Transcripts For BLOOMBERG Bloomberg Surveillance 20160223

Brexit debate and then the blackrock comments. The markets are not ready for the hike. Tom it is a stew. It is a stew of news. Youre right, francine. There is a negative tilt to it. Standard chartered really took me back. I know you talked to Chris Wheeler within the hour. What did he say francine he said these are banks going through huge restructuring. He mentioned specifically china. It took a leg lower today. It is going to be that much more difficult. Lets get to our first word news with nejra cehic. Nejra a boost from the business communlt. 36 chairman say it will be best for the economy if the u. K. Stays in the e. U. Leaving the union would deter investment, threaten jobs and put the economy at risk. Rebel groups in syria have until friday to sign on to a partial ceasefire. The u. S. And russia agreed to this yesterday. A new controversy in the president ial race just hours before nevada republicans vote in their caucuses. Ted cruz has fired his Communications Director for tweeting out a story alleging that mark rubio despairaged the bible. They said no lie is too big and no trick is too dirty. Today president obama will send congress his plan for closing guantanamo bay. Inas president met with journalists and said the meetia wants to protect authority and curb the Media Presence in china. Tom lets get started with a data check. Not that much going on. Futures will down but what an equity market it has been. The euro on 48 hours. Nymex at 33. 63. That is not european. That is american oil. With brent crude higher. The vix 19. 28. Stwerling a 140 handle. Sterling with a 140 handle. Francine, what do you have . Francine the european stocks are down. They rallied a little bit but now they are back on the downside. Stoxx00 down. There is a lot of concern about the strength in china. Chinese stocks fell. You can see on your screen, the shanghai composite down 0. 8 led by financial and Industrial Company losses. I want to show you the yen. The pound declining. Crude slumping. We need more data checks. Tom you need three or four screens just to get through the excitement of what is going on in europe. Lets get ready for this hour and next hour of surveillance. Lets go to a common inflation idea. Gary showing us the next hour, the five year and fiveyear forward break even. Here we are, deflation worries down. Disinflation. Outright deflation. Lehman lows and all that stability. This is schilling. This dreelings a lower, ever lower inflation rate has a lot of peoples attention. Francine, 2. 5 here. And were really at an unusual level of disinflation the u. S. Francine when you think about what china is going to do. Whether they are going to devalue, they turned around and devalued all of a sudden. We have an experts analysis on this the european head of fx strategy at b. M. O. Capital markets. Great to have you on the program. There is a lot of unease here in the u. K. That can only go one way. No matter what the brexit outcome is and if the pound gets devalued from now quite significantly. If the polls continue to narrow in favoror to brexit given the market we reaction we have seen in january and february so far, cable is going to go below 140, from our perspective, evaluations are starting to look stretched here already in cable and you could also put that you could also flip that over to talk object positioning as well. So evaluation talk about positioning as well. Overall if brexit is looking more likely, investors need to be aware of the implications as whole for the european region. Not just the u. K. That is a dollar positive story rather than just a sterling negative story. Francine you look at sterling negative, is it all a bad thing . It helps exports. What is the ideal level for sterling . Certainly the bank of england dont mind the currency being here. I dont think policy makers at this stage would like the move to accelerate further. I think it is an open question how if brexit were to occur, i think it is an open question how investors might initially react as brexit gets priced in, how far investors might react. That is still an open question. It could be it could initially be significant as brexit gets priced in. Tom lets bring up a chart. I love your note on this. Speed adrift vs. Abrupt right angle moves. This is g. D. P. Not euro sterling. We have a tradeweights basket against pound sterling with a very nice recovery. Is brutal the right word here taking from i think the Financial Markets are high, tom because of low liquidity. We have seen Financial Institution step away from their market makers. It is high also because liquidity is low. Yes, it is right to think back to plaza accord days. Time periods in fx when moves were significant. Tom when moves are significant at plaza accord, that is some coordinated action. I dont see that out there. Is it every nation for itself . I think that with the g20 being probably the more important body of Decision Making at the global level opposed to the g5 at the time of plaza, i think youre probably right and i think also as well you have to consider that china is in the mix now but wasnt in the mix in 1985 and china has its own policy prescriptions and therefore coordinated effort to weeken the dollar. On a final note, it is also important i think at the moment, this is one of the reasons why we see more Dollar Strength from here. That mislinements in the Foreign Exchange markets are not probably as extreme as they were in 1985. You can see that with the u. S. Current account deficit, the deficit has increased in recent quarters but it has not been a dramatic move. Francine you need china to play along if you have coordination. Dollar strength, pound weakness. Does the pound weakness bring down euro within . I think that is a good theme. Brexit could throw politically and economically both sides of the equation into a very challenging time period. And i think on that note, it is right to think about brexit not only as a political event, if it were to occur but also an economic one as well. Lthough print is not it raws into call and questions about it would have a negative impact on growth. Protectionism could rise as a result of brexit. Francine thank you. Soming up next on surveillance, b. H. P. Billiton cheese chief Financial Officer. What they are expecting to do with b. H. P. Billiton coming up next. Tom next, in one of the most important interviews of the day, we will speak with the c. E. O. Of b. H. P. Billiton. Here is nejra. Nejra a warning for Bond Investors. Youre underestimating the fed. Blackrock investors are not ready for the fed to raise rates. Blackrock said the fed may act sooner than investors think. There was a surprise fouryear loss at Standard Chartered. They were left with bad loans when the commodities market crashed and growth stalled in emerging markets. And the worlds biggest Mining Company is making larger than expected cut to its dividend. B. H. P. Billiton is lowering its payout for the first time in 15 years cutting it from 62 cents to 16. Their first half profit plunged by 92 . That is your Bloomberg Business flash. Francine, you have more on b. H. P. Francine we do. B. H. P. Warning this morning that weaker prices, higher volatility mean they are likely to persist long thearn they had been expected. Lets welcome in the chief Financial Officer peter beaven. Great to have you on the program. These are very, very testing times. Why is it so difficult to find a timeline and to call it bottom . I think the difficulty comes from two aspects. The first is on the demand side. I think were all very familiar with some of the issues that china is going through as its makes its frigs investment led economy to more of the services, more balanced economy and obviously as it makes that transition, youre going to see some bumps in the road. We think it will make the transition. The demand side is volatile on the near term. I think were on the supply side. Prices tend to be sticky. It takes a little bit more time probably than people would hope and expect. T was a combination of two factors. Francine are you committed to your earlier pledge of a solid amp Credit Rating being very critical . Having a strong Balance Sheet in the cyclical industry, there is no question whatsoever of having that. We have seen some of our competitors run into some issues with regard to that. The company tends to be your sfradge overwhelmed by your Balance Sheet rather than having your Balance Sheet enable your strategy. No question that having a strong Balance Sheet through the cycle create it is the buffer for cycle and that creates optionality to take advantage of the prices at the bottom of the cycle. That is the critical piece. Tom peter, you were at u. B. S. Years ago. You the only one that comes on the show that can spell manganese. When i look at the collapse of broken hill properties, when i look at the challenges of the industry, i have got to go to your wonderful power points. The delta on yourebit is stunning. Im going to put this out on social media. The power points from beaven are outstanding. With that said, you behold on the price. How are you going to cut expenses between 90 of your delta on your income statement is price changing commodities . How much more fat is there to cut . I will just say first of all, thatebit chart understate what is we actually are able to produce. It is about a 4. 6 billion depreciation which is masking that ability. Second thing i would say is that we have done an absolutely outstanding job on cutting costs. We have had productivity gains of 10 billion for the past three years. We think that will continue to be a very important factor. This financial year, we are guarding another gain. Face 30g reductions in prices, you cant make up for that. That is the reality over the cyclical industry. In the medium term we see that cycles turn. Tom very good. Every once in this a chile, folks, somebody comes while, folks, somebody comes up with a quote that is brilliant. Bernstein wrote a brilliant quote on b. H. P. And all of mining. The refrusal of b. H. P. To engage the difference between value acreation to value maximizeation has always been something we have found hard to understand. This is a sophisticated dynamic about you need to create value in this carnage. How are you going to do that . Do you do it step by step or do you need to make significant strategic changes to reposition oil and mining . I think this whole question of portfolio has come up many, many times. We have been in oil since the 1960s. We have made a huge amount of value for our shareholders. We have got you know, i think a very, very, very good operating capability with some of the best resources both in onshore and offshore oil and gas and that combination has worked very well for us in the past. With that capability, with that resource, this is going to continue to be a fantastic business for us. Tom this is critical. If you get oil to do your strategy krks that support the dividend and and actually true Dividend Growth . It is all part of it. Oil is a core part of alongside iron ore, copper and coal. All of those in combination are critical to supporting the dividend and cash return. What is very important here is that we would see oil will recover first and then probably copper and then youll get into sort of the basement the bulk materials maybe. Not much in the long run on that and ultimately potash where we have a very strong position. We can therefore allocate capital from one business and generate capital into the next as we see before the turn of the cycle. That is the essence of why diversified portfolios work very well. Francine given spending cuts and the dividend cuts, do you still have opportunities to buy . There are assets that are out there on the market that are probably valued at a very attractive pace. Yeah, look, were always looking for opportunities to acquire assets. For us, it is ar difficult. We have a very focused portfolio. T1 assets are rare in the worldor mining and when people get a hold of them, they hold on to them. Not many of them are going to come to market and then they have to come to market at the right price because it is not just enough to have the opportunity. I think the probabilities of us pulling something off probably reality on the low side. Francine but freeport made some statements on these tier one assets. Are you conducting any diligence as we speak . We will look at the opportunities as they come up. They would have to be disstressed to put it up in the commodities we favor. As i said, we will look at those opportunities. Tough, tough for us to execute against those things. Well see what happens. Francine thanks so much for joining us were back in a couple of minutes. This is surveillance. Tom good morning, everyone. Bloomberg surveillance. What a most interesting interview that just was with peter beaven of b. H. P. Billiton perfectly we forget they are moving from 38 billion ofebita at the peak to 11 billion. I was thunder struck about his honesty about the hope of their strategy of oil to copper to mining and then maybe they clean up potash. How do you pronounce it . Francine potash. Youre right. Also what was striking in that interview, you see a lot of miners maybe six months ago not wanting to talk. He was very clear. He said it is extremely difficult to call the bottom but from now until when the bottom happens, he will continue to cut costs. What was also very significant is we thought they would be looking at assets. It is going to be very difficult in their position to acquire any assets in future they may have liked to acquire. Tom if youre part of global wall street, go back to bloomberg Digital Media today and relisten to that interview. Just extraordinary. In our next hour of bloomberg surveillance, Gary Schilling will join us. You know, deflation. Chris will join us. Stay with us. Francine welcome back. This is mark carney, the governor of the bank of england in front of the select committee. He is talking about banking and one of the first questions he was asked was about the brexit debate. T is dividing his cabinet. When we speak to fx traders it is very likely for the fed to move as we get into those crucial couple of months. Well have plenty more on that. First, lets get to the bloomberg first word news. Here is nejra cehic. Nejra Angela Merkel is rejecting cy critics from her own party who want to crack down on refugees. She said the solution lies in the outer borders of the uropean union. A new report says there is a bigger chinese threat in the south china sea. China is building a High Frequency rate. That is according to the center for strategic and international studies. The rorlt said the radar would help china establish longterm effective control over the area. Oceans are rising at the fastest rate in 28 centuries largely because of Greenhouse Gases from human activity. That is the conclusion published in studies. Experts warn it could lead to many coastal cities being abandoned. Police in kalamazoo said a man in a shooting rampage admitted he killed people. The uber driver was charged with killing six people and wounding two others. Microsoft cofounder bill gates is backing the government in that dispute with apple. Generally siding with an gates says the Government Order is no different asking for bank and telephone records. Apple has warned it will create a dangerous precedent. Well talk with bill and Melinda Gates at 8 00 a. M. Francine we picked up something, George Magnus writes about china. They have come up with the problem known as the impossible trinity. It is impossible to market ously pursue a policy of mixed Exchange Rates and free capital movements. When you look around the world, it is hard being an fx because there are more risks than opportunities out there. What do you make of china . Were talking about it is almost impossible. They dont want to cooperate in this cycle in the growth model. China has debt risk. There are policy is going to remain loose for the foreseeable future. That is at odds at the moment with fed policy overall broadly speaking. We see continued downward r. N. B. E on the r francine we heard from the blackrock chief Investment Officer saying actually bond traders are underestimating the appetite of the fed to hike rates. Are they wrong . We see the fed moving twice in 2016, once in june and once in december. We think these are good levels to be looking to start to buy dollars. If Risk Appetite continues to improve, u. S. Rates should continue to climb and the euro should weaken. The yen should weaken which is supportive for the dollar. If youre looking bearishly at the Global Environment or for Financial Markets, the dollar should still hold up reasonably well in that environment. Tom bring up the quote again from George Magnus. Impossible trinity is a huge deal. Stephen gallo, you write thoughtful notes. How can you have an impossible trinity when youre a totalitarian regime. That is in none of my textbooks. What i would say, tom, is we think overall china to a degree has got it right because it focusedst on the Exchange Rate. Focuses on the Exchange Rate. Where you get into a problem is when you try have all three at once. Independent Monetary Policy that a fixed Exchange Rate and Free Movement capital. China does have a policy which focuses on the Exchange Rate. Ultimately we think that is the right decision and in an increasingly globalized world it makes stones focus on the Exchange Rate. If you focusing on the exchange rain, you taking a globalized point of view because youre looking at the value and currency on a bilal lateral basis or a broad tradeweighted basis. Tom first of all, i thought they already g merged. That is the mergers you have seen within digital technology. Western digital be buy sandisk. Lets go to the sandisk chart. What is so odd here is it is the antiyahoo . Here is the boom in 2000. Everybody looks like this including marissa myer. We do not have a price yet. Correct me. There it is 67. 50 in cash plus a hounching shares and that is about right here. The share overlay. This is the antiyahoo is what i would see in this smaller transaction. Western digital to buy sandisk as well. Coming up on bloomberg, a conversation with mr. And mrs. Gates. Of course they take part in the bill and Melinda Gates foundation. They have got some very interesting comments out in a series of interviews the last few days. Bill and Melinda Gates later. Tom good morning, everyone. Bloomberg surveillance futures negative 7. Dow futures negative 59. Dont forget our interview with the chief Financial Officer of b. H. P. Billiton. That was a wonderful interview with Francine Lacqua. Is jeff graham. The son of phil gramm. It is nice when you chart your own path. He has done it with columbia and a new book. It is nice to have your book come out at the same time. What is different with the act vism now vs. The history of it . In dear chairman . I think the main thing that is happening is you have this hedge fund activism. A lot of that has been driven by the complicit behind the scenes, the big institutions. Just in the past few months, the big institutions have begun to kind of pull back from that. Tom francine, this is absolutely fabulous. Page 208 perfectly dear portfolio shareholder, put us to work to make your stock more valuable. We have bought stock with the present market value of 25 million in the faith that we can. Yours truly, robert young. What a time from the new York Central Railroad to the luck is them out battles in media now. Where did the meanness come in . The hit or miss, you, this, we have to get on with Francine Lacqua, dot, dot, dot. When did that come in . Well in the 1950s, it was a very different game. It was a p. R. Game. The shareholders were individual investors. The meanness came in more in the 1980s and 1990s with the corporate raiders but especially the Hedge Fund Activists of the 1990s. Tom you keep circling back with the hedge funds . Im circling back twice. Tom it is those evil hedge fund leaders. Francine blackrock came out early they are week and said we no need to focus on activist s that arelongterm. Is that right . Is that where we should go and should regulators crack down on the other shareholder activists . No, i dont think they should crack down but it is a very interesting dynamic. I think in the past five years, you know, these big institutions have been behind the scenes supporting a lot of these activist campaigns. Recently, you know, they have said well, you know, were not mfortable with just arbiters of these Hedge Fund Activists. Now they are trying to figure out how can we drive our governance to be better and mr. Diamond and mr. Buffett have put together a best practices list. So it seems like it could be a turningpoint in Corporate Governance and it will be interesting to see how it plays out. Francine in your mind do you have a list of shareholder activists who do more damage to a company or more longterm damage to governance and the ones that actually want the benefits . It is sometimes unclear who is right and wrong. That is the point of my book, right . Im not, you know, trying to call some people good activists or bad activists. Im trying to help people understand where this came from and how to judge each activist campaign and how to judge the incentives involved. Tom in part of this, in the incentives involved is the idea over the sprawl of it and all the wonderful letters you got. A guy like carl icahn who we know today with apple computer. What is different from the carl icahn of 30 years and act vism and the carl icahn today . He is the same. The difference is the nature of the shareholder base. The difference is tom in supporting carl icahn years ago well, i would say in the 1980s, especially in the early 80s, that the big passive shareholders were very checked out and could be exploited by the corporate raiders. How the they are engaged. If youre carl icahn you have to appeal to those big shareholders. Tom i have to ask you this with the work your father did. He had a quote once with alan green into span that was just brilliant. It escapes me now. What was about washington in this time. What can washington do about act vism. What is the jeff graham approach . Have i no recommendation. Tom would you like to announce youre running for president today . With the mess in Republican Party is in. Im pretty apolitical. But i think that ultimately tom did you just say that . Youre apolitical . Ok, go. This is a situation where you know, in an ideal world, you want to Market Forces to award the well governed companies. That is what jamie dimon has realized and is trying to influence that process. Tom it is an interesting book and a beautiful historical walk through about how the industry moved from grace and charm to the battle today. The bookdear chairman. Jeff graham. Coming up at 8 30 this morning, david kelly will be here to talk about the linkage between markets and your investment dollar. Futures negative. Dow futures negative at 56. Stay with us. Tom somebody said yesterday winter is over. I said maybe not. The day after washingtons birthday, gorgeousity. It is a wonderful city. All of those restaurants and bars out there, john fero is visiting each of them. I dont know which bar he is in this afternoon but we welcome john fero from london. Jon ferro from london. Posted ontinental fullyear profits that beat estimates. The International Oil agency said oil price also hit 80 a barrel by 2020. The reason . Oil growth is seriously plunging. The crisis will start to rise at the end of next year. The london whale has resurfaced. The jap morgan trader generated more than 6 billion in losses in 2012. He said it wasnt his fault. He said he was told by his bosses to execute the strategy that proved disastrous. The bank is not commenting. That is your Bloomberg Business flash. Francine . Francine thank you so much. We were talking of course about china and the possibility of some kind of accord. Lets get straight back to stephen gallo. Raminbi and at comments from the china regulator, they mean business and there is no direct want to devalue now. Not significantly no. I think looking at what has happened with chinas reserve stockpile over the course of the last six to nine months or so, yes, scared capital flight is part of the issue. China has saved some scared capital flight but equally as their external Balance Sheet repositions in view of the capital account liberalizing inching towards capital account liberalization, chinese residents will awire for foreign assets and the pboc will provide some of that liquidity. It is part of that Balance Sheet adjustment process, the reverse of what we saw in the 20052013 period when the r. N. B. Was deappreciating. It is a huge amount of capital flowing abroad from china. It is not in their best interest for it to occur rapidly. Going back to the topic of the impossible trinity. Francine you dont see it happening. Lets get that quote back up. You dont see this impossible trinity being chinas main concern now . Not being violated necessaryly. Because china does control the pace of capital inflow and outflow aint does reck regulate the Exchange Rate. China seems to be edging toward a managed Exchange Rate regime similar to singapores. It is a good setup because capital flows have caused a lot of destabilizing problems over the last especially since it started but precrisis as well. Om the idea of different asia currencies including china, without looking at japan, tell me about the rest of asia. Which currency is most advantageous if we assumed de appreciation . If we assume gradual depreciation of the r. N. B. , i would look outside of asia and say it is a broadly positive dollar story. That is adjustment china is going through continues in terms over the external Balance Sheet and the policy stance. This is a significant floor or support level for the broad value of the dollar. Youre right to focus on the adxy as china lets that orderly devaluation happen, in our view, the adxy will be moderately lower, we think. Tom the dollar yen is under 112 . I missed things. Im in the Francine Lacqua time out chair. Francine, it is amazing what is going on with antiabenomics. Francine this is a problem. Japan is trying to throw abenomics. T has at it is the yen is haven. This works against that governor kuroda is trying to do. When you look at the yen and people are still paying premium for yen topside. When you look at positioning in the yen, it definitely looks like the move in january and part of february was a deleveraging event. Fx investors are still long yen. This is an issue for the bank of japan. Were seeing a deleveraging event as a result to have fallout from q. E. The b. O. J. Can only fight so much of that. Tom the bank of japan, everybody is behold on the gold. Bring up the chart. Were going to use it in the next hour. It is sort of a breakout, sort of kind of like for gold. What does it signal to you, steve gallo in the Foreign Exchange market if we presume stronger u. S. Dollar when we finally after 4,000 years get a gold bull market . We expect 3 to 5 . That should put a cap on the gold price. Equally by my calculations, gold rates have started to climb higher again. It suggests that there is possibly a preference for gold growing over cash given the concern about Central Banks moving further into negative rates territory. Some central rates anyway. So you know, gold probably doesnt fall as much as as the biggest bearers in the market were anticipating. But 3 to 5 should put a cap on the gold price. Francine were negative rates in japan a mistake . It doesnt do anything for the yen and it is just punishing the bank. Possibly it is. I dont know what that lending margin looks like in japan. Certainly as we have discovered or we are discovering even though the zero lower bound is not so much the lower bound, it s not that far below zero. But it is also a currency move as well. The bank of japans decision was reflective of the yens strength. Francine one of the biggest policy mace takes or risks is that policy mistakes from a major Central Banks. Where do you think that might come from . Policy error from a Major Central Bank . We think probably the fed waited too throng raise rates and certainly if it started the rate raising process earlier, it would have had better growth conditions to raise rates than now. The problem is that it looks like they moved too soon. Actuality, they waited too long. Tom in our next hour, Michael Moore will join Bloomberg News in london and talk about the Important News out of the Standard Chartered banks. A conversation with Gary Schilling and we will speak to christopher veroneabout the excitement of support and resistance. All of that coming up. Futures, anything sieve six. Stay with us. Negative six. Stay with us. Global markets this morning go in search of the bid. There are china concerns, there are Standard Charter and banking concerns. Low growth it means disinflation, maybe outright deflation. It is time for another book i Gary Shilling. And we consider gold. Good morning, everyone. This is bloomberg surveillance , live from our World Headquarters in new york. Tuesday, february 23. I am tom keene. With Francine Lacqua. Is out with a revenue gain, and unbelievable boost of the dividend, it is likely anti bhp billiton, getting it done here. Samestore sales up. Francine that is a testament to the strength, or not, of the u. S. Economy because it is a barometer there are so many risks out there. It is nice to have a piece of news when the premarket is actually up. We need to talk about the riskoff mood overall with the risk on mood of the banks. Tom we have the power to go to our first word news. Campaigns toron keep the u. K. And the European Union. That has gotten a boost from the business community. 36 chairman and ceos in the European Union think it would be best if the u. K. Stays in the e. U. Rebel groups in syria have until friday to sign onto a partial ceasefire. The u. S. And russia agreed on the truce yesterday. Terrorist groups such as islam in front are excluded. Airstrikes against them will continue. A new controversy in the president ial race. Hours before republicans vote in the caucuses, ted cruz has fired his Communications Director for tweeting out a story alleging marco rubio the bible. The review Campaign Said the culture in the Ted Cruz Campaign no lie is too big and no trick is too dirty. President obama will unveil his plan for posing the prison that while donna monday. For closing the prison at guantanamo bay. Xi jinping,ident, has a new policy. Meeting with journalists, he told executives that the media must protect the communist partys authority. Foreignwants to curb policy in china. Curb the media in china. Tom thanks so much. Two is team to gues two is steamed guests. Year higher, 1. 77. Crude oil had a lift earlier. A little bit soggy here. A six, 7, 8 day rally. Gary shilling took all the cash and put it in stocks on valentines day 16,600 on the dow. Cannotg, dow, francine afford to come to new york anymore. Francine, what do you have . Francine i will stay here in london because it is getting to bank expensive. I want to show you that it is getting too expensive. Stephen gallo, that was an interesting conversation. European stocks are a little bit volatile, but they are down 0. 4 . There has been a lot of angst on the markets on these chinese data. ,e have the Financials Companies bringing down the shanghai composite. I want to show you the pound brexit have a israel. We have a referendum date. Tom we did this chart up for Gary Shilling. Fiveyear, fiveyear toward inflation. Stability, and the movement down for the crisis. Here is the schilling regression. What we have here is a movement down. Five years, five years out, and here is Chris Verrone. Shilling convexity here as well. We have been doing this recently and we are thrilling to were thrilled to bring you christopher verrone, flat out the best on trend base, chart analysis. Gary shilling had nothing to do, so he wandered by to take another victory lap on low interest rates. Mark carney has a quote on the bloomberg right now. U. K. Monetary policy pushing against global weakness. You and i go back to your use when, in the 30s, they were pushing against string with the are the bankers of the world pushing against the theoretical string . Gary i think they are basically irrelevant. Monetary policy is not working. What happened is they knocked to the rates down to zero and nothing happened. Then they went to quantitative easing, and what happens . Who pushes up stocks, but owns stocks . Higher income people. It really stops with that. It does not have much effect on the overall economy. Im in the last 48 hours, have seen scathing analysis of the underlying theories, particularly toward negative rates. The entire financial world turns to you to get historical perspective, except it is not in the textbooks. Gary it really is not. But i think the negative rates is really desperation. The Central Banks monetary policies are a very blunt instrument or they can raise and lower rates, buy and sell securities, but they cannot do much to directly impact the goods and Services Part of the economy. It is not like the fiscal policy. All youncine, this is need to know. Lets call it strong yen, weak theory. This is the announcement of yen management through negative rates. Here is the good news for kuroda , completely overwhelmed. We have now broken through to new yen strength. We are miles away from where mr. Kuroda and mr. Abe want the yen to be. My question my question would have been it is having an impact on currency. It is not having an impact on the yen, but for the rest of the world there was a race to the bottom. Centralbank policy is working on currencies, and that is working on the real economy, is it not . Gary absolutely. Almost every countrys devaluing against the dollar. You have the eurozone and the bank of japan. They are trashing their currencies, saying basically do not have strong domestic growth, so they say how can we boost economies. They will try to do it with exports and cheaper currencies. You have the other currencies, the loonie, the aussie and including china, we are not going to be left in the dust. We are going to devalue, too. Tom lets bring in Chris Verrone. The cacophony of the shilling go toics, does it all confusing economic analysis, or is there clarity in your work . Think there is clarity right now. Especially in the last couple of weeks. What should have been a riskon move has not been. Treasures treasuries have not been we have not seen the riskon mentality we like to see off a low. Tom what you do so well is a relative analysis of technical analysis, and you say spreads are a relative gain within fixed income. If spreads have not come in, why are equities doing so well . Is it assumed an intermediate bull run within a bear market . Chris we think it is a bounce in a bear market. We have not seen really the internal characteristics on this bounce that we often would like to see in the start of a new bull market, so we are skeptical here. Francine when you look at technical analysis, and here in europe there is focus on currencies, and i would like to go back to toms yen chart. What does the chart tell us in terms of Technical Levels of where yen goes next . Chris i do not think we are there yet. This is part of a bigger unwinding of that asian trade we have seen. We have seen aussieyen contract as well. I think bigger picture, when we look at the story, since the ecb in december, european starks european stocks are also lower. Lower. Japan stocks also this is not just the back of this is not just the bank of japan. Gary could be ecb go to 100 on the yen . Chris i do not see why not. Tom this is critical. If we have Chris Verrone moving out to ¥100 and Gary Shilling surprise, this goes back to what we talked about in the previous hour, getting over to elements of a pause in core Dollar Strength. You need china. China in terms of growth levels and how they are trying to mask the economy is different to the rest of the world. We are not getting any signs they are ready to participate. Gary, how do you view japan . Do we need to look at japan is something purely japan because the yen is rising even when they are trying to throw the kitchen sink at the economy . Or if japan and abenomics fail, does it have a wider implication on the World Economy . Only 150 years out of feudalism, and they have a lot of feudalistic characteristics. Women not in the workforce. Lifetime employment. Yourselfism, you owe to your feudal lord. I have a lot of these characteristics, and they are not able to get them, despite abes best intentions. They cannot change the culture to a great degree. I do not think the japanese are particularly that concerned about it. You do not see revolutions there. You do not see throw the rascals out, anything like trump and bernie in this country. Try to have them call me my leaves lowered at home. This is on bloomberg , a conversation, their annual report on philanthropy, bill and Melinda Gates. Thanes a little better negative three. Tom good morning, worldwide. Bloomberg surveillance. Right now, the business flash. The International Energy agency says oil prices will hit 80 a barrel by 2020. The reason, Global Oil Supply growth is seriously plunging. Prices will start to rise next year when demand overtakes supply. The worlds biggest manager has arning for Bond Investors you are underestimating the fed. Futures show trade, a 46 chance the fed will raise rates this year. There was a surprise loss at Standard Chartered. The british bank says loan impairments doubled to the highest in its history. Crashedodities market and growth stalled in emerging markets. That is your Bloomberg Business flash. Francine . Francine thank you so much. With us is Bloomberg News Michael Moore. He moved over from new york to be able to deal with these banks. Great to have you here. When you look at Standard Chartered, we knew it was going to be ugly. Revenue was lower than expected because the environment is so much more difficult. You know, when youre in these emerging markets, it is great when growth is going well, but when things start to turn, you see it in the revenue line, in the provisions Going Forward, so it kind of comes to a head this quarter. Francine what does it mean for Standard Chartered Going Forward . They have a new ceo, an investment banker. Are we expecting him to announce a new strategy overall . Michael they held off on the dividend this year. They expect in 2015. They expect to bring it back this year. They warned that this is going to be another tough year. And so i think we may see more cuts in the future if things do not pick up, and more restructuring charges the way they have taken some of them, writing down their thailand business, writing down the portfolio of assets they are trying to sell. What is the major dynamic of the european banks right now . The Deutsche Bank flap the other day, maybe there is some quiet there. The hsbc shock what is the next shoe to drop . Is there another reorg . Michael the banks have already strutted have already started trying to do those reorgs. The market is not helping them out. If that does not you may see investors say, ok, that strategy was fine for the environment we thought we had, but given this new one, we saw with hsbc yesterday a couple of analysts came out and called for them to go beyond the cuts they have already made, and they said we have already got this huge program in place, we cannot overreact to two months. What if two months become six months tom that is the dynamic right now, going from fundamental analysis the financials here. People are getting clobbered in this space. What does the chart say . A lot of these stocks, these are 20year lows. They are not twoweek bear markets, they are twentyyear bear markets. I have to believe that is part of the story. Correlate curve flattening into chart analysis of banks . Absolutely. When we look the banks that when we look at the banks when we look at the banks relative to s p, it is all part of the same story. Fran, can you figure out a basketball barb for Michael Moore, so he can watch dukenorth carolina basketball . Francine michael, when you look at banks, you keep on saying that here in europe were where we were so late to the game and wall street has been doing so much better. But we were expecting jpmorgan day today. They have issues that tom and i tried to explore in the last two weeks. We still do not have full exposure. Full disclosure. Michael there is nothing to drive transparency like fear. You are seeing some of the banks come out and say here is our Investment Grade portfolio, the junk portfolio. I think you are starting to see that because this commodity one ors not been a twoquarter issue. Tom Michael Moore, thank you very much. Gary shilling wants to dive in as well and link that into the global economy. Lets look at our data. We look at equities, bonds, currencies, commodities churn today. A stunningly strong yen this morning with the euro weaker. Crude oil fragile. Trying to fear trying to find a bid up or at resistance. Bloomberg surveillance. Francine these are london live pictures. There is a little bit of drama. It is very emotional, tom. If you look at the referendum for june 23, the cabinet is split. The Prime Minister is split with the mayor of london. Maybe you can see a little bit of a turner in that picture. It is time for our morning mustread. Earlier on, we spoke to the chief Financial Officer of php billiton of bhp billiton, peter bennett. There is still uncertainty as to when high cost production will exit as prices come down. They tend to be sticky, and it takes a little bit more time, probably, then people would hope or expect. Why it is so difficult for calling the bottom of a lot of these prices. The downward trend will continue for a little bit longer than they thought. We have two great guests in our studio. Gary shilling, what does this tell you about the turmoil . It seems much more difficult to read where the economy is going and where currencies are going. Thing about commodities if you particularly talk about the minors, it is a classic cycle. They did not understand what globalization was all about. It was shifting manufacturing principally to china and other developing countries. It was not a worldwide enlargement. Involved in all these huge products that come to fruition in five to 10 years, tens of billions of dollars, and they are now stuck with this. It is a classic commodities cycle. You see in an agriculture, commodities you see it in agriculture, minerals, and you see it today. Have these two guests an week ago for an hour on this one chart. Gary shilling, i just heard the cfo say just need more time for how many times in your career have we had wellintentioned accountants say we just need more time . Is not mored say it time, i would say it is more ceos. They have turned over every major mining country in the last couple of years. Tom Chris Verrone, when a stock is in freefall, there is no way you will get back to whether it is bhp billiton on my chart of the year, bring it up with the extrapolation. The longterm commodity chart, with the extrapolation out, which is always a risk. How do you know when to get in in a freefall . You do not. Chris you do not. The message here is when something goes down by half, such as copper or oil, it takes years and years to repair that damage. Think about oil in 1985, neck and 86. Then own 7 , and i think that is a reasonable playbook, that we do not make a lot of profit. This is just brilliant. I cannot say enough. Clinicliton on, it is a for global wall street. Coming up across all bloomberg platforms, at 8 30 this morning, david kelly will join us on the linkage between the markets and your investment accounts. Improved, negative four to negative two. Bloomberg surveillance. Francine this is your data check. It is important because you can see there is a lot with european stocks they are still down, but that follows declines in shanghai. It is all about yen today. 112. 04. Crude is also slumping. Gemmill and chancellor Angela Merkel is rejecting critics from her own party who want to track down refugees. Democratic Union Candidates in two state elections have broken with her a new report says there is a bigger chinese threat in the south china sea. China is building a High Frequency radar station. The report says the radar would help china establish longterm effective control over the area. Oceans are rising at the fastest rate in 28 centuries, and it is largely because of Greenhouse Gases from human activity. That is the conclusion of a study published in the proceedings of the National Academy of sciences. Eventually rising oceans could lead to many coastal cities being abandoned. Police in kalamazoo, michigan, say the man charged in the he isrampage charged with killing six people and wounding two others. Gatesy leaders and bill company are siding with apple, which is if using a court order to help the fbi break into the device. Gates tells the Financial Times the government is the order is no different than asking for bank or telephone records. The orderwarned that is a dangerous precedent. News 24 hours a day, powered by our 2400 journalists 150 than 115 euros news bureaus around the world. At one you want to look dichotomy today, it would be two companies who say they will pay out to shareholders. One is bhp billiton on, which is cratering, and the other is home dividendth a 17 increase. There are some very good things happening out there. Christopher verrone with us from strategic us research. Research. Rategas and Gary Shilling is here. You need to b explain to me again why monetary authorities have gone to negative rates. Gary i think they are doing it out of desperation. They knocked the reference rates down to zero, then they went to quantitative easing. All that it was put money in the hands of upper income people. Tom and real estate. Gary and these guys do not know what else to do. The thing is, they are given credit for having tremendous power. Everybody hangs on every word that janet yellen says or any of these Major Central Bankers say, and these guys i think they vastly overrated themselves, not in terms of forecasting and they are way high on their forecasts but also on their ability to control the economy. Tom let me ask you first, is the flattening of the point to spread, the difference between the 10year and the twoyear, a recession indicator . The it normally is, but fed is pushing up short rates. Every time you get an inverted yield curve, you always have a recession. We are not near there. Damp close,ve that but now short rates are angered essentially. Tom before we go to Francine Lacqua, tell me about curve flattening. Chris it is not just the last six weeks, it is the last six months. I think the curve continues to flatten. Gold gets the joke here. Gold has been early in calling all this. We think it is more than just a bounce. I would belong on gold here. Tom francine, what do you have . Francine gary, what i dont understand a school of thought that you seem to be a part of, that was Central Banks are doing is not working. Then what is the solution . I know the counterfactual is difficult to analyze, that if the Central Banks had not been there and the state stops doing anything at all, how do we do with the world we live in . Gary we are going to turn to fiscal policy. We are in a world where we have had no real growth in real incomes in europe and in the u. S. In 10 years, and it is like a moving network it is like we are madetwork, as hell and we are not going to take it anymore. That is why you have the National Front in france, jeremy orbyn in the u. K. I think we will see a push for fiscal stimulus. It could be defense spending, it could be infrastructure. We will see how we go into the u. S. Election. And other elections in other major countries as well. Francine fiscal spending lets forget austerity. We do not care what bond speculators tell us and that will get rid of extreme politicians . Gary what will happen, not what should happen i think there is that pressure. Politicians look around and they say the voters are not happy. You look at bush. If you go back one year, he looked like he had it made. He is gone. And ted cruz and marco rubio are slugging it out against trump, and you have hillary being knit that by a wild man, bernie. People very much what voters angst is all about. Tom Chris Verrone, a lot of stocks are doing a lot a lot of stocks are doing remarkably well here, with home depot and select banks and others. How do you find the attributes of a good stock technically. Chris one of the leadership characteristics here has been dividend yield. When they are 30 basis points in germany and zero in japan, owning yield matters. Phillip morris broke out this week. Kellogg broke out this week. These are highyielding stocks that possess the characteristics. Tom what, are you plugging in one of his books . This sounds like Gary Shilling 101 here. Gary glad to get confirmation. Tom will we see use of cash buyback and all that . Chris buybacks are not working. Companies that have announced buybacks are underperforming. Look at germany. Every Single Company in germany that pays a dividend pays a yield greater than the 10year. That is meaningful. Selflow, the celllow, buyhigh they do not buy them when stocks are cheap. Investors want something a lot more permanent, and dividends are harder to cut then discontinuing a buyback program. When we look at the types of stocks that are working right now, it is coax and smokes it is coats and smokes and guns. They are still retaining leadership. I tell i think that tells us something about Risk Appetites. Francine i wonder about the same story in europe, chris. We are in a different story, right . Chris when you look at the type of stocks working, whether it is the u. K. , germany there are very similar characteristics. Being aver in the u. K. , consumer stable name, quite defensive, that has been good on the chart. Look at the pan with some of the look at japan with some of the telecoms. This is broadbased across the world in terms of what is working and what is not working. Tom Chris Verrone with us, and Gary Shilling. We will continue this conversation, really across all finance, and investment. They will speak about their annual report with a real focus on energy. Bill gates constructive view on energy. It is bill and Melinda Gates. Look for that across all about media platforms this morning in the 8 00 hour. Bill and Melinda Gates. Francine this is bloomberg surveillance. Lets get straight to a Bloomberg Business flash. Home depot reported fourthquarter earnings, topping analyst estimates. People are still willing to fix up their homes spurred by rising house prices. In the quarter was 1. 17 per share. Western digital has agreed to sandisk. They can up with an alternative arrangement. The money from the sale will be used to pay for the sandisk acquisition. United technologies walked away from merger talks with honeywell because of concerns the government would scrap a deal. The combination of the two aerospace companys would space which face would face regulation. Much per letsso do a single best chart. We need to do that with Chris Verrone, great on trent. If the trend is your friend, maybe the new trend is looking silver. Delphia gold and we always go along with gary. Chris verrone, we are at an important point. James steel of hsbc fundamentally says go long gold. Chris verrone, technically, says go long gold. Why . Chris number one, i have been impressed the last week and a half. Secondly, there is a case to be made that we have seen a very powerful momentum surge in gold over the last few weeks. Change over the gold and silver index is the greatest we have seen since 19992000. There is a case to be made that the trend here will be with the early leanings, they are changing. Good support. I get long there. First, Second Derivative of the goal is that signaling deflation . Heart out rip my here, tom. We are still headed for deflation. Get this out on twitter we are still headed for deflation. Francine i want to still talk about the pound. Is there going to be renminbi devaluation . Gary more supply than demand. That is all there is to it. You have slowly growing demand, but huge excess supply. We are talking about bhp billiton. All these other minors, you are looking at all these commodity who thought china was going to continue to buy bank all the commodity to buy all the commodities in the world. Globalization is basically over. You have shifted all the manufacturing out of the u. S. And europe that you can. That is over, so you do not have those factors working, and you simply have excess supply and slow demand. We are in what i call the age of deleveraging, working off the ss off the excess debt from the 1980s and the 1990s. In effect slow growing demand, excess supply, and what happens yeah cap it pushes down prices. About thetalking pound, because i am in admiration for a lot of Technical Analyst who talk about the pound on Technical Levels. It is emotional, and we are not really sure about what people random coming up with a with the referendum june 23. Here is lowernd and we have a rally off the january low. That rally failed, and we think this goes to 130. 130 from 140. Tom continue. Where is my bloody mary . Story is if weer get pound into the 130 neighborhood, can euro stay in the 110 range . We do not think it does. We have been calling it Mario Draghis nofly zone. Bring up the tradeweighted sterling. Only on bloomberg do you get 14 ways to look at a currency. That is what ben bernanke would call a rightangle move. Of 11s the correlation big figures on sterling over to euro . Start there. Blows through parity, 0. 82 . Chris i think parity is in play here. I do not think that is out of the question over the next 18 months. The story here is differentials on the rate side. You,i will go for differentials on the ratesided chart. Cameron or way anyone after him will allow a 134 sterling. What will they do to defend . Gary they will do their best to fight it, but again, virtually all these countries would rather have a weaker than a stronger currency fundamentally. They get into a big fight over this in the eurozone. Howd a 130ow do they fight sterling . Chris at the end of the day, it is all about price. We have seen it with aussie. It has gone lower than anticipated. Tom stunning. Francine on fortress dimon what do you have . Francine we are getting a little bit of news from the web presentation jamie dimon will be talking to investors a little bit later on. They are talking about cost cuts. They are certainly talking about continuing cutting costs. They are focused on expensive cuts, rationalizing these caucuses that we were exploring with Michael Moore. They see the priorities for 2016 streamlining the support function. I guess this is one of the quickest ways to cut costs, and they see strong growth in deposits and core loans. Gary why are the banks paying huge salaries and bonuses to people, and then when they decide they have got to cut, they just cut them off . It is a hell of a way to run a railroad. Tom it may be, but are we going to see bank consolidation, a la Andrew Mellon in the 1930s . Gary the banks push back and say no. So they say we will regulate you to the point that will make you wish that you were broken up. They are being pushed back to spread lending, a much lower return area, and what happens . With a flattening yield curve, you just do not have the money. Draghi says the profits of the banks are none of his concern. Well, they will be if the profits are so low that liquidity is threatened. Tom we have Gary Shilling fired up, and Chris Verrone on the 130 sterling. Coming up, we will continue the bank discussion. Inard cassidy bought lobster at . 20 a pound right after the pilgrims went north. Later today. Stay with us. Tom we are talking for an exchange this morning. Chris verrone with that outlandish call on a 130 sterling, three down, sterling. 1. 4103. 43. 0 3 i look at yen as well with a much stronger handle. Pound, 1. 4103. At mark carney is testifying in front of the select committee and he says he what does he says he does not want to weigh in on brexit, what he says the uncertainty is weighing on the currency. Chris came out with this 1. 30 onle call of sterling. Is that whether the u. K. Leaves the e. U. Or not . Are we in their territory number to what happens . Chris i think we are in a bear market irrespective of the macro backdrop. If we look at the price action over the last 30 or 40 years on the pound, the 140 level has been tested on three or four occasions. I think at the very least you have to circle the 135 type neighborhood on this chart. How do you model a brexit . That ise dont, and well beyond what we do when we look at charts. In fact, i think what is important about our work is making the call irrespective of the brexit backdrop. This is a picture that has been under pressure for the last year and a half. I think globally a lot currencies versus the dollar continued to weaken. Tom this is where i want to go. Lets look at the chart we did yesterday. Thanks to Robert Burgess on our currency fixed income team, particularly the article on what francine brought up on brexit. Here is sterling back to thatcher, back 30 years. , andt a real stability here is the weakness before. Chris verrones call is to new 30 and 40year weakness on british pound sterling. Does that get us to a dollar that goes through the reuben Dollar Strength and he comes plaza accord like . Now isthe dxy right sitting on the 50year average. Nothing is average on our business. Youre either two standard deviations above or two standard deviations below. That gets pound lower and euro lower. Currency is the litmus paper of this system. When you hear mr. Perrone talk about 11 big figures in sterling and a dxy to 115, this becomes washingtons problem, doesnt that . Gary it becomes washingtons problem because it is the rest of the worlds problem. Theyre in mind that we have a relatively small export exposure in this country, 13 of gdp. Anada is 30 , germany is 15 it is almost like after world war ii when we took the brunt of rebuilding japan, rebuilding europe in other words, that is the way we maintained world order. We are trying to stabilize the world when you have a deflationary world that few politicians understand. I am not sure politicians exclusively look on that in washington and say it is up to us to be the stabilizers of the world, but in a sense that is the role they are playing. Francine it goes with the job description. Gary sure. You are in the u. K. , francine. That is what you did in the 19th century. You basically stabilize the world. Tom and you were there. Gary oh, come on, tom i was a youngster, though. Tom we have to do this every 90 days. We had to do a thing with Gary Shilling and Chris Verrone. These interviews will be out on twitter and facebook later today. Just extraordinary or a coming up, annexed ordinary 8 00 hour across all about platforms. Bill Melinda Gates gates and melinda they focus on energy. Look for that next. When youre on hold, your business is on hold. Thats why comcast business doesnt leave you there. When you call, a Small Business expert will answer you in about 30 seconds. No annoying hold music. Just a real person, real fast. Whenever you need them. So your business can get back to business. Sounds like my rides ready. Dont get stuck on hold. Reach an expert fast. Comcast business. Built for business. Standard chartered takes a dive. Villagers said bill winters said 2016 will be a difficult year. Ceos publicly backed David Camerons campaign. The bank of england is staying on the sideline. And the numbers did not add up. Drugmaker valiant said it will restate some of its past earnings after a board review. A warm welcome to our best to you all, this is bloomberg go. Stephanie a big morning, lots of great people we are speaking to. Like our next guest, jurrien timmer. Welcome. We have a lot to cover with you this morning. But first, we, have to get some first word news in. Heres nejra cehic. Nejra another controversy in the presi