WEBVTT - N.K. Will Want Security Assurances, Hormats Says 0:00:00.080 --> 0:00:13.840 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jaylie. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.559 Bloomberg dot Com, and of course, on the Bloomberg. The 0:00:33.680 --> 0:00:37.000 main event the President of the United States about to 0:00:37.040 --> 0:00:39.600 see whether his bet on North Korea will pay off 0:00:39.720 --> 0:00:43.199 Kim John Gunn's desire to end his country's economic stagnation, well, 0:00:43.240 --> 0:00:47.240 will it prevail over the the dictator's fear of relinquishing 0:00:47.360 --> 0:00:50.000 his nuclear threat. Joining US now from Singapore is to 0:00:50.080 --> 0:00:53.760 Lou Honor nipa Bloomberg Washington correspondent to Lou, walk me 0:00:53.840 --> 0:00:56.360 through the main event and what is about to happen 0:00:56.360 --> 0:00:59.960 over the next twenty four hours. Yeah, you're you're You're 0:01:00.080 --> 0:01:02.400 just mentioned it. We're less than twenty four hours out 0:01:02.480 --> 0:01:05.600 from the biggest meeting of President Trump's life, also the 0:01:05.600 --> 0:01:08.480 biggest meeting so far of Kim Jong UN's life. They're 0:01:08.480 --> 0:01:10.520 going to be meeting for the first time, the first 0:01:10.560 --> 0:01:13.520 meeting between the US president and North Korean leader, and 0:01:13.640 --> 0:01:16.520 the goal from the U s side is to get 0:01:17.120 --> 0:01:20.399 Kim Jong un to commit to giving up his nuclear 0:01:20.400 --> 0:01:23.320 weapons program. Now, there has not been a public statement 0:01:23.360 --> 0:01:25.560 from Kim Jong un that he is willing to give 0:01:25.640 --> 0:01:29.240 up this program that his family has developed over several decades, 0:01:29.560 --> 0:01:31.840 so there will be We'll be watching very closely to 0:01:31.880 --> 0:01:34.399 see whether or not there is any type of indication 0:01:34.480 --> 0:01:36.800 that Kim Jong un has actually turned the corner and 0:01:36.840 --> 0:01:39.680 decided that he no longer needs this nuclear program and 0:01:39.680 --> 0:01:42.080 he's willing to engage with the US, come out of 0:01:42.120 --> 0:01:45.160 the isolation that the US has placed North Korea in 0:01:45.160 --> 0:01:48.240 into with various sanctions, and give up his nuclear program. 0:01:48.440 --> 0:01:51.000 The President Trump will try to get that commitment from him. 0:01:51.080 --> 0:01:53.160 We're told that they're going to have his handshake starting 0:01:53.160 --> 0:01:57.280 at nine a m Here Singapore time, followed by a 0:01:57.320 --> 0:02:01.240 bilateral meeting, follow bilateral just one on one, just the 0:02:01.240 --> 0:02:04.520 two of them with translated translators, followed by a larger 0:02:04.560 --> 0:02:09.200 meeting with their staff as well. You need to have 0:02:09.240 --> 0:02:11.960 an agreement on what the terms actually means. You need 0:02:12.000 --> 0:02:15.040 to define the terms. And both sides use this term 0:02:15.160 --> 0:02:18.560 the nuclearization of the peninsula. What does that mean to 0:02:18.600 --> 0:02:20.440 the president and what does that mean to the North 0:02:20.520 --> 0:02:24.360 Korean leader? And are they the same things. They are 0:02:24.400 --> 0:02:27.400 definitely not the same things. They are talking past each other, 0:02:27.440 --> 0:02:29.200 and there have been a lot of low level meetings 0:02:29.240 --> 0:02:32.080 trying to get those definitions closer to together. From the 0:02:32.200 --> 0:02:35.040 U S side, the nuclearization means getting rid of the 0:02:35.240 --> 0:02:40.480 entire nuclear program UH, declaring the entire nuclear program, having 0:02:40.520 --> 0:02:45.200 inspectors verify that that program is being dismantled, and having 0:02:45.600 --> 0:02:48.760 North Korea get rid of every bit of their nuclear 0:02:48.800 --> 0:02:51.720 weapons program. Now the North Koreans have a different idea. 0:02:51.840 --> 0:02:54.080 They believe that it means that the U S should 0:02:54.560 --> 0:02:57.800 reduce its own presence in the region, maybe getting rid 0:02:57.840 --> 0:03:00.799 of its troops on the South, in South Korea, on 0:03:00.840 --> 0:03:03.960 the Korean Peninsula, getting rid of the nuclear umbrella, the 0:03:04.000 --> 0:03:07.280 protection that the US provides to South Korea and Japan 0:03:07.880 --> 0:03:10.560 by having a presence in the region. And it also 0:03:10.600 --> 0:03:13.040 means getting rid of the hostile nature of U S 0:03:13.040 --> 0:03:17.320 functions UH and and and US diplomatic isolation of North Korea. 0:03:17.400 --> 0:03:20.360 So they see the nuclearization the much different lights than 0:03:20.400 --> 0:03:22.960 the US, and they have not yet been able to 0:03:22.960 --> 0:03:26.080 bring those two definitions in line just yet. So, given 0:03:26.120 --> 0:03:28.560 how the G seven went, the sub debate over whether 0:03:28.560 --> 0:03:31.359 the pressure is increased on the President of the United 0:03:31.440 --> 0:03:34.080 States or decreased on the President of the United States 0:03:34.120 --> 0:03:36.520 as he goes to Singapore. Does the President go to 0:03:36.560 --> 0:03:41.480 Singapore stronger or weaker after that G seven, Well, he 0:03:41.560 --> 0:03:43.680 definitely does not have as much of the support of 0:03:43.720 --> 0:03:45.800 our allies that he would have had if he had 0:03:46.080 --> 0:03:48.960 had a productive G seven and been able to use 0:03:48.960 --> 0:03:51.240 that as a launching pad for this meeting in Singapore. 0:03:51.680 --> 0:03:54.440 Now he's still fighting and still having to answer questions 0:03:54.480 --> 0:03:57.800 and still tweeting about what happened in Canada and about 0:03:57.840 --> 0:04:00.760 the G seven. So there is a certain level of distraction, 0:04:01.240 --> 0:04:04.400 and there's this idea that the President has trouble getting 0:04:04.400 --> 0:04:07.320 along with allies, he has trouble sticking to a deal, 0:04:07.400 --> 0:04:09.240 and whether or not that is something that's weighing on 0:04:09.280 --> 0:04:11.839 the mind of Kim Jong n after our President Trump 0:04:11.880 --> 0:04:14.320 pulled out of the communicate is something that remains to 0:04:14.360 --> 0:04:17.800 be seen. But obviously the President hasn't shown a strong 0:04:17.880 --> 0:04:20.360 knack for staying in deals, has been much better at 0:04:20.400 --> 0:04:22.880 breaking deals than putting deals together, and that's going to 0:04:22.960 --> 0:04:25.080 make it much harder for him to to reach a 0:04:25.120 --> 0:04:28.080 deal here in Singapore. All for joining us from Singapore, 0:04:28.120 --> 0:04:29.760 Thank you very much for your time, so joining us 0:04:29.760 --> 0:04:32.279 around the table in New York, Tom King popping into 0:04:32.360 --> 0:04:38.000 the studio, Tom good morning, Good morning. Then for weekend. Yeah, 0:04:38.000 --> 0:04:39.800 to say the least, Charles Cancer come again as well, 0:04:40.920 --> 0:04:43.920 Seenior portfolio manager, Charles. I always ask myself on Monday mornings, 0:04:43.960 --> 0:04:47.120 what's new? What's changed? Has anything truly changed after that 0:04:47.160 --> 0:04:50.200 weekend other than you're a little bit more restive? Probably 0:04:50.240 --> 0:04:53.080 not you think I'm rested, Charles. That's nice of you. 0:04:53.440 --> 0:04:56.320 That's interesting, though, isn't it for the market, just zero reaction. 0:04:56.560 --> 0:05:00.720 The media and all the experts going crazy on relations 0:05:00.720 --> 0:05:02.839 and maybe they should be. But for the market and 0:05:02.880 --> 0:05:06.039 investors it's same out. We've seen this before. I think 0:05:06.040 --> 0:05:11.560 the markets fighting this debate around fundamentals and the influence 0:05:11.600 --> 0:05:14.919 that that higher interest rates will have on valuation and 0:05:14.920 --> 0:05:16.479 and and that's going to be a tug of war 0:05:17.000 --> 0:05:20.680 that's going to last well beyond the global events of 0:05:20.720 --> 0:05:23.159 this week, next week and and the rest of the year. 0:05:23.560 --> 0:05:29.360 And I'd say, as it relates to earnings and evaluations, um, 0:05:29.440 --> 0:05:34.480 you should anticipate less multiple expansion. But but but equity 0:05:34.480 --> 0:05:37.200 return should follow earnings growth, which which I think will 0:05:37.240 --> 0:05:40.200 be in in in the middle high single digits. Do 0:05:40.240 --> 0:05:42.039 you think any of what we've seen over the last 0:05:42.080 --> 0:05:48.640 weekend or so damages CEO confidence business confidence? No, not yet. 0:05:49.160 --> 0:05:51.360 I mean I think you always have to pay attention 0:05:51.440 --> 0:05:55.240 to to the institutes of the global economy because most 0:05:55.279 --> 0:05:58.520 businesses today drive a lot of their growth from from 0:05:58.520 --> 0:06:02.000 from outside the US, and and any confident shock will 0:06:02.000 --> 0:06:05.760 be a negative to investment and consumer spending. But if anything, 0:06:06.600 --> 0:06:09.760 the debate that's going to take place in Singapore should 0:06:09.800 --> 0:06:12.600 be a positive for confidence because it may imply a 0:06:12.720 --> 0:06:15.640 safer global economy and world. What are you doing with 0:06:15.800 --> 0:06:19.200 cash now? I mean it's in the change interest rate 0:06:19.279 --> 0:06:22.279 environment all of a sudden. Cash is a different thing, 0:06:22.400 --> 0:06:25.840 isn't it. Well, you've got to be careful about cash, 0:06:25.960 --> 0:06:28.960 and it depends on with whom you refer to. I 0:06:29.000 --> 0:06:32.360 think at the individual level, I think the individuals always 0:06:32.400 --> 0:06:35.719 miss price the optionality that comes with cash. Cash gives 0:06:35.760 --> 0:06:38.680 you the opportunity to invest when others can't, and it 0:06:38.680 --> 0:06:41.400 gives you the opportunity to sleep well at night. As 0:06:41.440 --> 0:06:44.640 it relates to to the corporate side, the key question 0:06:44.800 --> 0:06:48.279 is as as as surplus as cash flows have expanded 0:06:48.440 --> 0:06:52.000 in in magnitudes that they couldn't imagine after much lower 0:06:52.040 --> 0:06:54.800 corporate taxes. The question there is will the corporate t 0:06:54.960 --> 0:06:58.560 o be a productive allocator of their cash um and 0:06:58.600 --> 0:07:01.800 were encouraging our company to to to to to term 0:07:01.839 --> 0:07:05.720 out their debt. I moved from variable structures to fixed structures, 0:07:05.720 --> 0:07:08.400 and we encourage them to to to take risk and 0:07:08.440 --> 0:07:12.080 to to be innovators and to invest at rachel return 0:07:12.440 --> 0:07:16.000 that are you know, candidly nine basis points higher than 0:07:16.040 --> 0:07:18.640 the cost of cash um um. And if they can 0:07:18.640 --> 0:07:21.920 do that well Shell, the value creation will continue. Is 0:07:21.920 --> 0:07:24.160 that in mid cap I mean, you made a lot 0:07:24.240 --> 0:07:26.520 of headlines with the Amazon offers, but forget about the 0:07:26.520 --> 0:07:30.680 glory stuff. Were you really making it mid cap? Small cap? Look? 0:07:30.720 --> 0:07:33.480 I think for us our bread and brother Bread and Batteries, 0:07:33.480 --> 0:07:36.840 the medium sized companies that that that that face u 0:07:37.240 --> 0:07:40.480 enormate opportunities to to continue to grow and and and 0:07:40.520 --> 0:07:43.560 haven't faced the headwinds of of the law of large numbers. 0:07:43.960 --> 0:07:46.040 UM And when we were just in Denver meeting two 0:07:46.080 --> 0:07:49.400 of our medium sized companies UM and I was very 0:07:49.480 --> 0:07:53.440 encouraged by by what they've seen from in terms of endermon. 0:07:53.560 --> 0:07:56.000 The one was an industrial company, the other was a 0:07:56.200 --> 0:08:00.280 was a database measurement company that provides data into the 0:08:00.320 --> 0:08:05.040 financial services. The consumer is really strong right now and 0:08:05.520 --> 0:08:09.200 is spending and and on the industrial side, of course, 0:08:09.520 --> 0:08:12.320 it depends on what your Protestant services are. But demands 0:08:12.400 --> 0:08:14.520 really strong right now, and inventory is on a very 0:08:14.520 --> 0:08:17.000 good position. Are you following a World Cup team? I 0:08:17.000 --> 0:08:20.440 mean it's this week, It is this week. I would 0:08:20.600 --> 0:08:26.480 typically follow in no particular order, South Africa in the US. Um. Good. 0:08:27.120 --> 0:08:33.520 So we're discussing Italy earlier, so we were, so it'll 0:08:33.559 --> 0:08:36.040 be a little bit more challenging this year. But but 0:08:36.040 --> 0:08:39.040 but no doubt I'll have at least one eye on 0:08:39.040 --> 0:08:41.679 on on the event, says as they as they get 0:08:41.760 --> 0:08:44.600 Team Chiles. Well, if you forced me into a box, 0:08:44.640 --> 0:08:48.080 it'll it'll likely end up being England. Um, you know 0:08:48.080 --> 0:08:50.200 we all go back to the Commonwealth in one way 0:08:50.280 --> 0:08:52.520 or now that excuse me. I read the New York 0:08:52.559 --> 0:08:56.840 Times insert thing this weekend covered John Ferrill. Would you 0:08:56.880 --> 0:09:01.480 explain why Torres and pan On are going to the 0:09:01.520 --> 0:09:04.679 World Cup? Yeah, in Italy is not Well, it's the 0:09:04.720 --> 0:09:08.440 way they're separated into the different sort of grouping. So 0:09:08.520 --> 0:09:10.880 you have your wafer, which is where the bulk of 0:09:11.040 --> 0:09:16.040 the European precisely, and then you qualify a certain number 0:09:16.120 --> 0:09:18.839 of teams from individual regions. The real question is why 0:09:18.920 --> 0:09:22.440 is Panama going and not the United States? How did 0:09:22.440 --> 0:09:24.839 the United States not qualify for this World Cup because 0:09:24.840 --> 0:09:27.200 they have the easiest route to get into the World Cup? 0:09:27.480 --> 0:09:30.360 I am so too this week it's going to be great. 0:09:30.480 --> 0:09:32.240 The good news for us to it. I think in 0:09:32.280 --> 0:09:34.720 the next round of the World Cup they're more teams, 0:09:34.720 --> 0:09:38.199 so hopefully cancer greater. Catch out with you for our 0:09:38.240 --> 0:09:57.400 listeners worldwide, you're listening to Bloomberg Surveillance. We are thrilled 0:09:57.679 --> 0:10:00.160 to do what we do on surveillance, to go and 0:10:00.200 --> 0:10:02.600 find the best voices we can find on a topic. 0:10:03.360 --> 0:10:05.760 And you do that with Charles Armstrong to say he 0:10:05.840 --> 0:10:10.600 is professor of history at Columbia. Barely describes his contribution 0:10:11.200 --> 0:10:16.000 to Pacific rim thinking and particularly the Peninsula of Korea, 0:10:16.200 --> 0:10:18.800 and he comes out of the Jonathan Spence Combine at 0:10:18.840 --> 0:10:24.800 Yale University LS. His doctorate is out of Chicago. Professor Armstrong, 0:10:24.840 --> 0:10:27.680 we are thrilled to have you with us today. What 0:10:27.800 --> 0:10:31.760 would Jonathan Spence say about the making of modern Korea? 0:10:31.920 --> 0:10:36.680 Synthesize your lifelong work to this historic moment for the 0:10:36.720 --> 0:10:43.280 Peninsula of Korea. Well, Korea has always been a place 0:10:43.520 --> 0:10:49.120 that has scarcely dependent it's independence. UH. It lived in 0:10:49.160 --> 0:10:50.960 the shadow of China for a thousands of years but 0:10:51.120 --> 0:10:53.680 was never absorbed in the Chinese Empire. It wasn't a 0:10:53.679 --> 0:10:56.720 colony of Japan for thirty five years. UH. And it 0:10:56.800 --> 0:10:59.360 is now divided into two in the North and South. 0:10:59.400 --> 0:11:02.120 So this is a long history of unity and independence 0:11:02.800 --> 0:11:04.720 UH in Korea. And I think a lot of Koreans, 0:11:04.800 --> 0:11:08.080 including in the South, are really looking forward to the 0:11:08.120 --> 0:11:11.520 summit meeting between Trump and Kim Jo Muan, not because 0:11:11.520 --> 0:11:14.360 they like Kim Joman necessarily, but because they see this 0:11:14.440 --> 0:11:17.960 as a historic turning point leading towards UH evenge the 0:11:18.000 --> 0:11:21.800 reunification of their country. Secretary of Pompeo I thought was 0:11:22.000 --> 0:11:25.000 organized and forceful in his brief this morning to the 0:11:25.040 --> 0:11:30.440 media five thousand media and Singapore. If you were to 0:11:30.960 --> 0:11:33.959 excuse me, if you were to advise the Secretary of 0:11:34.040 --> 0:11:39.199 State and the unpredictability or the nuances of the Supreme Leader, 0:11:39.520 --> 0:11:43.720 how would you advise Secretary of State Pompeo. What Pompeo 0:11:43.840 --> 0:11:47.760 said yesterday in Singapore is a little bit different from 0:11:47.760 --> 0:11:49.599 what Trump has been saying. It does seem to be 0:11:49.679 --> 0:11:53.320 quite different from what Kim Joman has been indicating he 0:11:53.360 --> 0:11:56.319 expects it out of the summit. So I would say 0:11:56.440 --> 0:12:00.520 to keep an open mind, stick to principles, keep the 0:12:00.559 --> 0:12:04.200 American goals in mind. But but the b nuanced about 0:12:04.200 --> 0:12:05.880 how you get there. So what I what I mean 0:12:05.880 --> 0:12:08.760 by that is Pompeo said US tensions will remain in 0:12:08.760 --> 0:12:12.559 place until it's a complete and verifiable, irreversible denuclearization of 0:12:12.559 --> 0:12:16.920 the creating peninsula. But that's going to be a tough 0:12:16.960 --> 0:12:19.320 sell to the North Koreans, and Trump himself has said 0:12:19.960 --> 0:12:22.640 that at the beginning of a process, not in in itself. 0:12:23.240 --> 0:12:26.839 So you know, there's no no North kids are tough negotiators, 0:12:26.880 --> 0:12:29.960 and you've got to go in UM understanding your goals 0:12:30.920 --> 0:12:34.160 but being able to work towards them in a creative way. 0:12:34.880 --> 0:12:38.280 What is the minimum condition for success at this meeting? 0:12:39.760 --> 0:12:42.400 I think that what the minimum is a declaration of 0:12:42.400 --> 0:12:45.920 principles both sides can agree that we want complete denucralization 0:12:46.800 --> 0:12:49.600 and outlining a process how to get there. Opening up 0:12:49.640 --> 0:12:56.160 North too, inspections um, the starting uh process of leading 0:12:56.200 --> 0:12:58.800 towards the release of sanctions. But I don't think we 0:12:58.840 --> 0:13:04.080 can expect a huge UH and and a clear commitment 0:13:04.679 --> 0:13:06.760 or a clear achievement. I think this has to be 0:13:07.000 --> 0:13:08.400 and I agree with Trump on this the beginning of 0:13:08.440 --> 0:13:12.880 the process. Professor Armstrong. How does South Korea fit into 0:13:12.920 --> 0:13:15.400 these meetings? I mean, it's Trump and Kim, I get that, 0:13:16.240 --> 0:13:19.920 but South Korea has a unique place at the table. 0:13:19.960 --> 0:13:22.200 Whether or not there at the table, what is it. 0:13:23.400 --> 0:13:26.920 They have been very important, particularly the President of South 0:13:27.000 --> 0:13:31.160 Korea bunjay and really getting this this UH process going. 0:13:31.760 --> 0:13:36.680 They've facilitated between North Korea and the US. They've reached 0:13:36.679 --> 0:13:39.120 out to North Korea to start a dialogue going back 0:13:39.160 --> 0:13:43.920 to the the Winter Olympics in South Korea, and they 0:13:43.960 --> 0:13:46.400 have a huge amount of state. Obviously, they don't want 0:13:46.440 --> 0:13:48.720 a war on their peninsula. I think that's the first 0:13:49.480 --> 0:13:52.680 condition for them. They want to lead us back from 0:13:52.840 --> 0:13:54.760 the edge of war that we seem to be in 0:13:54.800 --> 0:13:58.480 just six months ago. UH. And they want to move 0:13:58.520 --> 0:14:04.760 the Korean peninsula to a situation of stable peace UH. 0:14:04.800 --> 0:14:08.920 And they want to improvement in the North. You know, 0:14:09.200 --> 0:14:11.720 they have to live with with North Korea right on 0:14:11.720 --> 0:14:14.680 their doorstep, and they want the regime to be less 0:14:14.720 --> 0:14:18.920 hostile and also forced people to be better off. So 0:14:18.960 --> 0:14:21.440 I think economic interaction with North is also very important. 0:14:21.760 --> 0:14:24.000 But then this is President g the New York Times 0:14:24.040 --> 0:14:26.760 making a strong point this morning, the Chinese will not 0:14:26.880 --> 0:14:29.160 be there. I don't buy it for a minute. The 0:14:29.240 --> 0:14:32.640 Chinese must be there in representation in North Korea. How 0:14:32.680 --> 0:14:35.840 does that relationship fit in the next twenty four hours. 0:14:37.000 --> 0:14:40.160 China has made it clear to Kim Joland, meeting him twice. 0:14:40.520 --> 0:14:43.040 She had two meetings with Kim in less than a 0:14:43.080 --> 0:14:48.080 month after refusing to meet him for for six years 0:14:48.080 --> 0:14:51.160 since he came to power. So clearly China wants its 0:14:51.200 --> 0:14:54.520 position represented, even if it's not physically there at the meeting. 0:14:55.000 --> 0:14:59.120 China is both bars most important economic partner, takes about 0:14:59.840 --> 0:15:03.960 it foreign trade, supplies it with oil and food, and 0:15:04.040 --> 0:15:07.720 in exchange. They want secure border. They don't want the 0:15:07.800 --> 0:15:11.880 US right on their doorstep. They want a reliable buffer 0:15:13.400 --> 0:15:16.840 on their northeastern boundary, which is very sensitive, and they 0:15:16.880 --> 0:15:21.880 also want to uh North Korea that is less unpredictable 0:15:22.880 --> 0:15:25.960 and more affluent. They really want North Korea to go 0:15:26.080 --> 0:15:29.840 down their path of economic form and they see that 0:15:29.640 --> 0:15:31.920 that can happen until US an improve relations with the 0:15:31.960 --> 0:15:35.200 United States and we see some relief from sanctions. Professor Armstrong, 0:15:35.280 --> 0:15:38.560 thank you so much. Greatly appreciate the time today, professor 0:15:38.560 --> 0:15:40.800 of history at Columbia and truly one of the nation's 0:15:40.880 --> 0:15:59.960 experts on Korea, greatly greatly appreciate that where this down, Uh, 0:16:00.000 --> 0:16:02.680 a woman who survived the winters of Bates College, that 0:16:02.800 --> 0:16:07.360 itself is a triumph Flora and joins us with FS investments. 0:16:07.400 --> 0:16:08.840 As we looked to the feed, as we looked to 0:16:09.320 --> 0:16:11.840 where Laura, I want you to explain an absolutely killer 0:16:11.960 --> 0:16:16.600 chart you have going back twenty five years, which is 0:16:16.760 --> 0:16:21.760 the tenure yield up and then rolling over, and then 0:16:21.920 --> 0:16:25.280 the ten year yield up and rolling over, and sort 0:16:25.320 --> 0:16:28.000 of in two thousand five six into the crisis up 0:16:28.000 --> 0:16:30.960 and rolling over, and then you've got a question mark 0:16:31.000 --> 0:16:33.800 and then things change. Where are we with a tenure 0:16:33.880 --> 0:16:39.200 yield right now versus other FED cycles? So um, yeah, 0:16:39.280 --> 0:16:41.080 First off, we have I had my twenty five year 0:16:41.280 --> 0:16:44.680 college reunion since weekend, so apologize my voice is so 0:16:44.880 --> 0:16:47.440 we're covering from all the fun. You were down with 0:16:47.480 --> 0:16:50.480 the Washington you were down with the Washington capitals, doing 0:16:50.520 --> 0:16:53.040 the bend or that they were, Well, that's good. Bates 0:16:53.120 --> 0:16:57.680 College is a good place to have anniversary. It's still going, 0:16:58.120 --> 0:17:01.560 um thanks to highlighting that chart. Because one of the 0:17:02.000 --> 0:17:05.919 to mean, one of the most important um pieces of 0:17:06.119 --> 0:17:10.639 misinformation I hear from, especially fixed income investors, is that 0:17:10.760 --> 0:17:14.760 as the FED races rates, as short term rates renormalized, 0:17:15.200 --> 0:17:18.679 that the the FED funds rate hikes cycle is going 0:17:18.720 --> 0:17:22.520 to be somehow this rising tide the lists all ships 0:17:22.560 --> 0:17:24.159 and long term rates are going to go up too. 0:17:24.760 --> 0:17:28.560 And I could not disagree more. Um. I look at 0:17:28.680 --> 0:17:33.760 the history of said cycles and what you traditionally see 0:17:33.960 --> 0:17:38.720 is longer term rates rising somewhat at a at a 0:17:38.760 --> 0:17:41.720 slower pace in the beginning of the cycle, and then 0:17:42.400 --> 0:17:47.640 that usually does not last. It typically plateaus and even 0:17:47.760 --> 0:17:50.760 that try and even reverses. And so we're long term 0:17:50.800 --> 0:17:53.320 rates have gone up a little bit because we started 0:17:53.359 --> 0:17:56.160 raising rates. We've had volatility in the long end recently. 0:17:56.680 --> 0:17:59.840 But you know, to me, the sell off we got 0:18:00.080 --> 0:18:03.840 verse three oh eight and the tenure the rally to 0:18:04.000 --> 0:18:08.080 bright yields back down to two eighties, that made all 0:18:08.119 --> 0:18:10.000 the sense in the world, because we are in an 0:18:10.119 --> 0:18:12.760 environment when the federations raised, where we just should not 0:18:12.960 --> 0:18:15.879 expect the long end to also be on autopilot and 0:18:16.080 --> 0:18:18.199 rise as well. So, Laura, the intuitive way that the 0:18:18.200 --> 0:18:20.680 curve behaves at this point of the tightening cycle is 0:18:20.800 --> 0:18:24.240 that we get some flatness, that you get a bare flantner, 0:18:24.280 --> 0:18:26.280 which means the sell off of course comes at the 0:18:26.320 --> 0:18:29.080 front end more predominantly. The argument against this, Laura, and 0:18:29.080 --> 0:18:32.000 it comes from JP Morgan Asset Management and Bob Michael, 0:18:32.040 --> 0:18:33.800 is that this time is a little bit different because 0:18:33.800 --> 0:18:36.639 you're also getting balance sheet unwind and you get in 0:18:36.640 --> 0:18:38.960 the reverse sort of Q eight and the reverse effects 0:18:38.960 --> 0:18:41.960 will be the return of term premier and ultimately what 0:18:42.040 --> 0:18:44.399 that could mean is a shift to a steeper curve. 0:18:44.480 --> 0:18:46.959 What do you say back to that, Laura, So you know, 0:18:47.040 --> 0:18:49.439 I think the biggest certainty about that comes to me 0:18:49.560 --> 0:18:51.720 from the European Central Bag and the announced that they're 0:18:51.720 --> 0:18:54.879 possibly going to make this week. All of the de 0:18:55.080 --> 0:18:57.879 leveraging that we're seeing in the FED balance sheet to 0:18:57.920 --> 0:19:00.520 me has already been priced in, that spaked in the 0:19:00.520 --> 0:19:02.439 cake already. So I don't see that in and of 0:19:02.480 --> 0:19:07.760 itself pushing long term rates uh significantly really at all, 0:19:08.359 --> 0:19:12.720 unless they was for some reason accelerate and nobody really 0:19:12.720 --> 0:19:17.359 expects that. The ECB is a much bigger question mark. 0:19:17.840 --> 0:19:20.080 And you know, at some point they are going to 0:19:20.160 --> 0:19:22.800 hit an inflection where they're no longer adding to their 0:19:22.840 --> 0:19:25.440 balance sheet. You know, I think the first rate move 0:19:25.560 --> 0:19:27.440 is going to be the first start of this's not 0:19:27.560 --> 0:19:31.080 going to be on the balance sheet side that they 0:19:31.200 --> 0:19:35.840 begin tightening policy. But um, you know, their timing, the 0:19:35.960 --> 0:19:40.119 fact that they have only a single mandate and inflation 0:19:40.160 --> 0:19:44.080 data aren't exactly being cooperative in the in the EU. Uh. 0:19:44.119 --> 0:19:46.160 To me, that is one of the biggest question marks 0:19:46.160 --> 0:19:48.480 for the bomb market is here, I mean within that 0:19:48.720 --> 0:19:50.600 is is the marker and we were talking with Drew 0:19:50.640 --> 0:19:53.720 Matis earlier with an optimistic tone that leads to higher 0:19:53.760 --> 0:19:57.280 rates in his single point marker. I guess it is 0:19:57.280 --> 0:20:00.159 three and a quarter percent. Give us some precision here, Laura. Uh, 0:20:00.600 --> 0:20:02.280 I mean, I mean, do we get to do we 0:20:02.359 --> 0:20:05.640 go through the three oh eight level you're talking about earlier? Yeah, 0:20:05.680 --> 0:20:09.399 I think that's entirely possible because this Federate ex cycle 0:20:09.440 --> 0:20:11.399 is so different. If you think about to me, the 0:20:11.440 --> 0:20:13.520 fact that you know, we can see rates creep higher 0:20:13.960 --> 0:20:16.080 for the first half of the cycle and you look 0:20:16.119 --> 0:20:18.760 out even at the fed dum protections, this cycle still 0:20:18.760 --> 0:20:21.119 has a long way to go. So you could absolutely 0:20:21.119 --> 0:20:24.320 see uh on the tenure, you can even see a 0:20:24.359 --> 0:20:28.080 little bit more, but compared to where we have been historically, 0:20:28.080 --> 0:20:30.960 it's still so low. And you know from where the 0:20:31.080 --> 0:20:32.800 chair that I sit in, the people I seek to, 0:20:33.000 --> 0:20:38.040 they're always looking for yield, They're looking for investments and um, 0:20:38.080 --> 0:20:41.200 you know that's a message that I just carry through 0:20:41.280 --> 0:20:45.600 because people forget me, don't understand, they don't get that dynamic. Well, Laura, 0:20:45.640 --> 0:20:48.280 thank you so much, Lauring, thank you so much. With 0:20:48.480 --> 0:20:52.200 FS investments, so really a smart conversation. They're folks on rate. 0:20:52.800 --> 0:20:55.520 And again, you know, if you read your Fabosi, there's 0:20:56.160 --> 0:20:58.800 I want to call it four factors that go into 0:20:58.840 --> 0:21:02.840 what the curve does, what the dynamics are and CEFA 0:21:02.840 --> 0:21:20.479 exams are passed and failed on that idea. We've been 0:21:20.520 --> 0:21:22.920 trying to advance the conversation over the last number of 0:21:23.000 --> 0:21:27.760 weeks on our international relations. Did that earlier with the 0:21:27.840 --> 0:21:31.719 Korean expert from Columbia University and now joining US forever 0:21:31.800 --> 0:21:35.200 associated with a Fletcher School Toughts and with Princeton Robert Hormetts. 0:21:35.200 --> 0:21:38.600 He is a former Undersecretary of State for Economic Growth, 0:21:38.760 --> 0:21:42.960 Energy in the Environment, working with President Obama. Boba Hormetts 0:21:43.000 --> 0:21:45.680 of course for years a good supporter of what we've 0:21:45.680 --> 0:21:49.320 done here at Bloomberg on the economy and Bloomberg Surveillance. Ambassador, 0:21:49.400 --> 0:21:51.080 we are thrilled to have you with us for this 0:21:52.119 --> 0:21:57.720 half hour. You know Graham Allison at Harvard who speaks 0:21:57.960 --> 0:22:04.320 of the tension between China in the United States. Where 0:22:04.320 --> 0:22:08.920 will that tension be if Mr Trump has a successful 0:22:09.000 --> 0:22:15.639 Korean summit? Well, I think a successful Korean summit probably 0:22:15.800 --> 0:22:20.720 will be a relief in terms of the relationship between 0:22:20.760 --> 0:22:24.480 the two countries, because the US has been pushing China 0:22:24.640 --> 0:22:28.679 to be more helpful to the cause of getting the 0:22:28.720 --> 0:22:31.960 North Koreans to do de nuclear rise in the Chinese 0:22:32.000 --> 0:22:37.639 have been upping their sanctions under US pressure. But also 0:22:37.680 --> 0:22:42.480 the Chinese do not want instability in Northeast Asia, and 0:22:43.160 --> 0:22:47.440 if the summit were to fail, the chances of instability 0:22:47.520 --> 0:22:52.080 would probably increase, or at least the perception would increase 0:22:52.160 --> 0:22:54.040 that the United States and North We're going to get 0:22:54.040 --> 0:22:57.760 back into the sort of shouting match that they had 0:22:57.800 --> 0:23:02.600 just before the current flaw began to emerge. The way 0:23:02.640 --> 0:23:08.000 this works, Bob, is somebody gives up something, and usually 0:23:08.000 --> 0:23:11.320 the greater power unloads money, aid whatever you want to 0:23:11.359 --> 0:23:15.840 call it at a country. And clearly we and others 0:23:16.080 --> 0:23:20.240 can unload AID on and impoverished North Korea. But what 0:23:20.359 --> 0:23:24.720 will they give up? Well, that's of course the big question, Tom, 0:23:24.760 --> 0:23:29.840 and that is the Administration has made it very clear, 0:23:29.960 --> 0:23:33.600 and indeed members of the Congress from both parties have 0:23:33.840 --> 0:23:35.880 made it clear that the goal of the United States 0:23:35.920 --> 0:23:43.280 should be complete denuclearization with a very very robust surveillance 0:23:44.320 --> 0:23:49.320 through various quarters to make sure that they have not 0:23:49.480 --> 0:23:54.160 only rid themselves of nuclear material, but also the capability 0:23:54.240 --> 0:23:58.840 of creating new nuclear material and the ability to deliver 0:23:59.520 --> 0:24:03.879 uh the sorts of weapons, which is essentially not just 0:24:04.040 --> 0:24:07.080