Hans hello, i am hans nichols, welcome to bloomberg best. We have been at the World Economic forum in davos and speaking with the most influential policymakers to get there since of the state of business today, and their vision for where it is heading. We just saw japan go into bear territory in terms of the market. Do you think this means a sinister connection for the economy . Clearly, Global Growth has gone down. The imf has forecasted for the current year. It becomes with a mediumterm with future growth down the road. That is where we are at the moment. We have come out of the deepest financial crisis, and we are now nine years out of that crisis. At that point in time, the global order has reversed. The industrial countries were leading. They had implemented bold programs. The emerging markets have really strong tail winds. Which some of them had not use that widely. Now the world is reverting to the old order. The u. S. Is leading the cyclical recovery. Industrial countries are doing better. It is a normal correction. It will last for some more time, but i do not think we really see a downward spiral. In the Global Economy or global recession. Does it feel too right now that this is just a correction, at the beginning of something more enduring . It feels more like a correction to me. If i thought china was in freefall, i would be really concerned. I actually dont think that the consumer and the Service Economy are holding up pretty well in china. But there are parts that are way overdone, whether it is steel, coal, overbuilding of residential and in certain of the interior cities, and so if you just take one anecdote, you could get you could get really erik you could get what you want, right . Stephen you could paint a really bad picture, in terms of the stock market and in terms of policy implantation. Erik if the selloff doesnt stop, what happens then . Stephen the markets become reality if they affect the behavior of regular people. At this point, i dont think that has happened. The markets are in turmoil. We worry about china. The fact that we may not have ammunition to deal with inflation. What do you think the markets are spooked by . Well, overall my perspective is, if you really want to look and forecast the economy and look at the real economy, dont look at the Financial Markets as an intermediary of the real economy. We have been now in a period in which there has been a disconnect between what the Financial Markets tell you, and what the real economy shows you. It was really pronounced in china for the Financial Markets went almost unrelated to the real economy. By the way, the correction in the Financial Markets in china is significant and maybe, i would say, welcome, because any balloon that has too much air in it needs to let some air out without getting to explosion. Without a complete explosion. It will have impact on growth in china, but lets face it, the Financial Markets in china are narrowing a very small fraction of the chinese economy. China will continue to grow. It will continue to grow at a slower rate than what it has. And it is by design. They have changed their Growth Strategy from manufacturing to services and demand, which means they do not need to grow as rapidly. It has international implications. It reduces the demand for commodities by china. But the implications are a casebycase approach. Not everybody is affected. Erik once again, the selloff feels kind of like 2009, but i hope not. What does it feel like you . It affects a tugofwar. The countries are growing, will they sustain versus the commodities downdraft . I think that tugofwar things plays out in the market. Erik it sounds sensible. Brian it is sensible. In that retrospect, at the end of the day, these companies have to keep driving, and the economy is just as strong as it was a few weeks ago. Now, the question is how it will play out . Francine what is your main concern today . Deflation . Is it china . How do you account for this environment . Maurice first, i would like to make just a small comment regarding the reaction of the market. They are overreacting to news. We are already there. I think there is no new news. When you look at the situation regarding oil price, or the growth in china, as well as the other issues, the Global Growth, we have all known in a while, the situation was not going to improve markedly in 2016. I am just a little bit concerned by this overreaction. Francine right. But they might fear a slowdown . Maurice it is not that new. It is not a real slowdown. We have not had the kind of growth that we were expecting. We can tell. Who, besides the french, were really thinking that the economy would take off next year or this year . The market is so nearsighted. This is the problem. The market sees these problems that are so immediate. The market does not know how to interpret 4 billion human beings are going to have cheaper heating and Cheaper Energy costs and that money will be reput back into the economy. We dont see that. It is so incremental. This is why the market still may have some digestive problems, but over the course of the next year, we will see a higher market. Global gdp will be around 3 . Maybe not as high as the imf believed. But i am not that worried. You are managing a lot of assets from a lot of people. What are you telling them . It has been so fast, this correction that we are in the middle of, and in many ways, that is more helpful and more cathartic rather than if it were slow and painful. And i think that is allowing people to hope that it is just an asset price recovery and not something more to do that has to involve the economy, and the can actually be quite helpful in some of all of the cash on the sidelines in many portfolios. Be it individuals, institutions, central banks. And as you begin to find better entry levels, perhaps we can get back to normal. But what we dont hear is our clients panicking. You got some money coming out. Not a lot of money jumping in at any particular point in time. How much of this is china, how much of this is oil, and how much is this Something Else . Mary there are a lot of conversation here about china and oil. Those two things alone are in which you have a very interesting event are not going to cause a global intervention. A global recession. Francine a few weeks ago, you said we should actually be much more careful so we avoid repeating 2008. George 2008, regarding repeating, it was a time of financial crisis and a bear market. And we have the same conditions today. But the source of this equilibrium is different. In 2008, the root cause was a subprime crisis in america. Now, the root cause is basically china. So it is not comparable. Francine is this because they are not doing how we would think or deflation . George it is deflation and over indebtedness over the chinese economy. The total social debt is down 300 and maybe actually might be up to 350 if you take into account the external event. So, it is serious. Hans welcome back to bloomberg best. Im hans nichols live in davos at the 2016 economic forum. Here are bloomberg bests best conversations from the week. Francine when do you see it bottom out in oil prices . I think chinese is also in an issue for oil. I think it is also at issue for oil, because lower, slower oil demand. Which means there is going to be lots of oil in the market. It is the third year in a row we will have more supply than the demand. For 2016, the supply and demand situation will be under pressure and i dont see any reason why we will have a surprise increase in the prices in 2016. Francine what would it take for rebalance . At some point, this undersupply will come onto the market. Is there any possibility that after two months, this will affect the market more . And it goes back to 80 . Fatih this index at very low investments, which means in a few years time, therell be a strong upward pressure on the prices. Because more new projects coming on the scene to meet the growth. This is very serious. When we look at the economies of major oil producers, they are in a bad shape, and they may be in even worse shape if the prices remain at these levels. Francine but you are telling me that we are creating a shock. We have the potential of creating an oil shock . Is that right . Fatih i wouldnt it use of the word shock, but there will be pressure on the upward sector because of the lack of investment two years in a row in the oil sector. When will markets rebalance . Right . The oil markets, i know there is an Oil Oversupply issue, but will we hit the bottom at six months away, or in 12 months . Daniel i think because the producers show no inclination to get together, we think that in the second half of the year, this is so severe that you start to see a rebalance in the market, maybe at the beginning of 2017. This suncor transaction announced this week in canada with oil there much more cheaper then the global price. When you say rebalancing, what do you mean by that . Daniel well, in other words, we get this downward pressure on the price. Price starts to move up, and at the end of the year, we could see prices, you know, a good deal higher than they are today. Not which would have been 100. Not 70. Not 60. But a market that is starting to supply andnd operate demand more along the fundamentals of a balance. Francine and i do think daniel this is actually a geopolitical problem, too. Which is that saudi arabia and iran are at odds and saudi arabia says that there is not room for iranian oil and i ran ran wants the market back and they need to get together, unless, and this is what were saying, and we need to make sure that this happens and even the russians will get a cut. Are production cuts realistic . For me, i think this is more of a meeting and for a chance to sit down and talk. Everybody emphasizes price. But price is really not the issue. Stock comeof the oil the future of the business, even the corrective price. What for example is the signal that we send, every 510 years to bring back the hope in the market. As all show up tomorrow major upward movement to affect the economy. Everybody has agreed on one thing prices today are not good enough and there is a lot of stock in the market. Opec cannot do this all alone. What we need to do, we need to get opec back in and they need to talk. I spent a large part of my career doing m a deals where they were between 10 and 20 a barrel. I spent a large part of my career a lot of people forget that. Yeah, exactly. A lot of Big Companies were built, were talking exxon, shell, bp, they were built when oil was 10 or 20 per barrel. I think this is a period when people are going to look to aggressively pursue consolidation. The Energy Market at this point is metrically pointing where we are heading to. I think this creates a lot of challenges for total economies. And also companies. However, i think, the Positive Side of it, we need to look at this as supply and demand economics and we need to overcome the current problems of oil prices, for example. The challenges for companies to focus on growth and to focus on longterm, and i think that is the way you can overcome the current challenges for your company. Francine how much do you understand about what is going on in china . What is your view . Yousef i think we are excited about one important element, and that china has announced last month that their economy heavily depends on Foreign Investment and export. To an economy that has domestic consumption. At the same times, this would improve upon their quality of products. They want to go to mid and high end. Through technology and innovation. I think this is strategically a very positive transformation for china. Francine will it take time . Yousef it will take time. Again, with the size of the economy like china, and the long run, it will transform into a very positive contribution toward the overall economy. Hans you are watching a special edition of bloomberg best. Political leaders, policy iners and power players business and finance all come together here for the week in davos. It is a group that has many Common Concerns come up with their philosophies and perspectives differ. That was on display in some of our best interviews of the week. Francine so are you expecting more volatility in 2016 . Christine there will be volatility in 2016. We have three major Downside Risks on the horizon, and one of those is the massive chinese transition to a new economy, which will be bumpy but will seem resolute and is welcome coming from a very high growth rate to a lower growth rate and moving from being exportdriven to being consumptiondriven. To being industrydriven and all entail a high degree of volatility. The lower Commodity Prices are also going to entail a degree of volatility, as well as economic policies around the world and changes coming up in 2016. They will entail volatility, yes. Francine your biggest concern of deflation . Christine the biggest concern is to make sure that the Global Economy is actually on track to provide enough growth to respond to the needs of those people who are looking for jobs, those people who are expecting more inclusive and sustainable growth. That is the main concern. Francine and you think this will achieve that . Christine everybody has to do their job. And what we have called for is an upgrade of policies. We think that policymakers have to cooperate more, and really focus on the right set of policies that will improve the Global Situation as well as their own domestic situation. Tom how do the developed countries maintain confidence and avoid stagnation in emerging markets . Growth would be good. We would love the industrial countries to grow faster and the real question is how we can make that happen . My sense is certainly, stimulus has run its course. Now, exit is an issue. Once you are in the situation, how do you get out of it . Without creating an abrupt change in asset prices. That is what we are grappling today. But globally speaking, i think the answer has to lie in the underpinnings of growth. The sort of Structural Reforms we all know and love, cannot actually do. Jonathan are there any negative consequences at all of running a budget above 3 , with the net ratio above . What are they . It is about debt. Debt has to be reimbursed. Debt is a burden to all of us. Jonathan but if it is above 3 , why does it matter . The problem is if debt will keep rising, you cant do anything with your services, you cannot finance education, you cannot finance health, you cannot finance security, you cannot finance anything. It is about gaining maneuver. You will not move forward for proper economy, social, and security policies. For europe it is a security policy. I have to say, tom, it is a little interesting to me that when china was growing, everyone said they were exporting deflation. Now they are collapsing. Francine now they are deflating. [laughter] tom are they exporting inflation, or is that an undergraduate fallacy . It was productivity shock that was good and now they are collapsing and it is not good. I certainly think that the overarching phenomenon of these banks shows real Interest Rates and that has driven them down. I think, you know, they have to think about negative Interest Rates. I have written for 20 years about so you could go to negative Interest Rates. That is considered wacko, but who knows . Tom what is your policy prescription to amend the nascent plutocracy in america . Bob well, the proposal, for what it is worth i am not sure it will happen but it is to change the tax system so that will adapttax system to any quality. So that taxes on the rich go up in such a way that you kind of preserve the inequality that we have today. Up in such a way to preserve the what we have today. I am not proposing the address it. You know, havent we agreed that it has gone far enough . Tom what about the Republican Party talking about too much taxes, when you look at the aggregate sum of so many taxes, and even if it i give them my tax dollars, they wont know how to spend it . These are ancient traditions within our conservative either those. Ethos. Bob if i am talking to republicans tom this is exclusive, mr. Bob schiller talks to republicans. [laughter] bob i have a free market side. The other thing is, we need to develop insurance, free market insurance vehicles to protect people against inequality. Of course, we already have that, to some extent. In fact, life insurance, fire insurance, these are all engines protecting us. If your house burned down, you used to be poor. Not true anymore. We have to expand the scope of our Insurance Industry and we should start insuring livelihoods. Hans coming up, more interviews avos our special. Post d addition of bloomberg best. Bend me shape me, any way you want me as long as you love me, its alright bend me shape me, any way you want me youve got the power, to turn on the light shape the best sleep of your life. Sleep number beds with Sleepiq Technology adjust any way you want it. The bed that moves you. Only at a sleep number store. Hans welcome back. I am hans nichols in davos, in this protected valley. The theme has been technology and the forced industrial revolution. Is this an apt environment to discuss such disruptive change . Clearly, this was a lively debate. Here are some of the best discussions. What messages are you getting from the market in your business . I am not too worried about the message from the market. Our businesses are all doing great. We expect them to do greater still. You have an oil collapse not because of the global reception, but because of the quantity of oil exceeds demand. On,you now have iran coming putting half a Million Barrels a day on. And they can go up to 4 Million Barrels a day. They are looking at a world with very low fuel prices for many years to come. How much of a positive impact will that have on you . It is expensive for the airplanes. Richard it will have a positive impact on the consumer, positive impact on the people. I dont see that anywhere. Richard it will all come through very quickly. Including the markets headed this way, america and europe are not the dependent on china. China dropped in its Growth Outlook by 3 . And i am completely baffled by the fact that they are cutting 30 notdown 20 , really thinking there are going to be a lot of Winning Companies left. And i have to be some Companies Like oil companies, but more companies will be winners and losers. But you are expanding to china, which makes it sound like you have a bullish cause there. Richard i dont think china is going through any fundamental collapse. It is going to be growing 5 or think i am not too worried about the longterm for china. It will not have that big of an effect on the United States or europe. The end result is going to be much lower Commodity Prices. Will benefit. The good news is you have a robust business. Analysts is the how are you going to do that . I think there is a tremendous amount of secular tailwinds the twine digital and mobile payments. Its interesting, for the first time ever, more people shopped online and with their mobile phones than shopped in stores. There is a tremendous amount of detail wind around the movement of cash to digital and the explosion of mobile phones. I think there is a tremendous amount of tailwind behind us and theres a lot to execute on. What about the number of digital platforms that merchants will support . An announcement on most every single week about some other payment form going on. What merchants are concerned about is not Digital Payments, but using mobile and software to get closer to their customers. Most people conflate Digital Payments with tapping your phone at the pointofsale. I think thats just a formfactor change. Tapping your of phone versus swiping a card, thats not very exciting. If theres a Value Proposition you canfor instance order ahead and skip the line and split tender, thats a real Value Proposition change. To happen,tarts retailers are looking at that right now you will see acceleration of Digital Payment offline. We are already seeing it online and in apps. Theres a notion that everything is really really bad. And it is. Theres a lot of red and green. And amber. Theres a lot of opportunities in the world. A lot of people are coming into the middle class in africa and asia. Yes. There is high unemployment. Do something about that. More than we are doing. At the same time, commodities are benign. From the perspective of a consumer goods company, lower gasoline prices, all of that is pushing take. Need to be time, we much more targeted with our investments. We are continuing to invest into the downturn. You are not necessarily in the business of m a this year. Seeing the pain so Many Companies are facing, could this be a time of consolidation . We have won 12 billion acquisition. Theres a lot of work in order to get there. Not just close, but in order to get a company that size. We want to make sure we get that integration done in a way that is constructive. Because youve gotten so big and prices of gotten cheaper, do you think your competition could be rife . If they are not cash buyers, the cheapness is not as profound. The stated value of the deal is less today than when we announced it. We are using the same number of shares as when we announced it. It could be china or private equity platforms. We are you pulling back . What is successful . We talking about knox commissions. The other electric cars. You have hybrids. You have many technologies. Were talking about one specific omission and one specific technology. Outside of the norms, we probably need the rules. How long do you expect this to the hangover your share price . Share prices about the unknown. When will that stop . In the next weeks when the data will,. Confirmation of everything we are saying. Risk there is no risk of cheating. The whole company will be at risk with Something Like this. You take a time to check it and when you check it you make an announcement. What has been the main question on the part of shareholders . They are reassured that there is no liability or unknown problem. Its more about expectations in areas which are not normalized. Welcome back to bloomberg best. Here are some of the conversations we had with the biggest names in business here at the 2016 World Economic forum. Conference about m a. 2015 was a bumper year. It was almost across sector of megamergers driven by the need to cut costs. His market volatility something that will spur more this year . Its too early to tell. People getlity afraid and its very hard to know whether your pricing into a difficult environment. Youre right. Certain types of volatility the collectivity. Science create cost pressure across a number of industries where consolidation is one of the few ways to grow the bottom line. Oil . Yes. They will possibly be consolidated this year. We are in the early stages of seeing the damage done by low Commodity Prices. When you go to super samples of commodities and how they move on a global basis normally, it ripples through the economy and through the industries and then into the banking sector. Are you having trouble raising debt balance deals . We are on two sides of the credit market. We own a big credit operation. Experiencing the other side of that liquidity. Theres a really big demand for money. Much higher rates of return than there were three to six months ago. Existing butr investments go down on the notet basis, but necessarily in terms of the ability to have principal and interest. Its more of a mark that an impairment. The junk markets obviously have cap down. Its harder to issue large quantities of junk is the markets go through. Of instability. Does that mean filmmaking is on hold . Now. It doesnt mean dealmaking of on hold. Sometimes price cures these other issues. In only takes six months or so, sometimes a year for all of the new relationships to normalize. Then larger scale buying starts. If theres a repricing happening in some borrowers are being shut out of the market, was that going to do to a volumes . Weve not seen any downturns in the conversations. The amount of discussion about what to do i wont save that are, but it has not stopped. You think theres a chance we could see 2016 be as good a year is 26 2015 . It depends on how you measure. There were some large transactions that were hard to replicate. Last year was fairly flat on number. I do think youre going to see the middle middle Market Companies trying to find ways to take cost out and up their credit and do things to solve problems that are coming as a result of this economy. We think this is a positive time to be investing. There is less competition. The prices are lower in the currencies are better. I do think we will see investors come into the market. The question of market liquidity is more around the traders providing liquidity. Is there a structural change . Yes. Look at how may banks of accident the commodities market. Theyve exitedys commodities. Now we have a lot of volatility and commodities. And we are surprised at this . Is now a time to be shopping for bargains . There may be some rock n roll. View, theres going to be some rock n roll. Day, the focushe that governments need to have on growth and we think the world is falling apart . Do we think its a way all over again . We do not think that. Coming up, more conversations from our 2016 coverage of the World Economic forum and almost. Welcome back to bloomberg best. Im hans nichols and all basel, switzerland. The year ago the European Central bank rolled out a dramatic quantity of programs. There were no such bombshells this time. Clearly Monetary Policy was on many peoples minds. Mario draghi just confirmed one of your fears. The concerns about china. A weakness in Global Growth. You want the u. S. And china and emerging markets. The a lot of things that are making the market merck nervous right now. Bad news becomes good news for the market only when there is policy action. Therefore, you saw what happened. When he said theyre likely to do more in march, markets rallied. Then when they expected the bp is see to take action, there was a hike in march. I think were in a situation where Economic Data is shaky. I dont think were back to 2008 thea couple of reasons, financial imbalances are smaller. China is not going to have a soft landing. We had mario draghi today saying he is ready to act and he has promised more. How much will that help . I think the markets misunderstood what happened at the previous meeting. The market sold off. That was a mistake. Action and they thought there was no action coming. Draghi basically didnt want to act without having german stronger evidence of deflation. He did not want to push it until he had one or both of those conditions. He could confirm that i was going to predicted tonight. And he stole my line. It didnt coordinate right. Exactly a year ago, he was sitting with us as mario draghi spoke. Is it time again . Whether or not he did the right thing depends on whether you think this is a temporary correction or something more systemic. This is tricky. The violence would suggest its not temporary. However the absence of the fundamentals to support it suggests it might be. What were sick zynga here is a very strong market. This is not a bullish outlook. The markets are not rational. Theres a reason you have bulls and bears. The animal spirits to rain. 40 more sixth months ago. The thing that is different this time is oil. Somebody who thought that the fed should be raising rates quite yet. I would still like to see a more certainty in the Global Economy. Go on theow where i kind of overall secular stagnation. I will say the following. If you asked me what i think is the great struggle of our time, is that we have an increasing globalization and technology stewing all sorts of fantastic things. Countries, is it leading to a broadening or a hollowing out of the middle class . In each advanced country, they are wrestling with that right now. Five weeks ago, janet yellen and her colleagues at the fed raising Interest Rates was the right thing to do. I think it was necessary for the fed to do. And havein the room the same information, i probably would have made the same decision. Said, since then we are at the time where a downdraft in terms of a slowing we dont see this as a big fundamental shift in terms of the markets, but there is absolutely a repricing. Should she raise again or should she hold off . I think she should wait and watch and see. Some people are talking to her three. Some are saying that the next move is down and not up. I think its a waiting game. This special for edition of bloomberg best from a 2016 World Economic forum. Remember you can always get more business coverage of bloomberg. Com. Thanks for watching bloomberg television. Following is a paid advertisement for time lives music collection. There are artists we will always remember. There are beautiful songs and words and memories that will always touch our hearts