Transcripts For BLOOMBERG Bloomberg Best 20170121

The middle class is disillusioned by the future. The most important influence in the world right now is populism. It is all straight ahead on bloomberg best. Erik hello, im Erik Schatzker. Welcome to davos and welcome to bloomberg best. Of newskly analysis from around the world. Chance tod the discuss the worlds big stories with some of the worlds finest minds. Lets take a look at the top headlines. Off as as starting year of geopolitics led by brexit and the Incoming Trump administration, but no single country has more of a Global Impact than china. No one will emerge as a winner in a trade war. The president of chinas speech has a major message, a message that says, lets recognize the fact that we are mutually interdependent. We need to communicate using the same language. Sterling rallying today after Prime Minister theresa may gave her most explicit division yet for brexit. She vowed to seek a smoother brexit. I can confirm today that the government will pull the final deal agreed between the u. K. Antie. U. U. K. And the e. U. There are two things britneys to do it is clear there are two things britain needs to do. They can negotiate many things, but it is very important for britain to step aside and renegotiate with the rest of the world with their relationships on trade and Financial Services. The british Prime Minister mated clear that it is going to be the british Prime Minister made it very clear that it is going to be difficult for brexit postbrexit. What is she going to do . Everyone thinks it is like you pick up a mobile home and move it across. This is real peoples lives. Keep calm and work out a transition plan. Citigroup and Goldman Sachs wrapping up wall streets big bank earnings. Reporting results that beat analysts estimates. After a year of steep declines, that revenue uptick is the key focus. It is 2017. The crisis is ancient history. Goldman sachs is so much more profitable than Morgan Stanley in the Fourth Quarter . It is called Interest Rates. Goldman sachs is being a massive beneficial for the quantity easing program. People are buying bonds for the last four years because rates went from 12 40 years because rates went from 12 to minus one. They had one of the highest market shares. Rates unchanged from the ec be at 0 . Maintain 25 basis points. The Asset Purchase Program cap that 18 billion euros a month. After that come in april, will drop down from 80 billion euros and carry them through the rest of 2017. You can see the main concern of germans is inflation. European inflation jumped up in december, but german inflation shot up 1. 7 , that is double the rate it had been the month before. Germans really dont like inflation. It is concern it is a concern for the biggest economy in the e. U. We do not suffer from political problems. Inflation rate is likely to raise in germany up to 2 this year with zero Interest Rates. Try to explain to our voters and public that any decision has advantages. Steven mnuchin on capitol hill in his bid to become the next u. S. Treasury secretary. The foreman Goldman Sachs executive told senators that his that he will be an attentive stewart of the post. Im committed to being very responsible and my position the properly provide from the treasury department. The conventional wisdom is that it will be great for Goldman Sachs to have so much of the firms dna in the white house. Is that a safe bet that it is good for Goldman Sachs . That it is terrific to have a bunch of pragmatic Business People participating in the process in washington, but all of those people are going to be very focused on their reputations and their businesses. We will see how that balances out. I think this administration is focusing on growth, and to the degree that the people working in the administration can take a practical way on how we can celebrate growth, which provides opportunity and jobs for people across the economy, that is a good thing. In that environment, Goldman Sachs will benefit. Donald john trump do that i willar faithfully execute the office of president of United States the office of president of the United States and to the best of my ability and to the best of my ability preserve, protect, and defend preserve, protect, and defend the constitution of big United States the constitution of the United States donald trump of the official president of the United States. Plenty of trouble talk coming up. In the latest word on brexit straight from u. K. Prime minister theresa may. We want to trade around the world, but we also want to make sure that markets are working properly. Erik this is bloomberg. Welcome back to bloomberg best. Im Erik Schatzker in davos, site of the 2017 World Economic forum. Britishs exit from the European Union is the most unresolved issue facing Global Business today. U. K. Prime minister theresa may is developing a plan. We want to build a global forain that is an advocate free trade, free markets around the world, and a briton that is ensuring we are taking those opportunities. I want to negotiate a good Free Trade Agreement with the European Union. I want the best possible access for trade trading with an operating within. The market for goods and services i value trading with trading and operating within the market for goods and services. You dont think Financial Services Financial Services are a huge value to the economy. As we look ahead to the britain of the future, to the global i want to ensure that we have a good relationship, and a Good Partnership with the e. U. And renegotiate a good Free Trade Agreement which over for the u. K. And European Union. And will ensure that stability. Maybe bring in National Interest . Do you see a contradiction . What i talk about is a National Security aspect. I dont say contradiction to that. N we want to make sure markets are working properly. That is what gives people the confidence and globalization that is eroding. On confidence, the pound has gone down by a fifth. So far, you seem to be fairly relaxed about it. Poundre a level when the has parity with the dollar . We have seen different movements in the pound in the last six months. What we have also seen through the other Economic Data is the strength of the u. K. Economy. The imf has made the point that lasted with the fast as major economy. Of unemployment coming down. Economy. Rength in the i look across the atlantic and i see donald trump, who at least on the face of this say a protectionist attitude. What you going to say to him on that . If we look around the world generally, there is a question about free trade. It has been questioned and goes back to what i was saying earlier about the people. They feel that globalization has left them behind. Show important to responsible behavior by business. Government is taking the right workto ensure economies for everyone, but also show people the value of free trade. Trading around the world is the engine of growth in the engine of our economies. Global bankers are bracing for brexit and jpmorgan ceo jamie daimler has been frank about the negative impact of the splits. Not just for his business, but for the Global Economy. He also sat down with john nichols ways. She has made it clear that she is prioritizing emigration over the Single Market and does not want to get as vessel deal for Financial Service is. You are a global bank based in london. You hire a lot of nonbritish people. Surely, this surely, britain is heading into the wrong direction. London is a fabulous Financial Center where we have huge kinds of scales. When they change the rules, yes it will reduce jobs. The brits decide who we compete with around the world. It is up to the Prime Minister and parliament. It looks like there will be more job movement that we hoped for. Coming back to new york in terms of we dont know yet. The e. U. Could put in very stringent rules which will require some of those jobs to move into the e. U. , or they can be more flexible. It depends. Remember, 27 nations. The negotiations will take quite a while. Another election in france. Is that one of the worries you have . The worry was not just the effect on britain, but what it says for the longterm health of europe. If you were wishful thinking, which i was a little bit, breaks it would cause the European Union to look at what rate wrong and fix it to look at what went wrong and fix it. Looks like they are doubling down. Europe is not fixing its problems in response to brexit . The same political things about immigration, who controls the laws in the country come how much flexibility in flexibility you will have. The euro sum and not survive. That is a very complex thing. You have a very pessimistic view of europe . I do. Unless they change. They will have to change to become more competitive. They are doing ok. Say this out of respect for the european people, but they are going to have to change. He may be forced by politics were new leadership. We will have to see. More of the weeks conversations from davos coming up. Donald trump has been talking tough on china. To the world worry about a trade war . Multiplying things that get said to create enormous anxiety is i think a little overdone. Erik this is bloomberg. Erik you are watching bloomberg best. Im Erik Schatzker. Donald trump and not appear in davos this week, but is present was felt. Here is a taste of the conversation about trump, starting with trump advisory who sold his stake in Cyprus Capital to join the white house, and came here to speak on behalf of of the administration. If there is one message you want to convey on behalf of the president elect, this gathering right here, what is it . It is a basic message. The administration wants peace and global prosperity, but one of the past did that for us is to help workingclass families and middleclass families in the United States. What i explain here is if we can come up with a right policy to see real wage growth in the United States, that will be great for the world because at purchasing power will filtrate and me to more global growth. Represents amp hope for globalism. If you can fix and insurer the in situation and the United States, italy to more global demand. Erik what is the question you keep getting about donald trump youre trying to answer . He is a very interesting communication style. More time you spend with him come you recognize what he is doing and understand his medication style. Erik that is not working for these folks . These folks are used to a certain type of buttoned up, politically correct presentation style. It is more synthesized to be inert. The president is designed to say things that will cause an issue anywhere. I think he has a more authentic, refreshing delivery system. And i think people are going to start to appreciate that more once he is president. If erik for all of the think donald trump is promised to do, which of those are of interest, or of concern to you and carlisle . I want to talk about it at the ability of business expense. I view myself first as an american citizen and i am more worried about the country and the issues that i am about what affects us. Look atthat i dont things from the only perspective of carlisle. We want higher growth. He says he will produce higher growth. Clearly, we would like some tax relief in the corporate world, and he said he would produce that. We think less regulations would be good and he said he would produce that. From working government, saying what you are going to do and getting them done are different things. The United States Congress Takes care of tax legislation. It takes a long time to get it done. I suspect they will take nine or 10 months. There will be uncertainty for a while. I think he are ready has. He talked with executives that are bullish. Three years,e next maybe before the next election and donald trump seeks reelection in four years, it will be quite a difficult picture because a big deficit still. Willhe is proposing probably increase the deficit to some degree. Those three patch related funds, will they go into Capital Expenditure and innovation and branding . We believe that drives topline growth. S p 500 effectively shrinking. Last six quarters, the paid out more in dividends and buybacks then the obtained. Management is advocating responsibility. But that is expecting to change . That will change, but the what mighttrump is be good for the u. S. Economy, but what does it mean for the Global Economy . What we see is a new administration talking about growth and talking about infrastructure spending, tax orm, and things repatriation, things that are pro growth. We like that. Erik if they were going to change the tax policy on , or if it were a holiday entirely, how much would you bring back to the u. S. Overseas . I think you will see Companies Like ours across all industries, bring capital back onto the Balance Sheet of the United States which will likely be a good thing. Seen is clearly a concern about president trump, bothe team he selected people being appointed into government and the advisory council, all indicated a level of engagement at a business level that is encouraging. There will be changes to the way nafta is constructed, or maybe there is an overlay to nafta. Againstt that he is free trade, but the agreements that were put in place for not great deals for the usa. Onlya presumption exports is good. , we would guess probably disagree in the sense that put aside the globalization which has pejorative terms, but free trade and open market is definitely open market definitely result in a lot of people prospering over the last 30, 40 years. There are studies that prove that. Eight, global trade, free trade is regarded as a force for good generally. Many people have told me they are concerned about donald trump may do visavis china. What do you think . Part of it is the u. S. Generally has a pretty unbalanced relationship with many countries in terms of taxes that get paid to enter another country. We let people come into the United States for free. And so, that whole aspect, not particularly visavis china is being looked at by the new government. Erik but he has singled out china. Do you worry that if he were to pursue an aggressive policy on trade with the chinese that American Companies would lose some of what they had in china . The Market Access . I was at a lunch yesterday and talk to the president of china, and it was a good conversation. Erik what did he say . He was very positive on the longterm relationship between the countries. Basically said erik he told you this . That is what i just said. Erik im just making sure people understand. Yes, they understand. He said he was ready to engage in the time was right and the u. S. Had figured out what his positions were, and that they have gone through many u. S. Administrations with many chinese administrations, and he was anticipating being able to work things out as are the u. S. , despite the kind of language that from time to time, his he has employed. It is early days, so multiplying things that get said to create enormous anxiety is overdone. Ahead, much more from davos. Populism is the number one issue markets had better be ready to deal with an as the global banks give their forecast for 2017. Economies are beginning to slowly grind to a higher growth rate. Erik this is bloomberg. Most of them sat down with Bloomberg Television to talk about the state of their business and the Global Economic outlook. There is an expectation 17 will be better than 16. Talk about the low Interest Rate environment. So a change is positive. And remember our conversation in june, things were much more difficult in terms of valuations, and you have seen the recovery. The positive and negative is the same for everybody, all the uncertainty, political agenda, elections in france, netherlands, germany, italy, so it is always that balance between some positive and some less positive factors. Do you worry about deregulation in the u. S. . And it will impact european banks, because you are not on the same Playing Field as your peers there. We think for any industry, strong competition is healthy and benefits the customer. That is where you need to start the discussion. We want competition because that provides innovation and competitive products and services. So a level Playing Field is not negotiable. This is something we hope we can achieve. We have heard that a lot of the european Banking Sector is too complex. Do you think that 2017 is a year where they decomplex themselves . I think we are owning the process. And we want to make ourselves simple, more resilient, more compliant. That is what we are doing. In our transformation program, in 2016, we completely changed the organization. A completely new structure. We introduced a costcutting and cost efficiency programs. Significantly shorter capital position. 10. 2 when i arrived, at 12 now, almost 200 basis points in 12 months, that is material. So in 2017, it is solidifying that platform and also, as we go we will be launching initiatives that are medium and longterm to change the way we do business. Do you feel more optimistic or perhaps more pessimistic about the outlook for your businesses based on what you hear about the Global Economy and where it is headed . In terms of the Global Economy, people are wondering about politics, and that is a big discussion, but they feel good about the prospects in the country. They all are still trying to figure out what is going on with the election cycles, what is going on in our country as the administration changes this week, but still very solid, and that is what we see in the United States. There is a growing economy, people are spending money, so we feel good. Do you think 2017 will be the first year in a long while that your bank and others might be able to focus on Strategic Priorities instead of reacting to the Regulatory Environment and being forced to cut costs because there is so much pressure on the top line . We have been focused on that every day for a long time. So think about what we did in the consumer business. When i became ceo, we had 5700 branches, now about 4500. We had 15,000 salespeople, now 25,000 teammates. There has been a massive transformation. We did not even know we could deposit checks. Chip cards were invented, so massive strategic transformations in our business, it will go on no matter what the Regulatory Environment is because it is driven by customers. Mobile technology has changed the way customers interface with institutions. It is growing 15 , 20 , those are numbers let me ask you this, what can you do if the regulatory overhang goes away . I think it is more about capital liquidity than the way we operate the company. We will not change the way we operate the company in terms of doing right things for clients. It may become easier at times, but the reality is, what we do has not changed in the last 67 years, and we focus on drive, drive, and drive. I think there is a sense that right now the economies are beginning to slowly grind to a higher growth rate, which would be better hopefully for all of us. And the banks, including barclays, we are open for business and providing credit, and hopefully 2017 is a good year for the markets. Are we going to see more volatility, binary markets, as we figure out reflation in america and brexit . Let us see the longterm impact of brexit, my own view is it will not create an economic shock. Whether we lose 1015 basis points per annum, that is something that will have a price, but we hope like the Prime Minister does that, you know, the entire world is taking a new look at the United States, u. K. , and europe about trade agreements. The pacific trade agreement did not go through at the end of last year. We hope, like i think a lot of people, that the world continues to be integrated as an economic matter, and we hope the political rhetoric settles down and the u. K. Can negotiate trade arrangements with the European Union that are beneficial for europe and the u. K. You cant quantify it, but if you could qualify it, how disruptive would this be to your business . I think if rational minds prevail, and we will, we will get an agreement between the European Union and the u. K. That will be no more disruptive than what barclays had to do in the United States, creating a Bank Holding Company to exercise our Business Activities in the United States that we did last july. So, you know, there is uncertainty, which no one likes, but i do believe this system will come out more rational and there will be some movement, we will use other offices at times to books in trades, but i dont think it will fundamentally challenge the importance of london as a Financial Center for europe. You look at the markets, brexit, trump, everyone was saying how the markets would go down. Was that wrong . Did people get trump and brexit wrong . I thought there would be a shock because it was so different than what the pundits were calling for, but i never thought the markets would go down. Again, markets, the economy but first of all, the markets were trending more favorable anyway, but if you look at the policies that trump has committed himself to, they are quite stimulative and market supportive. You have now heard from theresa may, she wants to be out of the Single Market, her position is to prioritize curbing immigration over the Single Market and i will not give priorities to Financial Services. You are a global bank in london, and you employ a lot of nonbritons, and in the Single Market, so how do you sell across europe . I think the thing speaks for itself. Who am i . I take that vote has primarily a vote on immigration, so she as a politician, i think that has to be her declared priority, but at the end of the day, as you are correct, the Financial Service industry is so important to the british economy, it will take account and that will become an important priority and britain will have to take those issues into account. It wont be dominant. It wont be doing that to please our industry or Goldman Sachs. It is, it will be in the best interest of the british people in the british economy to be accommodative towards this important industry as they can possibly be. Do you think there is this strong possibility that the main gainer will be new york . So far, i would say that it is already a bit of a gainer. If we were operating our business to maximize global potential, we would get into the u. K. As much as we could, so if business needed to be done in the u. K. , it was always there. But if a business could not be done in the u. K. , we start to migrate. The time zone of europe is the best time zone from which to survey the entire world. You wake up with japan, and you go to bed at the close of new york, so that is the best place. If you live in new york, it is hard to watch asia, so we are on track to move more global activity and operations and technology, all those things made more and more sense to operate out of u. K. And out of europe. And so now we are slowing down that decision, and now we are moving there. We have to move there because we want to preserve our optionality. We do not value doing things twice. Erik more conversation from davos coming up. This is bloomberg. Erik welcome everyone. Erik welcome everyone. This is bloomberg best. I am Erik Schatzker. From Oil Production to film production, we touched on a wide spectrum of Business Issues with a wide range of guests in davos. Here are just a few of those conversations. I think there will still be volatility in the markets, but the agreement on the 30th is a milestone event in the industry. If you look at what is happening in terms of reductions of output, it does appear real, countries are coordinating and working to reduce output, and we are at 55, 60, versus 45. So it is significant for countries and companies in the industry. If these production cuts dont go to plan or people cheat, what kind of level do you have to base your forecast on oil this year . Next year, we are planning 55. The compliance, curtailments out of the middle east and russian companies. It looks like there is a real commitment. There is always cheating on the margins, it happens, but the big players are cooperating. We have felt for a while that the markets are essentially in balance. There will be ups and downs, but we think now that we can plan solidly, but we will be disciplined in how we spend capital. You have been given the job of running saudi aramco, an enormous transition now in saudi arabia. Do you think the saudi arabia that will emerge because of what has happened will be a different saudi arabia than what there was a couple of years ago . I think they are diversifying their economy and not relying on one commodity. That is something that is important and if this is the right time to do it. Do feel the weight on your shoulders . I think we will do our best and should help and support, because even though we are in oil, gas, and petrochemicals, we would like to have less reliance on the sector to support the economy. And i think diversification, we are putting more into chemicals, more into tools, and we are getting into renewables, so we are looking at different markets. So as a company, we are also trying to diversify. The kingdom is also trying to diversify and be less dependent upon one commodity. At the same time, we are maintaining our strength in oil and gas and expanding it. We have asked the chairman of the Film Association of the u. S. To pass a message to mr. Trump, lets leave the Entertainment Industry alone. No more please. Is there some way that entertainment is different . You talked about earlier that the chinese have limits on the number of films that come in from the u. S. Is it better to have no limits, or is there something about entertainment where people should be able to limit what comes in and what goes out . Well, in china, although we say there is controlled, as i said, there is also different categories coproduction, outright purchase of rights, and different channels into china. In the u. S. , more and more companies now are doing coproductions. For example, they will allocate a few films to coproductions, that is one way of bypassing control. But i would like to say that the u. S. Government, if it were to control investment, that would be a bad thing. Its great that china joined the wto, that they participate in markets, that they have been a huge deflationary contributor, have done a lot of programs in their country. There are financial imbalances, there is certainly democratic deficit in the way they run the country, so i would not say they are a model, but they are doing a lot of things right. The fact they want to engage in the world, i think that is great. You mentioned philanthropy, so do you see them beginning to emerge into philanthropy, jack ma getting to give away money . The sector that jumps in first is the tech sector, so people in india, a lot of the tech people are doing great philanthropy there. In china, the same thing. They are still in their 40s and 50s, still pretty young, but already whether it is health, environment, education, starting to give gifts, a lot of good dialogue between our foundation and their foundations about what works and what doesnt work. What do you consider to be the biggest risks right now, keeping in mind that we are talking about what appears to be an optimistic world . What are the biggest risks and how are you managing them . Biggest risks for us or the markets . Both. Oh, um i think the biggest risk of the markets is the geopolitical uncertainty. It is ironic to be here and everybody talking about populism, which is not exactly what the davos crowd is all about, so that is an understatement. Coming to a recognition that things geopolitically have changed dramatically, the brexit vote, the president ial elections in the u. S. , a number of other regional political movements, they are not, that is not a flash in the pan. I think there has been a fundamental shift, and i dont think that anybody understands what will turn it and what the implications are. Does it lead to legitimate trade wars and protectionist behaviors, etc. . So the biggest risk is the economicpolitical risks backed up by geopolitical risks, you know, international terrorism, the refugee crisis, etc. In terms of Morgan Stanley, we have risks every day in our business, but it is not obvious that i can point to one. There is not an outsized position we are taking. I like the business model. The word to describe the most important influence in the world right now is populism. It is no longer Central Banks most important, through my lifetime, they were the most important economic factor, no longer traditional fiscal policy. The biggest force and how it plays out in the world over the next number of years will be populism. Populism could be populism of the left or populism of the right. It tended to become more extreme. I think we are entering a time when worldwide it will be a more important issue. Those extremities where the communists and socialist on one end and the fascists on the other. If you follow that through in terms of degrees, populism is a force that needs to be understood and dealt with well, because the real question is, is it going to be smart or stupid . We need to be calm, collected. Calm, collected, thoughtful, careful, are those words that you would use to describe the donald trump you know . They are not words i would use to describe donald trump in this way. They are on the other hand possibilities of people who are around him. I erik you are watching bloomberg best. I am Erik Schatzker in davos. Bloomberg led several panels at the forum this week. On the future of finance, tom keene asked where sees the industry heading. Tom where is the future of big banks in five years . Well, we are placing our bets on technology. We are not sure the fundamental nature of products will change much, although regulation tends to impact that. We dont think the demands of our clients and counterparts will change too much, and that will help us predict ourselves and use technology to improve our own controls and efficiency. And we can then use technology to improve the customer service. Tom do you need people there within the technology and innovation in the future of finance . Do you still need someone on the watch . We do need people. We need that common sense. Those algorithms are harder to monitor. We have a mantra internally, exactly as mario said, we need to replace a lot of people who are actually performing the functions of computer. We want people to stop using their hands and eyes and start using their brains. When we upscale the work, people have much more value, then we get computers to automate what we hope will be much more standardized business. Erik in a panel called the crisis of the middle class, Francine Lacqua discussed the challenges of globalization with an Imminent Group of guests. If we have a middleclass that is disillusioned, how do you change that and get them back . I dont think there is any Silver Bullet. There are obviously elements of the middle class looking up and seeing how well an elite has lived, and seeing all the various benefits that have gone to people at the top of the income distribution. I think it is a mistake not to recognize that the middle class in my country, and i think in others, is also very concerned that people do not feel that the government is fighting for them. They feel that everybody else is being looked out for, the wealthy look out for themselves, others who are poor and they feel they are not being heard, and they have expressed that they are not being heard in the brexit vote, in the italian referendum, and of course the u. S. President ial election. We now probably, i hope, now have an opportune time to put into place the policies we know would help. I completely agree with larry that there is no Silver Bullet response to that. It is really time to say what policies do we have in place . What more can we do . What measures do we do to reduce inequality . What kind of safety net do we have for people . The middle class is disillusioned about the future, disappointed about the job prospects for their kids, disappointed about the security that they can get out of the welfare system that may become unsustainable, and it is expressing this disillusionment in terms of saying no to what ever the policy leaders suggest, and of course, we all know very well that it is especially difficult to build up a solution, to design and implement it, then it is to say no. The fact is that no is now dominating the political landscape. Erik that wraps up this special edition of bloomberg best from the World Economic Forum Annual Meeting in davos, switzerland. You can find more coverage from davos and the latest Business News at bloomberg. Com. Thank you for watching. I am Erik Schatzker in davos. This is bloomberg. Just starting just like this . No foreplay echo foreplay echo growing up, was there was money something you thought about . Did he say this could be lifethreatening . Lifethreatening for sure. David do you think, maybe i should step down as ceo and smell the flowers . Would you fix your tie, please . David people would not recognize me if i fixed my tie. Lets do it this way. All right