WEBVTT - Fels: ECB may expand purchases to include stocks

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>dot com, the Radio plus mobile lap and on your radio,

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<v Speaker 1>this is a Bloomberg Business Flash and I'm Karin Moscow.

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<v Speaker 1>c m E Group US stock index futures are a

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<v Speaker 1>little change after the SNP five hundreds, the longest streak

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<v Speaker 1>of weekly decline since January. Well, a spate of deal

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<v Speaker 1>activity boosted some shares. We checked the markets every fifteen

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<v Speaker 1>minutes throughout the trading day on Bloomberg SNP EMNI futures

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<v Speaker 1>up less than a point, Dow EMNI futures down four

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<v Speaker 1>NASDAC Emuni futures up five ten. Your treasury down seven

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<v Speaker 1>thirty seconds. The yield one point seven two percent yield

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<v Speaker 1>on the two year point seven seven percent. No max screwed.

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<v Speaker 1>Oil up two points seven percent of a dollar twenty

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<v Speaker 1>five to forty seven forty six of barrel comex gold

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<v Speaker 1>want at a quarter percent or fifteen dollars ninety cents

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<v Speaker 1>sixty announced, the euro A dollar thirteen thirty two, the

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<v Speaker 1>N one o eight point seven seven and it's a

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<v Speaker 1>Blueberg business flash. Tom and Mike Karena, Thanks so much.

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<v Speaker 1>This is a great way to start your Monday. Michael McKee,

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<v Speaker 1>there has been an intelligent debate about whither Europe. Part

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<v Speaker 1>of it is will the periphery leave the core of

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<v Speaker 1>the continent, And another way to look at it, which

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<v Speaker 1>has been touched upon by yacolm Fells in essays is

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<v Speaker 1>Time with Morgan Stanley, is will the core leave the periphery,

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<v Speaker 1>which is a whole different, twisted view, which Michael's exactly

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<v Speaker 1>what you'd expect from yacolm Fells. Well, obviously we've been

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<v Speaker 1>watching the old pigs Portugal, Ireland, Italy, Spain, Greece, uh

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<v Speaker 1>and now you gotta watch Great Britain, and there's been

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<v Speaker 1>a lot of talk about it. If they're gonna fix

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<v Speaker 1>the EU, Germany has gotta go. Lacolm Fells is now

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<v Speaker 1>the chief Global economic Advisor to Pacific Investment Management Company.

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<v Speaker 1>He's trained in the Gloom of England and Germany, in

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<v Speaker 1>terms of weather for the sunshine of California. Um, but

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<v Speaker 1>that hasn't changed his his outlook. Welcome, uh, welcome. Where

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<v Speaker 1>do you see the EU going from here? Well, I think, Michael,

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<v Speaker 1>we've learned something and policy makers have learned something during

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<v Speaker 1>the euro crisis. Um. I think what they've learned is

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<v Speaker 1>that yes, there are tensions, there are imbalances within the

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<v Speaker 1>Euro Area, but disentangling this entity is extremely difficult. So

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<v Speaker 1>I think there is a willingness to keep the Euro together. Um.

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<v Speaker 1>It's a bit like you know, saying you can turn

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<v Speaker 1>three or four eggs into an omelet, and we did

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<v Speaker 1>that with the Euro, but you can't turn the omelet

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<v Speaker 1>back into the eggs. So disentangling the Euro would be

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<v Speaker 1>extremely costly, and I think there is still the political

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<v Speaker 1>will to hold it together. The bigger question at the

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<v Speaker 1>moment is, of course, what happens to the European Union

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<v Speaker 1>and what happens to the UK in the EU. And

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<v Speaker 1>I think, well, that's I think something that has been

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<v Speaker 1>weighing down on markets and will continue to weigh down

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<v Speaker 1>on markets as we head into the referendum on June

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<v Speaker 1>twenty three. Well, we have talked a lot about What

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<v Speaker 1>would happen to the British economy if they were to

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<v Speaker 1>leave the European Union? What happens to the European Union

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<v Speaker 1>economy without Britain. Well, it's obviously bad news. I think

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<v Speaker 1>the UK. From a political perspective, the UK was always

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<v Speaker 1>a good counterbalance two forces that were going for more

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<v Speaker 1>regulation within the European Union. So I think it would

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<v Speaker 1>be sad to see Britain go. I think it would

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<v Speaker 1>be bad news for Europe also from an economic perspective,

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<v Speaker 1>because the UK is an important trading partner um. But

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<v Speaker 1>more importantly, I think the vote in the UK to

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<v Speaker 1>exit it would give support to anti European and anti

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<v Speaker 1>euro forces in other member states. So I think this

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<v Speaker 1>would lead to more political uncertainty in other European countries.

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<v Speaker 1>It could weigh down on the Euro. It might force

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<v Speaker 1>the e c B to do even more easing um,

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<v Speaker 1>and then I think this could turn into a global

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<v Speaker 1>risk off event um if the dollar strengthens a lot

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<v Speaker 1>on the back of this, the dollar as a safe

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<v Speaker 1>haven currency, because that might then bring the Chinese back

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<v Speaker 1>into play. And China, as we've learned back in August

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<v Speaker 1>of last year and early this year, China does not

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<v Speaker 1>want to see the dollar appreciating because they are linked

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<v Speaker 1>to the dollar. So this is how Brexit could turn

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<v Speaker 1>into a major event, not only for Britain and for Europe,

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<v Speaker 1>but also for the global economy. Well, how likely is

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<v Speaker 1>it that we get a knock on effect in other

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<v Speaker 1>European countries one way or the other. A lot of

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<v Speaker 1>people that have focused on the fact that three days

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<v Speaker 1>after the Brits vote, the Spanish vote again. Yes, Spain,

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<v Speaker 1>Spain will vote again. Um and the situation, the political

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<v Speaker 1>situation is quite messy in that country. But in many

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<v Speaker 1>other countries you have had support to anti European and

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<v Speaker 1>anti immigrant parties. Look at the core countries. Look at

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<v Speaker 1>Germany where the a f D which started out as

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<v Speaker 1>an anti euro party and is now riding on the

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<v Speaker 1>anti immigration ticket. How how that party has gained in strength.

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<v Speaker 1>Look at France where the Foreign Nacional and Maria penn

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<v Speaker 1>has a good chance to win at least the first

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<v Speaker 1>round of the presidential election. So I think this is

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<v Speaker 1>a European white phenomenon. And again, if the British people

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<v Speaker 1>vote to exit, I think this would give give support

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<v Speaker 1>to these other forces elsewhere within the Balance in Ambras.

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<v Speaker 1>Evans pretty sure, I thought had a most interesting tinged

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<v Speaker 1>pro Brexit column in the Telegraph talking about the pushback

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<v Speaker 1>from none other than Olivier Blanchard, who's now over without

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<v Speaker 1>imposing it the Peterson Institute where he talks about will

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<v Speaker 1>will financing be more difficult after Brexit? Will investor see

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<v Speaker 1>the British government is more risky? And the professor says,

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<v Speaker 1>I don't think so. There's some there's some discreet pushback

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<v Speaker 1>among the elites within the elite, isn't there. Yeah, I

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<v Speaker 1>think that's true. By the way, we'll have Olivia blanche

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<v Speaker 1>here in Newport Beach tomorrow speaking at our Secular Forum, um,

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<v Speaker 1>and we've certainly discussed that with him as well. I

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<v Speaker 1>think the break wait wait, wait, the price of a

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<v Speaker 1>shameless plug like that is we need to get Yakum

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<v Speaker 1>Fell's and Olivier Blanchard on with us tomorrow. Michael, don't

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<v Speaker 1>you think so? I mean that is the price of

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<v Speaker 1>that blatant shameless plug. Good dr Pells. We can just

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<v Speaker 1>broadcast the Secular Forum live. That would go over big, nice,

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<v Speaker 1>try nice, try so so So about to come back

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<v Speaker 1>to your question, tom Um, I don't think the credit

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<v Speaker 1>of the UK government is at risk if Britain goes

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<v Speaker 1>for Brexit, but I think the UK would become a

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<v Speaker 1>less attractive destination for foreign direct investment multinational companies from Asia,

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<v Speaker 1>from the States who use the UK as an entry

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<v Speaker 1>point into this big European market, both in the financial

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<v Speaker 1>sector and in the In the Rita car Let's come back,

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<v Speaker 1>yacolm Fells with us with PIMCO. A very important discussion here,

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<v Speaker 1>of course, much more to talk about besides the EU

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<v Speaker 1>Love It Michael McKee, Tom Keane and Yakum Fells. Bloomberg

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<v Speaker 1>Surveillance counting down at the opening bell, brought you by

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<v Speaker 1>JEP dealer today broadcasting live to New York, Bloomberg eleventh

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<v Speaker 1>line to San Francisco, Bloomberg NIZE sixty to the country

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<v Speaker 1>Suities X and General one nineteen and around the globe.

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<v Speaker 1>The Bloomberg Radio plus appen Bloomberg dot com. This is

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<v Speaker 1>bloomberk Surveillance and good morning. I'm Karen Moscow along with

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<v Speaker 1>Tom keenan Michael McKee, and the opening deal is brought

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<v Speaker 1>to you by se I Imagine assets servicing unconstrained by infrastructure,

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<v Speaker 1>our investment operations or investment operations that predictively responded change.

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<v Speaker 1>Se I is creating the future state. Go to se

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<v Speaker 1>i c dot com. Slash Imagine stocks are a little

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<v Speaker 1>changed at the open. The sm P five hundred is

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<v Speaker 1>up a point at seven down. Jones Industrial averages at

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<v Speaker 1>seventeen thousand, five hundred thirty five. The nastact higher up

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<v Speaker 1>to tenths per center nine points to forty seven twenty

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<v Speaker 1>six ten. Your treasury down ten thirty seconds. The yield

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<v Speaker 1>one points seven three percent, the yelled one a two

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<v Speaker 1>year point seven seven percent, non ex screwed oil up

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<v Speaker 1>three percent of a dollar forty forty seven sixty one

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<v Speaker 1>barrel comex gold up one or fifteen dollars ninety cents

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<v Speaker 1>at two, the Euro at dollar thirteen thirty four. The

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<v Speaker 1>end one oh eight point eight two. Tom and Mike,

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<v Speaker 1>thank you very much, Karen Moscow. We're talking with Wakin Fells.

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<v Speaker 1>He's a global Chief Economic Advisor to the folks at

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<v Speaker 1>Pacific Income Management PIMCO out in Newport Beach, California, where

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<v Speaker 1>they're holding their annual Structural UH conference chart tomorrow they

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<v Speaker 1>figure out where the world is going? UM, going into

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<v Speaker 1>it when you have to make a presentation, UH walking,

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<v Speaker 1>what do you we? We talked earlier about the fact

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<v Speaker 1>that uncertainty is the name of the game and just

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<v Speaker 1>about every corner of the world. So what's your presentation

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<v Speaker 1>UH for this year's conference going to tell people about

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<v Speaker 1>where the global economy is going? Well, I'm in the

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<v Speaker 1>fortunate edition to not present at the Secular Forum because

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<v Speaker 1>what we do at the Secular Forum is we invite

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<v Speaker 1>external speakers to speak to us, and then we have

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<v Speaker 1>a lot of debates with those speakers and also internally.

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<v Speaker 1>But as we look at the secular outlook, as we

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<v Speaker 1>call it, the next three to five years, I think

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<v Speaker 1>the biggest question is around low growth, low productivity growth,

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<v Speaker 1>low inflation, and above all, low equilibrium interest rates. I think,

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<v Speaker 1>as you know, this has been a PIMCO theme for

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<v Speaker 1>quite a while, that the mutual rate of interest, the

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<v Speaker 1>equilibrium rate of interest is much much lower than in

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<v Speaker 1>previous cycles. UM. I think markets have come round to

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<v Speaker 1>this view. I think it is now widely accepted that

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<v Speaker 1>we have a global savings glut that is depressing the

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<v Speaker 1>equilibrium interest rate. And the big question is what are

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<v Speaker 1>the conditions that could change this over our secular the

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<v Speaker 1>next three to five year time horizon. And I must say,

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<v Speaker 1>going into it, I have an open mind, but I

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<v Speaker 1>find it difficult to see the real equilibrium interest rate

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<v Speaker 1>rising significantly over that time period. I think the forces

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<v Speaker 1>of the global savings glut are here to stay. There's

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<v Speaker 1>an excessive desired saving over desired investment in the world UM.

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<v Speaker 1>And one thing that we will focus on in particular

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<v Speaker 1>is how effective is monetary policy still to fight those headwinds.

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<v Speaker 1>I think this is where we have the biggest question. Marks.

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<v Speaker 1>That's a real question because the inability to get up

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<v Speaker 1>the neutral rate anywhere in the world is a nail,

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<v Speaker 1>and central banks have hammers. So does that make in

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<v Speaker 1>helicopter money the end game for most of these central

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<v Speaker 1>banks around the world. I think that may well happen.

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<v Speaker 1>Helicopter money is not as absurd an idea as as

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<v Speaker 1>many people think. UM. In a way this is about

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<v Speaker 1>fiscal policy, right, I mean, helicopter money is money financed

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<v Speaker 1>fiscal policy. I think most experts would agree that the

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<v Speaker 1>world needs more expansionary fiscal policy, particularly focused on infrastructure investment,

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<v Speaker 1>but also on tax reform. And it would be easier

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<v Speaker 1>for governments to do this, um if they could be

0:12:27.840 --> 0:12:32.800
<v Speaker 1>financed in doing that by central banks directly. Within your

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<v Speaker 1>work of many years and with the thematic way that

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<v Speaker 1>you're right, the arch question is do we drive towards

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<v Speaker 1>stability in global equilibrium or do we just understood understand

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<v Speaker 1>disequilibrium which may be sooner deeper recessions. I mean, anybody

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<v Speaker 1>can pick their gloom weapon, but do you see an

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<v Speaker 1>equilibrium forward or a dis equilibrium forward? I think there

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<v Speaker 1>is no such thing as an equilibrium in the real world.

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<v Speaker 1>I think it's a nice concept, um, you know, to

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<v Speaker 1>to do models of the economy, but I think what

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<v Speaker 1>we're what we're actually doing in this world is we're

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<v Speaker 1>moving from one dis equilibrium to the next. There are

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<v Speaker 1>plenty of dis equilibria within economies, within financial markets, and

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<v Speaker 1>also across the world, and the only question is, you know,

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<v Speaker 1>can will central banks and governments be able to move

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<v Speaker 1>us or to avoid the really bad dis equilibria, and

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<v Speaker 1>will we be able to keep dampening volatility as central

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<v Speaker 1>banks have done so successfully over the past seven eight years.

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<v Speaker 1>I think the task will become ever more difficult as

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<v Speaker 1>we move forward. What then, is um it is a

0:13:55.280 --> 0:13:58.080
<v Speaker 1>investors supposed to do at this point? Do you do

0:13:58.160 --> 0:14:01.200
<v Speaker 1>you sit and wait things out? Do you put money

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<v Speaker 1>under the mattress? Uh? It seems like there's no good

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<v Speaker 1>answer right now. Well, I think there are a few

0:14:08.280 --> 0:14:10.559
<v Speaker 1>things that you can do in this environment. I mean,

0:14:10.600 --> 0:14:12.959
<v Speaker 1>if if you believe that the forces of the savings

0:14:13.000 --> 0:14:16.240
<v Speaker 1>glut are here to stay UM and that central banks

0:14:16.240 --> 0:14:19.840
<v Speaker 1>will stay supportive, well, that means interest rates will stay low.

0:14:20.200 --> 0:14:24.600
<v Speaker 1>But it also means that this expansion, this economic expansion,

0:14:24.600 --> 0:14:26.480
<v Speaker 1>which is a very weak one I've called it a

0:14:26.480 --> 0:14:29.240
<v Speaker 1>triple B expansion with gowfer is bumpy below parent brittle,

0:14:30.000 --> 0:14:34.080
<v Speaker 1>this is likely to continue UM, and that means that

0:14:34.680 --> 0:14:41.560
<v Speaker 1>relatively safe credit assets, corporate bonds, highly rated corporate bonds

0:14:41.560 --> 0:14:46.000
<v Speaker 1>should continue to do well. UM. We have been using

0:14:46.360 --> 0:14:48.880
<v Speaker 1>the rally that we've seen since the loads of February

0:14:49.520 --> 0:14:53.000
<v Speaker 1>to lighten up on some of the more risky investments.

0:14:53.680 --> 0:14:57.160
<v Speaker 1>So we've been going up in quality UM, but it all,

0:14:57.400 --> 0:15:01.160
<v Speaker 1>you know, depends on the question whether you believe that

0:15:01.240 --> 0:15:04.960
<v Speaker 1>this expansion can continue. If you do, UM, it does

0:15:05.080 --> 0:15:08.640
<v Speaker 1>make sense to be in credit. I also think central banks,

0:15:08.680 --> 0:15:12.240
<v Speaker 1>including Janet Yellen's FED, want to run the economy a

0:15:12.240 --> 0:15:16.920
<v Speaker 1>little bit hot, and that means tips inflation linked bonds

0:15:17.680 --> 0:15:23.400
<v Speaker 1>UM offer some attractive opportunities UM and then well more broadly,

0:15:23.520 --> 0:15:26.080
<v Speaker 1>I think this is a world where you want to

0:15:26.200 --> 0:15:31.760
<v Speaker 1>have some liquidity available to exploit the bouts and the

0:15:31.840 --> 0:15:34.840
<v Speaker 1>potholes similar to the ones that we've seen in January

0:15:34.880 --> 0:15:37.400
<v Speaker 1>and in August of last year very quickly? Can Mario

0:15:37.520 --> 0:15:41.080
<v Speaker 1>Draggy run the European economy quote a little bit hot?

0:15:42.880 --> 0:15:45.680
<v Speaker 1>It's tougher in Europe because there's still a lot more

0:15:45.720 --> 0:15:50.080
<v Speaker 1>spare capacity in the labor market and and in the economy.

0:15:50.240 --> 0:15:53.040
<v Speaker 1>But I think he has at least managed to stabilize

0:15:53.080 --> 0:15:56.160
<v Speaker 1>core inflation, and I think he's willing to do more.

0:15:56.280 --> 0:15:59.680
<v Speaker 1>So I can see another round of quee coming maybe

0:15:59.720 --> 0:16:02.960
<v Speaker 1>later this year. I wouldn't even exclude that he ventures

0:16:03.000 --> 0:16:06.480
<v Speaker 1>into new asset classes. He's now buying corporate bonds. I

0:16:06.480 --> 0:16:09.680
<v Speaker 1>think the next step could be a move into buying equities.

0:16:10.080 --> 0:16:12.360
<v Speaker 1>Oh your kid. When they do that, we have to

0:16:12.400 --> 0:16:14.640
<v Speaker 1>have you back on you and Scott Mather can come

0:16:14.640 --> 0:16:18.560
<v Speaker 1>out and explain that to me, like the European Central Bank,

0:16:18.600 --> 0:16:22.160
<v Speaker 1>Mike with a significant position and Siemens. I just can't

0:16:22.200 --> 0:16:24.840
<v Speaker 1>get there. Yacolm Fells, thank you so much. Would love

0:16:24.840 --> 0:16:27.120
<v Speaker 1>to be a fly in the wall to martch your conference.

0:16:27.160 --> 0:16:31.520
<v Speaker 1>I'm sure it'll be most uh informative. He is with PIMCA,

0:16:33.000 --> 0:16:36.720
<v Speaker 1>always interesting. Olivia Blanchard will be out there, trull Mike.

0:16:36.760 --> 0:16:39.200
<v Speaker 1>I just I'm sorry. I can't get my hands around

0:16:39.200 --> 0:16:43.040
<v Speaker 1>equity ownership by a central bank. Am I wrong? No,

0:16:43.200 --> 0:16:46.200
<v Speaker 1>it's it's against sort of the book. Uh, you know,

0:16:46.320 --> 0:16:48.400
<v Speaker 1>as as you would write it, that there would be

0:16:48.480 --> 0:16:50.920
<v Speaker 1>some sort of influence on sectors of the economy by

0:16:50.920 --> 0:16:55.200
<v Speaker 1>the central bank. Now Japanese you know use ETFs to

0:16:55.320 --> 0:16:59.120
<v Speaker 1>try and buy uh you know, broad sector. So in

0:16:59.320 --> 0:17:02.520
<v Speaker 1>theory they're not doing that, but it is an issue there.

0:17:02.560 --> 0:17:07.640
<v Speaker 1>It is open to debate. To say the least green

0:17:07.720 --> 0:17:10.520
<v Speaker 1>on the screen up forty four points of vix fifteen

0:17:10.760 --> 0:17:17.640
<v Speaker 1>point four eight up point four four points. This hour

0:17:17.760 --> 0:17:20.080
<v Speaker 1>of surveillance is brought to you by Volvo Cars, White Planes.

0:17:20.160 --> 0:17:23.400
<v Speaker 1>Visit Volvo Cars White Planes dot Com. Here's Michael Barr

0:17:23.440 --> 0:17:26.160
<v Speaker 1>with the latest news headline, Mike Tom, thank you very much.

0:17:26.240 --> 0:17:28.560
<v Speaker 1>Donald Trump says it doesn't look like he's going to

0:17:28.680 --> 0:17:30.920
<v Speaker 1>have a very good relationship with the British prim Minister

0:17:31.040 --> 0:17:34.359
<v Speaker 1>David Cameron. Trump's comments, broadcast today on i t v

0:17:34.520 --> 0:17:36.800
<v Speaker 1>s Good Morning Britain are certain to cause on ease

0:17:36.880 --> 0:17:40.520
<v Speaker 1>in Britain, where America is seen as the country's closest Allian.

0:17:40.960 --> 0:17:43.920
<v Speaker 1>Trump is still unhappy with Cameron's criticism of him after

0:17:44.000 --> 0:17:47.479
<v Speaker 1>Trump called for all Muslims to be temporarily banned from

0:17:47.640 --> 0:17:51.320
<v Speaker 1>entering the US. Trump also called London's new mayor City

0:17:51.480 --> 0:17:56.160
<v Speaker 1>Cohn rude Con called Trump's comments about Islam ignorant. Turkish

0:17:56.280 --> 0:17:59.400
<v Speaker 1>shelling and air strikes by the US led military coalition

0:17:59.440 --> 0:18:03.280
<v Speaker 1>reportedly have killed twenty seven Islamic State militants in Syria.

0:18:03.760 --> 0:18:06.440
<v Speaker 1>The Islamic State is losing ground in the Middle East,

0:18:06.880 --> 0:18:08.960
<v Speaker 1>as according to the U s Special Envoy to the

0:18:09.040 --> 0:18:13.120
<v Speaker 1>Anti Islamic State Coalition, Brent McGurk says the extremist group

0:18:13.240 --> 0:18:16.320
<v Speaker 1>is losing the battle to maintain control in places like

0:18:16.400 --> 0:18:19.400
<v Speaker 1>the Syrian city of Rocca, where Jihani John was killed

0:18:19.400 --> 0:18:22.480
<v Speaker 1>by a drone. We found him, we tracked him, and

0:18:22.560 --> 0:18:24.639
<v Speaker 1>we targeted him with such precision on the streets of

0:18:24.760 --> 0:18:28.359
<v Speaker 1>Rocca that nobody else was harmed. Meanwhile, Islamic State attacks

0:18:28.400 --> 0:18:31.200
<v Speaker 1>across Iraq have left at least twenty nine people dead.

0:18:31.520 --> 0:18:34.320
<v Speaker 1>One attack yesterday took place at a natural gas plant

0:18:34.720 --> 0:18:37.560
<v Speaker 1>north of Baghdad. Global News twenty four hours a day,

0:18:37.600 --> 0:18:41.919
<v Speaker 1>powered by our journalists more than nine fifty news bureaus

0:18:41.960 --> 0:18:44.800
<v Speaker 1>around the world. On Mike Labar, Mike Tom coming up.

0:18:45.320 --> 0:18:49.879
<v Speaker 1>If you have even an passing interest in this wonderful

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<v Speaker 1>city worldwide on New York City. On his New York

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