Burst . But first, coming to terms with an attack in egypt that left 300 people dead. I spoke with the Senior Executive officer at emirates. It is a truly shocking event. I think the thing you have to remember is egypt has gone through a series of reforms on the political side as well as market side, so for now, i think we should view it as an isolated event and see where it goes. They will clamp down hard on this. I think we should take a moment and see where things progress before jumping to too many conclusions. The question becomes how how investors should look at the story. 2015, stock market sold off. Your appetite for egyptian assets remains firm. It is an interesting one. If you look at it and go back a year, you almost have to view this as a timeline situation, a year back, very few Foreign Investors had an appetite for egypt. The security situation was a bit of a mess. Last october or just over your a year go, 20 billion dollars. Today, they are 36 billion. Half of it has been dispersed or approved, so things are looking good. Even if we talk about ourselves, we have participated in both egyptian securities and on the fixed income side we have participated from august onward in the local market on the treasury auctions. Every week, there are two treasury auctions on tuesday and thursday. Interestingly, today is the ninemonth auction. That and be a key month to look at in terms of foreign participation. The yield onek that was 18 , so that will be an interesting one to watch great. We will watch that for sure. We know that the egyptian president has already reshuffled his top security. What are the chances that these Security Issues become a distraction for him and maybe he takes his eye off the ball . That danger is always there. One of the things when Foreign Investors are looking at any of these markets, if you look back pakistan,er story in they have got a similar situation in terms of security. One of the things that helps pakistan that has been improving is the security situation. That is one thing that agrees with you. That is where we have to see if this remains an isolated event or there are more followups. There was zero negative reactions from the terror attack. I asked the ceo of Renaissance Capital whether that meant investors have simply grown a thick skin when it comes to egypt. That is a very important point. Local investors have accepted that this will remain unstable. As been going on for sad as it sounds, it has been going on for quite some time. Thick skin might be one way of putting it. This is more of an isolated territory and hope it will sort itself out. Are Foreign Investors going to react differently when the market comes online today . Are they going to say they are going to pull out their money . This is the most violent incident in egyptian history. Yes. International investors, the way they are looking at it now, some of them will be putting more money into the market. I dont think youll see money really coming out of egypt on the back of this. To givet up this chart perspective to what has been happening to egyptian stocks. Basically, the Egyptian Stock Exchange story is one of the few remaining positive patches in the region, which is filled with some of the worst performing exchanges in the world. This is yeartodate performance. Egyptian stocks up almost 30 year to date. The saudi performance barely above the flat line. How much more meat is in the story . The fact is egypt is the strongest in the region. If you look at the earnings season, it has been very strong even through the consumer sector. It is showing very strong signs of recovery, so if anything that is purely fundamental. You have the recovery story translating into results. Has anything changed your view on the other markets like qatar . The bloomberg team, they have been able to make 7 profit by switching between offshore to onshore with the saudi real. Getting interested in either valuation . Devaluations are attractive. As long as the political situation remains the same, it will be very difficult for me to put money to work on contract at the moment. What about the rest of the gulf . Showing a lot of positive signs. If you look at the market, it is actually switching. That was the ceo of Renaissance Capital. Up next, jay powell saying there is no sense of an overheating economy just yet. Is he right . We discuss that next. Welcome back to the best of Bloomberg Markets middle east. The fed chair nominee Jerome Powell said the case for raising rates is quote coming together. He says the economy does not appear to be overheating. That aligns him with a more dovish flank of the central bank. We asked the founder of ht research if there is anything that could derail a december hike. Theres only one thing i could think of. That is the pce coming out tomorrow. If it is 1. 3 or below, that could sway the fed. Again, there is an outside chance here that if you have a weak inflation, the fed will hold the fire for now. This issue of a flattening yield curve, many have put it off as being down for other things. Have you subscribed to the view that it does not signal a slowdown ahead . The yield curve has flattened, and we are a little bit more than two rate hikes away from an inverted yield curve, and that is usually a precursor of a recession a few months later. That is something we have to watch for carefully. I think that is the most important data point. Another one is high yields which have widened. You have all these yellow flags that you have to be very cognizant of, and it looks like 2018 will be a lot more volatile than 2017 was. We put that yield differential on the bloomberg as we speak and the spread between we have added gold futures. As it comes down, it could be a headwind for gold as well. A lot of discussion about the world post. Hiking rates, reducing the Balance Sheet do you think the fed is making a policy error . That is possible. You have inflation, which doesnt seem to want to materialize, and i think the reason for that is strong demographic forces. The other one is robotics and automation that replaces labor and excessive debt levels and if Interest Rates go too high, the debt service will become important. The feds will be too high. You are taking it to a certain extent and i think the fed will data dependent on rate hikes in 2018. How convinced are you that we will get something meaningful in terms of tax cuts . Possibly the biggest source of upside as we look ahead to 2018. It is a strong likelihood that some type of tax reform will be passed. The question is, how much of an impact will it have . Historically, it has not had the same impact as monetary policy. Fiscal policy in the 1950s had a lot of Infrastructure Spending and three recessions in those years. Policyructure and fiscal is a lot weaker than monetary policy. Im not holding my breath when it comes to this. Up next, bitcoin goes ballistic, reaching 10,000 for the first time. Is this a bubble waiting to burst or just the beginning . We discuss that next. This is bloomberg. Welcome back to the best of Bloomberg Markets middle east. The bitcoin search hate new heights thisew week. Many investors think we are into bubble territory. Theres really one four letter word fomo, fear of missing out. Bitcoin really is in a Virtuous Cycle right now. The higher prices go, the more money wants to go in. What is next . People are looking at whether u. S. Regulators are going to approve futures, which is a major milestone of bitcoin acceptance and whether banks will offer that to their clients, whether we will see more mutual funds tracking bitcoin. I think what people are looking at is bitcoin really going to go mainstream . Absolutely, thank you very much. We will see where this goes. He is still with us over in singapore. I want to ask you. You have been asking about bitcoin, im sure. What have you told them . Everyone is talking about it right now. It seems there is a uniform view that bitcoin is in a bubble, and if everyone talks about the bubble, my guess is it would go higher before the bubble bursts. I think at the end stage it will be when the last bear has thrown in the towel and Everyone Wants to get in. That could be a turning point so you can control the price via the futures market. You have physical gold and you have the futures and 500 times more futures on the line. The same may happen with bitcoin and then the market will be more controlled. The team here at bloomberg makes an argument that human psychology is ultimately going to bring those valuations down. It is only in human nature to push selloff at these levels. This is not a normal market. How much more upside could we see before the bubble bursts . That is anyones guess. It could go to 20,000 or 100,000. Nobody really knows. Central banks still look at it the reactions from Central Banks are different from country to country, but want to bitcoin once bitcoin gets to a certain size, then you will have reactions and directions could be anything from clamp down to acceptance. Maybe even creating their own their own cryptocurrency. Many have been labeling bitcoin digital gold. It certainly has outperformed the precious metal this year. Should investors put their securities in one of the oldest or newest . We have gold expert who chipped into the conversation. You see a lot of money coming in. Thats really what is driving it up. You see people taking money off the table and theres a lot of money going into the crypto world. We see it in the longterm going up, but it will reach saturation at some point. We are talking about volatility. I have to ask the question, so in bitcoin, does that make it a store of value . I think theres about 250 billion now in cryptocurrency, so in that respect it does make it a store of value. Compared to gold, it is a baby. I think theres about 8 trillion of physical gold in the world. I think it is still the elephant in the room in terms of safe havens. Im wondering if we will have to put a divider between both of you. Let me see if i can get more reaction from you both. The chart behind me is ounces of gold required to buy a bitcoin. I feel a little bit silly every time i bring up this chart. What is a bitcoin compared to gold . Also, if you look at the amount of bitcoin that will be in existence, bitcoin would have to get to 350,000 per coin to equal gold. What do you say to that chart . One of the things we talked about, it is new. When it is new, that means money comes in. Gold, the money is already in there. You see people that are looking at gold and saying even Digital Currency is a better way to store value. It is a faster transfer. It is something people are trying out, as you can see, it is succeeding. Just to show our viewers what is happening with one of the cryptocurrencies, specifically ether. It trails its two biggest rivals , which and bitcoin cash has tripled. How should investors look at the different types of currencies . There are many out there. Are we going to need consolidation . This makes it very interesting when you talk about cryptocurrency. We talk about bitcoin, but that is not the only cryptocurrency out there. While bitcoin was designed to be herium wasle, et designed to be used. You can get utility tokens. Theres lots of utility when it comes to the new cryptocurrencies. Arestore of value, you looking to invest, or utilities to buy Services Available in the future. What about the security question . Last year we saw a 30 million heather. It is not a crime. That said, i remember gold in the 1930s. The government confiscated gold. How should we be thinking about bitcoin and gold as a safe haven . Gold has been a safe haven for 5000 years. Today it is as relevant. I remember in the late 1990s, the youngersaying india, theyin would not be interested in gold. Trust me, every indian that gets married has a lot of gold. Gold is that fundamental safe haven. Some people say gold was the original cryptos. Maybe it was. I have no problem with bitcoin or the other cryptocurrencies because they are an alternative to paper. Fiat currency. Its not an alternative to gold. What i love about the Bitcoin Development is actually block chain and that instant transfer of ownership. You take gold and add block chain, then you have an interesting topic. Some have been doing that. If we talk block chain, we will be here forever. Eric, your reaction to the hacking. I think it is on the mind of everyone who owns their own currency or an investor. If you own bitcoin, you can hang on to your own key. It is incredibly secure. It is not about the security of bitcoin, but it is about the security of where your bitcoin is and who is providing or services. If you notice, the hacking is taking place at individual companies, and bitcoin is being transferred securely to the wrong person. Up next, debt downgrade. South africas local currency debt is cut to junk. What does that mean for emergingMarket Investors . All of that next. This is bloomberg. Is this a phone . Or a little internet machine . [ phone rings ] it makes you wonder. Shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. Choose by the gig or unlimited. And ask how to get a 200 prepaid card when you buy any new samsung device with Xfinity Mobile. A new kind of network designed to save you money. Click, call or visit today. Welcome back to the best of Bloomberg Markets middle east. The week began with Market Investors reacting to news that south africas debt score has been cut to junk. We begin by asking whether a move by moodys was only a matter of time . I think it is a matter of politics again. You need a big change in south africa on the political side. The stories about corruption are still there and that is affecting the economic outlook. As well as investment. Investment is down to historical lows in terms of investment. Im talking Real Investment and unless the and fdi. Youre not going to have any upturn. How do you look at the emerging markets and some of the more recent developments from south africa to turkey and others as well . E. M. Has been a great story. No question about it. Both on the debt side and the equity side it is fantastic. The outlook continues to remain on a fundamental basis, pretty solid. Just like i was referring to earlier, most of the projections are keeping. That remains there. From a political point of view pakistan you just got on the roadshow. This is a country which has had problems in the past but has been from a Security Point of view very stable. Now you have the issues coming up over the weekend, as well as the finance minister has just been replaced. Or he has gone on leave so to speak. What that does to derail things a little bit, you will have to watch. That is one of the things that always remains a risk with e. M. , these uncertainties that may crop up. Speaking of risks and the rally we have seen in the space so far this year, i put together a chart that shows emergingmarket stocks, theks, currencies, and bloomberg dollar emergingmarket bond index. All of these are up, but the bond space absolutely remarkable. Im old enough to remember two decades ago when a bunch of african countries were burned by their overseas borrowing. In terms of those liabilities, should we be worried about the e. M. s being able to pay that back . From 2015 recovering and 2016, where e. M. s were sold. So the 2017 story is a story about europe which is growing again and a story about e. M. s. Remember, what we missed out is china, asia and the belt world. What china is doing is nothing short of phenomenal. We look at egypt, pakistan and much of africa, turkey as well. The real story of emerging markets is asia. Asia is keeping up. If you look at all the countries that are strongly integrating into chinas economy, they are doing extremely well. The debt side is understandable. You have record low Interest Rates on a global basis. They can tap the market, and there is still enormous liquidity. Maybe a bit rich in terms of pricing, but they are benefiting from historically low Interest Rates. What about the soft dollar . How does that play into the e. M. Rally . That is the interesting thing. Part of the reason that e. M. s have struggled historically or if you go back in history, as the markets have grown, emerging market sovereigns continue borrowing bigtime in dollar denominated debt and as Interest Rates go up and the dollar strengthens, that is where they struggled. Look revenue, you have to pay in dollar. This time, a lot of the countries have managed to get the Structural Reforms on their side. I think increasing dollar will not hurt them as much as it has in the past. Secondly, the absolute levels of where the Interest Rates are our much lower this time so you will not get to the high single digit levels anytime soon. This is part of the emergingmarket conversation. We are watching the ongoing development. You were saying earlier you disagree with some of the other comments. You think what we saw over the weekend is much more significant. It is not an isolated incident. It is simple. You look at the rise of isis in syria and iraq. We are talking about 30,000 to 40,000 fighters. Hardened fighters, militants, extremists. Those are likely to spread across the region, so expect trouble not only in egypt but in other surrounding countries. I dont see this as an isolated incident. What happens is they will disband and then terrorist attacks all over. What is most interesting is for once, we have a Political Coalition between saudi, uae, turkey, egypt and others. To turn the wave against extremists. I think this particular act is going to galvanize the efforts of all those countries to fight extremists, and that is a very positive thing for the region. A costly pleabargain. This