<v Speaker 1>just see that that nation. You know, you're dealing with

0:09:26.800 --> 0:09:30.280
<v Speaker 1>negative interest rates. It's it's unheard of, it's not it's

0:09:30.320 --> 0:09:32.559
<v Speaker 1>not the kind of thing that's going to work, and

0:09:32.679 --> 0:09:35.880
<v Speaker 1>it isn't working. You've got Japan, um what they've been

0:09:35.920 --> 0:09:38.920
<v Speaker 1>in a depression now for twenty five years, and they

0:09:39.000 --> 0:09:41.079
<v Speaker 1>can't seem to get out of it. It's getting worse.

0:09:41.800 --> 0:09:45.160
<v Speaker 1>Europe maybe it's in a little better shape than Japan,

0:09:45.640 --> 0:09:49.079
<v Speaker 1>but it isn't that much better. And they've got internal problems.

0:09:49.360 --> 0:09:51.920
<v Speaker 1>You've got Greece, and you've got Italy, and now you

0:09:52.040 --> 0:09:56.840
<v Speaker 1>have even the the Brexit situation and the British people, Um,

0:09:57.120 --> 0:09:59.600
<v Speaker 1>you know, one can't even blame them if they say

0:09:59.679 --> 0:10:02.280
<v Speaker 1>we don't want to be part of that. So all

0:10:02.360 --> 0:10:05.559
<v Speaker 1>of this is a condition that does not call for

0:10:05.880 --> 0:10:10.240
<v Speaker 1>a great rebound. I think I don't know that we'll

0:10:10.280 --> 0:10:13.000
<v Speaker 1>go back into a recession, but we're certainly not going

0:10:13.160 --> 0:10:16.880
<v Speaker 1>to be in a growth mode either. Final question before

0:10:16.880 --> 0:10:19.080
<v Speaker 1>I let you go, what indicator is there one thing

0:10:19.120 --> 0:10:22.160
<v Speaker 1>people should be watching closely as as that sign media

0:10:22.360 --> 0:10:27.839
<v Speaker 1>that that's where we're heading. I really, I really think

0:10:27.920 --> 0:10:31.480
<v Speaker 1>the corporate spending has to pick up and and if

0:10:31.520 --> 0:10:34.520
<v Speaker 1>you saw that happen, but to do that, you need

0:10:34.600 --> 0:10:40.040
<v Speaker 1>a tech tax structure that is much more um, much

0:10:40.160 --> 0:10:46.120
<v Speaker 1>more invitive of of corporate spending. So um, I really,

0:10:46.320 --> 0:10:50.360
<v Speaker 1>I really think that we have to have some fiscal changes.

0:10:50.960 --> 0:10:53.320
<v Speaker 1>Leo Malama, thank you so very much for joining us.

0:10:53.679 --> 0:10:58.640
<v Speaker 1>He is concerned about financial excesses in China. He's concerned

0:10:58.640 --> 0:11:00.880
<v Speaker 1>about negative interest rate into and not working. Says there

0:11:01.000 --> 0:11:04.160
<v Speaker 1>is potential for a financial crisis and he's hoping that

0:11:04.240 --> 0:11:06.439
<v Speaker 1>maybe some fiscal steps could be taken to get corporate

0:11:06.520 --> 0:11:09.720
<v Speaker 1>spending going again. This is taking Stock. I'm Kathleen Hayes,

0:11:09.800 --> 0:11:13.319
<v Speaker 1>and this is Bloomberg Radio. H