Speaker 1: This is Bloomberg Surveillance. I am modestly bullish near term,
Speaker 1: but embarishing the media term. I expect the SMP to
Speaker 1: decline to a low double digit percentage this year. I
Speaker 1: think if we're going to take long dollar positions, I
Speaker 1: think the euro is the way to go right now.
Speaker 1: Short the euro along the dollar. I don't think inflation
Speaker 1: is too low. The public doesn't care that core PC
Speaker 1: inflation is one point four percent. They're oblivious to it.
Speaker 1: Bloomberg Surveillance your link to the world of economics, finance,
Speaker 1: and investment on Bloomberg Radio. Good morning, right, Michael McKay.
Speaker 1: It's seven am on Wall Street eight pm in Shanghai,
Speaker 1: where G twenty finance ministers and central bankers are meeting
Speaker 1: to save a world financial system that today at least
Speaker 1: doesn't look a whole lot like it needs saving. That said,
Speaker 1: there are a lot of problems out there for them
Speaker 1: to talk about, and talk about them we will on
Speaker 1: the show today. Bob formats with us in just a moment. First, though,
Speaker 1: the markets giving no sign of imminent apps even China
Speaker 1: Shanghai Composite up a percentage point today, Every major index
Speaker 1: higher around the world in Europe right now the stock
Speaker 1: six hundred up by four points one point one percent,
Speaker 1: DAX is up a hundred and forty seven points one
Speaker 1: point six percent, and here in the US, futures are
Speaker 1: significantly higher. SMP emnies up ten points right now half
Speaker 1: a percent half percent gain. For dowie Mini they're up
Speaker 1: eighty two, Nasdaq onemnies up twenty eight points, seven tenths
Speaker 1: of eight percent. UH bonds little changed here or in Europe,
Speaker 1: although we have seen a bit of a game four
Speaker 1: bonds in the last hour or so. Ten year note
Speaker 1: yield one point seven three percent, one point one eight
Speaker 1: for the five year two years at seventy four basis
Speaker 1: points deterioration in Europe negative fifty five basis points for
Speaker 1: the German two year UH. If the G twenty makes
Speaker 1: any news at all, it will affect currencies first, which
Speaker 1: may be why there's almost no movement there. Everybody holding
Speaker 1: their breath. I guess on currency trading desk the end
Speaker 1: one twelve eighty one year one ten twenty six, the pound,
Speaker 1: of course, which has the overlay of Brexit unchanged one
Speaker 1: nine six five Right now? Can I mention? Richard Partington
Speaker 1: are funeral and obituary reporter in London, Lloyds and RBS
Speaker 1: this week, Yes, are just ugly well. RBS pushing out
Speaker 1: it's dividend of stockdown now in London by UH seven
Speaker 1: point nine percent, so they're having a bad day. Um.
Speaker 1: The good news though in general across the screen and
Speaker 1: this week shouldn't obscure the fact that do you look
Speaker 1: at RBS and Standard charted all those banks UH from SHANGHAII, Syria,
Speaker 1: there are issues. Bob Hormetz, vice chairman of Kissinger Associates.
Speaker 1: Prior to that, he served in a variety of government roles,
Speaker 1: most recently is Under Secretary of State on the Economic Siety.
Speaker 1: Also spent time as vice chairman of Goldman Sachs International. Bob,
Speaker 1: good morning, from what from your perch, if you were
Speaker 1: in the room, what's the biggest threat to the global
Speaker 1: financial system that the ministers are talking about. I think
Speaker 1: they're concerned about two things. One, there's a large amount
Speaker 1: of debt out there, and there's very little room in
Speaker 1: most countries, with the exception of China, for more physical stimulus.
Speaker 1: Monetary policy has been running on all cylinders. There's probably
Speaker 1: a little bit more room to stimulate through expansion of
Speaker 1: money growth. But they're worried in particular now with both
Speaker 1: of those much more limited in their scope and opportunity,
Speaker 1: that there will be a lot of currency volatility and
Speaker 1: competitive currency devaluation. And I think that's what they're going
Speaker 1: to focus on to try to avoid a rush to
Speaker 1: the bottom with countries devaluing their currencies, because in many
Speaker 1: cases some will assume that's the default position. If you
Speaker 1: want to stimulate, you've got to lower your currency. I
Speaker 1: think that that is going to be one of the
Speaker 1: major concerns to get greater stability in the currency market
Speaker 1: and avoid mass of competitive evaluations. Mark Arney, the head
Speaker 1: of the Bank of England, started off the meeting today
Speaker 1: by saying, that's a dumb idea to you know, competitive
Speaker 1: evaluations negative and just don't do it's right, we all lose.
Speaker 1: It's a race to the bottom. You've been in these rooms,
Speaker 1: Does anybody listen or do they go back home and say, yeah, yeah, yeah,
Speaker 1: but we gotta do what's important for us. Well. I
Speaker 1: think Mark's absolutely right. We work together at Goldman SACS.
Speaker 1: He is extremely good and very visionary about the risks
Speaker 1: to the system. We really understand understands it quite well,
Speaker 1: and he's right to issue that warning. And in fact,
Speaker 1: the Chinese Central Bank Governor Joe Shao Schwan has also
Speaker 1: made the point that China is not going to engage
Speaker 1: in competitive currency to evaluation. I think that's one reason
Speaker 1: that currencies are so stable today, and that will be
Speaker 1: an important signal to the market what the Chinese do.
Speaker 1: It's certainly not the only country that has allowed its
Speaker 1: currency to go down, and in fact, the markets are
Speaker 1: pushing it down. It's not the Chinese government. The Chinese
Speaker 1: government actually has been intervening to prevent it from going
Speaker 1: down further. But many governments now see that as their
Speaker 1: growth option, allow the currency to decline, and even if
Speaker 1: they don't want that as their primary option, when they
Speaker 1: see other currencies declining, they want theirs to decline as
Speaker 1: well so they don't lose competitive uh straint. So it's
Speaker 1: a very complicated process, and you need a period of
Speaker 1: stability and currency markets that would help a lot to
Speaker 1: increase stability or at least retain a certain measure of
Speaker 1: stability and financial markets. Bob Hormance with Kissingers, So it's
Speaker 1: good morning everyone. Bloomberg surveillance brought you by Investco. Investco
Speaker 1: believes it's time to venge the benchmarks, consider active management
Speaker 1: and factor based strategies. Find out more at investco dot com.
Speaker 1: Slash high Convictions. Bob Hormance with us with a lot
Speaker 1: of different perspective here, and I think Bob, the major question, uh,
Speaker 1: that that people have is what we do with our
Speaker 1: war in policy? Forgetting about the debates that we've had recently,
Speaker 1: what's the projection? You learned a lot serving with Secretary Clinton.
Speaker 1: Pivot was the word for a moment. There's different other ideas,
Speaker 1: including Henry Kissinger's New World Order that's out there. What
Speaker 1: is the Hormats foreign policy prescription? Well, I think there
Speaker 1: are two things that are critically important, really three, but
Speaker 1: let me just focus on to One is that we're
Speaker 1: seeing in Europe a rise of nationalistic populist parties of
Speaker 1: the right and the left. And that divide in Europe
Speaker 1: has been accentuated by the refugee crisis. And what's happening
Speaker 1: is that individual countries are being divided by populist politics. Uh,
Speaker 1: it's weakening Europe. It's weakening European support for NADO and
Speaker 1: Putin is playing on this by closing up to all
Speaker 1: these extremist or highly populist parties. So the fragmentation or
Speaker 1: the risk of a fragmentation of Europe reduces Europe's own
Speaker 1: economic potential, but it also reduces Europe's role as a
Speaker 1: strong American ally in the well. This comes back to
Speaker 1: your book The Price of Liberty. Yes, and you could
Speaker 1: take your what you didn't write it about Europe now.
Speaker 1: But if you wrote your book The Price of Liberty
Speaker 1: right now about Europe, what would you say? I would
Speaker 1: say that the risk is that after World War Two,
Speaker 1: the US wanted a strong economic Europe because that would
Speaker 1: strengthen growth for the United States, bigger trading partner, but
Speaker 1: also because it would strengthen Europe's cohesion. This is a
Speaker 1: jam in a vision, and also strengthened Europe's ability to
Speaker 1: resist Soviet pressures. Now we're seeing a weaker Europe, and
Speaker 1: we're seeing Putin take advantage of this by developing these
Speaker 1: confrontational areas like Eastern Ukraine, but also trying to develop
Speaker 1: closer cozier ties with Poland and Hungary and many other countries.
Speaker 1: So Europe is a risky situation from from a geopolitical
Speaker 1: and from an economic perspective. The other is Asia, and
Speaker 1: the United States does need a strong t p P
Speaker 1: because it has to demonstrate that we want to play
Speaker 1: a continuing role in Asia. And a few marines in Darwin,
Speaker 1: Australia is not really the name of the game. The
Speaker 1: name of the game is a stronger economic presence good
Speaker 1: for American exports, because that's the still single biggest area
Speaker 1: of growth, even though we don't pay as much attention
Speaker 1: to it now but everything else going on, but it's
Speaker 1: still the single biggest area of growth. And we also
Speaker 1: need to demonstrate that we're going to be in Asia
Speaker 1: as a major player for a long period of time
Speaker 1: for political and for security reasons. So you need closer
Speaker 1: ties with our European allies, and you need a stronger
Speaker 1: set of trade relations with with Asia, particularly East Asia,
Speaker 1: and that's going to be something that should be uh
Speaker 1: an important element of our foreign policy. Back in the nineties,
Speaker 1: when you and I first got to know each other,
Speaker 1: running on Asia with the Asian financial crisis, Bob Reubin
Speaker 1: would walk into a room as the U. S. Treasury
Speaker 1: Secretary and say, basically, this is what's going to happen
Speaker 1: where that we are the superpower and this is what
Speaker 1: you guys need to do. Who runs the world like
Speaker 1: that now? Or are we in Ian Bremer's G zero world.
Speaker 1: We're not really in a G zero world. But we're
Speaker 1: in a multipolar world where a lot of countries have
Speaker 1: influence over the course of the global economy and what's
Speaker 1: going to happen. China obviously is playing a much greater
Speaker 1: role than it did in the latter part of the
Speaker 1: The U s is still the pre eminent influence in
Speaker 1: the G twenty and other groups of but he goes
Speaker 1: in the people listen to Jack lu I think they
Speaker 1: listened to him, that they also listened to Logi Way
Speaker 1: and Joe Shao Chuan of China, and they listened to
Speaker 1: leaders of other countries. India is playing a greater role
Speaker 1: uh the e c B, whereas as I mentioned, Europe's
Speaker 1: having big problems. The e c B still is are important.
Speaker 1: And then you get individuals like Mark Arney who speak
Speaker 1: with a voice of credibility. So we're really in a
Speaker 1: multi polar world. The US influence is considerably less than
Speaker 1: it was, and as you see from this Russian bond
Speaker 1: that they're showing, the US has said Americans should not
Speaker 1: underwrite it. And now you see the Europeans, according to
Speaker 1: the Russians, are bidding to play in that game and
Speaker 1: playing the game as well. Bob Hormats with us will
Speaker 1: continue our discussion. Of course, associated so much with his
Speaker 1: Fletcher School at Tous University, he is with Kissinger associates
Speaker 1: with an important Iran brief out. We'll talk to Bob
Speaker 1: Hormats about how we should treat around some of the
Speaker 1: background that he brings to his important Atlantic Council report.
Speaker 1: Futures up, nine down, futures up seventy of the yield
Speaker 1: one point seven three. This hour of surveillance is brought
Speaker 1: to by a Westchester subar ouve Is it Westchester subar
Speaker 1: out dot com? Here's Bob John Tucker rather with the
Speaker 1: latest news headlines. Well, Michael love verbal of Free for
Speaker 1: All had last night's GOP debate on CNN. You tell
Speaker 1: me about this guy. This is what we're gonna have.
Speaker 1: A guy that had hired a two hundred million dollars
Speaker 1: if he hadn't inherited two hundred million dollars. And we're
Speaker 1: right now Marco Rubio going after Donald Trump, Ted Cruz
Speaker 1: joining in questioning the front runners constrivative credentials. Heston, Kansas
Speaker 1: police officer being hailed as a hero for stopping a
Speaker 1: series of shootings. The officer gunning down a man was
Speaker 1: during the factory where he worked. The gunman killed three
Speaker 1: people and wounded fourteen Others and US officials say the
Speaker 1: Pentagon has launched a newly aggressive campaign of cyber attacks
Speaker 1: against his notices. State and Global News twenty four hours
Speaker 1: a day, powered by a twenty four journalist and more
Speaker 1: than one hundred fifty news bureaus around the world. I'm
Speaker 1: John Teker. Sounds like you and Mike sometimes. I was
Speaker 1: going to ask you if the debates more painful and
Speaker 1: radio or TV. I'll at John Tucker decide. Oil Lifts
Speaker 1: thirty three forty three on West Texas Intermediate Here with
Speaker 1: Robert Harmatt's It's Bloomberg Surveillance. Bloomberg Surveillance brought to you
Speaker 1: by your Tri State BMW centers. Visit them online at
Speaker 1: tri State BMW dot com. At BMW they make only
Speaker 1: one thing, the ultimate driving machine.