Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jaylie.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg. The
Speaker 1: main event the President of the United States about to
Speaker 1: see whether his bet on North Korea will pay off
Speaker 1: Kim John Gunn's desire to end his country's economic stagnation, well,
Speaker 1: will it prevail over the the dictator's fear of relinquishing
Speaker 1: his nuclear threat. Joining US now from Singapore is to
Speaker 1: Lou Honor nipa Bloomberg Washington correspondent to Lou, walk me
Speaker 1: through the main event and what is about to happen
Speaker 1: over the next twenty four hours. Yeah, you're you're You're
Speaker 1: just mentioned it. We're less than twenty four hours out
Speaker 1: from the biggest meeting of President Trump's life, also the
Speaker 1: biggest meeting so far of Kim Jong UN's life. They're
Speaker 1: going to be meeting for the first time, the first
Speaker 1: meeting between the US president and North Korean leader, and
Speaker 1: the goal from the U s side is to get
Speaker 1: Kim Jong un to commit to giving up his nuclear
Speaker 1: weapons program. Now, there has not been a public statement
Speaker 1: from Kim Jong un that he is willing to give
Speaker 1: up this program that his family has developed over several decades,
Speaker 1: so there will be We'll be watching very closely to
Speaker 1: see whether or not there is any type of indication
Speaker 1: that Kim Jong un has actually turned the corner and
Speaker 1: decided that he no longer needs this nuclear program and
Speaker 1: he's willing to engage with the US, come out of
Speaker 1: the isolation that the US has placed North Korea in
Speaker 1: into with various sanctions, and give up his nuclear program.
Speaker 1: The President Trump will try to get that commitment from him.
Speaker 1: We're told that they're going to have his handshake starting
Speaker 1: at nine a m Here Singapore time, followed by a
Speaker 1: bilateral meeting, follow bilateral just one on one, just the
Speaker 1: two of them with translated translators, followed by a larger
Speaker 1: meeting with their staff as well. You need to have
Speaker 1: an agreement on what the terms actually means. You need
Speaker 1: to define the terms. And both sides use this term
Speaker 1: the nuclearization of the peninsula. What does that mean to
Speaker 1: the president and what does that mean to the North
Speaker 1: Korean leader? And are they the same things. They are
Speaker 1: definitely not the same things. They are talking past each other,
Speaker 1: and there have been a lot of low level meetings
Speaker 1: trying to get those definitions closer to together. From the
Speaker 1: U S side, the nuclearization means getting rid of the
Speaker 1: entire nuclear program UH, declaring the entire nuclear program, having
Speaker 1: inspectors verify that that program is being dismantled, and having
Speaker 1: North Korea get rid of every bit of their nuclear
Speaker 1: weapons program. Now the North Koreans have a different idea.
Speaker 1: They believe that it means that the U S should
Speaker 1: reduce its own presence in the region, maybe getting rid
Speaker 1: of its troops on the South, in South Korea, on
Speaker 1: the Korean Peninsula, getting rid of the nuclear umbrella, the
Speaker 1: protection that the US provides to South Korea and Japan
Speaker 1: by having a presence in the region. And it also
Speaker 1: means getting rid of the hostile nature of U S
Speaker 1: functions UH and and and US diplomatic isolation of North Korea.
Speaker 1: So they see the nuclearization the much different lights than
Speaker 1: the US, and they have not yet been able to
Speaker 1: bring those two definitions in line just yet. So, given
Speaker 1: how the G seven went, the sub debate over whether
Speaker 1: the pressure is increased on the President of the United
Speaker 1: States or decreased on the President of the United States
Speaker 1: as he goes to Singapore. Does the President go to
Speaker 1: Singapore stronger or weaker after that G seven, Well, he
Speaker 1: definitely does not have as much of the support of
Speaker 1: our allies that he would have had if he had
Speaker 1: had a productive G seven and been able to use
Speaker 1: that as a launching pad for this meeting in Singapore.
Speaker 1: Now he's still fighting and still having to answer questions
Speaker 1: and still tweeting about what happened in Canada and about
Speaker 1: the G seven. So there is a certain level of distraction,
Speaker 1: and there's this idea that the President has trouble getting
Speaker 1: along with allies, he has trouble sticking to a deal,
Speaker 1: and whether or not that is something that's weighing on
Speaker 1: the mind of Kim Jong n after our President Trump
Speaker 1: pulled out of the communicate is something that remains to
Speaker 1: be seen. But obviously the President hasn't shown a strong
Speaker 1: knack for staying in deals, has been much better at
Speaker 1: breaking deals than putting deals together, and that's going to
Speaker 1: make it much harder for him to to reach a
Speaker 1: deal here in Singapore. All for joining us from Singapore,
Speaker 1: Thank you very much for your time, so joining us
Speaker 1: around the table in New York, Tom King popping into
Speaker 1: the studio, Tom good morning, Good morning. Then for weekend. Yeah,
Speaker 1: to say the least, Charles Cancer come again as well,
Speaker 1: Seenior portfolio manager, Charles. I always ask myself on Monday mornings,
Speaker 1: what's new? What's changed? Has anything truly changed after that
Speaker 1: weekend other than you're a little bit more restive? Probably
Speaker 1: not you think I'm rested, Charles. That's nice of you.
Speaker 1: That's interesting, though, isn't it for the market, just zero reaction.
Speaker 1: The media and all the experts going crazy on relations
Speaker 1: and maybe they should be. But for the market and
Speaker 1: investors it's same out. We've seen this before. I think
Speaker 1: the markets fighting this debate around fundamentals and the influence
Speaker 1: that that higher interest rates will have on valuation and
Speaker 1: and and that's going to be a tug of war
Speaker 1: that's going to last well beyond the global events of
Speaker 1: this week, next week and and the rest of the year.
Speaker 1: And I'd say, as it relates to earnings and evaluations, um,
Speaker 1: you should anticipate less multiple expansion. But but but equity
Speaker 1: return should follow earnings growth, which which I think will
Speaker 1: be in in in the middle high single digits. Do
Speaker 1: you think any of what we've seen over the last
Speaker 1: weekend or so damages CEO confidence business confidence? No, not yet.
Speaker 1: I mean I think you always have to pay attention
Speaker 1: to to the institutes of the global economy because most
Speaker 1: businesses today drive a lot of their growth from from
Speaker 1: from outside the US, and and any confident shock will
Speaker 1: be a negative to investment and consumer spending. But if anything,
Speaker 1: the debate that's going to take place in Singapore should
Speaker 1: be a positive for confidence because it may imply a
Speaker 1: safer global economy and world. What are you doing with
Speaker 1: cash now? I mean it's in the change interest rate
Speaker 1: environment all of a sudden. Cash is a different thing,
Speaker 1: isn't it. Well, you've got to be careful about cash,
Speaker 1: and it depends on with whom you refer to. I
Speaker 1: think at the individual level, I think the individuals always
Speaker 1: miss price the optionality that comes with cash. Cash gives
Speaker 1: you the opportunity to invest when others can't, and it
Speaker 1: gives you the opportunity to sleep well at night. As
Speaker 1: it relates to to the corporate side, the key question
Speaker 1: is as as as surplus as cash flows have expanded
Speaker 1: in in magnitudes that they couldn't imagine after much lower
Speaker 1: corporate taxes. The question there is will the corporate t
Speaker 1: o be a productive allocator of their cash um and
Speaker 1: were encouraging our company to to to to to term
Speaker 1: out their debt. I moved from variable structures to fixed structures,
Speaker 1: and we encourage them to to to take risk and
Speaker 1: to to be innovators and to invest at rachel return
Speaker 1: that are you know, candidly nine basis points higher than
Speaker 1: the cost of cash um um. And if they can
Speaker 1: do that well Shell, the value creation will continue. Is
Speaker 1: that in mid cap I mean, you made a lot
Speaker 1: of headlines with the Amazon offers, but forget about the
Speaker 1: glory stuff. Were you really making it mid cap? Small cap? Look?
Speaker 1: I think for us our bread and brother Bread and Batteries,
Speaker 1: the medium sized companies that that that that face u
Speaker 1: enormate opportunities to to continue to grow and and and
Speaker 1: haven't faced the headwinds of of the law of large numbers.
Speaker 1: UM And when we were just in Denver meeting two
Speaker 1: of our medium sized companies UM and I was very
Speaker 1: encouraged by by what they've seen from in terms of endermon.
Speaker 1: The one was an industrial company, the other was a
Speaker 1: was a database measurement company that provides data into the
Speaker 1: financial services. The consumer is really strong right now and
Speaker 1: is spending and and on the industrial side, of course,
Speaker 1: it depends on what your Protestant services are. But demands
Speaker 1: really strong right now, and inventory is on a very
Speaker 1: good position. Are you following a World Cup team? I
Speaker 1: mean it's this week, It is this week. I would
Speaker 1: typically follow in no particular order, South Africa in the US. Um. Good.
Speaker 1: So we're discussing Italy earlier, so we were, so it'll
Speaker 1: be a little bit more challenging this year. But but
Speaker 1: but no doubt I'll have at least one eye on
Speaker 1: on on the event, says as they as they get
Speaker 1: Team Chiles. Well, if you forced me into a box,
Speaker 1: it'll it'll likely end up being England. Um, you know
Speaker 1: we all go back to the Commonwealth in one way
Speaker 1: or now that excuse me. I read the New York
Speaker 1: Times insert thing this weekend covered John Ferrill. Would you
Speaker 1: explain why Torres and pan On are going to the
Speaker 1: World Cup? Yeah, in Italy is not Well, it's the
Speaker 1: way they're separated into the different sort of grouping. So
Speaker 1: you have your wafer, which is where the bulk of
Speaker 1: the European precisely, and then you qualify a certain number
Speaker 1: of teams from individual regions. The real question is why
Speaker 1: is Panama going and not the United States? How did
Speaker 1: the United States not qualify for this World Cup because
Speaker 1: they have the easiest route to get into the World Cup?
Speaker 1: I am so too this week it's going to be great.
Speaker 1: The good news for us to it. I think in
Speaker 1: the next round of the World Cup they're more teams,
Speaker 1: so hopefully cancer greater. Catch out with you for our
Speaker 1: listeners worldwide, you're listening to Bloomberg Surveillance. We are thrilled
Speaker 1: to do what we do on surveillance, to go and
Speaker 1: find the best voices we can find on a topic.
Speaker 1: And you do that with Charles Armstrong to say he
Speaker 1: is professor of history at Columbia. Barely describes his contribution
Speaker 1: to Pacific rim thinking and particularly the Peninsula of Korea,
Speaker 1: and he comes out of the Jonathan Spence Combine at
Speaker 1: Yale University LS. His doctorate is out of Chicago. Professor Armstrong,
Speaker 1: we are thrilled to have you with us today. What
Speaker 1: would Jonathan Spence say about the making of modern Korea?
Speaker 1: Synthesize your lifelong work to this historic moment for the
Speaker 1: Peninsula of Korea. Well, Korea has always been a place
Speaker 1: that has scarcely dependent it's independence. UH. It lived in
Speaker 1: the shadow of China for a thousands of years but
Speaker 1: was never absorbed in the Chinese Empire. It wasn't a
Speaker 1: colony of Japan for thirty five years. UH. And it
Speaker 1: is now divided into two in the North and South.
Speaker 1: So this is a long history of unity and independence
Speaker 1: UH in Korea. And I think a lot of Koreans,
Speaker 1: including in the South, are really looking forward to the
Speaker 1: summit meeting between Trump and Kim Jo Muan, not because
Speaker 1: they like Kim Joman necessarily, but because they see this
Speaker 1: as a historic turning point leading towards UH evenge the
Speaker 1: reunification of their country. Secretary of Pompeo I thought was
Speaker 1: organized and forceful in his brief this morning to the
Speaker 1: media five thousand media and Singapore. If you were to
Speaker 1: excuse me, if you were to advise the Secretary of
Speaker 1: State and the unpredictability or the nuances of the Supreme Leader,
Speaker 1: how would you advise Secretary of State Pompeo. What Pompeo
Speaker 1: said yesterday in Singapore is a little bit different from
Speaker 1: what Trump has been saying. It does seem to be
Speaker 1: quite different from what Kim Joman has been indicating he
Speaker 1: expects it out of the summit. So I would say
Speaker 1: to keep an open mind, stick to principles, keep the
Speaker 1: American goals in mind. But but the b nuanced about
Speaker 1: how you get there. So what I what I mean
Speaker 1: by that is Pompeo said US tensions will remain in
Speaker 1: place until it's a complete and verifiable, irreversible denuclearization of
Speaker 1: the creating peninsula. But that's going to be a tough
Speaker 1: sell to the North Koreans, and Trump himself has said
Speaker 1: that at the beginning of a process, not in in itself.
Speaker 1: So you know, there's no no North kids are tough negotiators,
Speaker 1: and you've got to go in UM understanding your goals
Speaker 1: but being able to work towards them in a creative way.
Speaker 1: What is the minimum condition for success at this meeting?
Speaker 1: I think that what the minimum is a declaration of
Speaker 1: principles both sides can agree that we want complete denucralization
Speaker 1: and outlining a process how to get there. Opening up
Speaker 1: North too, inspections um, the starting uh process of leading
Speaker 1: towards the release of sanctions. But I don't think we
Speaker 1: can expect a huge UH and and a clear commitment
Speaker 1: or a clear achievement. I think this has to be
Speaker 1: and I agree with Trump on this the beginning of
Speaker 1: the process. Professor Armstrong. How does South Korea fit into
Speaker 1: these meetings? I mean, it's Trump and Kim, I get that,
Speaker 1: but South Korea has a unique place at the table.
Speaker 1: Whether or not there at the table, what is it.
Speaker 1: They have been very important, particularly the President of South
Speaker 1: Korea bunjay and really getting this this UH process going.
Speaker 1: They've facilitated between North Korea and the US. They've reached
Speaker 1: out to North Korea to start a dialogue going back
Speaker 1: to the the Winter Olympics in South Korea, and they
Speaker 1: have a huge amount of state. Obviously, they don't want
Speaker 1: a war on their peninsula. I think that's the first
Speaker 1: condition for them. They want to lead us back from
Speaker 1: the edge of war that we seem to be in
Speaker 1: just six months ago. UH. And they want to move
Speaker 1: the Korean peninsula to a situation of stable peace UH.
Speaker 1: And they want to improvement in the North. You know,
Speaker 1: they have to live with with North Korea right on
Speaker 1: their doorstep, and they want the regime to be less
Speaker 1: hostile and also forced people to be better off. So
Speaker 1: I think economic interaction with North is also very important.
Speaker 1: But then this is President g the New York Times
Speaker 1: making a strong point this morning, the Chinese will not
Speaker 1: be there. I don't buy it for a minute. The
Speaker 1: Chinese must be there in representation in North Korea. How
Speaker 1: does that relationship fit in the next twenty four hours.
Speaker 1: China has made it clear to Kim Joland, meeting him twice.
Speaker 1: She had two meetings with Kim in less than a
Speaker 1: month after refusing to meet him for for six years
Speaker 1: since he came to power. So clearly China wants its
Speaker 1: position represented, even if it's not physically there at the meeting.
Speaker 1: China is both bars most important economic partner, takes about
Speaker 1: it foreign trade, supplies it with oil and food, and
Speaker 1: in exchange. They want secure border. They don't want the
Speaker 1: US right on their doorstep. They want a reliable buffer
Speaker 1: on their northeastern boundary, which is very sensitive, and they
Speaker 1: also want to uh North Korea that is less unpredictable
Speaker 1: and more affluent. They really want North Korea to go
Speaker 1: down their path of economic form and they see that
Speaker 1: that can happen until US an improve relations with the
Speaker 1: United States and we see some relief from sanctions. Professor Armstrong,
Speaker 1: thank you so much. Greatly appreciate the time today, professor
Speaker 1: of history at Columbia and truly one of the nation's
Speaker 1: experts on Korea, greatly greatly appreciate that where this down, Uh,
Speaker 1: a woman who survived the winters of Bates College, that
Speaker 1: itself is a triumph Flora and joins us with FS investments.
Speaker 1: As we looked to the feed, as we looked to
Speaker 1: where Laura, I want you to explain an absolutely killer
Speaker 1: chart you have going back twenty five years, which is
Speaker 1: the tenure yield up and then rolling over, and then
Speaker 1: the ten year yield up and rolling over, and sort
Speaker 1: of in two thousand five six into the crisis up
Speaker 1: and rolling over, and then you've got a question mark
Speaker 1: and then things change. Where are we with a tenure
Speaker 1: yield right now versus other FED cycles? So um, yeah,
Speaker 1: First off, we have I had my twenty five year
Speaker 1: college reunion since weekend, so apologize my voice is so
Speaker 1: we're covering from all the fun. You were down with
Speaker 1: the Washington you were down with the Washington capitals, doing
Speaker 1: the bend or that they were, Well, that's good. Bates
Speaker 1: College is a good place to have anniversary. It's still going,
Speaker 1: um thanks to highlighting that chart. Because one of the
Speaker 1: to mean, one of the most important um pieces of
Speaker 1: misinformation I hear from, especially fixed income investors, is that
Speaker 1: as the FED races rates, as short term rates renormalized,
Speaker 1: that the the FED funds rate hikes cycle is going
Speaker 1: to be somehow this rising tide the lists all ships
Speaker 1: and long term rates are going to go up too.
Speaker 1: And I could not disagree more. Um. I look at
Speaker 1: the history of said cycles and what you traditionally see
Speaker 1: is longer term rates rising somewhat at a at a
Speaker 1: slower pace in the beginning of the cycle, and then
Speaker 1: that usually does not last. It typically plateaus and even
Speaker 1: that try and even reverses. And so we're long term
Speaker 1: rates have gone up a little bit because we started
Speaker 1: raising rates. We've had volatility in the long end recently.
Speaker 1: But you know, to me, the sell off we got
Speaker 1: verse three oh eight and the tenure the rally to
Speaker 1: bright yields back down to two eighties, that made all
Speaker 1: the sense in the world, because we are in an
Speaker 1: environment when the federations raised, where we just should not
Speaker 1: expect the long end to also be on autopilot and
Speaker 1: rise as well. So, Laura, the intuitive way that the
Speaker 1: curve behaves at this point of the tightening cycle is
Speaker 1: that we get some flatness, that you get a bare flantner,
Speaker 1: which means the sell off of course comes at the
Speaker 1: front end more predominantly. The argument against this, Laura, and
Speaker 1: it comes from JP Morgan Asset Management and Bob Michael,
Speaker 1: is that this time is a little bit different because
Speaker 1: you're also getting balance sheet unwind and you get in
Speaker 1: the reverse sort of Q eight and the reverse effects
Speaker 1: will be the return of term premier and ultimately what
Speaker 1: that could mean is a shift to a steeper curve.
Speaker 1: What do you say back to that, Laura, So you know,
Speaker 1: I think the biggest certainty about that comes to me
Speaker 1: from the European Central Bag and the announced that they're
Speaker 1: possibly going to make this week. All of the de
Speaker 1: leveraging that we're seeing in the FED balance sheet to
Speaker 1: me has already been priced in, that spaked in the
Speaker 1: cake already. So I don't see that in and of
Speaker 1: itself pushing long term rates uh significantly really at all,
Speaker 1: unless they was for some reason accelerate and nobody really
Speaker 1: expects that. The ECB is a much bigger question mark.
Speaker 1: And you know, at some point they are going to
Speaker 1: hit an inflection where they're no longer adding to their
Speaker 1: balance sheet. You know, I think the first rate move
Speaker 1: is going to be the first start of this's not
Speaker 1: going to be on the balance sheet side that they
Speaker 1: begin tightening policy. But um, you know, their timing, the
Speaker 1: fact that they have only a single mandate and inflation
Speaker 1: data aren't exactly being cooperative in the in the EU. Uh.
Speaker 1: To me, that is one of the biggest question marks
Speaker 1: for the bomb market is here, I mean within that
Speaker 1: is is the marker and we were talking with Drew
Speaker 1: Matis earlier with an optimistic tone that leads to higher
Speaker 1: rates in his single point marker. I guess it is
Speaker 1: three and a quarter percent. Give us some precision here, Laura. Uh,
Speaker 1: I mean, I mean, do we get to do we
Speaker 1: go through the three oh eight level you're talking about earlier? Yeah,
Speaker 1: I think that's entirely possible because this Federate ex cycle
Speaker 1: is so different. If you think about to me, the
Speaker 1: fact that you know, we can see rates creep higher
Speaker 1: for the first half of the cycle and you look
Speaker 1: out even at the fed dum protections, this cycle still
Speaker 1: has a long way to go. So you could absolutely
Speaker 1: see uh on the tenure, you can even see a
Speaker 1: little bit more, but compared to where we have been historically,
Speaker 1: it's still so low. And you know from where the
Speaker 1: chair that I sit in, the people I seek to,
Speaker 1: they're always looking for yield, They're looking for investments and um,
Speaker 1: you know that's a message that I just carry through
Speaker 1: because people forget me, don't understand, they don't get that dynamic. Well, Laura,
Speaker 1: thank you so much, Lauring, thank you so much. With
Speaker 1: FS investments, so really a smart conversation. They're folks on rate.
Speaker 1: And again, you know, if you read your Fabosi, there's
Speaker 1: I want to call it four factors that go into
Speaker 1: what the curve does, what the dynamics are and CEFA
Speaker 1: exams are passed and failed on that idea. We've been
Speaker 1: trying to advance the conversation over the last number of
Speaker 1: weeks on our international relations. Did that earlier with the
Speaker 1: Korean expert from Columbia University and now joining US forever
Speaker 1: associated with a Fletcher School Toughts and with Princeton Robert Hormetts.
Speaker 1: He is a former Undersecretary of State for Economic Growth,
Speaker 1: Energy in the Environment, working with President Obama. Boba Hormetts
Speaker 1: of course for years a good supporter of what we've
Speaker 1: done here at Bloomberg on the economy and Bloomberg Surveillance. Ambassador,
Speaker 1: we are thrilled to have you with us for this
Speaker 1: half hour. You know Graham Allison at Harvard who speaks
Speaker 1: of the tension between China in the United States. Where
Speaker 1: will that tension be if Mr Trump has a successful
Speaker 1: Korean summit? Well, I think a successful Korean summit probably
Speaker 1: will be a relief in terms of the relationship between
Speaker 1: the two countries, because the US has been pushing China
Speaker 1: to be more helpful to the cause of getting the
Speaker 1: North Koreans to do de nuclear rise in the Chinese
Speaker 1: have been upping their sanctions under US pressure. But also
Speaker 1: the Chinese do not want instability in Northeast Asia, and
Speaker 1: if the summit were to fail, the chances of instability
Speaker 1: would probably increase, or at least the perception would increase
Speaker 1: that the United States and North We're going to get
Speaker 1: back into the sort of shouting match that they had
Speaker 1: just before the current flaw began to emerge. The way
Speaker 1: this works, Bob, is somebody gives up something, and usually
Speaker 1: the greater power unloads money, aid whatever you want to
Speaker 1: call it at a country. And clearly we and others
Speaker 1: can unload AID on and impoverished North Korea. But what
Speaker 1: will they give up? Well, that's of course the big question, Tom,
Speaker 1: and that is the Administration has made it very clear,
Speaker 1: and indeed members of the Congress from both parties have
Speaker 1: made it clear that the goal of the United States
Speaker 1: should be complete denuclearization with a very very robust surveillance
Speaker 1: through various quarters to make sure that they have not
Speaker 1: only rid themselves of nuclear material, but also the capability
Speaker 1: of creating new nuclear material and the ability to deliver
Speaker 1: uh the sorts of weapons, which is essentially not just
Speaker 1: I C B M s but more limited shorter range
Speaker 1: ballistic missiles that could deliver nuclear weapons. So the Administration
Speaker 1: and the Congress seemed to be united on something very
Speaker 1: strong and and very permanent, with a lot of inspections
Speaker 1: to make sure that that is occurring. In return, of course,
Speaker 1: the North is going to want security assurances. They're going
Speaker 1: to want a substantial amount of assistance, as you say,
Speaker 1: because the economy is in very bad shape, and they're
Speaker 1: going to want an end to the to the Korean War,
Speaker 1: and most likely some kind of American pullback of its
Speaker 1: true presence um in in the South and and and
Speaker 1: in the region. You know, one thing that I'm struck
Speaker 1: with is there seems to be so much at stake
Speaker 1: from a diplomatic standpoint, and we hear, we see all
Speaker 1: these headlines that are really significant. Uh. And you're uniquely
Speaker 1: positioned to answer a question of why markets don't seem
Speaker 1: to care. You are formerly the vice chair of Goldman Sachs.
Speaker 1: You know the relationship between these sort of big, high
Speaker 1: level negotiations and underlying business. What will it take for investors,
Speaker 1: for corporations to care. Well, that's a great question. And
Speaker 1: I have been surprised all along that with respect to
Speaker 1: North Korea, indeed events surrounding Iran, that there is not
Speaker 1: more attention or concern in the markets Iran because of
Speaker 1: course it's near a very rich oil producing area and
Speaker 1: also does have a lot of conventional weapons to be
Speaker 1: just very very disruptive if it wanted to be. Um
Speaker 1: and to some extent it already is in certain parts
Speaker 1: of the region. But in North Korea, I think the
Speaker 1: feeling is the markets really are focusing on a lot
Speaker 1: of other things for the moments in North Korea doesn't
Speaker 1: occupy a great part of their attention. But the other
Speaker 1: is they really don't know how things are going to go,
Speaker 1: and they perhaps have not fully digested the seriousness of
Speaker 1: these two countries. If things really went sour getting into
Speaker 1: some kind of confrontation, perhaps they don't believe it will
Speaker 1: ever happen, and therefore they're discounting it. And even if
Speaker 1: this thing normalizes and there's a better set of relations
Speaker 1: in Northeast Asia, they probably don't see this as very
Speaker 1: advantageous economically, So on the margin, while they're focused on it,
Speaker 1: they don't think a the worst calamity will occur, so
Speaker 1: they don't think that will happen. And even if a
Speaker 1: really good outcome occurs, it probably, at least in the
Speaker 1: near term, won't have much of an economic impact. So,
Speaker 1: given your experience as an executive at the top of
Speaker 1: a major bank, I'm wondering, do you think that the
Speaker 1: uncertainty that some of these high level discussions have injected
Speaker 1: into the global economy has already been priced into some degree?
Speaker 1: In other words, do you think that companies have actually ratched,
Speaker 1: did back their expansion plans, or not invested in their
Speaker 1: plans as a result of this with respect to Korea,
Speaker 1: you mean with respect to Korea and also just sort
Speaker 1: of the volatile backdrop of international relations. Well, I do
Speaker 1: think the one thing that is going to trouble companies
Speaker 1: going forward is what happened in Quebec over the weekend,
Speaker 1: and that is the companies had been hoping, at least
Speaker 1: and and perhaps some degree feeling, that there would not
Speaker 1: there would not be a trade war. Um, what happened
Speaker 1: in Quebec has made a lot of people very concerned
Speaker 1: that the US and its major Western trading partners and
Speaker 1: major Western allies are really on the verge of something
Speaker 1: that could be far more disruptive to international trade, international finance,
Speaker 1: and international markets. I think that is a big concern.
Speaker 1: If it can't be pulled back, that's an issue because
Speaker 1: the G seven was designed to to reduce tensions on
Speaker 1: the ECONO. I'm excited and solved problems among the major
Speaker 1: economies and to underpin our security and political relations if
Speaker 1: this institution goes sour. These are the countries that agree
Speaker 1: with the United States most on most issues. If their
Speaker 1: tensions across the Atlantic and Pacific of a deep trade
Speaker 1: nature on our investment as well. I think markets are
Speaker 1: going to see, well, maybe this trade war that we
Speaker 1: thought could be averted by meeting such as those in
Speaker 1: Quebec could now be unleashed in an even more toxic way.
Speaker 1: What a joy to have with us. Robert Hormat's ambassador. Hormats,
Speaker 1: of course the former under Secretary of State for President Obama,
Speaker 1: but far more an author thinking about the linkage of
Speaker 1: our foreign policy into our fiscal economics is important book
Speaker 1: The Price of Liberty of a few years ago, and
Speaker 1: in it Bob maybe getting us to Quebec hard and
Speaker 1: ineescapable facts. The hard and inexcapable facts is the American
Speaker 1: diplomacy industry has to move on from Quebec. What will
Speaker 1: Secretary of State Pompeo do after what we saw this weekend. Well,
Speaker 1: he's got a big job ahead of him. I was,
Speaker 1: as you know, the sherp or the planner, and participated
Speaker 1: in the first uh several summits. I've been to twelve
Speaker 1: and over the course of my career in government, and
Speaker 1: at Rambo in nineteen the first of these was designed
Speaker 1: during a period of great economic difficulty for the West,
Speaker 1: after the major oil crisis of nineteen seventy three, Inflation
Speaker 1: was rampant. There was a lot of division, and the
Speaker 1: idea was you pull these countries together, the major countries
Speaker 1: of the Western world, and you give them a sense
Speaker 1: of a common purpose, which is to work together to
Speaker 1: overcome economic problems those were, as I mentioned, very difficult
Speaker 1: at the time, and also as a way of underpinning
Speaker 1: politic coal and security ties. What happened that Quebec was
Speaker 1: that this was the most divisive summit that in all
Speaker 1: the time I've been working on these, the most divisive
Speaker 1: summit I have seen by far. It's unprecedented that one
Speaker 1: country would refuse to sign the Communic a that has
Speaker 1: never happened to my knowledge. But also the tone was
Speaker 1: so divisive. So what was meant to be uh coordinating
Speaker 1: common solutions and economic problems and underpinning political security relations
Speaker 1: is now an acrimonious turned into an acrimonious forum in Quebec.
Speaker 1: Now the question is going down the road, how do
Speaker 1: you pull this together? You need strong alliances with the
Speaker 1: US is a great power, not to because it's great internally,
Speaker 1: but because it had powerful friends and allies. You need
Speaker 1: that and to have exert influence in the world today.
Speaker 1: So Secretary Pompeio has got to begin to rebuild trust
Speaker 1: in these alliances for both economic and political security reason.
Speaker 1: But Ambassador Harmat's your charm over the years has been
Speaker 1: your uncanny ability to take the want um of foreign
Speaker 1: policy and link it to our domestic realities. The President,
Speaker 1: the fact is, has a residence with a large body
Speaker 1: of Americans who support him. Does he have the backing
Speaker 1: of a fair amount of Americans when he is this
Speaker 1: brusque with our allies? Do you get the sense that
Speaker 1: he has touched a residence with some part of the
Speaker 1: American people? Unfortunately, I think there are a number of
Speaker 1: people who are of the view that globalization has disrupted
Speaker 1: their lives and their communities and threatens their jobs. And
Speaker 1: if the President takes these very tough lines and is
Speaker 1: very pugnacious about pressing other countries to do what he
Speaker 1: wants or making statements like he won't trade with them
Speaker 1: if they don't, which is what he tweeted today. Um,
Speaker 1: that to me is something that while Americans may like
Speaker 1: the rhetoric and find the toughness quite appealing, and certainly
Speaker 1: there is ninophobia and there's an any foreign feeling in
Speaker 1: certain quarters in this country. Over a period of time,
Speaker 1: when people come to realize that that has a very
Speaker 1: direct effect on their pocketbooks, on their four O one case, UM,
Speaker 1: I think they will probably take a somewhere different view.
Speaker 1: Although admittedly, UM, there is a strong political view that
Speaker 1: Trump's toughness is a good thing, and I think not
Speaker 1: the majority of Americans feel that way, but a certain
Speaker 1: portion doing a certain strong portion of his base. The
Speaker 1: big question that you've touched on, I think is is
Speaker 1: this just a temporary phenomenon, a Trump phenomenon, or does
Speaker 1: this what happened to Quebec signal a sustained weakening of
Speaker 1: cooperation among the Western community on a wide range of issues,
Speaker 1: going even beyond Trump. Is it is it possible to
Speaker 1: pull that back to what we tried to do in
Speaker 1: the seventies and eighties and nineties seven American presidents have
Speaker 1: regarded these summits as a good thing to reduce tensions.
Speaker 1: Now we have those tensions, and it's going to be
Speaker 1: a lot harder to pull them back, and Pompey was
Speaker 1: gonna have to do this because he needs these allies
Speaker 1: and we need strong trading partners. We got into a
Speaker 1: trade war. A lot of American companies, a lot of
Speaker 1: American jobs that depend on exports, and a lot of
Speaker 1: American consumers that depend on import goods are going to
Speaker 1: be very adversely affected, so that what's good headlines today
Speaker 1: may not be good and certainly won't be good for
Speaker 1: America tomorrow. I come in Bob in the morning and
Speaker 1: I write the opening script for television, and on the
Speaker 1: back end of it today, you know, playing off of
Speaker 1: Navarro's comments, I said, there is a special place in
Speaker 1: hell for the Montreal Canadians. Check that for Prime Minister Trudeau.
Speaker 1: The kind of rhetoric that we heard from the professor
Speaker 1: of economics from ukl irv Irvine, or the rhetoric we
Speaker 1: hear from my good friend Lawrence Cudlow. I know that's
Speaker 1: not within the Hormat's dialogue or discourse. Is that a
Speaker 1: permanent damage to this president and is it a permanent
Speaker 1: damage to this nation? Well, I don't know how permanent
Speaker 1: it is, but I I think that it does. As
Speaker 1: I was mentioning a moment ago, there are a certain
Speaker 1: number of people who feel that it is time the
Speaker 1: United States took a stronger position, and they think somehow
Speaker 1: they're quite tough rhetoric um an acrimonious rhetoric and somewhat
Speaker 1: bullying rhetoric with a strong position. And I just want
Speaker 1: to repeat what what some Americans think is good for
Speaker 1: this country today and what some Americans think is appealing rhetorically.
Speaker 1: What some Americans think is a way of America standing
Speaker 1: up to the rest of the world. Maybe that sounds
Speaker 1: good to some Americans today, but there is a strong
Speaker 1: reason why these institutions and patterns of cooperation were built.
Speaker 1: It was it was in part, in large part because
Speaker 1: deserved America's interests on trade, on investment, and on growth.
Speaker 1: And I think that that the the appeal of language
Speaker 1: today to some people may turn out to be very
Speaker 1: unappealing when they realize how bad it is for the
Speaker 1: American economy, how bad it is for jobs, and how
Speaker 1: bad it is for their for their for there for
Speaker 1: one case, you know, not that you know, I'm trying
Speaker 1: to figure out what percentage of the audience will know
Speaker 1: who Dean Atchison is or you know, others. We can
Speaker 1: talk about impress everyone, but it's almost like we've lost
Speaker 1: our sense of history. You specialized in honoring our history.
Speaker 1: We have a president who is clearly a historical there's
Speaker 1: no question whenever anybody's politics, and in believing that, are
Speaker 1: we basically losing our understanding of our diplomatic history. Whether
Speaker 1: it's we are Tom exactly put your finger on it.
Speaker 1: Most people don't remember the history, and and and and
Speaker 1: and there's some that would just assume not pay much
Speaker 1: attention to do it anyway, and by so doing, they're
Speaker 1: missing the whole point as to why these institutions and
Speaker 1: why these alliances and why these patterns of economic cooperation
Speaker 1: were created in the first place after World War Two,
Speaker 1: and in the case of the G seven in nineteen
Speaker 1: they were created because presidents of Republican and Democratic presidents.
Speaker 1: And this is created under Republican president I remind you
Speaker 1: of Gerald Ford and supported by President Reagan and many
Speaker 1: other conservative Republicans as well as Democrats. They all understood
Speaker 1: that this was important to the American national interest and
Speaker 1: to make America great. After World War Two, people realized
Speaker 1: we need to have strong alliances and strong economic partnerships.
Speaker 1: If those deteriorate over time, weakens America's influence in the
Speaker 1: world and will weaken our economy because we need the
Speaker 1: trade and we need the investment. And it's particularly relevant
Speaker 1: today as the President goes into these meetings with the
Speaker 1: the Party Secretary of North Korea um on on a
Speaker 1: major issue. All American presidents in the past have concluded
Speaker 1: that when you go into a meeting with your adversary,
Speaker 1: you want to have a strong alliance behind you. You
Speaker 1: want to have solidarity among the Western countries to back
Speaker 1: you up, to be there for you. And this was
Speaker 1: very badly shattered at least for the moment in Quebec.
Speaker 1: Now the President and you went back to Pompeio. Now
Speaker 1: we have to make especially sure that when he goes
Speaker 1: into that somebody has a very close relationship and is
Speaker 1: in line with the thinking of Japan and South Korea
Speaker 1: are two allies in the region and they're in line
Speaker 1: with him. So at least we now for the next
Speaker 1: immediate steps. If we can't pull the overall relationship together
Speaker 1: among the G seven, he's got to be especially strong
Speaker 1: in making sure that the alliances with with Japan and
Speaker 1: South Korea are very strong in this. In this moment,
Speaker 1: we're going to leave it dear Robert Hermans, generous of you,
Speaker 1: gonna be with us for this thirty minutes. Thank you
Speaker 1: so much. Robert Hormetts with Kissinger Associates and of course
Speaker 1: the former own Secretary of State for Economic Growth. Thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform
Speaker 1: you prefer. I'm on Twitter at Tom Keane before the podcast.
Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio