Transcripts For BLOOMBERG Bloomberg Surveillance 20170331

Well talk about banks and glencore. And the deputy leader of Angela Merkels party. If you have any questions for any of them, you can send them to us by the ib function. Use tv go function and click on ib show functions. Be sure to do that. First of all, this is what the data is telling us. Stocks are dropping on the final day of a good quarter. This is the picture overall for global stocks. It is what i would call a blockbuster quarter. Investors seeing little reason to take shares higher amid a little bit of political and economic uncertainty. We are expecting a News Conference from the finance minister of south africa. I want to show you rand. 1346. 29. The vix index a touch side. Astian south koreas former President Park has been arrested on bribery charges three weeks after she was ousted. A Court Granted the warrant citing concern that park could destroy evidence. Park has denied wrongdoing. U. S. National security adviser Michael Flynn is willing to be interviewed inquiring into alleged contacts between the Trump Administration and russia. Flynn was forced to stand down after it was revealed he misled Vice President mike pence about contacts with russias ambassador to the u. S. Donald trump says his meeting next week with chinese premier xi jinping will be difficult, citing what he calls massive trade deficits and american job losses. The two leaders will come facetoface for the First Time Since the u. S. Election. The u. S. Court has heard professional golfer Phil Mickelson paid a sports gambler almost 2 million. Is accused of using an inside information. He is said to have tipped off mickelson who made 1 million. Phil mickelson maintained he was an innocent bystander. News 24 hours a day powered by 2600 journalists and lysts in 120 countries. Francine jacob zuma has fired his finance minister and 8 other cabinet members. Gordhan was replaced by the Home Affairs Ministers who has no financial experience. The events of the past five days 8 s seen the rand lose against the dollar. Lets get the latest from bloombergs south Africa Economy reporter. What exactly motivated zumas reshuffle . Morning. It has been of a political shift in south africa were you have seen him taking over his finance minister. There is a family called the gupta family that is linked to a courtident who are in battle against gordhan. The banks had closed off the banks of the gupta family. Have beennd gordhan at loggerheads ever since the finance minister was reappointed to his portfolio as finance minister. Certainly including his time at the tax agency, the south Africa Revenue services, and how to run an role the state owned companies. That has certainly been a feature ever since december, 2015. Francine of course, it is all about the Credit Rating agencies. We may expect some kind of announcement. They do need to hold onto credit. We will see what happens with the renminbi. Now, we are also getting live pictures of donald tusk, speaking at a News Conference. It has been two days since article 50 was triggered. We are expecting the other side to lay out what they want and do not want to do. We know that donald tusk has already said to all Member States they cannot negotiate Bilateral Agreements with the u. K. Hes just started to speak to reporters. Europeandent of the council saying he will firmly stand by negotiating positions. The idea is that the u. K. And the e. U. Are divorcing. For the next two years they talk about the divorce and how you extract yourself on the union, but no new trade negotiation deals or talks can start before the two years. This will make theresa mays life more difficult. She will have to go outside of the bloc to see whether she has a pulmonary agreement. We will keep an eye on this. We also need to talk about brexit. Lets talk about europes postbrexit future. I am pleased to introduce my next guest, joining us for an exclusive conversation this morning. Andrea, great to have you on the program. What a day. Were trying to figure out exactly what brexit means. First of all, for trade relationships but for the ba nks. Are you moving people and where are you moving them to . Andrea we all have our alternative plans, we need to do it, but we still have three things that are quite difficult. Becauseis uncertain depending on the details of the agreement, what we need to move are not move changes. The second thing is the timeline. Having gone through our own subsidiaries asian in the u. K. To bebs needed to do that compliant with the u. K. , we know it takes time. It took us 18 months last time. Tighto years is a timeframe to operate. We are looking at potential transition with a very keen eye. The third thing is people because we all think or say x number of people are going to say. Are they . A number of people may not want to move to the place where we are going or may decide to change industry. May a number of people will need to be replaced. Do we have the market that is deep enough to replace those people . So, it is quite a complicated transition, one where we are navigating by site and the site is quite close to you. Francine yesterday i spoke to the lloyds of london chairman and he had chosen brussels. We understand that jpmorgan is looking at dublin. There are reports you are looking at madrid. Can you confirm or deny that . Andrea we have shortlisted a number of locations, madrid is one. But i would say it is too early to determine. Francine what will be the thinking on where you decide where you end up . The regulation framework, where your employees want to live . Andrea i do think we do not talk enough about where our employees want to live. I do think it becomes a competitive advantage if you are in a location where most of your employees want to go. Because you will have less disruption, and you will be able to attract more talent. The second thing is the location where youre going, does it have deep enough talent for you to be able to recruit Going Forward and support your operations there . Then, obviously, there are the more tangible things like what is the central bank in the place, how is regulation applied their, what is the governance, what are the labor laws, what is the infrastructure . Can the infrastructure support you . There are a number of things we are looking at, and that is what leads us to prioritize locations and ultimately it will be a poor decision. A board decision. Francine do you know the Revenue Streams at risk . Andrea i do think it depends very much on what the agreement is. The minimum at the moment one would expect that the frontline that interacts with clients in the e. U. Would probably need to move, but even that is determined by interception that we will, the negotiation will lead to a certain framework. They could be different, but i would say that the most generalized assumption people make is that the people who interact with clients on the e. U. , particularly in the market business, would probably need to move. Francine give me ae. U. , sense f what the markets will do from now until the two years . And we also have the french elections. Are you expecting more volatility . Andrea that is a good question because in an and firemen such as the one we are looking at with trump becoming president and everybody expecting him to take action with that election past, now french, potential at some point italians, germans, a nd then brexit, we should be seeing a lot more volatility than there is. In january, the equity market had a 22 year low and volatility. It does seem that there is some sort of apathy. Like they are observing behind the glass and not actually engaging. But at some point, things happen, and there we expect a lot of volatility. Francine how do you explain that, is essential banks . Too liquidity, too much cheap assets Central Banks . Andrea i think it is the combination of the amount of liquidity out there. And we are no longer managing risk or to economic data, we are managing to an uncertain event. Foreign Investment Bank, it is quite complicated to understand your strategy around an event that is uncertain. So, if you go back to brexit, how could we have a, anticipated the vote . A lot of us quotations expectations but we were quite wrong. Post the vote, there also expectations on how the market would behave and those were quite wrong as well. So, people have learned that just to make an assumption based nothat is rationales is really works, and therefore, they flatten their position and they go to these events and they reassess once the event has pass. Francine hold that thought. We will talk about regulation. We are just getting some members of the press asking questions to both donald tusk and also the Prime Minister of malta. Lets listen in to some of the a a. Q a. The document session will not move on to a second phase of negotiation involving future trade relationships until sufficient progress has been made in the initial phase. What does sufficient progress mean . Is it simply the European Council that will define it . , Prime Minister, i value your thoughts on those issues as well. Thank you. This is my first i hope the last one. I have no experience at all and this is why i want to be very cautious and precise, read my notes. First of all, it comes to our unity and solidarity, i have no doubt, especially after our longt in rome and our declaration that this is not only a declaration, and it is not a propaganda, this is the truth, that all 27 will be united during the negotiations. And i have no doubt that this is in our common interests, but also in the interest of the u. K. If they want to achieve a constructive agreement, it means that they should discuss and negotiate with the 27 is the unity. This is the only way to achieve anything during this very difficult process. Well, from my side, it is obvious the British Government is in contact with all Member States. I dont think that there is any instruction from brussels or any regular,on not to have normal relationships with their british counterparts. We will continue to engage with the united kingdom, and i think all Member States will. But, and this is a clear demarcation line, when it comes to negotiations on this issue, on brexit and on future relationships, there is a clear commitment by the 27 to have just one point of contact, and that point of contact is mr. Barnier. That negotiation is led exclusively from the european side. Said do believe as donald that this is not something of a lipservice, but this is a true political commitment from each side. When it comes to your question on sufficient progress, yes, we are seeing that the sufficient progress is determined exclusively by the European Council. I want to be very clearly. Ismust be clear that e. U. 27. Autumn, at least i hope so. President tusk, in the guidelines, there is envisaged some kind of transition in which britain would continue to pay into the e. U. Budget and under the jurisdiction of ecj. But those things other reasons why people voted to leave the e. U. Why have you included them . Thank you. Tusk let me say just what i think about out, about impressions on both sides of the channel. Thing as asuch brexit bill or penalty for leaving. We want to talk just about fairness and commitment. For both doubt that sides it is really important to show, to demonstrate that want to be fair to each other during the negotiations. There add to that that, is no brexit bill. I think that the letter that Prime Minister may sent in itself acknowledges the u. K. Has commitments. So, what were setting out here in the draft guidelines, once theyre agreed, but i think there is a broad agreement on the document that donald has put some things ok, might be added, some things might be subtracted, but the essence is there. I do believe that the idea is one which shows and says that those commitments must be respected, and the idea is that we have to come up with a methodology that shows uncut delights those and calculates what britain needs to take from european assets, asi in a clear balance sheet. So, i do believe that this is very, very obvious. And other european institutions, governing oksnsition periods, in our bo transition means you are still a member or at least you still have access to a membership situation. If you have such an access, it is obvious, it goes without saying that the institutions we have all agreedupon need to govern that period. We would obviously not intrude on what happens afterwards within the united kingdom. Free when it comes to a trade agreement, we will have to have negotiations, and those negotiations will then determine what type of institutions will govern that new type of arrangement. President tusk we have time for one less question. President tusk, Prime Minister muscat expressed his concern following prime thester mays letter on link between the trade agreement and future Security Cooperation. Is this acceptable . Have you received any concerns from Member States about prime minster mays letter . Tusk especially after the terrorist attack in london and the latest events, it must ourlear that terrorism as on problem. I know theresa may enough, and i know her approach to this issue. I thisy speculation that security is used as a bargaining chip. It must be a misunderstanding. Are wise and decent partners. And this is why im absolutely sure that no one is interested in using Security Cooperation as a bargaining chip. I wouldnister muscat like to confirm that even though it was something that hit the headlines and really and truly many people, including ourselves noted, we have had reassurances from the British Governments this interpretation will take, at least my government will take the British Governments word. We do believe that they are decent partners, people who will not bargain on security of any of our citizens, and i do believe that we will start these tough negotiations in spirit of since their cooperation. Thank you. That as president of tuskuropean council donald together with the Prime Minister of malta. They were in malta for the centerright politicians gathering. They have been talking for about 12 hours on it. Then they decided to use malta as an excuse to give the world a briefing on how they would negotiate brexit. It was very significant that they said you only have to go through barnier and donald tusk was explicit in telling the u. K. They cannot negotiate with Member States but they have to have the permission of brussels at the center. Everything will flow no bilateral trade agreements until the divorce is officially over two years from now. We are back with the Ubs Investment Bank president. We were listening to this together. Does that make a difference in your world . When we are discussing Investment Opportunities are where you are moving to, do you tolow each presser understand the thinking of what theresa may will do . Obviously observed that on a daytoday basis, but fundamentally, i think the position of the two blocs are what we all expected to be. The negotiation has just started and it will be quite difficult endell a lot about how they from the first opening positions. Francine well be joined on set in 10 minutes. How do you look at polls . Do you trust the polls . You are talking about political risk. Its a big on known on who you can trust, what you can trust or whether market psychology will look at the polls for brexit. Andrea what we have learned is that the polls in bed certain biases. In the past, we are correcting in one direction and now we are correcting in another direction. If you look at the u. S. Election, the polls indicated clearly a certain direction, but there was a bias that when adjusted led to the outcome. These are new events. How people think about them is still not clear, and therefore, as you interpret the poll, my interpretation can be as good as yours. Francine give me a sense, i want to move the conversation to deregulation because we have to do with donald trump and the fact that he is probably deregulating a lot of the wall street banks. Do they put european Investment Banks on on even footinga . Will regulators adapt . I think european banks in general and Investment Banks have set for a while that regulation is tighter or more adverse in europe than in the u. S. The better way of looking at this is that the United States had made a policy decision that Financial Services and Investment Banks are an industry that they want to be in, but they want to have dominant players in. Europe has not made that determination. And regulatory standpoint, europe is addressing the problem without a clear direction of what do they want from the sector and what role do they want the sector to play. Opinion,in my relevant for the talks within brexit, because we are going to have to debate about that as we roll off. It mean forat will riskweighted assets and how you allocate capital . Andrea everyone anticipated that we are going to go up. The question is how much. The ask is very wide. Is it very disruptive to the industry . It very much depends on how much. At this point in time, the industry has adapted, the capital ratios are at an alltime high and that have been multiplied by several times. The liquidity is also very high. The focus on behaviors and culture is also quite to dividend. To, we are much more used making determination on how we can improve that part of, i quel part of the framework of the industry, but the question is is the last turn going to push us off the ability to be economic or not . There is a lot of debate. Because while we all agree there should be regulation it should be tighter than it was in the past, the question is up to which limit . Francine think you so much. Andrea stays with us for the next 20 minutes, the Ubs Investment Bank president. We get a view from germany with the deputy leader of Angela Merkels christian democratic union. We will talk a little bit about what we heard, of course, from donald tusk in malta. What we heard from theresa may this week and what negotiations could look like. This is bloomberg. Is is your markets, a little bit subdued, but it has been a stellar quarter. If you look at a lot of the positions, theyve been right for banks. Investors seeing little reason to take shares higher. This is bloomberg. Francine welcome to our weekly brexit show live here in london. First of all, lets get a roundup of the weeks big news. An theresa may finally triggered article 50 this week with a letter to the European Council president donald tusk. It begins to years of negotiation as britain seeks to leave the bloc. Prime minister may this is an historic moment for which there can be no turning back. Britain is leaving the European Union. We are going to make our own decision and our own laws, we are going to take control of things that matter most, and we are going to take this opportunity to build a stronger, fairer britain, a country that our children and grandchildren are proud to call home. Said, europesk already missed the u. K. There is nosk reason to pretend that this is a happy day, neither in brussels nor in london. Europeans,most including almost half the british voters, wish that we would Stay Together and not drift a part. Sebastian scotlands minister has prepared a final draft to a letter to theresa may seeking to hold another referendum. Image contrast with the formality of theresa may signing britains official notification to the e. U. Global news 24 hours a day powered by 2600 journalists and analysts in 120 countries. This is bloomberg. Francine we are just getting a little bit more breaking news. Gdp unchanged. The economy growing 0. 7 in the fourth quarter, however, i think what is significant is that the deficit, this is linked to the pound, the credit deficit stands at 12. 1 billion pounds. Aonomist were estimating figure of 16 billion. A lot lower than expected. Lets talk more about the banks and focus on the diversions between u. S. And european banks. We are back with a Ubs Investment Bank president. I made a chart for you. I basically, it is pricing both u. S. And european banks. In red is the 2008 financial crisis, and blue you can see the u. S. And in white is the european one. Does this stay as is because of deregulation . Is there anything europe can do to be seen as better valued . Andrea obviously deregulation can drive earnings into u. S. Banks. So, that would i implicitly increase the blue line. I do think there will be conversions once there is more clarity on what is happening in europe and in the u. S. The price the u. S. Banks almost perfect deregulation environment. I do think there will be some bumps on the road and that will affect that story. Also, it does seem the market is discounting very much a blue sky scenario, elise for u. S. Banks, and in at least for u. S. Banks, in Investment Banks, it is taking growth of revenue as a proxy for increasing growth we have not seen that. In the past, a uni directional focus on increasing revenue share has brought a lot of bad consequences to the industry. We prefer to look a lot more at returns. Whether we are capable of growing in the segments we have focused on or were focusing on, while maintaining returns above the cost of equity. I think if we do that over a protected a protracted period, it will attract a share price in a positive way. Case, in terms of deregulation, we will still be under the european umbrella and the swiss one. Scaling in the u. S. Is something that we have tried to do for the last five years. I think we have made some Good Progress in some areas more than others. A, you know, huge market, a market that has been traditionally dominated by american banks, as they should. Difficult to scale up in such a large market that is so concentrated on a few players. It will take us a lot of time. Francine i want to also talk about pay and bonuses. Youve frozen some of the sellers for Investment Bankers. Is it more difficult to retain talent, or do you offer other incentives . Havea first of all, we not frozen salaries. What we have done is we have moved our review of salaries to midyear. The reason we have done that is because in Investment Banks you have a lot of attrition post the bonus period. We did not want to increase the salary of people that are going to leave us. But we raised salaries last year in july. Were going to review them again in july and we will continue like this in the future. On bonus, there is a lot of focus on bonus all the time. I would make the comment, yes, we have compressed are bonus quite a bit this year, and that was completely aligned to our performance, which was much less positive than it was in 2015. Although, we did clear the 20 return on equity, so it was not a bad performance. But i would say on bonus, if you look at the base of an Investment Bank like us, bonus is 20 to 25 of the cost. Year, given the substantial deferral rate we need to apply because of regulation and the correct thing to do, bonus in year affects you, it is 10 . So, everybody focuses on that 10 , while the 90 is obviously what you need to move. Weve tried to move part of the 90. And our efficiency levels have improved last year. Our direct cost, excluding bonuses, is down 10 . And i think that is more, these efficiency measures are in my opinion what will percolate through your account for a time. We feel quite good about that. Francine one final question because i know you need to go. On rates, where do you see that going, Interest Rates . Pure diversions play, which is fed hikes and the rest of the world doesnt. Andrea i think what you have s. Economy that has been growing significantly more than the rest of the world. Was already that way. And with the deregulation promised by the new u. S. President , we all anticipate that can accelerate further. On the other hand, if you look at the rest of the world, you growingna that is still but a lot less than it did before. I do think at this point in time, expectations are that the growth back to the old rate will not occur before the second part of 2018. That will affect the whole asian bloc. When you look at europe, i do think there are some Green Sprouts in growth. And when you look at what you have seen in the last, you know, four quarters, there is enough to an optimistic view that we will be able to pick up the pace, and that will have a positive impact. The question is, with all of this uncertainty and with all of these elections and their consequences, is this going to have a negative impact . A normal certain United States growing faster than everybody else and growing faster. While you have an uncertain, is the rest of the world going to catch up . It does not seem like a 17 is the year that we catch up. Francine please come back. The Ubs Investment Bank president. We need to go to berlin. The e. U. Releasing its guidelines for brexit negotiation. The German Government says it xill insist that u. K. Ta something as part of any trade deal according to senior officials. For more insight into the German Government stance, we are joined by michael fuchs, the deputy leader of Angela Merkels christian democratic union. Great to have you on a program. Always a pleasure to speak to you. What did we learn in the last 48 hours . Good morning. On how negotiations will go . Its going to start now immediately. We are very unhappy that u. K. s leave. Ing. Fight going to have a big on negotiations. One thing is very clear and donald tusk made it very clear yesterday, the four freedoms are not negotiate able. There is freedom of movement of people, goods, salaries and services. These four freedoms are sticking together, and you can have it all or none. That makes it already very difficult to find a way through. Then negotiations are going to start, too, because we only have two years time, but i do not know whether you notice, we have over 19,000 regulations between the e. U. And the u. K. It is going to be a very difficult process. Francine what do your exporters tell you . One of the things that the u. K. Government is at pains at pointing out is that german exporters are probably the ones that will lose the most after the u. K. If there is no good deal. Is there pressure from within germany to make sure that they can still sell their goods to the u. K. . First of all, our german exporters are pretty strong. They are stronger not only in the u. K. But in all kinds of markets. So, may be they find deviations to other markets, but also, i believe that there will be further deals with the u. K. And germany, because some of the goods you just need. Ill give you an example. Bmw is the manufacturer of the mini cars made in the u. K. 40 is u. K. Made. The balance is coming from european countries. It is important for six to percent of the parts, then 40 is the u. K. And 60 is imported. The u. K. Government is responsible to keep these jobs in the u. K. And it will be not sone is then elsewhere, that germany should be negotiating with to make sure that its ugly divorce negotiations start with the u. K. , they can rely on another trading partner . Hs definitely. You can see our industry is running very well. Germany has a growth rate of 2 for this year, which is expected. It was good last year. We have a trade surplus with each and every country but not china. So, china as a market for us, which is very important. It was very interesting that right after brexit and right er trump came into power, they were saying the e. U. Focusing on a Free Trade Agreement with the e. U. So, china can be something where we can still export a lot more. Francine give me a sense, you have expressed concerns that frankfurt would be the new base for the ubs. This is the top ranking regulator from europe. We have heard that luxembourg has wanted to attract the eba, too. Is fuchs it looks like eba coming to frankfurt because of the ecb. They will be in the same house like ecb. And i think it is also reasonable that eba and frankfurt connected to ecb, because there is something where we have to work together. As a matter of fact, eba should be in frank for. In frankfurt. I think there are some negotiations going on. Francine do you believe that if the eba comes, it watch tracker a lot more bankers . Were just speaking to the head of Investment Banking for the ubs. They have not decided yet. Chs there are a lot of bankers already thinking, what would be the best place to be . May be dublin, luxembourg, of course, paris as well. There is some kind of composition started between the cities, but frankford is the banking hub in central europe. Most of them are considering going to frank for it. Fran kfurt. I know some people are running around and looking for promises and looking for whatever, lot of lawyers of making a lot of moneys out of brexit, which is a pity. Francine i remember vividly, you are one of the first people i spoke to after the election on donald trump on may 9. You came on the air very generously with your time, and we were talking about the pros and cons. Since we heard from his traded pfizer wants to go after germany because youre many relating your currency when we heard from his trade advisor. What do you think the german u. S. Relationship will look like . Dr. Fuch first of all, my chance the was with him a couple of days ago, and she made it very clear that the germany as a country has no influence on the eurou. S. Dollar rate, because we do not want to influence neither the g3eerman bundesbank nor the ecb. That is not something that we can change. This is the Market Making the rate between the u. S. Dollar and the euro. That was very clear to him. And then on the other hand, yes our exports to america are much bigger than the other way round, than our imports. On the other hand, our investment in the states are three times bigger than the States Investment in germany. Jobsve more than 900,000 created, German Companies have 900,000 jobs in the u. S. , while the u. S. Has only created 100,000 in germany and 40,000 is mcdonalds. Francine always a pleasure to meet with you. Come back there he soon. Just over half of the voters of the u. K. Agree that no brexit deal would be better than a bad deal. Lets talk about Public Opinion now with the chief executive of a polling organization. Ben page. Welcome to the show. You are one of my favorite people to talk about what people are thinking, how we poll. What is a common misconception about how u. K. Citizens arguing brexit . Theyre probably less excited about it than a lot of the commentators in the markets are the politicians, but no, this month people say that the European Union and brexit is the biggest problem. Public remains split. This is the challenge. Until the contours of the deal or the consequences become clear, it does not look as though Public Opinion is going to move much. You have got 52 no, this is a b ad deal. It was a very narrow vote. That is clear and i think theresa may has taken that on board is that the public prefer reducing immigration to access to the single market. The challenges whether that is actually possible with our top of the economy. Francine is she popular . Ben theresa mays ratings are very good for a new Prime Minister. 44 say they are confident she is going to get a good deal. That is more than her predecessor david cameron. That is partly because in polling terms, it is always compared to what we are comparing theresa may to someone who is not interested in being a leader of the opposition, jeremy corbyn, who has record bad ratings. And even amongst his own voters, more labour voters are happy with theresa may than with the leader of their own party, which is amazing because the Labour Party Still has a quarter of more of the electorate. She is enjoying a honeymoon. If theg that will last, economy starts to get rough, we will see, but her main a position is actually inside her own party. Francine so, what you think she will be judged on . Is it the economy are negotiating skills . Do people assume it will be tough, so they give her a free card . Ben people are not very sympathetic. After the fix a problem, they do not say thank you. They say now fix this. Puddingthe proof of the will be what happens to employment and what happens to wages. What is the overall state of the economy. It will be those things and the state of the National Health service, which by all accounts, needs money or need something, that people are going to judge theresa may. The details of the negotiations, they will not be following those in the detail we might be. Francine are the u. K. Citizens optimistic about their future on the economy . Ben they are pessimistic in the near term. Twice as many people think that article 50 is going to make them worse off, rather than better off. Term, 37 percent say youll make in warsaw. 19 say that it will make them better off. Roughly 21. A love people say will not make any difference. Consumersady see 710 saying they are worried about inflation, of course, that is starting to rise. And pay rises. We will have to wait and see. This is a phony war for the public. Francine i have a million questions. Talk about philip hammond. There was a budget with the taxes and the selfemployed. People judging on that or brexit . Ben people are not looking at the fine detail of the National Insurance contributions. You know, his ratings as a chancellor are not bad. They have fallen a bit. Its a tough old job eing chancellor being chancellor. Again, a lot of people really are not following that much of the detail on this. Does the economy hold steady . What happens to mortgages and jobs, etc. . It is always the pound in your pocket and not the indicators. Francine so, people are basically worried about inflation. Is my tomato more expensive . Ben we saw the month that last year, when tesco and unilever got into a big row we saw 20 a percentage point fall in economic confidence. The month, if you look at longterm, concern about the economy as a whole of among the public is the lowest it has been since early 2008, 9 years ago. We are not that worried at the moment. Francine stick around. Ben page, chief executive stays with us. First, lets get around above all of the weeks big news. Theresa may finally triggered article 50 this week with a letter to the European Council president donald tusk. It officially begins two years of negotiations as britain seeks to leave. Prime minister may this is an historic moment from which there can be no turning back. Britain is leaving the European Union. We are going to make her own decisions and our own laws. We are going to take control the things that matter most, and we are going to take this opportunity to build a stronger, fairer britain, country that our children and grandchildren are proud to call home. Tusk expressed his regret, saying that europe already missed the u. K. There is nosk reason to pretend this is a happy day neither in brussels or london. After all, most europeans, including almost half the british voters, wish that we would Stay Together not dressed part. Drift apart. Scotlands first minister prepared a final death of a letter to theresa may are seeking the power to hold another referendum. She was working on the letter with her legs curled underneath her. The interest contrast the formality of theresa mays signing the official intention to withdraw from the bloc. Global news powered by 2600 journalists and analysts in more than 120 countries. This is bloomberg. Weekse now, this triggering of article 50 means the u. K. Should have left the european by the end of march 2019, but how do we get there . Lets talk about the timeline. Still with us is ben page. Lets welcome also tim russ who was with us yesterday, the u. K. Government report. Talking about the timeline, do we know, we have the new conference by donald tusk in malta, what is the next step . Is it going to be leaks or a big event . There will always be leaks. What happens next is that the European Union, the 27 Member States will have to get together and agree to the guidelines they like and maybe change a few things here and there before the end of april, there is a summit at which these guidelines will be finalized by the european leaders. After that, a more detailed mandate gets drawn up for the negotiator. Francine can we turn back from this . Do people think we can go back on this . Tim i think we can stop during the process and say please let us back in. But the likelihood of that happening is pretty much, the pollster telling you. Francine the polls dont say. Ben that is what the remain camp are looking for, a massive shift in Public Opinion. It is not going to happen unless we see massive economic disruption in the next two years. To be honest, were probably not going to see this. A lot of people want to get the uncertainty over and done with. Are a quarter people passionate leavers. Francine i was taken by one of the stories you wrote about ofmingham and the pledge theresa may to make society fairer. Tim many governments have tried. This is another one. The key thing to take away from it, though is that may does not want her Prime Ministership to be defined by brexit. She came with a social mission. She sees the brexit vote primarily as a kind of cry for change from some of those poor communities, even not the poorest but communities that are struggling a bit, families that are struggling, and those people want change in politics. She is determined to give it to them. Francine are the conservatives is the party fundamentally changing . Tim she wants to realign the party so that it can appeal to people who were traditionally have been may be more labour supporters, in the center. There is a potential vacancy therefore her. Francine do you have to come up with new ways of pulling . By knockingl poll on doors. There is more demand than ever. You know you are speaking to a real person. Most of our polling is done online. A lot of our work is not about asking questions, it is about watching people through virtual reality, passive observation, clicks. It is a very diverse thing. When it comes to politics, we like asking questions. In terms of theresa may, i think tims right, that there is a vacancy in british politics. Labour has moved to the left, so it is up for her to par kurt tank in park her tank in the middle of the row. It looks like she will stay in the middle road and take many things from labour at the next election. Francine does this government care about polls. Do they actually care about being liked by the people, or do they just go ahead . Ben they do care. You can be absolutely certain that the polls were different, they would be thinking in a different way. All governments care about poll. One of their fibs is the only poll that matters is the poll on election day. Francine we will leave it there. Now, bloomberg surveillance continues. Tom keene joins me out of new york, and we will talk about banks. We heard the president of the Investment Bank at ubs talking to us exclusively. Up next, harris associates, probably the most wellknown investor in london a lot of these european banks. And a commodity giant at glencore. Were looking at your markets. It is the end of the quarter. Remember, tomorrow is able 1. April 1 this is bloomberg. Jacob xoma sees the nations finance minister and 8 others fired. The u. K. Must fulfill its obligations. And President Trump will review trade abuses a week ahead of what he says will be a difficult meeting with his chinese counterpart. Good morning. Bloomberg surveillance. Lacqua in london, tom keene in new york. We have a framework for brexit negotiations. I do not expect a negotiating position. Tom monday and tuesday same long ago with the drama of the Prime Ministers speech. It is the beginning of a long, and into next year as well. Look at the inflation statistics. Remarkable to see. Francine we need to look at inflation. This is what mario draghi is concerned about, going back to the divergence play. Inflation slowing to make Mario Draghis life easier. Taylor . Taylor the warning on brexit from donald tusk. He told reporters that the process of the u. K. Leaving the eu will be difficult and might be confrontational. While he says there is no such thing as a brexit bill, the u. K. Will have to pay. Tusk all of the liabilities they have taken as a member state. the u. K. Has rejected that they would pay 65 million to leave theu. Thousand and Senate Intelligence committees are investigating alleged contacts between the Trump Administration and the russian government. Flynn was forced out after misleading Vice President michael pence. China has expressed optimism about the summit. Aesident trump is predicting difficult discussion, tweeting the u. S. Can no longer have massive trade deficits and job losses, which he blames on the chinese. Increasing momentum in the worlds second largest economy. Chinas manufacturing gauge rose to the highest level in five years. Day,l news, 24 hours a powered by 20 600 journalists and analysts, in 120 countries, i am taylor riggs. Get to thel president with Kevin Cirilli and abouto david herro politics. Finally bouncing off a flat, flat week. A little bit of curve steepening. Oil with a weekly bounce. Year 21,000. Uros swiss, a stronger swissie mexico, stronger. Francine i only want to talk about south africa and banks. The rand headed for its first week since 2005 in the wake of er of the proponent of fiscal discipline. Tomorrow is april fools day. The end of the quarter. A blockbuster quarter so far. Up the recovery, setting our dialogue with mr. Harold of harold associates. Personal disposable income. The volatility here, and the lack of volatility. Here is the core memory of a rising net worth to income over the time from the 1970s to the 1990s. You have leverageddriven volatility to 2007. The story is here. How far we are off of the old trend that we knew. It is amazing how we have come up above the longterm trend from the middle of the 20th century. A nice snapshot of wealth in america. To myne that links chart. We dont talk before the show. Not every day. It lays out nicely what we will be talking about and what we are seeing in financials. ,ou are showing partly, maybe in do what we have been saying, the reflation trade and deregulation helps by donald trump. S. Versus european banks the Financial Sector in blue, european banks here. I was talking with the Investment Bank of ubs, he says if deregulation continues and if regulators in europe that do not adapt, that may continue for longer. A blockbuster quarter for investors that may end on a low erasing gains for the year. The South African rand punches on political risks. Our guest host for the hour, the chief Investment Officer for International Equity of harris associates. We have a million questions. , after a bumper ordered. What will the next three months bring . Is difficultterm to project. We value businesses. A low amount of influence on businesses. However, the stage is set for globaled rates of Economic Growth, which should mean higher corporate earnings. Relativelytions, i attractive. Theyre not as low as they were a year ago or postbrexit. Valuations are not rockbottom, they are ok. Be better for corporate earnings and share prices, given where we are in valuations. Francine do you believe the stock market has to correct in the u. S. For valuations to go up in europe . The same money has to move because they are disappointed in donald trump, or fundamentals . David it assumes there is a finite amount of money in stocks, when there is probably so much money on the sidelines, that could come out of cash, out of bonds, into stocks. If youre looking at a multivaried equation, there is thertance to Money Transfer between u. S. And foreign stocks, but the bigger question is getting some of the money off the sidelines that has been piling up in europe. We have stocks in private banks that tell us about client behavior. Client money piling up in safety and money markets for a long time. At some point to get that wall of money into equities that may help european equities and accelerate a bounce in european equities. They still traded at a significant discount to the u. S. I argue they should trade at some discount given the differences and return structures, but discounts are too high. Tom the idea of the carter is misinformed. It was never called the carter malaise. This is a chart from wisconsin years ago. In here. Dow 1000, we had0, dow this malaise. Within the moonshot of the market out of the depression and have, nicely,we what is the risk of a malaise . I dont see it, and but do you worry we get into a rangebound 10 year period . David it is always possible. All it takes is bad animal spirits with people not believing there will be Economic Growth and hoarding savings. Whereis a perfect example there is malaise. People do not want to spend or invest. Trap. Ve a liquidity a deflationary environment. That is japan. In the 1970s, we had inflation. That expectations for the future, so people did not take risks. As long as you create an environment where it is fertile for risktaking, you dont have to worry. Tom the hallmark news was Consumer Expectation by any number of measurements, besides the trump election, it is through the roof. We have never seen a four standard deviation jump in Consumer Expectation of we have seen over the last two years. The Small Business expectation, Consumer Expectation, are at 20year plus highs. You do have to possibly give the president credit where credit is due. A lot of it happened after the election. Big spike there was the previous eight. Ears, capital got bashed we were overregulated, overruled. Business people are thinking there is hope that we are not the enemy anymore, we are part of the solution not the problem. Francine for that to translate into tangible and Something Real , and those that Health Care Bill failure . David it stops the ball from moving forward here it if you want to bring the economy to one that is more capitalist oriented, and you have various steps that the administration and congress put in place to fix the health care plan, etc. , energy markets, some was done this week. You have to keep the ball moving. It stopped one of the channels from moving. Pause. Ses people to i believe that despite that it is a setback that they will find Common Ground on some of these issues that are needed to bring us back to a free market economy. Francine thank you. We will be back with david herro of hariss associates. An exclusive interview with 2 fed president s. This is bloomberg. Taylor this is bloomberg surveillance. Am taylor riggs lets get to your Bloomberg Business flash. Spacex flew a used rocket into space and back. It is a milestone in reducing costs. Rocket intod a orbit been landed on a drone ship. A judge in San Francisco is inclined to impose an order on uber that could impede the robo car test. This is after allegedly stealing from out for from alphabets unit. Francine Capital Buffers are Strong Enough to consider alternatives to an ipo of its swiss bank unit. I spoke with the head of the ubs bank and got his view on the regulatory environment. European banks and Investment Banks have said that regulation , or more adverse, in europe than in the u. S. The better way of looking at this is the United States has made a policy decision that Financial Services and Investment Banks are an industry that they want to be in, but they want to have dominant players in. Francine lets get back to david herro of hariss associates. You like specific banks. You are a big investor in some of the european banks. Have you change your position since we last spoke . David they still remain big positions in the portfolio. Some of them have gotten closer to intrinsic value. We have trimmed here and there. Some of them have weekenakened n this news. , if i look around the globe, where there is value, where we see the most opportunity in an asset class, it is probably european financials. Francine i want to ask about credit suisse. You with the first to tell me they could possibly not ipo the unit, because they have been doing well. We are hearing, will they ipo or not . David there is a meeting in a few weeks, and they want to have this ready to go by the annual meeting. If you look at the Capital Position and what they generate on a yeartoyear basis, and how good they have been at running down the Strategic Asset unit, which costs money, it is tight, but i believe they can do without it. Do you want to be tighter or have breathing room . It is for them to decide, they have a better view than i do. I think raising capital should be done after careful thought. Theyre braised twice in the last five or six years. A good idea is avoiding andpital raise capby ipo a capital raised by ipo during the swiss unit. There is a question if that is the right move today. I am going to italy in 2 days. You walk down any street in italy, there are 6 on a block. It is overbanked. The world has too many Car Companies and banks. Tom the Car Companies will clear up. You see any opportunity to un overbank . In thethere is a will industry, but the regulator wants as much competition as possible. It is a fine line. Too much regulation hurts profitability, too much competition hurts profitability, and you need profitability for the banks to be healthy. If the banks are healthy, it is good for the economy. There are 2 rails to stay between. , the u. K. , and the United States there could be consolidation in banking. Francine should Deutsche Bank ipo the Asset Management unit . David Deutsche Banks biggest problem is the home market. Germany is a lousy banking market. There is a perfect example of a market that needs consolidation. Doesnt a bank that exist to make money, but they have ruined the market for the banks that need to make money by deposit and lending. Deutsche bank is the biggest bank in germany, but it is the worst banking market in the world. Tom we will continue with mr. Herro in london. What a great treat for the end of the quarter. We will talk to mr. Eiseman about the state of Asset Management. This has been a surveillance theme. Going big short on the buy side. Francine this is bloomberg surveillance. Francine and tom from london and new york. The move towards passive strategies has reignited the. Ebate over fees the largest asset manager, black rock, will be paring back its. Ctive Management Group how much more m a will this drive . Im thinking of aberdeen Asset Management. Theyre so much talk about who can merge with who to get away from the tough time in the industry. David the number one defense is an offense. All this talk of m a and fear of passive investing. As active investors do their job, they will survive. Their job is to outperform the index over time there are a couple of problems with that. The biggest problem is the most active that most active shareholders do not outperform their indices over time. As it goes into passive, Less Efficiency in the markets. That means better opportunity for us. More exploitable opportunity. I am not so concerned about the movement to passive. We have lost clients as a result, but thats fine. As markets become less efficient as a result of the wall of money blindly going into passive, that gives me more opportunity. If i can take that opportunity into results, i should have nothing to worry about. What we need to do is focus on delivering results for shareholders. Mean,ne what does that delivering results . Do you need to be more picky in what do you invest in, pick the right stocks . David and make sure your clients understand how you invest. You have clients demanding week to week, month to month, quarter to quarter performance. Them, educateorm them, that often, if not always, there is a tradeoff between and longtermults outperformance. I could chase shortterm performance easily, but then you would not get what we achieve over the mediumterm and longterm. We are taking shareholder money and putting it into longduration assets. Or maybe a radical perspective, it is ridiculous to chase short term performance. Companies have long duration, and you should invest in equities with a longterm horizon. Francine thank you. We will be talking about more investments, including glencore. Coming up, a conversation with mohamed elerian. Look for that at 9 30 a. M. This is bloomberg. Tom good friday morning from london and new york. Lets get to our bloomberg first word news. Taylor the eu plans to take a tough stance in brexit talks are discussions over commercial ties will not take place until there is progress in resolving issues like borders and the jets. The European Council president signaled the process would not be easy. Are about to which start, will be difficult, complex, and sometimes confrontational. Imply the guidelines it that the you cable get a shot at a tarifffree trade deal only if there is quick resolution of the though the eu wants them to pay. Korean President Park has been jailed. She has been accused of giving tens of millions of dollars to an organization run by a confidant in exchange for government favor. A day after announcing he will meet with chinese president xi jinping next week, president has blamed china for trade deficits. Shakeup inrica, a the government. President zuma has fired the finance minister and other cabinet ministers in a move that threatens the investment credit risk and could lead to a political revolt. He was popular with investors because he tried to rein in spending. I am taylor riggs. This is bloomberg. Francine thank you. We need to think about the land and south africa. The South African president fired his finance minister and made changes to his administration in a highstakes power struggle. This is the picture for the rand. You have a couple of good charts. Why this is of concern is the finance minister that has been fired, a friend of the show, he has been on many times to talk about the challenges in south africa, was believed to be the very best. He was focused, and the Credit Rating agencies trusted him, maybe more than anyone else that could come into power. Lets get more and bring in the pimco manager of emerging markets. David herro is still with us here give us a sense of the South African story. How much of this is a concern . We are seeing volatility on brand. Nd has weake significantly. Is there anyone that can replace mr. Gordhan . That is a concern for my kids, as you pointed out. We have seen that is a concern for investors, as you have pointed out. It is important to think longerterm and view this as the beginning of the end for the zuma. Of jacob the party has been in power since the apartheid. Precedes power to the democratic lines. We may see an internal revolt against jacob zuma. We think that if you can look past some of the turbulence, and we will see weeks of turbulence, this might be positive longerterm for south africa. It is worthwhile to think about brazil as an example and comparison. A couple of years ago result was undergoing a difficult path with impeachment and bad economic decisions. Now the new administration is doing its best to ensure that brazil is the poster child for economic and fiscal adjustment. Francine we are getting breaking news. We are hearing from the deputy Prime Minister saying that gordhan has served south africa with distinction. To jacob zumas reasons for firing gordhan. Do you think there will be such an appeal that the president will have to go . I would be skeptical of this happening at this point, but it is a political gamble for jacob zuma. We will see if theres pushback within the party. Gordhan was very popular with investors, very credible. As a result, south africa will have to sacrifice at least one rating, maybe 2. When push comes to shove, agencies act. Might be a of itself wakeup call to local politicians and policymakers. Tom help me with the stereotypes of south africa. Maybe they know something about Nelson Mandela that they thought in a pbs special. Help me with the state of capitalism in south africa. Is it for real, or will it go down in flames . This is a country with a credible Financial System and financial bank. North of 300 billion, very reliant on metals and mining. And we think about the economic outlook, the growth is very weak. Of maybe lower postremoval gordhan. It does not force us to question their stability, it is more turbulence. In a a lot ofhis commoditybased emergingmarket companies. It is not unusual for rand. It is capitalization capitalism id valuation, isnt it . We have seen a lot of emergingmarket countries currency. Eir the natural reaction from these countries was to let their currencies to evaluate to compensate. It is to offset falling commodity prices. Tter medicine, but the right way forward. Francine breaking news from mr. Gordhan himself, saying treasury workers will maintain stability. He believes in the responsibility for the team to offer that responsibility. He is worried about the Credit Rating and saying the Intelligence Report is nonsense. How much can treasury workers . Aintain stability who would be speaking to the agencies . The finance minister directly, or deputy still in charge to move that forward . And hismr. Gordhan deputy were replaced. I think there is an overriding concern that one of the key things to focus on is corruption investigations against the zuma regime. Some of the investigations are ongoing. Investigations may not be halted with the replacement and the new staff. It is credibility. The we look at the next 2, 4, 6 weeks or months, which could bring turbulence to south africa asset prices ratings, or is it the beginning of the end for the amc having a stranglehold on South African politics . Tom very smart, very beneficial on south africa. David herro of hariss associates , a spectacular track record on international investment. Glencore link you to trading, francine can do that, but the value commodities. A general statement that a guy like you wants to own brazilian commodity stuff . It depends on price. We were out of commodities and any Company Related to them in 2007, 2008, when the bubble happened. You have to look at price. One of the important aspects to analyzing commodities is understanding the cost curve. You have Something Like iron ore which has a flat cost curve. Canrice goes up, suppliers shift that curve to the right. It can hurt prices from going up materially. Offer has a very steep cost curve. All else equal, we would rather be involved in commodities with less commoditylike pricing. Francine what are you doing for glencore . Tom set me up nicely. We had a huge rally. Are you selling or buying . We never explain what we are doing over the short term. It remains one of our top positions. So . Does it do it had a huge rally. As a result we trimmed back some of our ownership. At our peak we owned 8. 5, now we own 3. 5 or 4. The stock is up three times or four times. We do not glencore to be a 20 position in our portfolio, but we are happy with the 3 or 4 position. When the downdraft happened, we believe price was not related to fundamentals. You had fears and stories it would go under, go broke. This happened after they started their Refinancing Program did capex. Ey cut back to createll this time a large position. Since then it has rallied significantly. We have trimmed back some of our holding, but i think there is tremendous upside, especially looking at the price of copper. Andared to its high, supply demand, we think the price of copper should be higher. Francine do support the strategy, getting back to shareholders, and a little bit on the side . David absolutely. This is one of the more shareholderoriented managements. Safe being invested. The big mistake was going into the top with too much debt. They have learned that lesson. They are in great shape and are commodities and their trading business. They will be able to leverage more Free Cash Flow, a lot will go to the shareholders. We think that is the right decision. Tom everyone is studying for the june exam. Taylor riggs is taking level six this june. Help me assigned a value acquisition from a value trap. What is the key attribute to keep you away from the value trap . David the value trap to me is investing in a business which does not increase its value per share over time. A value per share is determined i free cash, which the business cash, which the business generates. If they cannot create Free Cash Flow through time through assets, sales, resources, and good capital allocation, value per share will not go up. If the value per share is horizontal or downwardsloping, it is a value trap. All bets are off if price and value will converge if youre not invested with a Management Team that is unaware of this responsibility to the owners to create value per share over time. Francine it is always a good day when david herro joins us. Coming up, exclusive interviews with 2 fed president s. This is bloomberg. Tom how about those Washington Nationals . One thing is certain in the world of bloomberg the Washington Nationals are fractionally superior to the Milwaukee Brewers. , diehard Milwaukee Brewers fan. Im pleased the New York Post does not think that they will make the playoffs. That takes care of your baseball. David that is fake news, tom. About fake news. You have been a reporter of a supporter of republican politics in wisconsin. What is speaker ryan to do . News, coverupsn on coverups. How does speaker ryan step forward . On puttingsing forward good policy and working on getting votes. Politics is always messy. It is never clean, simple, and easy. As a result, they have to get back to basics. Good policy, you have to work hard, twist arms, make deals, do what it takes to get good policy put through. Easy. Not going to be even when president obama passed his First Health Care plan, you remember the congressman from whoever, bart luckily president obama had rahm emanuel. That is something he was good at. A dealmaker in the white house will assist speaker ryan towards accommodation for the nation . David the Trump Administration is new and there are nonpolitical types in the administration, but they will realize how the job is done. It is a different game than they are used to. A different game than President Trump is used to. They will learn, i just, and get this done right. Adjust, and get this done right. Putting together a series of charts to use in the next year on tax reform. We have shown the debt to gdp, reagan, bush senior, the clinton pushed doing good, senior, president obama, President Trump. He is not working from the same page as president reagan is he . David to a degree to which they and takeower rates away deductions, there is some similarity, if that is what happens. We have to see what the policy is. From the chart that you showed, these are the big areas of spending. This is what has to be attacked, reasonable entitlement reform without scaring the daylights out of Senior Citizens and those that rely on Social Security and medicare, the 2 biggest entitlements. They have to be tackled given our demographics. That is where the money is. They can do all the cutting on other programs, but the big dough is in entitlements. Francine you talk about the Trump Administration learning and adjusting, how do they work better with paul ryan, and how much does he need him to make sure he has support in both houses . David they need each other. I am surprised how well they have been working together. Someone released a statement from paul ryan last october that guy, yet support this they have found a way to work together. That is one of the positives. Trump has learned to bury the hatchet with a number of people. Paul ryan being one of them. Paul ryan was nonsupportive of donald trump, especially during the wisconsin primary. Nikki haley is very nonsupportive. She is now our you in un representative. What surprised me is trumps ability to bury the hatchet. We saw maybe someone who is liking retribution, yet he has been able to bury the hatchet. That is a good quality. Francine is there one person he needs to get on side and take counsel from to make sure the Health Care Bill failure does not repeat itself . David they have to work with some of these people and their caucus. For the good of the country over the mediumterm and longterm, we have to be more bipartisan. I believe tom mentioned the reagan tax plan of 1986. There were some democrats that crossed over and voted for the tax plan. Reagan was able to work with tip oneill. We need more bipartisanship for some of those policies to be successful. Francine thank you. David herro stays with us. If you have a question for david or our guests go to bloomberg. You can find our cool charts. This is bloomberg. Francine bloomberg surveillance. Eu negotiations over brexit. The u. K. Ng in government reporter. We are listening to the press or together. The other thing he said was bilateral trade negotiations between eu Member States and the u. K. How hardball is the eu playing . Interests tooth play pretty hard at the same time. They are taking that today. He will hold the u. K. To financial responsibilities. Francine do think that will change . Tim you have to have compromise, otherwise, where will the deal come from . Francine there will be a million leaks, we talked about the timeline, what does each party have to offer . You look at the u. K. Side, it is clear she is willing to make some contribution towards the financial settlement at a relatively early stage, as well as flexibility on the scheduling of the talks. You will see give and take from the u. K. Tom we appreciate it. Congratulations on your coverage of the Prime Ministers speech. The brexit barometer and the rest of it. Tim ross. As we and the first quarter, a cross asset perspective and the backstory, the challenges of Asset Management in global wall street. 2 great guests. Time toinche, a perfect talk about the surprising quarter. And steve eisman will join us. His business at newberger berman, Asset Management for a diminished theme. That is a theme of new york city going into the Second Quarter of 2017. How will the buy side do . This is bloomberg. The secondorning, quarter of 2017. Equity markets are resilient. Economiceceive better growth, a stronger dollar . Robert sinche in this it is most difficult thursday evening. There are multiple moles within the white house. This is our surveillance. This is bloomberg surveillance. Most interesting thing i heard was an afterthought by ian bremmer. He looks for a big upset in france. People. Earing from i dont know if her jumping through [indiscernible] shadows. There are so many undecided people that they vote blank so dont to the polls but vote for anyone. Lets get over to first word news. Taylor riggs is here. Europe, a warning on brexit. He says the eu leaving may be confrontational. The u. K. Has rejected the suggestion a paid 65 billion to leave. In return, he wants immunity. Plan was forced out after misleading Michael Flynn about the russian ambassador. China has expressed optimism, but President Trump is predicting it very difficult discussion. He is blame job losses on the chinese. Momentumia, increase for the worlds secondlargest economy. Factories have been rebounding since the middle of last year. Lets get right to it. Lots to talk about. Oil with a liftoff. Fix the pleased on the the vix. The dollar mexico it went long peso. We are almost at the end of a quarter that was pretty good. This is what we are seeing overall. Investors little reason to storyhares higher and my is the rand tumbling. This is a chart about net worth to disposable income. The glory years and then they got a little volatile. This is what im looking at. You are seeing a little bit of volatility. This is after the South African president fired the finance minister. Changes to hisg administration. Tom thanks so much. And itsto talk polity linkage into finance. This friday we change it. Last night, something changed. Kevin cirilli, our chief washington correspondent. What is the president need to do . His friday i remember several weeks ago and President Trump defended slantin flynn. This is a devastating blow for the white house. Tom i wanted to go to eli lakes essay. He has been brilliant on this. Out mr. Nunez misled mr. Lake. Who in the white house is going to assist a working president with covering up actual allegations . Several sources on the Committee Told me and the second point about who will be assisting them with the operation. Tricky it has proved because this continues in the policy implications. The fact he is requesting immunity hurts President Trumps ability to get through other policy items. What are we finding out about Economic Policy from the Trump Administration . All eyes will be on the floridahen they meet in. Those tweets coming out in the last 24 hours saying they are going to talk about trade. , we dontf specifics know yet. So far, that all is going to be handled. All eyes will be when they meet next week. Thank you so much. Try to get some rest. At the end of the first quarter, always a good time to speak. His expertise particularly in at Foreign Exchange market bank of america and now at amorous. Why didnt the dollar move . His dollar resiliency back to where it was early 2015 . What is the why . The markets ahead discounted a lot at the end of last year in the doubt what was expected. The other surprise markets or initial rumblings out of the ecb they may be hiking rates later this year and there was this groundswell of positions. Ink from the eurozone numbers, we those see a stronger dollar. You look at the foreignexchange markets and they have responded well. Market i think is a little bit uncertain here. I think there is uncertainty about how much the fed will do and what impact that is going to have on equity evaluations. Armed looking in terms of the news we had this morning. Theyvet mean the urgency may be in doubt . No doubt. Be aoks like there will brief moment in time because we are already back to one half percent. I think the core rate which had been holding at 0. 9 slipped all the way back to 0. 7 . Adjustment is really going to push aside the inflation numbers. Intoit may even get you april and the imf meetings at the end of a month. We will continue with mr. French coming in the next half hour. Steve eiseman, wonderful character in the big short. Steve eiseman on his world and Asset Management. It is trouble. This is bloomberg. Surveillance, lets talk about south africa because there has been a shakeup in the government. It is a move that threatens the nations and basement credit risk. Shelead to a credit is director of emerging market strategist. Great to have you in the program. How much of a surprise was this . There were allegations in the dan. Against minister go the market have been waiting for this the past few months. There has been speculation that a Cabinet Reshuffle was animate so investors had been petitioning somewhat for this. When some of the list changed. I think with the recall that happened monday and subsequent to that there was so much overwhelming support for finance minister gordon that we felt perhaps this was a moment where this this medical metaphorical army and president zuma is cornered. What is he going to do . Is he really going to pull the trigger and so that was the question investors were thinking. The surprise answer is he went four. What happens next . Does president zuma get so much. Ressure does he put back mr. Go dan has financed minister . Thinks this is the best way forward for him. Perhaps that is contrary to the market. , hee look at the situation is probably assuming he has support from the various factions to survive this and certainly we see it is not a collective organization. It is very difficult for them to decide what the Opposition Party calls for. It is difficult for the impeachment process to take place. I think he is taking advantage of that structure. What does this mean for investors . Is this going to be much more volatile . Rand sold off. Before the gordon recall. It is roughly the same we saw when he fired finance minister name a. The moves are roughly similar so i would not expect for rand to significantly underperform. Agencies have been very insistent that political turmoil is something they are looking at. Clearly this moved to reshuffle undermines those pillars. In thek it is justified new future so we are expecting the reading to move next friday and also south africa especially. You know after you enjoy losing commodities, theres one char everyone looks at. This is the elephant in the commodity room. I dont care if your south africa indonesia, or the United States of america. The biggo, here is china bump. This has not been pretty. Ofs this go in the vicinity technological change and commodities . Economy is much more Service Oriented than they were 30 years ago and that means we use a lot less stuff. On a relative basis, i dont think we should be expecting major markets in for commodity toces on a relative basis really pick back up to previous levels. Were not building roads and everything like we used to. Tom there is bob cents with us. Coming up, to discussions with two fed president s. Michael mckee will speak to build dudley build dudley. Bolin about 10 30. This is bloomberg. Tom bloomberg surveillance in london and new york. A good exercise to do. Bring up the chart right now. This is pretty good mathematics on a dollar index. We are back to where we were in 2015. How do you position yourself here . We suggestedweek, euro we would be sellers. I think what we had coming into the are was a market that was heavy overweight heavily overweight dollars. I think the market has to build up on the ecb moving this year so i think there is clear space for the dollar. Within this is the many dollars. Against asia. R or dollarar pair relationship matters . I think a lot of them matter. They want to watch is dollar china because each time the dollar goes up against major currencies, we see it go up against the chinese currency. The problem is when it retreats, we dont see dollar china come down much so this is kind of an asymmetrical relationship. Think this is the chinese trying to walk in the tight rope. I think they are facing a difficult rate in china. Says withting trump china will be a difficult one and says we can no longer have job losses and trade deficits. How difficult for awkward with that meeting be . I think it will be pretty awkward. A 10nk the china story is to 15yearold story. We are seeing a lot of that Manufacturing Activity moving to like vietnam and africa. I think the administration thinks thats where they can focus and get some changes interview with economy. Secretaryw this with tillerson. Numerous reports not to quote everyone, the meetings did not go that well. We have a wonderful office weighed with ben harvey. We are going to visit with steve eisen. We will talk to him about the changes on global wall street. From london and new york, it looks like london. This is bloomberg. Bloomberg surveillance from london and new york. Youre looking at live pictures from hong kong. Datad this manufacturing climbed to the highest in almost five years. At threeere looking things. First of all, brexit. What a a lot of the jobs would be lost in new york and hong kong . We are concerned about being labeled a currency manipulator. Idea it is pretty moldy into the second, third, and fourth quarter. Someone like scree qamar suggesting no way. Then there is 18 opinions in the middle. The other thing i would look at his what is really being led out is the collapse of Asset Management. This is huge. We spoke a little bit with david harris and he says he does not mind if clients want to take money out. One thing he drew attention to it as soon as their is a little bit of pickup in europe maybe they will put some of that cash in. Eustarting in europe, the plans to take a tough stance. Discussions over commercial ties will not take place until there are resolutions and borders and budget. Conclude by saying the talks which are about to start will be difficult, complex, and sometimes confrontational. Would only get south koreas ousted president has been jailed in a corruption scandal. Cap 19 days to decide whether or not to indict her. U. S. , President Trumps former National Security adviser about the to testify russian conflict in return for immunity. Out afterforced misleading Vice President mike hisn mike pence about contact with the russian ambassador. It could lead to a political revolt against zuma. He was popular with investors because he tried to rein in spending. This is bloomberg. To twore going to talk fed president s today. If you are on global wall street, this is without the without question the interview of the day. Moneyiceman actually runs and he has succeeded at it and failed at it. Heres iceman two years ago. Aking Investment Decisions what an ugly firstquarter for Asset Management. All the restructuring. Blackrock thrown bodies out of the door. Where were your world be in five or 10 years . The trend towards passive investment will continue for a while. The trends will stay the same as far as i can tell. Compression weee can they bonds sustained over time with those vectors . I think they can. One of the issues that has made active management more difficulty less several years is zero rates and the reason why is living . T do we do for we allocate capital. Allocate capital is not as obvious because the valuation is distorted. Normalize over time, i think youll see tom i strongly support that mass. Does chairte rises yellen need to save the active management business. How far away . Of 2018nk by the end will be much more closer than normal. Is thee and within that battle over manpower. We see blackrock moving. Can you tell a kid now to go into the Asset Management business . To be an Academy Awardwinning movie . I dont want to be an Academy Awardwinning movie. My son who always estimate for advice does not want to the in Asset Management. The success of the four dollar feature is something has to give. What is the practice of Asset Management that has to change . I dont think it is going to change. As rates normalize, active management will be easier. Me a time when rates will normalize . Speak to europe. Europe is a problem child in terms of rate. I think we will get another 2018. H this year and assetne you dont think managers will merge . Everyone in europe is merging because they are concerned about fees and so they are trying to make sure they dont go out of business. I think that will happen in the u. S. As well. Am hedge funds have to make hurdle rate where they get their paid a. That is greatly distorted by the. Hanges on the short side, in a zero rate world, how you value your company has become distorted and when rates are significantly easy toit will be shortstop. Short stock. Is there much Greater Knowledge within the Hedge Fund Business that you cant get that edge . I dont think from a fundamental perspective anything has changed. I dont i really dont. Do investors view the market . What is the craziest thing anyone has told you in the last two months . The investors want to make money. Thats all tom what is the definition of making money . 200 basis points. Is it midsingle digits . Think some peoples definition is it are meeting or slightly beating the market. Are we ever going to go back to those big turns. Hadle wanted the yield they five15 years ago. He think weevil go back to those terms . Do you think will go back to those terms . I think rates will normalize, but they will be lower. Tom we will come back. Steve iceman here as we look at Asset Management. Coming up on Bloomberg Radio, bloomberg surveillance. Theory. Do game out with a great book. This is bloomberg. Francine a Consortium Led by kkr has made a bid for indias largest Wireless Company Wireless Infrastructure company. To deal can we find that more than 12 billion. In a red will become the first major chain to list the amount of added sugar to its soda fountains. Craftlans to offer beverages without artificial ingredients. The Worlds Biggest Oil refinery is considering dual lifting of its retail business. According to people familiar with the matter, shares with sell first in hong kong and then shanghai. They want to raise 10 billion in an ipo. Coming up shortly is bloomberg daybreak europe im excited with your interview with peter navarro. Im excited to. Issue is theig president will issue some executive orders around trade. If anyone is watching, president she will be here. Pitt a once to do something about that heard i wonder how effective it will be. The idea that there is no comparative advantage and maybe all trade deficits are bad. We will get into that with him. , in the immediate term, how does he want to solve this. Important an conversation. Weve been talking about Asset Management in making money. Are aboveg to say you regulation . Focus is kind of a waste of time to think about. It is going to be very hard to get it. That is not where the game to be played. President trump will appoint someone to the position in that person or not the daniel truly out. I think what you will see over the next several years is a very fragile deleveraging and deregulation in reflected regulation. Tom bring up the chart and israel simple. Youve got these two dogs down here better recently than bank of america. Does Steve Weissman like the fully fully valued of momentum stocks or will you will all go up together. I dont think it will make that much difference. Does the manager t or the Financial Transactions . I think it doesnt matter. Where banks make mistakes is credit quality. Where in environment that sense, it is harder for Bank Management to not make mistakes. You look at credit quality in dont really see concerns right there. Let me bring you to my chart. This is u. S. Banks versus european banks. If we dont get proper deregulation, is that going to hurt a lot of these ratios for the banks . He will not get deregulation in the next three months. Francine so when . Theome a new appointed to Bank Supervision in the first events will happen in 2018. Untilll have to wait june. Believe is it going to low up . Blowup . You have to separate is an risk . Bad from systemic tom steve odland, thank you. How about tv . What is even better as you can come over and go back to a previous chart. We are finding get very popular for global wall street to keep experts like iceman. There it is. You can ask a guest a question. Worth . That from london and new york, this is bloomberg. End ofreignexchange the the quarter. What an interesting quarter for the dollar. Forsense with a bold that euro parity. There it is. It is a huge deal for cinch to go the other way. He has been dead on about strong sterling and stronger euro. He reverses that, looking for parity. This is finance 101. Is totally away from your claim of trying to find credit stress. The depression is over here. 70s we arein the on trend. What you do . Do you go into the equity ,arket, grabbed nominal gdp have guys operating to a better you arestion mark asking a question two big for me. Im in picker. People used to come to me and say housing always goes up. Its not a law of physics. Yes, thats the trend until it is not the trend. Have we hold ourselves into a Perfect World where we are down 4 that is horrific . It has to do with the zero rate world. If we go into a normalized rate world, we will go into a normalized market. What are your top trading ideas away from financials in the u. S. . My Favorite Group is financials. Against banks is 70 . For stockpicking, the area is right. The way to think about it is always looking for the next microsoft or facebook. The problem is for every microsoft or face, there is disaster. If youre going to pick something, you have to pick things better moldable. Large moats around them. I think that is what you have to pick. Francine and these are expensive for cheap as a moment . Cheaphink these is are at the moment. Tom we will continue with Bloomberg Radio here. What we solid housing, was it a oneoff thing. Did you know at the beginning or the end it would be a oneoff event because of the scale of it . It wasnt a oneoff event. It was a symptom of the over lecturing of the Financial System. I never said this before about a bank regulator. I think they did a her and job, but the country owes a tremendous debt to daniel cirillo. Steve weissman and mr. Truly a will continue this discussion. To important interviews later today in the net 00 a. M. , Michael Mckee with william and james with kathleen hays. Stay with us. This is bloomberg. The Trump Administration set the stage for next weeks meeting with the chinese president. Check first, then we will talk business. The eu says there will be no the brexitbefore bill is a great. Finance minister takes the run down with him. Ferro. Rning, on jonathan we will be talking to peter outcome, the national go around the world is thereuestion is going to wait before they conclude that review. Dudleyill hear from bill exclusively here on bloomberg tv. J