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Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jaylie.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg. The

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Speaker 1: main event the President of the United States about to

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Speaker 1: see whether his bet on North Korea will pay off

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Speaker 1: Kim John Gunn's desire to end his country's economic stagnation, well,

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Speaker 1: will it prevail over the the dictator's fear of relinquishing

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Speaker 1: his nuclear threat. Joining US now from Singapore is to

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Speaker 1: Lou Honor nipa Bloomberg Washington correspondent to Lou, walk me

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Speaker 1: through the main event and what is about to happen

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Speaker 1: over the next twenty four hours. Yeah, you're you're You're

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Speaker 1: just mentioned it. We're less than twenty four hours out

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Speaker 1: from the biggest meeting of President Trump's life, also the

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Speaker 1: biggest meeting so far of Kim Jong UN's life. They're

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Speaker 1: going to be meeting for the first time, the first

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Speaker 1: meeting between the US president and North Korean leader, and

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Speaker 1: the goal from the U s side is to get

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Speaker 1: Kim Jong un to commit to giving up his nuclear

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Speaker 1: weapons program. Now, there has not been a public statement

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Speaker 1: from Kim Jong un that he is willing to give

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Speaker 1: up this program that his family has developed over several decades,

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Speaker 1: so there will be We'll be watching very closely to

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Speaker 1: see whether or not there is any type of indication

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Speaker 1: that Kim Jong un has actually turned the corner and

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Speaker 1: decided that he no longer needs this nuclear program and

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Speaker 1: he's willing to engage with the US, come out of

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Speaker 1: the isolation that the US has placed North Korea in

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Speaker 1: into with various sanctions, and give up his nuclear program.

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Speaker 1: The President Trump will try to get that commitment from him.

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Speaker 1: We're told that they're going to have his handshake starting

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Speaker 1: at nine a m Here Singapore time, followed by a

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Speaker 1: bilateral meeting, follow bilateral just one on one, just the

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Speaker 1: two of them with translated translators, followed by a larger

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Speaker 1: meeting with their staff as well. You need to have

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Speaker 1: an agreement on what the terms actually means. You need

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Speaker 1: to define the terms. And both sides use this term

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Speaker 1: the nuclearization of the peninsula. What does that mean to

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Speaker 1: the president and what does that mean to the North

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Speaker 1: Korean leader? And are they the same things. They are

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Speaker 1: definitely not the same things. They are talking past each other,

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Speaker 1: and there have been a lot of low level meetings

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Speaker 1: trying to get those definitions closer to together. From the

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Speaker 1: U S side, the nuclearization means getting rid of the

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Speaker 1: entire nuclear program UH, declaring the entire nuclear program, having

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Speaker 1: inspectors verify that that program is being dismantled, and having

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Speaker 1: North Korea get rid of every bit of their nuclear

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Speaker 1: weapons program. Now the North Koreans have a different idea.

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Speaker 1: They believe that it means that the U S should

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Speaker 1: reduce its own presence in the region, maybe getting rid

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Speaker 1: of its troops on the South, in South Korea, on

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Speaker 1: the Korean Peninsula, getting rid of the nuclear umbrella, the

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Speaker 1: protection that the US provides to South Korea and Japan

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Speaker 1: by having a presence in the region. And it also

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Speaker 1: means getting rid of the hostile nature of U S

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Speaker 1: functions UH and and and US diplomatic isolation of North Korea.

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Speaker 1: So they see the nuclearization the much different lights than

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Speaker 1: the US, and they have not yet been able to

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Speaker 1: bring those two definitions in line just yet. So, given

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Speaker 1: how the G seven went, the sub debate over whether

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Speaker 1: the pressure is increased on the President of the United

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Speaker 1: States or decreased on the President of the United States

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Speaker 1: as he goes to Singapore. Does the President go to

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Speaker 1: Singapore stronger or weaker after that G seven, Well, he

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Speaker 1: definitely does not have as much of the support of

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Speaker 1: our allies that he would have had if he had

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Speaker 1: had a productive G seven and been able to use

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Speaker 1: that as a launching pad for this meeting in Singapore.

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Speaker 1: Now he's still fighting and still having to answer questions

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Speaker 1: and still tweeting about what happened in Canada and about

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Speaker 1: the G seven. So there is a certain level of distraction,

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Speaker 1: and there's this idea that the President has trouble getting

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Speaker 1: along with allies, he has trouble sticking to a deal,

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Speaker 1: and whether or not that is something that's weighing on

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Speaker 1: the mind of Kim Jong n after our President Trump

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Speaker 1: pulled out of the communicate is something that remains to

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Speaker 1: be seen. But obviously the President hasn't shown a strong

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Speaker 1: knack for staying in deals, has been much better at

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Speaker 1: breaking deals than putting deals together, and that's going to

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Speaker 1: make it much harder for him to to reach a

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Speaker 1: deal here in Singapore. All for joining us from Singapore,

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Speaker 1: Thank you very much for your time, so joining us

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Speaker 1: around the table in New York, Tom King popping into

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Speaker 1: the studio, Tom good morning, Good morning. Then for weekend. Yeah,

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Speaker 1: to say the least, Charles Cancer come again as well,

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Speaker 1: Seenior portfolio manager, Charles. I always ask myself on Monday mornings,

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Speaker 1: what's new? What's changed? Has anything truly changed after that

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Speaker 1: weekend other than you're a little bit more restive? Probably

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Speaker 1: not you think I'm rested, Charles. That's nice of you.

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Speaker 1: That's interesting, though, isn't it for the market, just zero reaction.

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Speaker 1: The media and all the experts going crazy on relations

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Speaker 1: and maybe they should be. But for the market and

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Speaker 1: investors it's same out. We've seen this before. I think

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Speaker 1: the markets fighting this debate around fundamentals and the influence

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Speaker 1: that that higher interest rates will have on valuation and

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Speaker 1: and and that's going to be a tug of war

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Speaker 1: that's going to last well beyond the global events of

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Speaker 1: this week, next week and and the rest of the year.

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Speaker 1: And I'd say, as it relates to earnings and evaluations, um,

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Speaker 1: you should anticipate less multiple expansion. But but but equity

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Speaker 1: return should follow earnings growth, which which I think will

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Speaker 1: be in in in the middle high single digits. Do

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Speaker 1: you think any of what we've seen over the last

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Speaker 1: weekend or so damages CEO confidence business confidence? No, not yet.

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Speaker 1: I mean I think you always have to pay attention

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Speaker 1: to to the institutes of the global economy because most

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Speaker 1: businesses today drive a lot of their growth from from

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Speaker 1: from outside the US, and and any confident shock will

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Speaker 1: be a negative to investment and consumer spending. But if anything,

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Speaker 1: the debate that's going to take place in Singapore should

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Speaker 1: be a positive for confidence because it may imply a

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Speaker 1: safer global economy and world. What are you doing with

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Speaker 1: cash now? I mean it's in the change interest rate

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Speaker 1: environment all of a sudden. Cash is a different thing,

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Speaker 1: isn't it. Well, you've got to be careful about cash,

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Speaker 1: and it depends on with whom you refer to. I

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Speaker 1: think at the individual level, I think the individuals always

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Speaker 1: miss price the optionality that comes with cash. Cash gives

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Speaker 1: you the opportunity to invest when others can't, and it

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Speaker 1: gives you the opportunity to sleep well at night. As

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Speaker 1: it relates to to the corporate side, the key question

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Speaker 1: is as as as surplus as cash flows have expanded

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Speaker 1: in in magnitudes that they couldn't imagine after much lower

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Speaker 1: corporate taxes. The question there is will the corporate t

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Speaker 1: o be a productive allocator of their cash um and

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Speaker 1: were encouraging our company to to to to to term

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Speaker 1: out their debt. I moved from variable structures to fixed structures,

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Speaker 1: and we encourage them to to to take risk and

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Speaker 1: to to be innovators and to invest at rachel return

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Speaker 1: that are you know, candidly nine basis points higher than

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Speaker 1: the cost of cash um um. And if they can

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Speaker 1: do that well Shell, the value creation will continue. Is

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Speaker 1: that in mid cap I mean, you made a lot

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Speaker 1: of headlines with the Amazon offers, but forget about the

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Speaker 1: glory stuff. Were you really making it mid cap? Small cap? Look?

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Speaker 1: I think for us our bread and brother Bread and Batteries,

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Speaker 1: the medium sized companies that that that that face u

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Speaker 1: enormate opportunities to to continue to grow and and and

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Speaker 1: haven't faced the headwinds of of the law of large numbers.

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Speaker 1: UM And when we were just in Denver meeting two

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Speaker 1: of our medium sized companies UM and I was very

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Speaker 1: encouraged by by what they've seen from in terms of endermon.

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Speaker 1: The one was an industrial company, the other was a

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Speaker 1: was a database measurement company that provides data into the

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Speaker 1: financial services. The consumer is really strong right now and

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Speaker 1: is spending and and on the industrial side, of course,

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Speaker 1: it depends on what your Protestant services are. But demands

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Speaker 1: really strong right now, and inventory is on a very

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Speaker 1: good position. Are you following a World Cup team? I

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Speaker 1: mean it's this week, It is this week. I would

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Speaker 1: typically follow in no particular order, South Africa in the US. Um. Good.

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Speaker 1: So we're discussing Italy earlier, so we were, so it'll

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Speaker 1: be a little bit more challenging this year. But but

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Speaker 1: but no doubt I'll have at least one eye on

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Speaker 1: on on the event, says as they as they get

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Speaker 1: Team Chiles. Well, if you forced me into a box,

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Speaker 1: it'll it'll likely end up being England. Um, you know

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Speaker 1: we all go back to the Commonwealth in one way

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Speaker 1: or now that excuse me. I read the New York

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Speaker 1: Times insert thing this weekend covered John Ferrill. Would you

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Speaker 1: explain why Torres and pan On are going to the

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Speaker 1: World Cup? Yeah, in Italy is not Well, it's the

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Speaker 1: way they're separated into the different sort of grouping. So

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Speaker 1: you have your wafer, which is where the bulk of

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Speaker 1: the European precisely, and then you qualify a certain number

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Speaker 1: of teams from individual regions. The real question is why

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Speaker 1: is Panama going and not the United States? How did

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Speaker 1: the United States not qualify for this World Cup because

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Speaker 1: they have the easiest route to get into the World Cup?

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Speaker 1: I am so too this week it's going to be great.

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Speaker 1: The good news for us to it. I think in

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Speaker 1: the next round of the World Cup they're more teams,

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Speaker 1: so hopefully cancer greater. Catch out with you for our

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Speaker 1: listeners worldwide, you're listening to Bloomberg Surveillance. We are thrilled

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Speaker 1: to do what we do on surveillance, to go and

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Speaker 1: find the best voices we can find on a topic.

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Speaker 1: And you do that with Charles Armstrong to say he

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Speaker 1: is professor of history at Columbia. Barely describes his contribution

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Speaker 1: to Pacific rim thinking and particularly the Peninsula of Korea,

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Speaker 1: and he comes out of the Jonathan Spence Combine at

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Speaker 1: Yale University LS. His doctorate is out of Chicago. Professor Armstrong,

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Speaker 1: we are thrilled to have you with us today. What

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Speaker 1: would Jonathan Spence say about the making of modern Korea?

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Speaker 1: Synthesize your lifelong work to this historic moment for the

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Speaker 1: Peninsula of Korea. Well, Korea has always been a place

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Speaker 1: that has scarcely dependent it's independence. UH. It lived in

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Speaker 1: the shadow of China for a thousands of years but

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Speaker 1: was never absorbed in the Chinese Empire. It wasn't a

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Speaker 1: colony of Japan for thirty five years. UH. And it

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Speaker 1: is now divided into two in the North and South.

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Speaker 1: So this is a long history of unity and independence

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Speaker 1: UH in Korea. And I think a lot of Koreans,

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Speaker 1: including in the South, are really looking forward to the

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Speaker 1: summit meeting between Trump and Kim Jo Muan, not because

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Speaker 1: they like Kim Joman necessarily, but because they see this

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Speaker 1: as a historic turning point leading towards UH evenge the

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Speaker 1: reunification of their country. Secretary of Pompeo I thought was

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Speaker 1: organized and forceful in his brief this morning to the

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Speaker 1: media five thousand media and Singapore. If you were to

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Speaker 1: excuse me, if you were to advise the Secretary of

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Speaker 1: State and the unpredictability or the nuances of the Supreme Leader,

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Speaker 1: how would you advise Secretary of State Pompeo. What Pompeo

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Speaker 1: said yesterday in Singapore is a little bit different from

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Speaker 1: what Trump has been saying. It does seem to be

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Speaker 1: quite different from what Kim Joman has been indicating he

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Speaker 1: expects it out of the summit. So I would say

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Speaker 1: to keep an open mind, stick to principles, keep the

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Speaker 1: American goals in mind. But but the b nuanced about

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Speaker 1: how you get there. So what I what I mean

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Speaker 1: by that is Pompeo said US tensions will remain in

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Speaker 1: place until it's a complete and verifiable, irreversible denuclearization of

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Speaker 1: the creating peninsula. But that's going to be a tough

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Speaker 1: sell to the North Koreans, and Trump himself has said

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Speaker 1: that at the beginning of a process, not in in itself.

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Speaker 1: So you know, there's no no North kids are tough negotiators,

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Speaker 1: and you've got to go in UM understanding your goals

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Speaker 1: but being able to work towards them in a creative way.

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Speaker 1: What is the minimum condition for success at this meeting?

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Speaker 1: I think that what the minimum is a declaration of

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Speaker 1: principles both sides can agree that we want complete denucralization

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Speaker 1: and outlining a process how to get there. Opening up

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Speaker 1: North too, inspections um, the starting uh process of leading

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Speaker 1: towards the release of sanctions. But I don't think we

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Speaker 1: can expect a huge UH and and a clear commitment

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Speaker 1: or a clear achievement. I think this has to be

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Speaker 1: and I agree with Trump on this the beginning of

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Speaker 1: the process. Professor Armstrong. How does South Korea fit into

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Speaker 1: these meetings? I mean, it's Trump and Kim, I get that,

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Speaker 1: but South Korea has a unique place at the table.

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Speaker 1: Whether or not there at the table, what is it.

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Speaker 1: They have been very important, particularly the President of South

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Speaker 1: They've facilitated between North Korea and the US. They've reached

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Speaker 1: out to North Korea to start a dialogue going back

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Speaker 1: to the the Winter Olympics in South Korea, and they

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Speaker 1: have a huge amount of state. Obviously, they don't want

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Speaker 1: a war on their peninsula. I think that's the first

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Speaker 1: condition for them. They want to lead us back from

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Speaker 1: the edge of war that we seem to be in

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Speaker 1: just six months ago. UH. And they want to move

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Speaker 1: the Korean peninsula to a situation of stable peace UH.

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Speaker 1: And they want to improvement in the North. You know,

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Speaker 1: they have to live with with North Korea right on

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Speaker 1: their doorstep, and they want the regime to be less

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Speaker 1: hostile and also forced people to be better off. So

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Speaker 1: I think economic interaction with North is also very important.

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Speaker 1: But then this is President g the New York Times

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Speaker 1: making a strong point this morning, the Chinese will not

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Speaker 1: be there. I don't buy it for a minute. The

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Speaker 1: Chinese must be there in representation in North Korea. How

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Speaker 1: does that relationship fit in the next twenty four hours.

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Speaker 1: China has made it clear to Kim Joland, meeting him twice.

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Speaker 1: She had two meetings with Kim in less than a

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Speaker 1: month after refusing to meet him for for six years

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Speaker 1: since he came to power. So clearly China wants its

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Speaker 1: position represented, even if it's not physically there at the meeting.

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Speaker 1: China is both bars most important economic partner, takes about

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Speaker 1: it foreign trade, supplies it with oil and food, and

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Speaker 1: in exchange. They want secure border. They don't want the

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Speaker 1: US right on their doorstep. They want a reliable buffer

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Speaker 1: on their northeastern boundary, which is very sensitive, and they

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Speaker 1: also want to uh North Korea that is less unpredictable

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Speaker 1: and more affluent. They really want North Korea to go

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Speaker 1: down their path of economic form and they see that

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Speaker 1: that can happen until US an improve relations with the

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Speaker 1: United States and we see some relief from sanctions. Professor Armstrong,

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Speaker 1: thank you so much. Greatly appreciate the time today, professor

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Speaker 1: of history at Columbia and truly one of the nation's

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Speaker 1: experts on Korea, greatly greatly appreciate that where this down, Uh,

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Speaker 1: a woman who survived the winters of Bates College, that

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Speaker 1: itself is a triumph Flora and joins us with FS investments.

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Speaker 1: As we looked to the feed, as we looked to

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Speaker 1: where Laura, I want you to explain an absolutely killer

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Speaker 1: chart you have going back twenty five years, which is

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Speaker 1: the tenure yield up and then rolling over, and then

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Speaker 1: the ten year yield up and rolling over, and sort

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Speaker 1: of in two thousand five six into the crisis up

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Speaker 1: and rolling over, and then you've got a question mark

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Speaker 1: and then things change. Where are we with a tenure

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Speaker 1: yield right now versus other FED cycles? So um, yeah,

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Speaker 1: First off, we have I had my twenty five year

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Speaker 1: college reunion since weekend, so apologize my voice is so

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Speaker 1: we're covering from all the fun. You were down with

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Speaker 1: the Washington you were down with the Washington capitals, doing

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Speaker 1: the bend or that they were, Well, that's good. Bates

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Speaker 1: College is a good place to have anniversary. It's still going,

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Speaker 1: um thanks to highlighting that chart. Because one of the

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Speaker 1: to mean, one of the most important um pieces of

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Speaker 1: misinformation I hear from, especially fixed income investors, is that

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Speaker 1: as the FED races rates, as short term rates renormalized,

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Speaker 1: that the the FED funds rate hikes cycle is going

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Speaker 1: to be somehow this rising tide the lists all ships

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Speaker 1: and long term rates are going to go up too.

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Speaker 1: And I could not disagree more. Um. I look at

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Speaker 1: the history of said cycles and what you traditionally see

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Speaker 1: is longer term rates rising somewhat at a at a

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Speaker 1: slower pace in the beginning of the cycle, and then

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Speaker 1: that usually does not last. It typically plateaus and even

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Speaker 1: that try and even reverses. And so we're long term

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Speaker 1: rates have gone up a little bit because we started

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Speaker 1: raising rates. We've had volatility in the long end recently.

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Speaker 1: But you know, to me, the sell off we got

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Speaker 1: verse three oh eight and the tenure the rally to

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Speaker 1: bright yields back down to two eighties, that made all

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Speaker 1: the sense in the world, because we are in an

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Speaker 1: environment when the federations raised, where we just should not

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Speaker 1: expect the long end to also be on autopilot and

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Speaker 1: rise as well. So, Laura, the intuitive way that the

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Speaker 1: curve behaves at this point of the tightening cycle is

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Speaker 1: that we get some flatness, that you get a bare flantner,

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Speaker 1: which means the sell off of course comes at the

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Speaker 1: front end more predominantly. The argument against this, Laura, and

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Speaker 1: it comes from JP Morgan Asset Management and Bob Michael,

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Speaker 1: is that this time is a little bit different because

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Speaker 1: you're also getting balance sheet unwind and you get in

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Speaker 1: the reverse sort of Q eight and the reverse effects

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Speaker 1: will be the return of term premier and ultimately what

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Speaker 1: that could mean is a shift to a steeper curve.

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Speaker 1: What do you say back to that, Laura, So you know,

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Speaker 1: I think the biggest certainty about that comes to me

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Speaker 1: from the European Central Bag and the announced that they're

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Speaker 1: possibly going to make this week. All of the de

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Speaker 1: leveraging that we're seeing in the FED balance sheet to

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Speaker 1: me has already been priced in, that spaked in the

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Speaker 1: cake already. So I don't see that in and of

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Speaker 1: itself pushing long term rates uh significantly really at all,

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Speaker 1: unless they was for some reason accelerate and nobody really

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Speaker 1: expects that. The ECB is a much bigger question mark.

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Speaker 1: And you know, at some point they are going to

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Speaker 1: hit an inflection where they're no longer adding to their

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Speaker 1: balance sheet. You know, I think the first rate move

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Speaker 1: is going to be the first start of this's not

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Speaker 1: going to be on the balance sheet side that they

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Speaker 1: begin tightening policy. But um, you know, their timing, the

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Speaker 1: fact that they have only a single mandate and inflation

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Speaker 1: data aren't exactly being cooperative in the in the EU. Uh.

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Speaker 1: To me, that is one of the biggest question marks

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Speaker 1: for the bomb market is here, I mean within that

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Speaker 1: is is the marker and we were talking with Drew

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Speaker 1: Matis earlier with an optimistic tone that leads to higher

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Speaker 1: rates in his single point marker. I guess it is

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Speaker 1: three and a quarter percent. Give us some precision here, Laura. Uh,

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Speaker 1: I mean, I mean, do we get to do we

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Speaker 1: go through the three oh eight level you're talking about earlier? Yeah,

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Speaker 1: I think that's entirely possible because this Federate ex cycle

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Speaker 1: is so different. If you think about to me, the

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Speaker 1: fact that you know, we can see rates creep higher

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Speaker 1: for the first half of the cycle and you look

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Speaker 1: out even at the fed dum protections, this cycle still

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Speaker 1: has a long way to go. So you could absolutely

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Speaker 1: see uh on the tenure, you can even see a

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Speaker 1: little bit more, but compared to where we have been historically,

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Speaker 1: it's still so low. And you know from where the

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Speaker 1: chair that I sit in, the people I seek to,

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Speaker 1: they're always looking for yield, They're looking for investments and um,

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Speaker 1: you know that's a message that I just carry through

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Speaker 1: because people forget me, don't understand, they don't get that dynamic. Well, Laura,

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Speaker 1: thank you so much, Lauring, thank you so much. With

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Speaker 1: FS investments, so really a smart conversation. They're folks on rate.

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Speaker 1: And again, you know, if you read your Fabosi, there's

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Speaker 1: I want to call it four factors that go into

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Speaker 1: what the curve does, what the dynamics are and CEFA

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Speaker 1: exams are passed and failed on that idea. We've been

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Speaker 1: trying to advance the conversation over the last number of

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Speaker 1: weeks on our international relations. Did that earlier with the

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Speaker 1: Korean expert from Columbia University and now joining US forever

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Speaker 1: associated with a Fletcher School Toughts and with Princeton Robert Hormetts.

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Speaker 1: He is a former Undersecretary of State for Economic Growth,

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Speaker 1: Energy in the Environment, working with President Obama. Boba Hormetts

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Speaker 1: of course for years a good supporter of what we've

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Speaker 1: done here at Bloomberg on the economy and Bloomberg Surveillance. Ambassador,

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Speaker 1: we are thrilled to have you with us for this

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Speaker 1: half hour. You know Graham Allison at Harvard who speaks

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Speaker 1: of the tension between China in the United States. Where

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Speaker 1: will that tension be if Mr Trump has a successful

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Speaker 1: Korean summit? Well, I think a successful Korean summit probably

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Speaker 1: will be a relief in terms of the relationship between

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Speaker 1: the two countries, because the US has been pushing China

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Speaker 1: to be more helpful to the cause of getting the

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Speaker 1: North Koreans to do de nuclear rise in the Chinese

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Speaker 1: have been upping their sanctions under US pressure. But also

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Speaker 1: the Chinese do not want instability in Northeast Asia, and

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Speaker 1: if the summit were to fail, the chances of instability

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Speaker 1: would probably increase, or at least the perception would increase

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Speaker 1: that the United States and North We're going to get

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Speaker 1: back into the sort of shouting match that they had

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Speaker 1: just before the current flaw began to emerge. The way

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Speaker 1: this works, Bob, is somebody gives up something, and usually

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Speaker 1: the greater power unloads money, aid whatever you want to

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Speaker 1: call it at a country. And clearly we and others

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Speaker 1: can unload AID on and impoverished North Korea. But what

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Speaker 1: will they give up? Well, that's of course the big question, Tom,

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Speaker 1: and that is the Administration has made it very clear,

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Speaker 1: and indeed members of the Congress from both parties have

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Speaker 1: made it clear that the goal of the United States

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Speaker 1: should be complete denuclearization with a very very robust surveillance

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Speaker 1: through various quarters to make sure that they have not

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Speaker 1: only rid themselves of nuclear material, but also the capability

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Speaker 1: of creating new nuclear material and the ability to deliver

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Speaker 1: uh the sorts of weapons, which is essentially not just

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Speaker 1: I C B M s but more limited shorter range

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Speaker 1: ballistic missiles that could deliver nuclear weapons. So the Administration

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Speaker 1: and the Congress seemed to be united on something very

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Speaker 1: strong and and very permanent, with a lot of inspections

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Speaker 1: to make sure that that is occurring. In return, of course,

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Speaker 1: the North is going to want security assurances. They're going

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Speaker 1: to want a substantial amount of assistance, as you say,

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Speaker 1: because the economy is in very bad shape, and they're

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Speaker 1: going to want an end to the to the Korean War,

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Speaker 1: and most likely some kind of American pullback of its

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Speaker 1: true presence um in in the South and and and

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Speaker 1: in the region. You know, one thing that I'm struck

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Speaker 1: with is there seems to be so much at stake

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Speaker 1: from a diplomatic standpoint, and we hear, we see all

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Speaker 1: these headlines that are really significant. Uh. And you're uniquely

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Speaker 1: positioned to answer a question of why markets don't seem

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Speaker 1: to care. You are formerly the vice chair of Goldman Sachs.

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Speaker 1: You know the relationship between these sort of big, high

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Speaker 1: level negotiations and underlying business. What will it take for investors,

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Speaker 1: for corporations to care. Well, that's a great question. And

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Speaker 1: I have been surprised all along that with respect to

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Speaker 1: North Korea, indeed events surrounding Iran, that there is not

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Speaker 1: more attention or concern in the markets Iran because of

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Speaker 1: course it's near a very rich oil producing area and

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Speaker 1: also does have a lot of conventional weapons to be

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Speaker 1: just very very disruptive if it wanted to be. Um

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Speaker 1: and to some extent it already is in certain parts

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Speaker 1: of the region. But in North Korea, I think the

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Speaker 1: feeling is the markets really are focusing on a lot

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Speaker 1: of other things for the moments in North Korea doesn't

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Speaker 1: occupy a great part of their attention. But the other

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Speaker 1: is they really don't know how things are going to go,

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Speaker 1: and they perhaps have not fully digested the seriousness of

434
00:26:08,040 --> 00:26:11,800
Speaker 1: these two countries. If things really went sour getting into

435
00:26:11,840 --> 00:26:14,440
Speaker 1: some kind of confrontation, perhaps they don't believe it will

436
00:26:14,440 --> 00:26:18,360
Speaker 1: ever happen, and therefore they're discounting it. And even if

437
00:26:18,400 --> 00:26:21,840
Speaker 1: this thing normalizes and there's a better set of relations

438
00:26:21,840 --> 00:26:24,840
Speaker 1: in Northeast Asia, they probably don't see this as very

439
00:26:24,880 --> 00:26:30,159
Speaker 1: advantageous economically, So on the margin, while they're focused on it,

440
00:26:30,240 --> 00:26:33,240
Speaker 1: they don't think a the worst calamity will occur, so

441
00:26:33,320 --> 00:26:35,760
Speaker 1: they don't think that will happen. And even if a

442
00:26:35,880 --> 00:26:39,520
Speaker 1: really good outcome occurs, it probably, at least in the

443
00:26:39,560 --> 00:26:42,320
Speaker 1: near term, won't have much of an economic impact. So,

444
00:26:42,520 --> 00:26:45,679
Speaker 1: given your experience as an executive at the top of

445
00:26:46,040 --> 00:26:48,800
Speaker 1: a major bank, I'm wondering, do you think that the

446
00:26:48,920 --> 00:26:52,359
Speaker 1: uncertainty that some of these high level discussions have injected

447
00:26:52,880 --> 00:26:57,200
Speaker 1: into the global economy has already been priced into some degree?

448
00:26:57,200 --> 00:26:59,920
Speaker 1: In other words, do you think that companies have actually ratched,

449
00:27:00,040 --> 00:27:02,520
Speaker 1: did back their expansion plans, or not invested in their

450
00:27:02,560 --> 00:27:06,080
Speaker 1: plans as a result of this with respect to Korea,

451
00:27:06,160 --> 00:27:08,400
Speaker 1: you mean with respect to Korea and also just sort

452
00:27:08,400 --> 00:27:11,320
Speaker 1: of the volatile backdrop of international relations. Well, I do

453
00:27:11,440 --> 00:27:14,119
Speaker 1: think the one thing that is going to trouble companies

454
00:27:14,240 --> 00:27:18,360
Speaker 1: going forward is what happened in Quebec over the weekend,

455
00:27:19,040 --> 00:27:22,520
Speaker 1: and that is the companies had been hoping, at least

456
00:27:23,240 --> 00:27:26,800
Speaker 1: and and perhaps some degree feeling, that there would not

457
00:27:27,040 --> 00:27:30,880
Speaker 1: there would not be a trade war. Um, what happened

458
00:27:30,880 --> 00:27:35,159
Speaker 1: in Quebec has made a lot of people very concerned

459
00:27:35,200 --> 00:27:39,359
Speaker 1: that the US and its major Western trading partners and

460
00:27:39,440 --> 00:27:43,240
Speaker 1: major Western allies are really on the verge of something

461
00:27:43,240 --> 00:27:48,160
Speaker 1: that could be far more disruptive to international trade, international finance,

462
00:27:48,200 --> 00:27:51,480
Speaker 1: and international markets. I think that is a big concern.

463
00:27:51,560 --> 00:27:54,639
Speaker 1: If it can't be pulled back, that's an issue because

464
00:27:54,680 --> 00:27:59,560
Speaker 1: the G seven was designed to to reduce tensions on

465
00:27:59,600 --> 00:28:03,359
Speaker 1: the ECONO. I'm excited and solved problems among the major

466
00:28:03,440 --> 00:28:06,800
Speaker 1: economies and to underpin our security and political relations if

467
00:28:06,840 --> 00:28:10,000
Speaker 1: this institution goes sour. These are the countries that agree

468
00:28:10,040 --> 00:28:12,760
Speaker 1: with the United States most on most issues. If their

469
00:28:12,880 --> 00:28:16,399
Speaker 1: tensions across the Atlantic and Pacific of a deep trade

470
00:28:16,480 --> 00:28:19,440
Speaker 1: nature on our investment as well. I think markets are

471
00:28:19,440 --> 00:28:21,840
Speaker 1: going to see, well, maybe this trade war that we

472
00:28:21,920 --> 00:28:25,320
Speaker 1: thought could be averted by meeting such as those in

473
00:28:25,560 --> 00:28:29,720
Speaker 1: Quebec could now be unleashed in an even more toxic way.

474
00:28:30,000 --> 00:28:33,160
Speaker 1: What a joy to have with us. Robert Hormat's ambassador. Hormats,

475
00:28:33,200 --> 00:28:36,960
Speaker 1: of course the former under Secretary of State for President Obama,

476
00:28:37,480 --> 00:28:40,640
Speaker 1: but far more an author thinking about the linkage of

477
00:28:40,640 --> 00:28:44,680
Speaker 1: our foreign policy into our fiscal economics is important book

478
00:28:44,720 --> 00:28:47,360
Speaker 1: The Price of Liberty of a few years ago, and

479
00:28:47,400 --> 00:28:51,760
Speaker 1: in it Bob maybe getting us to Quebec hard and

480
00:28:52,000 --> 00:28:58,440
Speaker 1: ineescapable facts. The hard and inexcapable facts is the American

481
00:28:59,320 --> 00:29:04,960
Speaker 1: diplomacy industry has to move on from Quebec. What will

482
00:29:05,000 --> 00:29:11,920
Speaker 1: Secretary of State Pompeo do after what we saw this weekend. Well,

483
00:29:11,960 --> 00:29:14,960
Speaker 1: he's got a big job ahead of him. I was,

484
00:29:15,520 --> 00:29:20,120
Speaker 1: as you know, the sherp or the planner, and participated

485
00:29:20,200 --> 00:29:25,040
Speaker 1: in the first uh several summits. I've been to twelve

486
00:29:25,120 --> 00:29:28,280
Speaker 1: and over the course of my career in government, and

487
00:29:28,320 --> 00:29:32,480
Speaker 1: at Rambo in nineteen the first of these was designed

488
00:29:32,560 --> 00:29:35,280
Speaker 1: during a period of great economic difficulty for the West,

489
00:29:35,400 --> 00:29:38,760
Speaker 1: after the major oil crisis of nineteen seventy three, Inflation

490
00:29:38,840 --> 00:29:41,680
Speaker 1: was rampant. There was a lot of division, and the

491
00:29:41,760 --> 00:29:44,840
Speaker 1: idea was you pull these countries together, the major countries

492
00:29:44,880 --> 00:29:48,480
Speaker 1: of the Western world, and you give them a sense

493
00:29:48,560 --> 00:29:52,000
Speaker 1: of a common purpose, which is to work together to

494
00:29:52,080 --> 00:29:56,760
Speaker 1: overcome economic problems those were, as I mentioned, very difficult

495
00:29:56,760 --> 00:29:59,160
Speaker 1: at the time, and also as a way of underpinning

496
00:29:59,560 --> 00:30:04,680
Speaker 1: politic coal and security ties. What happened that Quebec was

497
00:30:04,760 --> 00:30:08,680
Speaker 1: that this was the most divisive summit that in all

498
00:30:08,760 --> 00:30:11,000
Speaker 1: the time I've been working on these, the most divisive

499
00:30:11,040 --> 00:30:14,920
Speaker 1: summit I have seen by far. It's unprecedented that one

500
00:30:14,920 --> 00:30:17,760
Speaker 1: country would refuse to sign the Communic a that has

501
00:30:17,800 --> 00:30:21,600
Speaker 1: never happened to my knowledge. But also the tone was

502
00:30:21,640 --> 00:30:25,360
Speaker 1: so divisive. So what was meant to be uh coordinating

503
00:30:25,560 --> 00:30:29,280
Speaker 1: common solutions and economic problems and underpinning political security relations

504
00:30:29,680 --> 00:30:34,880
Speaker 1: is now an acrimonious turned into an acrimonious forum in Quebec.

505
00:30:34,920 --> 00:30:38,360
Speaker 1: Now the question is going down the road, how do

506
00:30:38,400 --> 00:30:41,720
Speaker 1: you pull this together? You need strong alliances with the

507
00:30:41,840 --> 00:30:44,440
Speaker 1: US is a great power, not to because it's great internally,

508
00:30:44,800 --> 00:30:48,680
Speaker 1: but because it had powerful friends and allies. You need

509
00:30:48,720 --> 00:30:51,560
Speaker 1: that and to have exert influence in the world today.

510
00:30:51,640 --> 00:30:56,479
Speaker 1: So Secretary Pompeio has got to begin to rebuild trust

511
00:30:56,720 --> 00:31:00,640
Speaker 1: in these alliances for both economic and political security reason.

512
00:31:00,680 --> 00:31:04,760
Speaker 1: But Ambassador Harmat's your charm over the years has been

513
00:31:04,800 --> 00:31:08,000
Speaker 1: your uncanny ability to take the want um of foreign

514
00:31:08,080 --> 00:31:13,720
Speaker 1: policy and link it to our domestic realities. The President,

515
00:31:14,000 --> 00:31:18,040
Speaker 1: the fact is, has a residence with a large body

516
00:31:18,240 --> 00:31:23,080
Speaker 1: of Americans who support him. Does he have the backing

517
00:31:23,200 --> 00:31:26,000
Speaker 1: of a fair amount of Americans when he is this

518
00:31:26,160 --> 00:31:29,560
Speaker 1: brusque with our allies? Do you get the sense that

519
00:31:30,120 --> 00:31:34,320
Speaker 1: he has touched a residence with some part of the

520
00:31:34,320 --> 00:31:38,600
Speaker 1: American people? Unfortunately, I think there are a number of

521
00:31:38,600 --> 00:31:42,640
Speaker 1: people who are of the view that globalization has disrupted

522
00:31:42,680 --> 00:31:46,920
Speaker 1: their lives and their communities and threatens their jobs. And

523
00:31:47,000 --> 00:31:50,520
Speaker 1: if the President takes these very tough lines and is

524
00:31:50,640 --> 00:31:54,280
Speaker 1: very pugnacious about pressing other countries to do what he

525
00:31:54,320 --> 00:31:57,520
Speaker 1: wants or making statements like he won't trade with them

526
00:31:57,560 --> 00:32:00,920
Speaker 1: if they don't, which is what he tweeted today. Um,

527
00:32:01,040 --> 00:32:04,480
Speaker 1: that to me is something that while Americans may like

528
00:32:04,640 --> 00:32:08,640
Speaker 1: the rhetoric and find the toughness quite appealing, and certainly

529
00:32:08,640 --> 00:32:11,400
Speaker 1: there is ninophobia and there's an any foreign feeling in

530
00:32:11,480 --> 00:32:14,520
Speaker 1: certain quarters in this country. Over a period of time,

531
00:32:15,120 --> 00:32:17,640
Speaker 1: when people come to realize that that has a very

532
00:32:17,680 --> 00:32:22,959
Speaker 1: direct effect on their pocketbooks, on their four O one case, UM,

533
00:32:23,000 --> 00:32:25,640
Speaker 1: I think they will probably take a somewhere different view.

534
00:32:25,680 --> 00:32:29,240
Speaker 1: Although admittedly, UM, there is a strong political view that

535
00:32:29,240 --> 00:32:32,560
Speaker 1: Trump's toughness is a good thing, and I think not

536
00:32:32,760 --> 00:32:35,240
Speaker 1: the majority of Americans feel that way, but a certain

537
00:32:35,280 --> 00:32:38,880
Speaker 1: portion doing a certain strong portion of his base. The

538
00:32:38,920 --> 00:32:41,760
Speaker 1: big question that you've touched on, I think is is

539
00:32:41,800 --> 00:32:46,680
Speaker 1: this just a temporary phenomenon, a Trump phenomenon, or does

540
00:32:46,760 --> 00:32:52,040
Speaker 1: this what happened to Quebec signal a sustained weakening of

541
00:32:52,120 --> 00:32:56,560
Speaker 1: cooperation among the Western community on a wide range of issues,

542
00:32:56,960 --> 00:32:59,920
Speaker 1: going even beyond Trump. Is it is it possible to

543
00:33:00,040 --> 00:33:03,040
Speaker 1: pull that back to what we tried to do in

544
00:33:03,080 --> 00:33:06,320
Speaker 1: the seventies and eighties and nineties seven American presidents have

545
00:33:06,400 --> 00:33:09,480
Speaker 1: regarded these summits as a good thing to reduce tensions.

546
00:33:09,520 --> 00:33:12,480
Speaker 1: Now we have those tensions, and it's going to be

547
00:33:12,520 --> 00:33:15,600
Speaker 1: a lot harder to pull them back, and Pompey was

548
00:33:15,640 --> 00:33:17,880
Speaker 1: gonna have to do this because he needs these allies

549
00:33:18,280 --> 00:33:20,600
Speaker 1: and we need strong trading partners. We got into a

550
00:33:20,600 --> 00:33:23,400
Speaker 1: trade war. A lot of American companies, a lot of

551
00:33:23,400 --> 00:33:26,120
Speaker 1: American jobs that depend on exports, and a lot of

552
00:33:26,160 --> 00:33:28,960
Speaker 1: American consumers that depend on import goods are going to

553
00:33:29,000 --> 00:33:32,640
Speaker 1: be very adversely affected, so that what's good headlines today

554
00:33:32,680 --> 00:33:35,000
Speaker 1: may not be good and certainly won't be good for

555
00:33:35,040 --> 00:33:37,680
Speaker 1: America tomorrow. I come in Bob in the morning and

556
00:33:37,680 --> 00:33:41,480
Speaker 1: I write the opening script for television, and on the

557
00:33:41,480 --> 00:33:43,880
Speaker 1: back end of it today, you know, playing off of

558
00:33:43,960 --> 00:33:47,400
Speaker 1: Navarro's comments, I said, there is a special place in

559
00:33:47,520 --> 00:33:51,760
Speaker 1: hell for the Montreal Canadians. Check that for Prime Minister Trudeau.

560
00:33:52,480 --> 00:33:55,560
Speaker 1: The kind of rhetoric that we heard from the professor

561
00:33:55,600 --> 00:34:00,680
Speaker 1: of economics from ukl irv Irvine, or the rhetoric we

562
00:34:00,760 --> 00:34:04,280
Speaker 1: hear from my good friend Lawrence Cudlow. I know that's

563
00:34:04,320 --> 00:34:08,960
Speaker 1: not within the Hormat's dialogue or discourse. Is that a

564
00:34:09,000 --> 00:34:12,719
Speaker 1: permanent damage to this president and is it a permanent

565
00:34:12,840 --> 00:34:16,800
Speaker 1: damage to this nation? Well, I don't know how permanent

566
00:34:16,880 --> 00:34:20,080
Speaker 1: it is, but I I think that it does. As

567
00:34:20,080 --> 00:34:22,080
Speaker 1: I was mentioning a moment ago, there are a certain

568
00:34:22,160 --> 00:34:26,520
Speaker 1: number of people who feel that it is time the

569
00:34:26,600 --> 00:34:31,000
Speaker 1: United States took a stronger position, and they think somehow

570
00:34:31,040 --> 00:34:35,520
Speaker 1: they're quite tough rhetoric um an acrimonious rhetoric and somewhat

571
00:34:35,520 --> 00:34:39,239
Speaker 1: bullying rhetoric with a strong position. And I just want

572
00:34:39,280 --> 00:34:42,080
Speaker 1: to repeat what what some Americans think is good for

573
00:34:42,120 --> 00:34:45,719
Speaker 1: this country today and what some Americans think is appealing rhetorically.

574
00:34:46,280 --> 00:34:49,440
Speaker 1: What some Americans think is a way of America standing

575
00:34:49,520 --> 00:34:51,240
Speaker 1: up to the rest of the world. Maybe that sounds

576
00:34:51,239 --> 00:34:55,200
Speaker 1: good to some Americans today, but there is a strong

577
00:34:55,280 --> 00:34:59,840
Speaker 1: reason why these institutions and patterns of cooperation were built.

578
00:35:00,480 --> 00:35:02,839
Speaker 1: It was it was in part, in large part because

579
00:35:02,920 --> 00:35:07,800
Speaker 1: deserved America's interests on trade, on investment, and on growth.

580
00:35:07,880 --> 00:35:11,640
Speaker 1: And I think that that the the appeal of language

581
00:35:11,680 --> 00:35:13,680
Speaker 1: today to some people may turn out to be very

582
00:35:13,760 --> 00:35:17,600
Speaker 1: unappealing when they realize how bad it is for the

583
00:35:17,600 --> 00:35:19,960
Speaker 1: American economy, how bad it is for jobs, and how

584
00:35:19,960 --> 00:35:21,960
Speaker 1: bad it is for their for their for there for

585
00:35:22,200 --> 00:35:24,239
Speaker 1: one case, you know, not that you know, I'm trying

586
00:35:24,280 --> 00:35:26,560
Speaker 1: to figure out what percentage of the audience will know

587
00:35:26,600 --> 00:35:28,799
Speaker 1: who Dean Atchison is or you know, others. We can

588
00:35:28,840 --> 00:35:33,160
Speaker 1: talk about impress everyone, but it's almost like we've lost

589
00:35:33,360 --> 00:35:38,280
Speaker 1: our sense of history. You specialized in honoring our history.

590
00:35:38,320 --> 00:35:40,919
Speaker 1: We have a president who is clearly a historical there's

591
00:35:40,960 --> 00:35:45,839
Speaker 1: no question whenever anybody's politics, and in believing that, are

592
00:35:45,840 --> 00:35:50,080
Speaker 1: we basically losing our understanding of our diplomatic history. Whether

593
00:35:50,160 --> 00:35:53,080
Speaker 1: it's we are Tom exactly put your finger on it.

594
00:35:53,239 --> 00:35:56,720
Speaker 1: Most people don't remember the history, and and and and

595
00:35:56,719 --> 00:35:59,480
Speaker 1: and there's some that would just assume not pay much

596
00:35:59,520 --> 00:36:03,040
Speaker 1: attention to do it anyway, and by so doing, they're

597
00:36:03,080 --> 00:36:07,080
Speaker 1: missing the whole point as to why these institutions and

598
00:36:07,080 --> 00:36:10,640
Speaker 1: why these alliances and why these patterns of economic cooperation

599
00:36:11,200 --> 00:36:13,960
Speaker 1: were created in the first place after World War Two,

600
00:36:14,520 --> 00:36:16,680
Speaker 1: and in the case of the G seven in nineteen

601
00:36:17,360 --> 00:36:22,719
Speaker 1: they were created because presidents of Republican and Democratic presidents.

602
00:36:23,080 --> 00:36:25,640
Speaker 1: And this is created under Republican president I remind you

603
00:36:25,680 --> 00:36:29,600
Speaker 1: of Gerald Ford and supported by President Reagan and many

604
00:36:29,600 --> 00:36:33,560
Speaker 1: other conservative Republicans as well as Democrats. They all understood

605
00:36:33,600 --> 00:36:37,359
Speaker 1: that this was important to the American national interest and

606
00:36:37,440 --> 00:36:40,560
Speaker 1: to make America great. After World War Two, people realized

607
00:36:40,640 --> 00:36:43,759
Speaker 1: we need to have strong alliances and strong economic partnerships.

608
00:36:44,200 --> 00:36:49,560
Speaker 1: If those deteriorate over time, weakens America's influence in the

609
00:36:49,560 --> 00:36:52,239
Speaker 1: world and will weaken our economy because we need the

610
00:36:52,280 --> 00:36:56,040
Speaker 1: trade and we need the investment. And it's particularly relevant

611
00:36:56,040 --> 00:37:00,600
Speaker 1: today as the President goes into these meetings with the

612
00:37:00,239 --> 00:37:04,440
Speaker 1: the Party Secretary of North Korea um on on a

613
00:37:04,480 --> 00:37:09,120
Speaker 1: major issue. All American presidents in the past have concluded

614
00:37:09,160 --> 00:37:11,319
Speaker 1: that when you go into a meeting with your adversary,

615
00:37:11,360 --> 00:37:14,480
Speaker 1: you want to have a strong alliance behind you. You

616
00:37:14,520 --> 00:37:19,000
Speaker 1: want to have solidarity among the Western countries to back

617
00:37:19,080 --> 00:37:22,759
Speaker 1: you up, to be there for you. And this was

618
00:37:23,360 --> 00:37:26,759
Speaker 1: very badly shattered at least for the moment in Quebec.

619
00:37:26,960 --> 00:37:30,000
Speaker 1: Now the President and you went back to Pompeio. Now

620
00:37:30,040 --> 00:37:32,799
Speaker 1: we have to make especially sure that when he goes

621
00:37:32,840 --> 00:37:36,799
Speaker 1: into that somebody has a very close relationship and is

622
00:37:36,880 --> 00:37:40,440
Speaker 1: in line with the thinking of Japan and South Korea

623
00:37:40,680 --> 00:37:43,279
Speaker 1: are two allies in the region and they're in line

624
00:37:43,320 --> 00:37:45,759
Speaker 1: with him. So at least we now for the next

625
00:37:45,800 --> 00:37:48,920
Speaker 1: immediate steps. If we can't pull the overall relationship together

626
00:37:48,960 --> 00:37:52,080
Speaker 1: among the G seven, he's got to be especially strong

627
00:37:52,200 --> 00:37:55,440
Speaker 1: in making sure that the alliances with with Japan and

628
00:37:55,480 --> 00:37:58,040
Speaker 1: South Korea are very strong in this. In this moment,

629
00:37:58,040 --> 00:38:00,040
Speaker 1: we're going to leave it dear Robert Hermans, generous of you,

630
00:38:00,040 --> 00:38:01,840
Speaker 1: gonna be with us for this thirty minutes. Thank you

631
00:38:01,880 --> 00:38:05,479
Speaker 1: so much. Robert Hormetts with Kissinger Associates and of course

632
00:38:05,480 --> 00:38:16,560
Speaker 1: the former own Secretary of State for Economic Growth. Thanks

633
00:38:16,560 --> 00:38:20,840
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen

634
00:38:21,040 --> 00:38:26,400
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform

635
00:38:26,480 --> 00:38:30,799
Speaker 1: you prefer. I'm on Twitter at Tom Keane before the podcast.

636
00:38:30,840 --> 00:38:34,360
Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio