Francine this is bloomberg surveillance. Im Francine Lakhdar in london. Joined by the chief Investment Officer. We will speak exclusively for the provincial ceo. We will be joined in the studio in 35 minutes. Just after those earnings come on. In the meantime, a lot going on in markets. Tensions surrounding the korean and insula. Korean peninsula. A little selloff in asia, in little cellophane european stocks. Down from 0. 2 . I am looking at the Dollar Strengthening the day before the u. S. Inflation data. That is what we will be focusing on. Oil advancing and looking at the 110. S, again, the fix and deck skinning a touch. Lets get to a first word news. Nejra south korea and japan have warned north korea it faces a strong response if it carries through with the threat to launch a missile towards the u. S. Territory of guam. It comes after the regime outlined plans to hit the island after trumps comments about releasing fire and. Kenya sliding to a political crisis following allegations hackers interfered with vote tallies from general elections. Protesters took to the streets after the Election Commission released initial results showing the president with a commanding lead over his main rival. Only to say later that the tallies werent official. The new Zealand Dollar losing ground after the countrys antral bank held its rate at record low. It was also said he doesnt expect to raise rates for two years amid weak inflation. The former Google Engineer whose controversial memo has triggered a debate on gender differences and diversity has defended his views. Speaking to bloomberg, he said Company Executives are smearing him at the memo went viral. I shared it with many of our diversity programs, but and with individual googlers, but no one higher up ever came to me and said dont do this. Even though there were many people who look at it. It was only after it got viral that the upper management started shaming me and eventually firing me. Googles ceo has issued a statement saying our job is to build great products for users who make a difference in their lives. To suggest a group of colleagues have traits that make them less suited to that work is offensive and not ok. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. Hitch thank you. Francine inflation has been the major headache for the Federal Reserve and James Bullard said the failure to lifted to the 2 target is eroding credibility. He spoke to bloomberg ahead of tomorrows u. S. Inflation data. I think there has been surprised from inflation coming into the downside during the spring here. Reallyjust tiny amounts, by a large amount compared to the progress we have made through 2015 and 2016. Francine meanwhile, two of the biggest Money Managers say it is time to dial back risk. Pimco is advising to reduce highyield debt and lower risk assets and mortgagebacked securities. Price group has cut its holdings in highyield bonds and emergingmarket bonds. Biggest names in the Asset Management industry have issued warnings. Lets bring in the deputy chief Investment Officer at credit suisse. Great to have you in london. Let me start with you. When you look at the world with live in, does everything depend on fed . If you are on the wrong side of the what the fed will do next, could you lose probably more than ever . I think it does and it doesnt. The feds following markets and markets are watching the fed, but inflation is dead. But may be an exaggeration, to date it for a couple of years. The murderer is not the fed or the Central Banks, the murderer is amazon. They areese companies, deflationary. To put it short, the internet has killed inflation. That is one of the reasons workers of this world arent revolting. Because Consumer Prices have been stable or lowered. There has been no pressure for them apart from the fact they are less unionized than 20 years ago to revolt against stable labor prices. There is no inflation around the theer from as long as internet is brutally keeping prices in check. Francine you agree with that . It would mean the fed is focusing on things and we should have a whole new metric to measure the strength of the economy. It is hard to disagree with that statement. It has a considerable amount of evidence behind it. A number of other factors are keeping inflation low. There is economic insecurity. Despite high levels of employment, countries like japan dont think i certainty about future income is what it used to be around levels of unemployment. I think that is crimping the Bargaining Power of workers as well as their desire to trade off inflation but in general, i think inflation is mysteriously low. It cant be fully explained by some of the spec is. It is therefore, in some ways, the big risks for portfolios. If inflation surges, it will undermine stock and bond holdings. Francine are you sure the fed is wrong . This is a way of measuring trackson, you can see it itself, but there is a bet on whether the fed is right, they can hike rates. Or you believe mom bond markets and they wont he able to. Where do you stand . Burkhard i think the fed will still raise rates one more time. Just to document they have a plan and they can follow up on they are they said, data dependent and the labor market is doing as well as ever. Will signal strength and confidence in the economy and low dollar will do it warranted. Warrant it. Burkhard i believe larry we are beginning to shift away from ap reliance in equity data in terms of returns. We are not necessarily underweight in equities, but we want to augment some exposure in that space with nondirectional types of positions. Some areas Mortgage Backed securities, we have been longtime holders in off the run securities. I would suggest the target return strategies, a combination of relative value trades are supposed to pick up incrementally, but with equities and bonds, a fruitful place to be. Francine do you worry about distortions . You have a few players in the markets, so if something goes wrong, the amount it could swing by is anonymous. Larry it makes more of a difference for individual stock tickers, and managers in that space. We have releasing all fact these days. Fact areo a single called momentum. Momentum has been driving security level returns in ways that have been unusual relative to houston or he history. That is where the greatest amount of tension in the market resides rather than the fx level. Francine do you see the momentum turning quite quickly . Burkhard it always scan, and that is why you have to stay diversified between all types. Who hasook at someone been up in the game for more than 10 years, why is he continuously up in the game . Not because he is beating every time he scores, but because he makes fewer mistakes than his opponents. That is what sets them apart from the other 99 and top 100. Investment is about making fewer mistakes and there is a craft in that and the deceptively simple secret to it is being well diversified against those sudden swings you refer to. Francine great analogy. Equities are telling you one thing, bonds are telling you one in. It is almost able binary position. They cant both be right. Which one is . Burkhard at the margin, if i was coming from mars, the earth looks like a beehive. Industries are rather productive, there is a synchronized global upswing, i wouldnt spot the geopolitical challenges right away because they are underneath the surface and then i would spot investors are paying an incredibly high price for the security of government bonds and relatively little for shares. So something is wrong. Suggestingield curve we are in a strong upswing. One of the strongest in the last 20 years. You should go with where risk premiums are highest and they are higher in equities compared to bonds. That is why a balanced investor in our case, we recommend something around 45 percent in shares. Francine you pulled back, youre more cautious. Larry somewhat, i wouldnt want to overstate the degree to which we pull back and we like aspects of the equity markets, including emerging markets for valuations being compelling and they earnings are there. Also like the secular story on earnings in japan. There are areas of equity we like, but we have been on a 12month uninterrupted run in terms of share prices. We have been fortunate in terms of the earnings recovery we have seen but a lot of that is priced. We are not seeing a lot of momentum in stocks, suggesting good news is pretty price. Suggests we balance those portfolios. It does speak to the variation points made, which we would agree with. Francine thank you, both stay with us. Lets get to the bloomberg flash. Nejra foster wall Street Investment banks can count on hefty bonuses but trip that is projection from john shimkus associates. It says fees rose after first quarter. Other passive investments mean equity traders may see flat or fall as much as 5 . Has built a war chest in the first half of the year continuing to cut it as it ramps up acquisitions. While profit improves, the Worlds LargestCommodity Trading house kept dividends unchanged 1 billion for the year and used the extra cash to pay down borrowing. Is chairman of bloomberg lp a senior independent nonexecutive director at glencore. There is a potential avenue offer to buy chancellor communication. The European Telecommunications company and its american subsidiary have yet to decide whether to bid for charter. It isnt the only possible bidder for charter as softbank wants to merge with its struggling company sprint. Toshibas auditors have signed off on its fullyear earnings. They reported in a. 8 net loss. The Japanese Company struggles to stabilize after an accounting scandal and illegals that it threatens to delay the sale of chips business. That is the Bloomberg Business flash. Francine thank you. South korea and japan have warmed warned north korea that it would face a strong response if it carried out a threat towards juan guam. The proposed launching four missiles there after President Trump promised fire and fury. Our guests are still here. At anot sure how you look lot of this political or geopolitical concern, it is not really playing out on the markets. Is this because the market doesnt know how to traded or he they shouldnt work worry about it . Burkhard it is frightening, as a citizen of this world, it is frightening that multiple leaders of this world are engaging in such tough and frightening talk. Besides that, your question related to markets, these are at onegular risks which hand are impossible to predict because they are low probability, but if and when they hit markets, they have a massive impact markets are not prepared for it and if they do, the diversification will be the only thing that will be helpful and some investors will go to run into cash or gold. That is what is going to happen. Francine larry, let me bring you to my chart. To the point about cash and gold, this is the threemonth risk reversal on the south korean. Were calling this chart saber rattling. It is unfazed by what is going on. Is this different from previous times . Larry a bit different and we safe havenome other asset classes, for example gold, the value of the swiss franc, movement. It has been sent to the relative to the small probability of a very bad outcome. What markets are confronted with is more uncertainty than certainty. To elaborate on that point, had the comments that had come out of the white house this week come out of a previous white house, i think we would know very clearly what is about to happen. But in this white house with its very unorthodox methods of communication, it doesnt give us any clarity about what comes next. Therefore, the markets dont know how to judge this situation. I think that is probably the big difference between today and earlier episodes where the kind of language would have prestaged intervention. Francine were calling this chart, use your haven currency wisely, because there has been balance on the swiss franc even compared to yen. Does it go to cash if anything happens . Larry the swiss franc had been one of the worlds weakest ,urrencies against other things so there wasnt some point when the market was perhaps oversold and there is that correction going on. Moment, markets are waiting and seeing and i think the real actor they are waiting for is china. China is a silent but potentially important partner for those that perceive north korea has gone beyond a certain line and how china responds now is a dictator of how the market response. The grim i feel like reaper, but what if markets dont function properly because of this we havent seen normal Interest Rates for about 10 years. Yesterday, the tenyear anniversary of three hedge funds frozen. One of the reasons is asia in general has not been an area for geopolitical concerns. Dont know how to price this ordeal with us, how to judge the probability. One things for sure, if this willthe wrong way, the yen have serious issues. Francine eli quick ways you like equities, what else . Burkhard diversified portfolios, bonds and hedge funds to support and diversified equities and still believe Commodity Markets should still have a leg up before they can reach their next plateau. Francine larry, what do you like . Larry we tend to like certain areas of credit i know that is falling out of favor, these generic high yields, but i think there is opportunity at the security leveler. I do like folios from the point of diversification portfolios from the point of diversifications, looking at idiosyncratic risks. Think we also have to condition ourselves after strong period of returns in equity markets for something more subdued. We should really be conditioning our own portfolios as well as client expect haitians on the second half client expectations on the second half. Francine the weight of the Balance Sheet, the bank of japan, European Central bank, where does the biggest policy mistake could it come from . Larry probably not any single central bank. We could have a central bank that delays normalization for too long or is too hawkish too soon. But it is probably more about the general shift in Monetary Policy we are seeing led by the Federal Reserve, the ecb at jackson hole is likely to lay out its program for Balance Sheet adjustment and the potential for the removal of negative Interest Rates. The Swedish Central Bank is likely to move in the same direction. It is kind of the normalization of Monetary Policy on many that ist footings slightly the biggest risk in the adjustment over the next six to 12 months in markets. Francine jackson hole, august 24th and 21st. Up next, the man behind the memo. The engineer fired from google on his comments on diversity in the tech industry. This is bloomberg. Francine you are watching bloomberg surveillance. The former Google Engineer has caused uproar in silicon valley. He authored a memo asserting there are biological reasons for gender inequality in the tech industry. That cost him his job. In an exclusive interview, he defended his stance and said google has smeared his name. I support diversity and also,ion and i think that our lack of ideological diversity has hurt our projects it makes usand think that, for example, just the stereotype that all conservatives are stupid, for example, that is widely held within very leftleaning circles and that has hurt us. It makes us alienate large portions of the population. Susan talkeded, about how her daughter was asking her if there were biological causes for the lack of women in tech. The things that you said are being conveyed to the next generation and we have talked a lot about the importance of getting more women into technology. View you have a concern that your views could discourage young women and young girls from entering technology . No, because a lot of what i was just saying was that there are simply fewer women that want but ifinto these fields, you are a girl and are interested in technology, then that is great. Manyn, there arent that people in general that are interested in technology. It is not as if 50 of the male population is in tech. It is still a small percentage. If anyone is interested in technology, they should pursue it. Francine that was the formal Google Engineer speaking to emily. The ceo also issued a statement and said our job is to build great products for users to make a difference in their lives and to suggest a group of colleagues have traits that make them less biologically suited to that work is offensive and not ok. That was the google response. Latest u. K. Manufacturing and Industrial Production data. Both sectors bounce back from losses last month. We also talk brags it. Brexit. Good morning, everyone. This is bloomberg surveillance. Thats get to the first word news. South korea and japan have warned north korea it faces a strong response at the kendrys through with a threat to launch missiles toward the u. S. Territory of guam. Northafter i plant korea outlined a plan to hit the island after President Trumps fire and. Elease. Opposition allegations that hackers interfered with vote tallies from tuesdays general election. Protesters took to the capital after the Election Commission released initial results showing the president with a commanding lead over his main rival. Only to say later the tallies were not official. Zealand dollar is losing ground this morning after the countrys Central Bank Held its official cash rate at a record low of 1. 75 . Says hes governor not doesnt expect to raise rates for two years and his deputy says the currency needs to adjust do