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Speaker 1: This is Bloomberg Surveillance. I am modestly bullish near term,

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Speaker 1: but embarishing the media term. I expect the SMP to

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Speaker 1: decline to a low double digit percentage this year. I

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Speaker 1: think if we're going to take long dollar positions, I

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Speaker 1: think the euro is the way to go right now.

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Speaker 1: Short the euro along the dollar. I don't think inflation

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Speaker 1: is too low. The public doesn't care that core PC

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Speaker 1: inflation is one point four percent. They're oblivious to it.

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Speaker 1: Bloomberg Surveillance your link to the world of economics, finance,

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Speaker 1: and investment on Bloomberg Radio. Good morning, right, Michael McKay.

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Speaker 1: It's seven am on Wall Street eight pm in Shanghai,

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Speaker 1: where G twenty finance ministers and central bankers are meeting

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Speaker 1: to save a world financial system that today at least

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Speaker 1: doesn't look a whole lot like it needs saving. That said,

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Speaker 1: there are a lot of problems out there for them

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Speaker 1: to talk about, and talk about them we will on

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Speaker 1: the show today. Bob formats with us in just a moment. First, though,

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Speaker 1: the markets giving no sign of imminent apps even China

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Speaker 1: Shanghai Composite up a percentage point today, Every major index

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Speaker 1: higher around the world in Europe right now the stock

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Speaker 1: six hundred up by four points one point one percent,

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Speaker 1: DAX is up a hundred and forty seven points one

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Speaker 1: point six percent, and here in the US, futures are

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Speaker 1: significantly higher. SMP emnies up ten points right now half

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Speaker 1: a percent half percent gain. For dowie Mini they're up

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Speaker 1: eighty two, Nasdaq onemnies up twenty eight points, seven tenths

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Speaker 1: of eight percent. UH bonds little changed here or in Europe,

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Speaker 1: although we have seen a bit of a game four

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Speaker 1: bonds in the last hour or so. Ten year note

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Speaker 1: yield one point seven three percent, one point one eight

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Speaker 1: for the five year two years at seventy four basis

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Speaker 1: points deterioration in Europe negative fifty five basis points for

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Speaker 1: the German two year UH. If the G twenty makes

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Speaker 1: any news at all, it will affect currencies first, which

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Speaker 1: may be why there's almost no movement there. Everybody holding

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Speaker 1: their breath. I guess on currency trading desk the end

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Speaker 1: one twelve eighty one year one ten twenty six, the pound,

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Speaker 1: of course, which has the overlay of Brexit unchanged one

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Speaker 1: nine six five Right now? Can I mention? Richard Partington

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Speaker 1: are funeral and obituary reporter in London, Lloyds and RBS

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Speaker 1: this week, Yes, are just ugly well. RBS pushing out

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Speaker 1: it's dividend of stockdown now in London by UH seven

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Speaker 1: point nine percent, so they're having a bad day. Um.

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Speaker 1: The good news though in general across the screen and

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Speaker 1: this week shouldn't obscure the fact that do you look

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Speaker 1: at RBS and Standard charted all those banks UH from SHANGHAII, Syria,

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Speaker 1: there are issues. Bob Hormetz, vice chairman of Kissinger Associates.

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Speaker 1: Prior to that, he served in a variety of government roles,

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Speaker 1: most recently is Under Secretary of State on the Economic Siety.

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Speaker 1: Also spent time as vice chairman of Goldman Sachs International. Bob,

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Speaker 1: good morning, from what from your perch, if you were

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Speaker 1: in the room, what's the biggest threat to the global

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Speaker 1: financial system that the ministers are talking about. I think

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Speaker 1: they're concerned about two things. One, there's a large amount

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Speaker 1: of debt out there, and there's very little room in

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Speaker 1: most countries, with the exception of China, for more physical stimulus.

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Speaker 1: Monetary policy has been running on all cylinders. There's probably

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Speaker 1: a little bit more room to stimulate through expansion of

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Speaker 1: money growth. But they're worried in particular now with both

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Speaker 1: of those much more limited in their scope and opportunity,

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Speaker 1: that there will be a lot of currency volatility and

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Speaker 1: competitive currency devaluation. And I think that's what they're going

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Speaker 1: to focus on to try to avoid a rush to

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Speaker 1: the bottom with countries devaluing their currencies, because in many

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Speaker 1: cases some will assume that's the default position. If you

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Speaker 1: want to stimulate, you've got to lower your currency. I

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Speaker 1: think that that is going to be one of the

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Speaker 1: major concerns to get greater stability in the currency market

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Speaker 1: and avoid mass of competitive evaluations. Mark Arney, the head

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Speaker 1: of the Bank of England, started off the meeting today

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Speaker 1: by saying, that's a dumb idea to you know, competitive

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Speaker 1: evaluations negative and just don't do it's right, we all lose.

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Speaker 1: It's a race to the bottom. You've been in these rooms,

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Speaker 1: Does anybody listen or do they go back home and say, yeah, yeah, yeah,

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Speaker 1: but we gotta do what's important for us. Well. I

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Speaker 1: think Mark's absolutely right. We work together at Goldman SACS.

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Speaker 1: He is extremely good and very visionary about the risks

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Speaker 1: to the system. We really understand understands it quite well,

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Speaker 1: and he's right to issue that warning. And in fact,

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Speaker 1: the Chinese Central Bank Governor Joe Shao Schwan has also

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Speaker 1: made the point that China is not going to engage

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Speaker 1: in competitive currency to evaluation. I think that's one reason

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Speaker 1: that currencies are so stable today, and that will be

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Speaker 1: an important signal to the market what the Chinese do.

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Speaker 1: It's certainly not the only country that has allowed its

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Speaker 1: currency to go down, and in fact, the markets are

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Speaker 1: pushing it down. It's not the Chinese government. The Chinese

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Speaker 1: government actually has been intervening to prevent it from going

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Speaker 1: down further. But many governments now see that as their

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Speaker 1: growth option, allow the currency to decline, and even if

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Speaker 1: they don't want that as their primary option, when they

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Speaker 1: see other currencies declining, they want theirs to decline as

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Speaker 1: well so they don't lose competitive uh straint. So it's

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Speaker 1: a very complicated process, and you need a period of

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Speaker 1: stability and currency markets that would help a lot to

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Speaker 1: increase stability or at least retain a certain measure of

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Speaker 1: stability and financial markets. Bob Hormance with Kissingers, So it's

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Speaker 1: good morning everyone. Bloomberg surveillance brought you by Investco. Investco

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Speaker 1: and factor based strategies. Find out more at investco dot com.

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Speaker 1: Slash high Convictions. Bob Hormance with us with a lot

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Speaker 1: of different perspective here, and I think Bob, the major question, uh,

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Speaker 1: that that people have is what we do with our

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Speaker 1: war in policy? Forgetting about the debates that we've had recently,

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Speaker 1: what's the projection? You learned a lot serving with Secretary Clinton.

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Speaker 1: Pivot was the word for a moment. There's different other ideas,

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Speaker 1: including Henry Kissinger's New World Order that's out there. What

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Speaker 1: is the Hormats foreign policy prescription? Well, I think there

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Speaker 1: are two things that are critically important, really three, but

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Speaker 1: let me just focus on to One is that we're

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Speaker 1: seeing in Europe a rise of nationalistic populist parties of

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Speaker 1: the right and the left. And that divide in Europe

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Speaker 1: has been accentuated by the refugee crisis. And what's happening

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Speaker 1: is that individual countries are being divided by populist politics. Uh,

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Speaker 1: it's weakening Europe. It's weakening European support for NADO and

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Speaker 1: Putin is playing on this by closing up to all

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Speaker 1: these extremist or highly populist parties. So the fragmentation or

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Speaker 1: the risk of a fragmentation of Europe reduces Europe's own

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Speaker 1: economic potential, but it also reduces Europe's role as a

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Speaker 1: strong American ally in the well. This comes back to

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Speaker 1: your book The Price of Liberty. Yes, and you could

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Speaker 1: take your what you didn't write it about Europe now.

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Speaker 1: But if you wrote your book The Price of Liberty

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Speaker 1: right now about Europe, what would you say? I would

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Speaker 1: say that the risk is that after World War Two,

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Speaker 1: the US wanted a strong economic Europe because that would

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Speaker 1: strengthen growth for the United States, bigger trading partner, but

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Speaker 1: also because it would strengthen Europe's cohesion. This is a

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Speaker 1: jam in a vision, and also strengthened Europe's ability to

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Speaker 1: resist Soviet pressures. Now we're seeing a weaker Europe, and

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Speaker 1: we're seeing Putin take advantage of this by developing these

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Speaker 1: confrontational areas like Eastern Ukraine, but also trying to develop

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Speaker 1: closer cozier ties with Poland and Hungary and many other countries.

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Speaker 1: So Europe is a risky situation from from a geopolitical

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Speaker 1: and from an economic perspective. The other is Asia, and

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Speaker 1: the United States does need a strong t p P

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Speaker 1: because it has to demonstrate that we want to play

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Speaker 1: a continuing role in Asia. And a few marines in Darwin,

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Speaker 1: Australia is not really the name of the game. The

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Speaker 1: name of the game is a stronger economic presence good

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Speaker 1: for American exports, because that's the still single biggest area

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Speaker 1: of growth, even though we don't pay as much attention

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Speaker 1: to it now but everything else going on, but it's

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Speaker 1: still the single biggest area of growth. And we also

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Speaker 1: need to demonstrate that we're going to be in Asia

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Speaker 1: as a major player for a long period of time

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Speaker 1: for political and for security reasons. So you need closer

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Speaker 1: ties with our European allies, and you need a stronger

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Speaker 1: set of trade relations with with Asia, particularly East Asia,

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Speaker 1: and that's going to be something that should be uh

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Speaker 1: an important element of our foreign policy. Back in the nineties,

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Speaker 1: when you and I first got to know each other,

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Speaker 1: running on Asia with the Asian financial crisis, Bob Reubin

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Speaker 1: would walk into a room as the U. S. Treasury

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Speaker 1: Secretary and say, basically, this is what's going to happen

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Speaker 1: where that we are the superpower and this is what

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Speaker 1: you guys need to do. Who runs the world like

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Speaker 1: that now? Or are we in Ian Bremer's G zero world.

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Speaker 1: We're not really in a G zero world. But we're

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Speaker 1: in a multipolar world where a lot of countries have

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Speaker 1: influence over the course of the global economy and what's

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Speaker 1: going to happen. China obviously is playing a much greater

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Speaker 1: role than it did in the latter part of the

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Speaker 1: The U s is still the pre eminent influence in

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Speaker 1: the G twenty and other groups of but he goes

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Speaker 1: in the people listen to Jack lu I think they

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Speaker 1: listened to him, that they also listened to Logi Way

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Speaker 1: and Joe Shao Chuan of China, and they listened to

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Speaker 1: leaders of other countries. India is playing a greater role

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Speaker 1: uh the e c B, whereas as I mentioned, Europe's

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Speaker 1: having big problems. The e c B still is are important.

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Speaker 1: And then you get individuals like Mark Arney who speak

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Speaker 1: with a voice of credibility. So we're really in a

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Speaker 1: multi polar world. The US influence is considerably less than

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Speaker 1: it was, and as you see from this Russian bond

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Speaker 1: that they're showing, the US has said Americans should not

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Speaker 1: underwrite it. And now you see the Europeans, according to

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Speaker 1: the Russians, are bidding to play in that game and

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Speaker 1: playing the game as well. Bob Hormats with us will

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Speaker 1: continue our discussion. Of course, associated so much with his

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Speaker 1: Fletcher School at Tous University, he is with Kissinger associates

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Speaker 1: with an important Iran brief out. We'll talk to Bob

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Speaker 1: Hormats about how we should treat around some of the

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Speaker 1: background that he brings to his important Atlantic Council report.

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Speaker 1: Futures up, nine down, futures up seventy of the yield

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Speaker 1: one point seven three. This hour of surveillance is brought

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Speaker 1: to by a Westchester subar ouve Is it Westchester subar

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Speaker 1: out dot com? Here's Bob John Tucker rather with the

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Speaker 1: latest news headlines. Well, Michael love verbal of Free for

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Speaker 1: All had last night's GOP debate on CNN. You tell

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Speaker 1: me about this guy. This is what we're gonna have.

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Speaker 1: A guy that had hired a two hundred million dollars

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Speaker 1: if he hadn't inherited two hundred million dollars. And we're

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Speaker 1: right now Marco Rubio going after Donald Trump, Ted Cruz

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Speaker 1: joining in questioning the front runners constrivative credentials. Heston, Kansas

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Speaker 1: police officer being hailed as a hero for stopping a

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Speaker 1: series of shootings. The officer gunning down a man was

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Speaker 1: during the factory where he worked. The gunman killed three

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Speaker 1: people and wounded fourteen Others and US officials say the

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Speaker 1: Pentagon has launched a newly aggressive campaign of cyber attacks

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Speaker 1: against his notices. State and Global News twenty four hours

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Speaker 1: a day, powered by a twenty four journalist and more

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Speaker 1: than one hundred fifty news bureaus around the world. I'm

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Speaker 1: John Teker. Sounds like you and Mike sometimes. I was

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Speaker 1: going to ask you if the debates more painful and

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Speaker 1: radio or TV. I'll at John Tucker decide. Oil Lifts

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Speaker 1: thirty three forty three on West Texas Intermediate Here with

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Speaker 1: Robert Harmatt's It's Bloomberg Surveillance. Bloomberg Surveillance brought to you

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