The week began with the region coming to terms with the worst assaults in egypts history after an attack in northern sinai hundred people dead. I spoke with a Senior Executive officer. What if it is an Inflection Point . Shocking event in terms of the nature of it and the death count that has come out of it. The thing you have to remember is that egypt has gone through a whole series of things on the political side, security side, as well as markets. Now we should view it as an isolated event and see where things go. Asisi came out strongly and said they will clamp down hard. We will see where things progress before jumping to too many conclusions. Yousef the question becomes how should investors look at it. You are saying look at it as an isolated event. I went back to the last terror event. Egyptian assets remain strong. Its quite interesting. If you look at it and go back a year, you almost have to view this as the timeline situation. They year back, very few Foreign Investors had an appetite toward egypt. You had capital controls out of repatriation, security was a bit today they are 36 billion, the imf program, half of it has either been dispersed or approved. Things are looking good. Even if we talk about ourselves ve participated in both egyptian securities on the equity side, we overweight that in our funds, and on the fixed income side we have participated from august onward in the local markets. Twoy week there are treasury auctions, tuesday and thursday. So interestingly, today is the ninemonth auction. That would be a key one to look at in terms of foreign participation. Yield ont week, the those were still 18 in local terms. That will be an interesting one to watch. We will both be watching that for sure. We know that president lcc has already reshuffled his security following last months ambush. What are the chances that these Security Issues become a distraction for him, and it means he takes his eye off the ball from the Economic Reforms . That danger is always there. That is one of the things for investors are looking at. If you look back to the other story, pakistan, they have similar situations in terms of security. One of the things that has helped pakistan over the last few months to a year has been improving security situations. That is one thing that i absolutely agree with you, he cannot afford to take his eye off the ball in that sense. That is what we have to see, if this remains an isolated event, or if there are more followups. Yousef there was virtually zero negative reaction to the terror attack. Egypts stock actually climbed in the aftermath. I asked whether that resilience made investors have grown a sixgame when it comes to romnegrown a thick skin. Its driven by local investors, and they at this point have accepted that sinai will remain unstable. As sad as it sounds, it has been going on for quite a long time. Skinskin might thick way to be one maway of putting it, but it shouldnt have an effect. Yousef our Foreign Investors going to react differently . This is the most violent incident in egypt history. Yes, but i think local investors, international investors, the way they are looking at it, some of them will be scared, you might see them putting more work in, but i dont think you will see money really coming out of it. Yousef we put up a chart to put into perspective what has been basically the egyptian stock exchanges one of the few remaining positive patches in the region which is full of the worstperforming exchanges in the region. Egyptian stocks were up almost 40 your today, the other positive one is kuwait. Saudi, added the barely above flatline. How much more meat is there . Egypt is the strongest story we have in the region, and it started delivering results. Earnings last quarter werent very strong, even through the snsumer sector, and it showing very strong signs of recovery. If anything, its purely fundamentals. The recovery story is translating. Yousef has anything changed in your view on some of the other markets, like qatar for example . An interesting effort by the bloomberg team, making 7 profit by switching between offshore and offshore on the qatari riyal. Are you getting interested . The rsi looks attractive, down 30 , might be a chance to buy. They could be even more attractive. Qatar stays uninvestable given what has happened so far. As long as the political situation remains the same, it will be hard i to workn guitar. Hard to work in qatar. Saudi is showing a lot of positive signs as we speak. If you look at the market, it has also discounted most of the uncertainties that have been going on, and it is not actually switching. Yousef that was ahmed badr. Up next on the best of Bloomberg Markets middle east, steve powell signals a dovish tone on his confirmation hearing, saying there is no sense of an overheating economy yet. But if you write . We discussed that. Yousef welcome back to the best of Bloomberg Markets middle east. Jerome powell said the case for raising rates next month is coming together. He told the senate panel assessing his nomination that while unemployment is low, the economy doesnt appear to be overheating. He believes that labor market can get Even Stronger without creating inflation. We asked the founder and ceo of ht research if anything could derail a december hike. Well, theres only one thing , could think of, the pce inflation coming out tomorrow. Weak, number were to be say 1. 3 or below, that could sway the fed, but there is a 100 probability of a hike, with an outside chance that if you have a very weak inflation number. Of the flattened hell curve, many have written it off as being down to other things. Do you subscribe to that view, that it does not single an impending slowdown . Well, the yield curve has flattened, and we are a little more than two rate hikes away from an inverted yield curve, which is usually a precursor of a recession a few months later. That is something we have to watch carefully. That is the most important data point we are watching right now. Another one is highyield, which has widened. You have all these yellow flags that you really have to because isnt of have to be cognizant of. There is a little more risk than 2017. Yousef when you put that yield differential on the bloomberg, treasuries, we also added gold futures because as the differential comes down it could be a headwind for gold. A lot of discussion about the world post december in terms of rate hikes. Hiking rates, reducing the balance sheet, do you think the fed is making a policy error . Thats absolutely possible. Now you have an economy that is growing, but by historical standards at a slow rate. You have inflation, which doesnt seem to want to materialize, and the reason for that is we have very strong structural disinflationary forces at work. One is demographics, what is alternation that replaces labor, and excessive debt levels. If Interest Rate goes too high, it will be a problem. The fed has to look at these as well, and if you are talking about three rate hikes next year, you are sticking your neck out to a certain extent, and the feds will not only have to be data dependent but reality dependent, and i am not convinced they will have three and 2018. Yousef how convinced are you that we will get something meaningful in terms of tax cuts from this administration, possibly the biggest upside as we look ahead to 2018 . Well, there is a strong likelihood that some kind of tax reform will be passed, but the question is how much of an impact will it have . Historically, fiscal policy has nowhere near the same impact as monetary policy. Has always been a much more powerful tool when it comes to financial markets, and fiscal policy has usually, then in the 1950s, infrastructure and fiscal policy is a lot weaker than monetary policy. Im not holding my breath when it comes to this. Yousef u nextp, bitcoin goes ballistic, reaching 10,000 for the first time. Is it a bubble waiting to burst, or is it just a beginning . We discuss that next. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. The bitcoin surge hit new heights, breaking through the 10,000 barrier for the first time. It prompted more calls for caution for many investors, who think we are in bubble territory. We got more with haunts gertie and justina lee. There is really one word, four letters, fomo, fear of missing out. Bitcoin is in a virtuous cycle. The higher prices go, the more money wants to go in, and that has started to draw the attention of institutional investors, which is cheering bitcoin buyers up. What is next . People are looking at whether u. S. Regulators will prove futures, which will be a major milestone in terms of mainstream acceptance of bitcoin, then we will see if banks will offer it to their clients, whether we will see more mutual funds tracking bitcoin. They are looking at whether it will go mainstream. Absolutely. We will see where this goes. Lee, in our studios here. Our guest in Singapore Still joins us. Ive got to ask you, you have been asked about bitcoin, what have you told them . Well, everybody is talking about it right now, and it seems that there is a uniform view that bitcoin is in a bubble, and everyone talks about the bubble so my guess is it will go higher before the bubble actually bursts. Will reach the end stage when the last bear has thrown in the towel. Maybe the development of a futures market could be the turning point, because then you have a futures market, you can control the price via the futures market, which could happen in gold. You have physical gold futures and 500,000 more futures on underlyings physical gold. The same may happen with bitcoin, and the market and prices will be a little more controllable. Makes a the market very potent argument, they say human psychology will ultimately bring those valuations down, it is only human nature to push s ale up at these levels. But we have to remember this is not a normal market. How much more upside could we see before the bubble ultimately bursts . That is anybodys guess. You could argue tomorrow, which i dont think, but it could go to 20,000, 50,000, 100,000. For all we know, nobody really knows. The Central Banks still look at it as different from country to country, but once bitcoin gets to a certain size, another market cap is about 300 billion, which is still too small to be a factor into central bank thinking, but once that gets bigger, you will have reactions, and the reactions could be anything, from clamp down to acceptance, maybe even creating their own cryptocurrency. Risef bitcoins meteoric has some labeling it digital gold, and it has certainly outperformed the precious metal this year. Investors put their money into one of the oldest securities around. We had that debate with a cryptocurrency pioneer, aaron oliver. Hes from roads precious metal consultancy. You see a lot of money that is coming in, and that is what is driving it up. You see some people taking money off the table, but theres a lot of money coming into this crypto world. We see it on a longterm sense going up, but it will reach saturation at some point. We are talking about volatility, i have to ask the classic question, so much volatility in bitcoin, does that make it a story value . Roundaboutthere is a 250 billion in cryptocurrencies, so in that respect, it does make it value. But compared to gold it is still very much a baby. Around about 8 trillion worth of physical gold in the world. It is still the elephant in the room. I wonder if we will have to put a divider between the two of you, if you will start fighting it out. Let me see if i can get more reaction. Is ounces ofind me gold required to buy a bitcoin. I feel a little bit silly every time i bring up this chart, because what is a bitcoin . And if you look at the amount of bitcoin that will eventually be versustence, 21 million 7 trillion worth of gold currently in the ground. Bitcoin would have to get to 350,000 in order to equal the amount of gold per ounce. That is what i spent my morning doing. Chart, you say to that and to the argument that i just made . One of the things we just talked about was it is new. When it is new, that means money comes in. With gold, the money is already in their. People are looking at gold and saying maybe this new Digital Currency is a better way, it is faster to transfer, it is not necessarily bound by borders with physical gold. In a something people are trying out and it is succeeding. Yousef a little perspective for our viewers, we put together a graphic to show what has been happening with one of the cryptocurrencies, specifically one that set a new high last week. Despite that game, the secondbiggest cryptocurrency trailed its two biggest rivals, bitcoin and bitcoin cash has quit drupal. Ether has been the best year to date, with almost 5000 gain. How should investors really look at the different types of cryptocurrencies . Most people would associate it with bitcoin, and are we going to see consolidation . I think this makes it very interestingly talk about cryptocurrency. We are talking about bitcoin a lot, but that is not the only cryptocurrency out there. Will bitcoin was designed to be transferable the thing about, ether that is really fantastic, it is designed to be used. You can put it into a smart contract and get tokens, utility tokens, securities, as we see being regulated, theres a lot of utility when it comes to the newer cryptocurrencies. Long story value, if you are looking to invest outside of traditional borders, or others that are utilities that can be used to buy Services Available in the future. What about the security question . Last week we saw 31 million from tether, it is in the cryptocurrency space. We have had a continuous history of Bitcoin Trading exchanges. That said, i remember gold in the 1930s, the government confiscated gold, that is not safe either. How should we be thinking about bitcoin in gold as a safe haven . Me, gold has been a safe haven for 5000 years. Today it is as relevant, and i remember when i came to dubai, and people were saying the Younger Generation in india will not be interested in gold. But trust me, every indian that gets married, they have a lot of gold. Gold is the safe haven fundamental store value. Im quite interested in the cryptocurrencies as well, some people say gold was the original crypto, and maybe it was. Bitcoin, problem with i have no problem with any of the other cryptocurrencies, because they are an alternative to paper. Gold,ormal term is just and i think it is complement to reach a gold. What i love about the Bitcoin Development is the instant transfer of ownership. And at a block chain if we Start Talking block chain, we will be here forever. Erin, your response to the hacking issue. I think security is something that is definitely on the minds of everyone right now, especially if you are an investor or own euro cryptocurrency. If you have euro bitcoin, you can hang on to your private key, it is incredibly secure. It is not really the security of bitcoin, it is the security of where your bitcoin is and who is providing your service. To hacking is actually taking place at individual companies, bitcoin being transferred. Instantly, securely, to the wrong person. Downgrade. Next, debt south africas local currency is cut to junk. Moodys threatening to follow. What does that mean for emerging Market Investors . We discuss all of that next. This is bloomberg. Yousef welcome back. Week began with the emergingMarket Investors reacting to news that s P Global Ratings has cut south africas local currencies scored to junk. We began by asking whether this move was only a matter of time. I think it is a matter of politics. You need a change in south africa on the political side. This story is about corruption and abuse of power that have not been resolved. It is about Economic Outlook and investment. Investment is down at a practically historical low, real investment. Unless the Political Uncertainty is resolved, you arent going to have any upturn in the outlook. Yousef how do you look at the emergingmarket stories, particularly the more recent developments, coming out of the shockwaves of south africa to turkey and some of the others as well . It has been a great story, both on the debt side and equity side. Yousef nothing short of a markup. Its fantastic. The outlook continues to remain on the fundamental basis pretty most of the hazards coming out next year are still keeping in em buys. That still remains, but yes, you are right, from a Political Uncertainty point of view, whether you look at you judge or you just in pakistan got on the roadshow and are looking to issue the bond, now this country which has had problems in the past but which had been very stable, now you have the issues coming up over the weekend as well as the finance minister has been replaced, or has gone on leave. What that does to derail things, that is one of the things that always remains a risk. These uncertainties that might crop up. Yousef speaking of risks and the astounding rally we have seen so far, i have put together a little chart that shows emergingmarket stocks as measured by the msci etf. Emergingmarket currencies and the bloomberg dollardenominated an they are all u astounding amount, but the bond space is absolutely remarkable. I am old enough to remember two decades ago when a bunch of african decades were burned by their overseas borrowing. In terms of the sorts of liabilities, should we be worried about being able to pay it back, or are things different . That chart only tells part of the story. Recovering from 2016 in 2015, ms were sold compared to develop market. The 2017 story is one about europe, which is growing again, and the story about ems. Remember, in ems, what you have this china and asia and the ro ad. Like china is doing in asia is nothing short of phenomenal. When you look at Political Uncertainty, egypt and much of africa, turkey, the real story of emerging markets is in asia, and asia is keeping up. Look at all the countries which are strongly integrated into chinas economy, they are doing extremely well. The debt side, of course, is perfectly understandable. Record low Interest Rates on a global basis, they can tap the liquidity. Or mis, enormous rich in te