WEBVTT - Hormats: countries need to be concerned about devaluation 0:00:03.120 --> 0:00:07.080 This is Bloomberg Surveillance. I am modestly bullish near term, 0:00:07.120 --> 0:00:09.959 but embarishing the media term. I expect the SMP to 0:00:10.080 --> 0:00:12.920 decline to a low double digit percentage this year. I 0:00:12.920 --> 0:00:15.360 think if we're going to take long dollar positions, I 0:00:15.400 --> 0:00:17.160 think the euro is the way to go right now. 0:00:17.239 --> 0:00:20.200 Short the euro along the dollar. I don't think inflation 0:00:20.320 --> 0:00:24.040 is too low. The public doesn't care that core PC 0:00:24.360 --> 0:00:27.479 inflation is one point four percent. They're oblivious to it. 0:00:27.600 --> 0:00:31.880 Bloomberg Surveillance your link to the world of economics, finance, 0:00:31.920 --> 0:00:35.920 and investment on Bloomberg Radio. Good morning, right, Michael McKay. 0:00:35.920 --> 0:00:39.120 It's seven am on Wall Street eight pm in Shanghai, 0:00:39.120 --> 0:00:42.040 where G twenty finance ministers and central bankers are meeting 0:00:42.120 --> 0:00:45.720 to save a world financial system that today at least 0:00:45.720 --> 0:00:49.400 doesn't look a whole lot like it needs saving. That said, 0:00:49.440 --> 0:00:51.319 there are a lot of problems out there for them 0:00:51.360 --> 0:00:53.599 to talk about, and talk about them we will on 0:00:53.640 --> 0:00:57.560 the show today. Bob formats with us in just a moment. First, though, 0:00:57.880 --> 0:01:00.800 the markets giving no sign of imminent apps even China 0:01:00.920 --> 0:01:04.640 Shanghai Composite up a percentage point today, Every major index 0:01:04.720 --> 0:01:06.880 higher around the world in Europe right now the stock 0:01:06.959 --> 0:01:09.880 six hundred up by four points one point one percent, 0:01:10.319 --> 0:01:12.759 DAX is up a hundred and forty seven points one 0:01:12.800 --> 0:01:15.680 point six percent, and here in the US, futures are 0:01:15.720 --> 0:01:19.120 significantly higher. SMP emnies up ten points right now half 0:01:19.160 --> 0:01:21.760 a percent half percent gain. For dowie Mini they're up 0:01:21.760 --> 0:01:26.240 eighty two, Nasdaq onemnies up twenty eight points, seven tenths 0:01:26.400 --> 0:01:31.520 of eight percent. UH bonds little changed here or in Europe, 0:01:31.520 --> 0:01:33.959 although we have seen a bit of a game four 0:01:34.000 --> 0:01:37.600 bonds in the last hour or so. Ten year note 0:01:37.680 --> 0:01:40.920 yield one point seven three percent, one point one eight 0:01:41.040 --> 0:01:43.200 for the five year two years at seventy four basis 0:01:43.200 --> 0:01:46.440 points deterioration in Europe negative fifty five basis points for 0:01:46.480 --> 0:01:48.880 the German two year UH. If the G twenty makes 0:01:48.880 --> 0:01:51.720 any news at all, it will affect currencies first, which 0:01:51.760 --> 0:01:55.840 may be why there's almost no movement there. Everybody holding 0:01:55.880 --> 0:01:58.000 their breath. I guess on currency trading desk the end 0:01:58.040 --> 0:02:01.800 one twelve eighty one year one ten twenty six, the pound, 0:02:01.840 --> 0:02:05.600 of course, which has the overlay of Brexit unchanged one 0:02:05.960 --> 0:02:10.600 nine six five Right now? Can I mention? Richard Partington 0:02:11.919 --> 0:02:20.320 are funeral and obituary reporter in London, Lloyds and RBS 0:02:20.400 --> 0:02:24.000 this week, Yes, are just ugly well. RBS pushing out 0:02:24.080 --> 0:02:28.200 it's dividend of stockdown now in London by UH seven 0:02:28.200 --> 0:02:32.320 point nine percent, so they're having a bad day. Um. 0:02:32.360 --> 0:02:35.840 The good news though in general across the screen and 0:02:35.919 --> 0:02:38.239 this week shouldn't obscure the fact that do you look 0:02:38.280 --> 0:02:43.000 at RBS and Standard charted all those banks UH from SHANGHAII, Syria, 0:02:43.040 --> 0:02:46.480 there are issues. Bob Hormetz, vice chairman of Kissinger Associates. 0:02:46.480 --> 0:02:49.240 Prior to that, he served in a variety of government roles, 0:02:49.280 --> 0:02:52.480 most recently is Under Secretary of State on the Economic Siety. 0:02:52.520 --> 0:02:55.720 Also spent time as vice chairman of Goldman Sachs International. Bob, 0:02:55.919 --> 0:03:00.160 good morning, from what from your perch, if you were 0:03:00.160 --> 0:03:02.320 in the room, what's the biggest threat to the global 0:03:02.360 --> 0:03:05.800 financial system that the ministers are talking about. I think 0:03:05.840 --> 0:03:08.959 they're concerned about two things. One, there's a large amount 0:03:09.000 --> 0:03:12.520 of debt out there, and there's very little room in 0:03:12.600 --> 0:03:17.480 most countries, with the exception of China, for more physical stimulus. 0:03:17.919 --> 0:03:21.919 Monetary policy has been running on all cylinders. There's probably 0:03:21.919 --> 0:03:25.800 a little bit more room to stimulate through expansion of 0:03:26.000 --> 0:03:30.440 money growth. But they're worried in particular now with both 0:03:30.480 --> 0:03:34.399 of those much more limited in their scope and opportunity, 0:03:34.760 --> 0:03:37.880 that there will be a lot of currency volatility and 0:03:38.040 --> 0:03:41.120 competitive currency devaluation. And I think that's what they're going 0:03:41.120 --> 0:03:43.720 to focus on to try to avoid a rush to 0:03:43.760 --> 0:03:47.120 the bottom with countries devaluing their currencies, because in many 0:03:47.160 --> 0:03:50.120 cases some will assume that's the default position. If you 0:03:50.120 --> 0:03:52.640 want to stimulate, you've got to lower your currency. I 0:03:52.680 --> 0:03:54.960 think that that is going to be one of the 0:03:55.000 --> 0:03:58.800 major concerns to get greater stability in the currency market 0:03:58.800 --> 0:04:03.600 and avoid mass of competitive evaluations. Mark Arney, the head 0:04:03.600 --> 0:04:05.760 of the Bank of England, started off the meeting today 0:04:05.800 --> 0:04:08.840 by saying, that's a dumb idea to you know, competitive 0:04:08.920 --> 0:04:12.040 evaluations negative and just don't do it's right, we all lose. 0:04:12.080 --> 0:04:15.000 It's a race to the bottom. You've been in these rooms, 0:04:15.400 --> 0:04:18.360 Does anybody listen or do they go back home and say, yeah, yeah, yeah, 0:04:18.360 --> 0:04:20.480 but we gotta do what's important for us. Well. I 0:04:20.520 --> 0:04:23.279 think Mark's absolutely right. We work together at Goldman SACS. 0:04:23.279 --> 0:04:26.520 He is extremely good and very visionary about the risks 0:04:26.560 --> 0:04:29.240 to the system. We really understand understands it quite well, 0:04:29.520 --> 0:04:31.960 and he's right to issue that warning. And in fact, 0:04:32.880 --> 0:04:36.400 the Chinese Central Bank Governor Joe Shao Schwan has also 0:04:36.680 --> 0:04:39.760 made the point that China is not going to engage 0:04:39.800 --> 0:04:42.599 in competitive currency to evaluation. I think that's one reason 0:04:43.040 --> 0:04:46.760 that currencies are so stable today, and that will be 0:04:47.320 --> 0:04:49.919 an important signal to the market what the Chinese do. 0:04:50.200 --> 0:04:53.880 It's certainly not the only country that has allowed its 0:04:53.880 --> 0:04:56.640 currency to go down, and in fact, the markets are 0:04:56.640 --> 0:04:59.360 pushing it down. It's not the Chinese government. The Chinese 0:04:59.360 --> 0:05:01.920 government actually has been intervening to prevent it from going 0:05:01.960 --> 0:05:05.840 down further. But many governments now see that as their 0:05:05.920 --> 0:05:09.320 growth option, allow the currency to decline, and even if 0:05:09.320 --> 0:05:11.760 they don't want that as their primary option, when they 0:05:11.760 --> 0:05:15.120 see other currencies declining, they want theirs to decline as 0:05:15.120 --> 0:05:18.720 well so they don't lose competitive uh straint. So it's 0:05:18.720 --> 0:05:21.440 a very complicated process, and you need a period of 0:05:21.440 --> 0:05:24.599 stability and currency markets that would help a lot to 0:05:25.320 --> 0:05:28.400 increase stability or at least retain a certain measure of 0:05:28.440 --> 0:05:33.040 stability and financial markets. Bob Hormance with Kissingers, So it's 0:05:33.040 --> 0:05:36.960 good morning everyone. Bloomberg surveillance brought you by Investco. Investco 0:05:37.040 --> 0:05:42.120 believes it's time to venge the benchmarks, consider active management 0:05:42.160 --> 0:05:46.719 and factor based strategies. Find out more at investco dot com. 0:05:46.880 --> 0:05:51.240 Slash high Convictions. Bob Hormance with us with a lot 0:05:51.279 --> 0:05:56.160 of different perspective here, and I think Bob, the major question, uh, 0:05:56.320 --> 0:05:59.760 that that people have is what we do with our 0:06:00.040 --> 0:06:04.440 war in policy? Forgetting about the debates that we've had recently, 0:06:04.520 --> 0:06:08.880 what's the projection? You learned a lot serving with Secretary Clinton. 0:06:08.920 --> 0:06:12.640 Pivot was the word for a moment. There's different other ideas, 0:06:12.680 --> 0:06:16.039 including Henry Kissinger's New World Order that's out there. What 0:06:16.200 --> 0:06:20.280 is the Hormats foreign policy prescription? Well, I think there 0:06:20.320 --> 0:06:23.120 are two things that are critically important, really three, but 0:06:23.240 --> 0:06:26.960 let me just focus on to One is that we're 0:06:27.839 --> 0:06:34.320 seeing in Europe a rise of nationalistic populist parties of 0:06:34.360 --> 0:06:38.520 the right and the left. And that divide in Europe 0:06:38.520 --> 0:06:42.799 has been accentuated by the refugee crisis. And what's happening 0:06:42.880 --> 0:06:48.039 is that individual countries are being divided by populist politics. Uh, 0:06:48.160 --> 0:06:52.880 it's weakening Europe. It's weakening European support for NADO and 0:06:52.880 --> 0:06:56.080 Putin is playing on this by closing up to all 0:06:56.160 --> 0:07:01.440 these extremist or highly populist parties. So the fragmentation or 0:07:01.480 --> 0:07:05.520 the risk of a fragmentation of Europe reduces Europe's own 0:07:05.680 --> 0:07:09.359 economic potential, but it also reduces Europe's role as a 0:07:09.400 --> 0:07:13.480 strong American ally in the well. This comes back to 0:07:13.480 --> 0:07:15.960 your book The Price of Liberty. Yes, and you could 0:07:15.960 --> 0:07:17.840 take your what you didn't write it about Europe now. 0:07:18.000 --> 0:07:20.239 But if you wrote your book The Price of Liberty 0:07:20.400 --> 0:07:23.360 right now about Europe, what would you say? I would 0:07:23.400 --> 0:07:26.160 say that the risk is that after World War Two, 0:07:26.200 --> 0:07:29.480 the US wanted a strong economic Europe because that would 0:07:29.520 --> 0:07:33.080 strengthen growth for the United States, bigger trading partner, but 0:07:33.200 --> 0:07:37.200 also because it would strengthen Europe's cohesion. This is a 0:07:37.280 --> 0:07:40.040 jam in a vision, and also strengthened Europe's ability to 0:07:40.120 --> 0:07:45.080 resist Soviet pressures. Now we're seeing a weaker Europe, and 0:07:45.120 --> 0:07:48.920 we're seeing Putin take advantage of this by developing these 0:07:49.040 --> 0:07:54.120 confrontational areas like Eastern Ukraine, but also trying to develop 0:07:54.160 --> 0:07:57.800 closer cozier ties with Poland and Hungary and many other countries. 0:07:57.800 --> 0:08:01.320 So Europe is a risky situation from from a geopolitical 0:08:01.680 --> 0:08:04.440 and from an economic perspective. The other is Asia, and 0:08:04.480 --> 0:08:07.440 the United States does need a strong t p P 0:08:08.080 --> 0:08:10.760 because it has to demonstrate that we want to play 0:08:10.840 --> 0:08:15.760 a continuing role in Asia. And a few marines in Darwin, 0:08:15.840 --> 0:08:18.840 Australia is not really the name of the game. The 0:08:18.920 --> 0:08:21.680 name of the game is a stronger economic presence good 0:08:21.680 --> 0:08:25.280 for American exports, because that's the still single biggest area 0:08:25.280 --> 0:08:28.240 of growth, even though we don't pay as much attention 0:08:28.280 --> 0:08:30.680 to it now but everything else going on, but it's 0:08:30.680 --> 0:08:33.160 still the single biggest area of growth. And we also 0:08:33.320 --> 0:08:36.520 need to demonstrate that we're going to be in Asia 0:08:36.640 --> 0:08:38.800 as a major player for a long period of time 0:08:39.160 --> 0:08:43.199 for political and for security reasons. So you need closer 0:08:43.240 --> 0:08:47.479 ties with our European allies, and you need a stronger 0:08:47.760 --> 0:08:51.680 set of trade relations with with Asia, particularly East Asia, 0:08:51.679 --> 0:08:54.679 and that's going to be something that should be uh 0:08:54.720 --> 0:08:58.120 an important element of our foreign policy. Back in the nineties, 0:08:58.120 --> 0:08:59.520 when you and I first got to know each other, 0:08:59.640 --> 0:09:03.480 running on Asia with the Asian financial crisis, Bob Reubin 0:09:03.520 --> 0:09:05.400 would walk into a room as the U. S. Treasury 0:09:05.440 --> 0:09:08.720 Secretary and say, basically, this is what's going to happen 0:09:09.440 --> 0:09:12.800 where that we are the superpower and this is what 0:09:12.840 --> 0:09:15.840 you guys need to do. Who runs the world like 0:09:15.880 --> 0:09:18.559 that now? Or are we in Ian Bremer's G zero world. 0:09:19.240 --> 0:09:21.360 We're not really in a G zero world. But we're 0:09:21.360 --> 0:09:24.960 in a multipolar world where a lot of countries have 0:09:25.160 --> 0:09:29.960 influence over the course of the global economy and what's 0:09:29.960 --> 0:09:32.880 going to happen. China obviously is playing a much greater 0:09:33.000 --> 0:09:35.000 role than it did in the latter part of the 0:09:35.800 --> 0:09:39.080 The U s is still the pre eminent influence in 0:09:39.120 --> 0:09:41.520 the G twenty and other groups of but he goes 0:09:41.520 --> 0:09:43.839 in the people listen to Jack lu I think they 0:09:43.880 --> 0:09:46.400 listened to him, that they also listened to Logi Way 0:09:46.600 --> 0:09:49.559 and Joe Shao Chuan of China, and they listened to 0:09:50.640 --> 0:09:53.600 leaders of other countries. India is playing a greater role 0:09:54.240 --> 0:09:57.680 uh the e c B, whereas as I mentioned, Europe's 0:09:57.720 --> 0:10:00.640 having big problems. The e c B still is are important. 0:10:01.000 --> 0:10:04.079 And then you get individuals like Mark Arney who speak 0:10:04.160 --> 0:10:06.760 with a voice of credibility. So we're really in a 0:10:06.840 --> 0:10:11.600 multi polar world. The US influence is considerably less than 0:10:11.679 --> 0:10:14.080 it was, and as you see from this Russian bond 0:10:14.120 --> 0:10:17.120 that they're showing, the US has said Americans should not 0:10:17.520 --> 0:10:20.679 underwrite it. And now you see the Europeans, according to 0:10:20.720 --> 0:10:23.199 the Russians, are bidding to play in that game and 0:10:23.280 --> 0:10:25.199 playing the game as well. Bob Hormats with us will 0:10:25.240 --> 0:10:28.320 continue our discussion. Of course, associated so much with his 0:10:28.960 --> 0:10:33.320 Fletcher School at Tous University, he is with Kissinger associates 0:10:33.320 --> 0:10:35.960 with an important Iran brief out. We'll talk to Bob 0:10:36.000 --> 0:10:40.280 Hormats about how we should treat around some of the 0:10:40.320 --> 0:10:44.120 background that he brings to his important Atlantic Council report. 0:10:44.240 --> 0:10:46.760 Futures up, nine down, futures up seventy of the yield 0:10:47.080 --> 0:10:53.800 one point seven three. This hour of surveillance is brought 0:10:53.840 --> 0:10:56.360 to by a Westchester subar ouve Is it Westchester subar 0:10:56.360 --> 0:10:59.880 out dot com? Here's Bob John Tucker rather with the 0:11:00.040 --> 0:11:02.440 latest news headlines. Well, Michael love verbal of Free for 0:11:02.520 --> 0:11:05.680 All had last night's GOP debate on CNN. You tell 0:11:05.760 --> 0:11:07.760 me about this guy. This is what we're gonna have. 0:11:07.880 --> 0:11:10.080 A guy that had hired a two hundred million dollars 0:11:10.360 --> 0:11:12.440 if he hadn't inherited two hundred million dollars. And we're 0:11:13.240 --> 0:11:18.800 right now Marco Rubio going after Donald Trump, Ted Cruz 0:11:18.880 --> 0:11:23.360 joining in questioning the front runners constrivative credentials. Heston, Kansas 0:11:23.360 --> 0:11:25.600 police officer being hailed as a hero for stopping a 0:11:25.640 --> 0:11:28.160 series of shootings. The officer gunning down a man was 0:11:28.240 --> 0:11:31.480 during the factory where he worked. The gunman killed three 0:11:31.160 --> 0:11:34.800 people and wounded fourteen Others and US officials say the 0:11:34.800 --> 0:11:38.880 Pentagon has launched a newly aggressive campaign of cyber attacks 0:11:38.960 --> 0:11:42.080 against his notices. State and Global News twenty four hours 0:11:42.080 --> 0:11:44.160 a day, powered by a twenty four journalist and more 0:11:44.160 --> 0:11:46.640 than one hundred fifty news bureaus around the world. I'm 0:11:46.720 --> 0:11:50.040 John Teker. Sounds like you and Mike sometimes. I was 0:11:50.040 --> 0:11:51.959 going to ask you if the debates more painful and 0:11:52.080 --> 0:11:56.920 radio or TV. I'll at John Tucker decide. Oil Lifts 0:11:56.920 --> 0:12:00.320 thirty three forty three on West Texas Intermediate Here with 0:12:00.480 --> 0:12:07.200 Robert Harmatt's It's Bloomberg Surveillance. Bloomberg Surveillance brought to you 0:12:07.200 --> 0:12:09.680 by your Tri State BMW centers. Visit them online at 0:12:09.679 --> 0:12:12.480 tri State BMW dot com. At BMW they make only 0:12:12.520 --> 0:12:18.200 one thing, the ultimate driving machine.