Comments out of theboe. You can see how the safety trade is not playing out with dollaryen higher and a mild risk off move after the Missile Launch it now back onto the dollar story. Gold going nowhere. Jonathan potential terrorism in the u. K. , several people injured in an explosion on a subway train in london. Police said they were treating it as terrorism on a number of people were injured, suffering facial burns and some were hurt in a stampede, according to the press association. No word of the whereabouts of the perpetrator. Station inen subway london was cordoned off as police investigated and north korea is another manchild launch Missile Launch in japan after the United Nations approved harsher sanctions against the regime while Rex Tillerson says these continued provocations deep in the north korean diplomatic and economic isolation. Joined by our chief agent economics correspondents. Editor forcutive international government. Walk three details as they come through in london through the details in london. The metropolitan Police Updated us and it looks like it was an improvised explosive device. It does not look like it went off as expected. It is basically a bucket with wires. It is fair to say, you had an explosion on russia people injuries,th facial it look like it could have been much worse. There is still a lot we do not know, if it is the first of a sequence of explosions. Part of a broader cell. Investigating whether it is a water attack. Jonathan these what was the response from the government, how high of an alert will be police and government be throughout the coming days in the capital . The country is on the very severe terror alert. London over the summer still feels like a city under siege. The fifth attack in the u. K. The fourth in london over the past few months. Theresa may was quick to send her thoughts with the injured and emergency services. , beingow, the focus treated as a live event and the assumption, the working assumption is there may still be more to come today. This is not over yet as far as the government is concerned. Jonathan we will keep you uptodate. The nature of the threat is different but a country on high alert. Japan as the threat of north korean in the korean financial a rises. Peninsula rises. What have we learned in the last 24 hours and the reaction from japan . The latest missile test has provoked another call, especially for the u. S. , for greater economic sanctions against north korea, an embargo on oil imports. We have had this debate before and china said they do not favor ,urther economic sanctions especially on oil and a view in china sanctions would be ineffective and we know that china does not want to do anything to destabilize the regime in pyongyang. Withe going in circles another missile test which has prompted more calls for sanctions and china showing no signs of agreeing. Alix is there any sense of urgency . The reaction was calm. It gave up gains quickly. There is a growing sense of unease among investors and government. He said they have the capacity to smash north korea. That he has been talking about trying to set up talks or opening up communications with the pyongyang. This could still be resolved through the usual economic channels but a degree of unknown, given the pace of tests from the north. David thank you both. Here to give us his evaluation of the geoPolitical Risks is the president of the Plowshares Fund with worse the limit he is the author of nuclear nightmare. He has worked on capitol hill on the committee on Armed Services and for the Carnegie Endowment for international peace. Thank you for being here. Lets start with north korea. Slowly, perhaps faithfully coming to terms with the fact we may have to live with a Nuclear North Korea . They exploded their first device 11 years ago in 2006 and are a Nuclear Weapon state. We do not want to recognize them or give them that sort of status. It is difficult to see how you walk them back. We hope to negotiate a freeze and freeze them in place. We think north korea wants to do a halfdozen more tests and to are sure there missiles reliable and convinced themselves that they have a nuclear deterrent. They think they can safeguard their regime. They may be willing to freeze the program at that point. But maybe not be ideal better than them building 100 weapons with dozens of longrange missiles. David you said we hope, someone in washington said hope is not a plan. Is there any reason to believe that kim jongun is inclined to bargain at any point for any reason . Yes, they have told us they are willing to for several years. Disagreement is not whether you can talk to north korea, it is what are the terms of the talks. Are there preconditions . Both sides, United States and north korea, putting preconditions, we will not talk to them unless they agreed the point of the talks is to give up their arsenal while they will not talk to us unless we agree the point of the talks is to recognize them as a Nuclear Weapon state. We need to start a dialogue, a talk about talks to get to the point we can have serious negotiations. If in that scenario, china can be helpful, they are willing to have more sanctions if the in game is a negotiated agreement and not the collapse of the north korean regime. Jonathan geopolitically, china satisfied with the status quo, ed needmething more nuanc to happen, japan needs to rearm and south korea needs to develop a Security Forces to implement some really high Profile Defense and put the that pressure back on china. You will not be the regional if south korea gets a military capability and then maybe china comes to the table because the status quo changes on them. You are right, china does not want a rearmed japan or more assertive south korea and a greater u. S. Military prisons. They are trying to rein in north korea. Showing the limitations of their power. They are not willing to put sanctions on enough so north korea collapses, which is what the u. S. Wants. We want to force the end of the problem without us having to make concessions. China will not do that and they fear that worse. They think that they may be able to wait out the situation as u. S. Influence in asia wanes. 40, 50 years from now, japan and south korea will not have choice but to come to terms with china. We cannot afford to wait and allow this to happen, we have to get in the game and Missile Defense is an illusion. You want to know why we did not shoot this test or the next test, it is because we cannot. These missiles are going to hide before so even within range, at best a 5050 shot. Missile Defense Systems do not work that well. You. Joe, good to see here is the impact on the market. Entry date chart of dollaryen, dip early which recovered right away. It is now higher and dollaryen around the high of the session at 11. Joining us is steven wieting. How do you understand Market Reaction and the geoPolitical Risk . You have to be careful to not intermingle all security risks, natural disasters, and economic outcomes that have lasting effects on market. When we see Global Security issues, there tend to be a riskaverse reaction and maybe this time there was not one. If you take a look, you see , sixth involving the koreas since world war ii and the onemonth return on u. S. Equities is positive after the initial drop. This is very shortterm noise. If you look at what does move a , 20 forbear market larger drops inequity since world war ii and 11 or 12 associated with recessions, outright economic contractions and a drop in profits. You cannot say every one of these issues, very serious, can change the world, really has to do with Financial Markets in the way people think. David it can have ramifications. 9 11, there were real consequences in the Financial Markets. Not something to take seriously until it is. It changes the composition of activity and a horrible waste of human potential. It means some industries go up and others go down. I was once asked in the early 2000s, how can the u. S. Economy be expected to grow, dont you care about the people in iraq . In reality, one did not have to do with the other and they are not the same thing. Jonathan thank you very much, you are sticking with us. Coming up, hugh hendry, the Hedge Fund Manager known for his contrarian views is closing down his eclectic Asset Management fund after a 15 year run. The man himself is coming up shortly. This is bloomberg tv. Jonathan a journey bedridden from the city thats a give to the severe london. That took him to the city of london. Is closing his eclectic Asset Management following a 15 year run that ended with some losses. He joins us now with guy johnson in london. Great to see you both. Us. Reat to have hugh with i have known you for a long time. You have charted quite a course and blazed quite a trail. Are you doing this on your own terms . Are you saying, i am out . Or something imposed upon you, do you feel . I feel like i am sitting in the cast. I do not think many managers have chosen to go out like this. That is a function of economics and the cost of running a hedge fund today. They were just too great. Died in anhink, i active combat. Of combat. Guy i do not believe this is it, this is a hiatus. Mr. Hendry i have had an immense love and appetite for life. I am better suited to deal with the random course of events, good and bad, which will inevitably arise. Guy you said it was not meant to end like this, talking but the market, you . Mr. Hendry the last three months were hard harrowing. I do not wish to speak for others but my sense is that my ro cousins have been under our returns have been mediocre ifce 2012, a longtime, and it is to do something and generically we have been running higher levels of risk. To demonstrate we are really trying. I was no exception. I run a lot of risk over the mer and to my great over horror, i became correlated to the travails of the crop residency and political events in the korean peninsula. Presidency and political events and the korean peninsula. Guy i hate to reduce it to something this simple, difficult has it been to turn from the bed and 28 2008, two people bear you were in 2008 there was a cathartic event for me, november in 2013 when i published a letter, borrowing from entourage, the American Television theater, what if i was to tell you that i had turned bullish at is that something you would be interested in . My investment base said absolutely not. Since 2013, my message has been that i thought the stock market was safeish and the opportunity to find a symmetric trades, which a futility in trying to find trades that would do well thehe advent and immediate futures, i cannot perceive a crisis. The cathartic event was saying, the central bankers, we same came close to staring down this prices. Flationary we came close to an environment where the American Comedy could have endured the economy could of indoor the horros. Horrors. There is no cost greater than preventing what could have been an immense human tragedy in the aftermath of 2008. Guy over the last five years, i was looking at your performance, not drastically bad, high singledigit returns to mid singledigit returns and low singledigit returns and some years with losses. Youare investors abandoning , from billions to 30 million . I clocked had up the best part of 15 years of performance. I can say definitively that we compounded that 6 per annual over the course of the journey. In terms of what i was doing, i was a macro portfolio diversify or to funds. My correlation was tight to volatility, when volatility veryd in 2008, i made this good profit. Over the course of that time, volatility has been low. I have offered a positive carry of 6 plus the majority of my carrots are long volatility and diversifying portfolios. Clients are long volatility and diversifying portfolios. Curtailed and what i can and cannot do. My role is to diversify your risk portfolio. Guy is that model best . Mr. Hendry i fear we have to change expectations for that model, the global macro model was that it came from a fixed income universe. I have been trying to articulate the notion of a debate between debt and credit, the folks with lots of money, who provide the capital to the geniuses and the entrepreneurs who go out and create income and jobs comment thursday economy forward. My argument for the last three decades has been, we have over rewarded the rich. Therefore, that would manifest itself in high risk of return to u. S. Treasury bonds. The return versus equities did not seem very high. Global macro fund could come in and leverage the fixed income returns and get a very high risk adjustment return, which would cover the expenses of running a hedge fund and would cover the expenses of having puts on the s p. Occasionally, these puts would come very rich and add to the rockstar notion that these guys could walk on water. Huge allocations to the sector. Today, i think i would estimate that real 10year u. S. Treasury returns are 0. 3 , the notion of leveraging what seems doa fully valued asset you really want to do that . If you do, they are not that great and not to cover the increasing records really not riskver the next protecting guy i will take that as a yes, the model is broken. Mr. Hendry we look at it as the different the great vulnerability to everyones wealth today is that we are depending on what has been an correlation with u. S. Treasuries or government g7 bonds were stock markets have been hit the skids, thankful for government bonds. Today, they are not priced to protect you and clients are willing to underwrite losses until we see the skids. It has a role then, and a roll with a lower allocation. Guy everyone is trying to find an Economic Framework for Financial Markets at the moment and you do not think about the 2000s or the 1990s or 1980s, thinking about the middle of the 1960s and what happens next. Why the 1960s so relevant to what is happening now and how evolve . L leave all it seems like a long back time, 4. 5 National Unemployment rate in the u. S. We have been here three times, i would dismiss two of the last times, they coincided with the of bust and housing bust 20052006. Moments in time where there was a lot of credit excess in the American Economy, to say the American Economy was very vulnerable to the Federal Reserve hikes. In 19641965, we do not have that, we have a labor market that was as tight as we see today. There was nothing that prevented the economy from being knocked over, if the fed raised Interest Rates. We discovered that the fed was slow, the fed today is certainly not in any hurry. Market, the monkey brain of the Capital Markets, i hate you, i hate you, i love you come i hate you, now saying, we want risk policy. Stay loose. The markets are anticipating 25 basis point hikes between now and the end of 2018. Culpability, of the fed and Capital Markets, they should have the resolve to push for tight it but they are not doing so. In 1960 4, 1965, a same situation, inflation steadily picked up. The mechanism is, when you get wage hikes, it becomes kiwi wage e plus wage hikes, you are giving money to people who will spend it. And two thousand 12 was giving money to rich folks you had no desire to spend it, with , a work in which ben bernanke predecessor, they never had the guts to go through and that is where we are here in 1965, 30 years where u. S. Inflation rates did not go below 2 . Itself could it repeat itself . Jonathan you have the patience of a saint. If you could put money back to work now, over the next five years, how would you be thinking about markets . Today, the good thing today, i believe there is a lot of good things today. We are witnessing synchronized Economic Growth across the world. Europe is picked off the floor and is growing. Is full cylinder and the American Economy refuses to go into recession. That is good news. Good news for equities. Good news for commodities. They have picked himself off the floor and will continue to trend. Because of this monkey brain, i hate you, i love you, Capital Markets want to give u. S. Treasuries between 2 and 3 , they will not do anything to precipitate a crisis. Is,only bad thing inevitably, there will be an air pocket and where is your protection . Think the terms, i most distorted asset class in the world is the twoyear german bonds or the i would be sure that. People are willing to lose 75 basis point per year for security. We do not need that security for long price. Where we have had a credit excess is china. Will china bust . I have no idea. Should you be worried, i believe you should be. I believe you should have protection but it should be very cheap. Today, you can make any china risks disappear at almost zero kerry. Carry. We started off talking about whether this is a hiatus, let me grab late on the question extrapolate on the question, what model does work and what work . If this is a hiatus and you will be back, i find it hard to believe that you will not go away and rebuild and have a rethink. What is the model . How does a manager approach a business, how do you recreate or create something that is a functioning story to run money that has sustainability . What does it look like . Mr. Hendry i have absolutely no idea. Guy nothing that works or do you think has got legs as you look at what will happen Going Forward . Mr. Hendry you are confusing me with someone else. I am the guy you want some ideas. I am not the guy who does the plumbing. I am very bad at the plumbing. I do not want to offer corporate responses for the hedge fund community. I have offer