tv Studio 1.0 Bloomberg February 7, 2016 10:00am-10:31am EST
♪ hans: coming up on "bloomberg best," interviews from the davos economics. powerful leaders bring their insight to bloomberg television. >> we are continuing to invest in the downturn. >> do we think the world is falling apart? >> do we think this is 2008 all over again? we do not think that. >> a unique perspective on the most pressing economic questions from the biggest names in business. join us now on "bloomberg best."
hans: hello, i am hans nichols, welcome to "bloomberg best." we -- bloomberg television has been at the world economic warm in dollars -- davos and speaking with the most influential policymakers to get there since of the state of business today, and their vision for where it is heading. >> we just saw japan go into their territory in terms of the market. do you think this means a sinister connection for the economy? >> i think we are going through a connection. the imf has forecasted for the current year. it becomes with a medium-term with future growth down the road. that is where we are at the moment. we have come out of the deepest financial crisis, and we are now nine years out of that crisis. at that point in time, the global order had reversed. the industrial countries were lagging. they had implemented bold
programs. the emerging markets have really strong tail winds. some of them had not use that widely. now the world is reverting to the old order. the u.s. is leading the cyclical recovery. industrial countries are doing better than revert -- emerging markets. it is a normal correction. it will last for some more time, but i do not think we really see a downward spiral. >> does it feel too right now that this is just a correction, or are we at the beginning of something more enduring? >> it feels like a correction to me. if i thought china was in freefall, i would be really concerned. -- the consumer and the service economy is holding up pretty well in china.
there are parts that are way overdone, whether it is steel, coal, overbuilding of residential, and in certain of the interior cities, and so if -- and some of the interior cities could -- cities. so if you just take one anecdote, you could get -- you could get a really bad picture of some of the policy implementation. erik: if the selloff doesn't stop, what happens then? stephen: the markets become reality if they affect the behavior of regular people. at this point, i don't think that has happened. >> the markets are in turmoil. here, we worry about china. we worry about the fact that we
may not have ammunition to deal with inflation. what do you think the markets are spooked by? >> well, overall my perspective is, if you really want to look and forecast the economy and look at the real economy, don't look at the financial markets as an intermediary of the real economy. we have been in a period -- there has been a disconnect between what the financial markets tell you, and what the real economy shows you. it was really pronounced in china, where the financial markets went their own way, almost unrelated to the economy. by the way, the correction in the financial markets in china is significant and maybe, i would say, welcome, because any balloon that has too much air in it needs to let some air out without getting to explosion.
-- without a complete explosion. it will have impact on growth in china, but let's face it, the financial market in china are narrowing a very small fraction of the chinese economy. china will continue to grow. it will continue to grow at a slower rate than what it has. and it is by design. they have changed their growth strategy from manufacturing reliance to services. it means they do not need to grow as rapidly. it has international applications. it reduces the demand for commodities by china. but the implications are a case-by-case approach. not everybody is affected. erik: once again, the selloff feels kind of like 2009, but i hope not. what does it feel like you? >> i think it reflects a tug-of-war. can the countries sustain that growth?
china will not grow as fast. i think that tug-of-war things plays out in the market. erik: it sounds sensible. brian: it is sensible. at the end of the day, these companies have to keep driving, and the economy is just as strong as it was a few weeks ago. now the question is how it plays out. francine: what is your main concern today? deflation? is it china? maurice: first, i would like to make just a small comment regarding the reaction of the market. they are overreacting to news. we are already there. i think there is no new news. when you look at the situation regarding oil price, or the growth in china, as well as the other issues, the global growth, we have all known in a while, the situation was not going to improve markedly in 2016. i am just a little bit
concerned by this overreaction. francine: right. maurice: it is not that new. it is not a real slowdown. we have not had the kind of growth that we were expecting. we do not know, besides the french, who is really thinking that the economy would take off next year or this year? >> the market is so near-sighted. this is the problem. the market sees these problems that are so immediate. the market does not know how to interpret 4 billion human beings need cheaper energy costs and that that money will be re-put back into the economy. we do not see that. it is so incremental. this is why the market still may have some digestive problems, but over the course of the next year, we will see a higher market. global gdp will be around 3%.
maybe not as high as the imf believed. but i am not that worried. >> you are managing a lot of assets for a lot of people. what are you hearing from them, and what are you telling them? >> it has been so fast, this correction that we are in the middle of, and in many ways, that is more helpful and more cathartic rather than if it were slow and painful. and i think that is allowing people to hope that it is just an asset price recovery and not something more to do that has to involve the economy, and the can actually be quite helpful in some of all of the cash on the sidelines in many portfolios. and as you begin to find better entry levels, perhaps we can get back to normal. but what we don't hear is our clients panicking. you got some money coming out. not a lot of money jumping in at any particular point in time. >> how much of this is china,
how much of this is oil, and how much is this something else? mary: there are a lot of conversations here about china and oil. our those two things alone are -- i does two things alone going to cause a global recession? francine: a few weeks ago, you said we should actually be much more careful so we avoid repeating 2008. george: 2008, regarding -- we are repeating. it was a time of financial crisis and a bear market. and we have the same conditions today. but, the source of this equilibrium is different. in 2008, the root cause was a subprime crisis in america. now, the root cause is basically china.
so it is not comparable. francine: is this because they are not doing how we would think or deflation? george: it is deflation and over indebtedness over the chinese -- of the chinese economy. the total social debt is down 300% and maybe actually might be up to 350% if you take into account the external event. so, it is serious. ♪
i'm hans nichols, live in davos, at the 2016 economic forum. here are "bloomberg best's" best conversations from the week. francine: when do you see the bottom and oil prices? >> i think chinese is also in -- an issue for oil. i think it is also at issue for oil, because lower, slower oil demand. which means there is going to be lots of oil in the market. it is the third year in a row that we have had more supply then demand. -- than demand. we will have more supply than the demand. for 2016, the supply and demand situation will be under pressure and i don't see any reason why we will have a surprise increase in 2016. francine: what would it take for rebalance? at some point, this undersupply will come onto the market. is there any possibility that after two months, this will affect the market more?
fatih: this index at very low investments, which means in a few years' time, there'll be more new projects coming on the scene to meet the growth. this is very serious. the second series thing is, when we look at the economies of major oil producers, they are in bad shape, and they may be in worse shape if the prices remain at these levels. francine: but you are telling me that we are creating a shock. you are telling me that we have a potential of creating an oil shock? fatih: i wouldn't it use of the word shock, but there will be pressure on the upward sector in the few years time. because of the lack of investment two years in a row in the oil sector. >> when will markets rebalance?
i know there is an oil oversupply issue, but will we hit the bottom at six months away, or in 12 months? daniel: i think because the producers show no inclination to get together, we think that in the second half of the year, this is so severe that you start to see a rebalance in the market, maybe at the beginning of 2017. >> does the rebalancing come on balance sheets? this suncor transaction announced this week in canada means that oil is much more cheaper then the global price. when you say rebalancing, what do you mean by that? daniel: price starts to move up, and at the end of the year, we could see prices, you know, a good deal higher than they are today. not what would have been $100. not $60. not $70. but the prices will come back and operate more along the fundamentals of a balance.
francine: and i do think -- [indiscernible] >> the problem is, because this is actually a gop political problem, too, which is that saudi arabia and iran are at odds. saudi arabia says that there is not room for iranian oil and i -- iranian oil. iran wants the market back and they need to get together, unless, and this is what we're saying, and we need to make sure that this happens and even the russians will get a cut. >> our production cuts realistic? >> for me, i think this is more of a meeting and for a chance to sit down and talk. price is really not the issue. >> what is the issue? >> it is about the future of the oil industry, the future of the oil stock. it is the future of the oil business. price. lot more than what, for example, is the matter with having a diversity center in five or 10 years to bring back stock into the market.
i don't think a cyclical downward turn will show up tomorrow as a major upward movement to affect the economy. everybody has agreed on one thing -- prices today are not good enough and there is a lot of stock in the market. opec cannot do this all alone. what we need to do, we need to get opec back in and they need to talk. >> i spent a large part of my career doing m&a deals where the oil prices were between $10 and $20 a barrel. >> a lot of people forget that. >> yeah, exactly. there was a lot of consolidation that took place. a lot of big companies were built, we're talking exxon, shell, bp, they were built when oil was $10 or $20 per barrel. i think this is a period when people are going to look to aggressively pursue consolidation. and rationalization.
>> the energy market at this is clear where we are , heading to. i think this creates a lot of challenges for total economies. however, i think, the positive side of it, we need to look at this as supply and demand economics and we need to overcome the current problems of oil prices, for example. the challenges for companies to focus on growth and to focus on long-term, and i think that is the way you can overcome the current challenges for your company. francine: how much do you understand about what is going on in china? what is your view? yousef: i think we are excited about one important element, and -- important element. the chinese want to transform their economy, so it is not quite as heavily reliant on international export. at the same times, this would
improve upon their quality of products. they want to go to mid and high end. i think this is strategically a very positive transformation for china. francine: will it take time? yousef: it will take time. again, with the size of the economy like china, and the long -- in the longer run, it will transform into a very positive contribution toward the overall economy. ♪
♪ hans: you are watching a special edition of "bloomberg best." political leaders, policy leaders, and power makers in politics and finance all come together here for the week in davos. it is a group that has many common concerns come up with their philosophies and perspectives differ. that arrived he was on display -- that variety was on display in some of our best interviews of the week. francine: so are you expecting more volatility in 2016? christine: there will be
volatility in 2016. we have three major downside risks on the horizon, and one of those is the massive chinese transition to a new economy, which will be bumpy but will seem resolute and is welcome coming from a very high growth rate to a lower growth rate and moving from being export-driven to being a consumption driven. to being industry-driven and all of that with a a high degree of volatility. the lower commodity prices are also going to entail a degree of volatility, as well as economic policies around the world and changes coming up in 2016. it will entail volatility, yes. francine: your biggest concern is a risk of inflation? -- deflation? christine: the biggest concern is to make sure that the global
economy is actually on track to provide enough growth to respond to the needs of those people who are looking for jobs, those people who are expecting more sustainable growth. that is the main concern. francine: and you think this will achieve that? christine: everybody has to do their job. we are calling for an upgrade of policies. policy makers need to agree more and agree on the right set of policies that will improve the global situation as well as their own domestic situation. -- position. tom: how do the developed countries maintain confidence and avoid stagnation in emerging markets? >> growth would be good. we would love the industrial countries to grow faster, and the real question is how we can make that happen? my sense is certainly, stimulus has run its course. once you are in the situation, how do you get out of it? abrupt creating an
change in asset prices. that is what we are grappling today. but globally speaking, i think the answer has to lie in the underpinnings of growth. the structural reforms that we all know and love. but cannot actually do. jonathan: are there any negative consequences at all of running a budget about the percent? -- above 10%? above 100%? >> there is. >> what are they? >> it is about debt. debt has to be reimbursed. debt is a burden to all of us. jonathan: but if it is above 3%, why does it matter? >> the problem is -- if debt will keep rising, you can't do anything with your services, you cannot finance education, you cannot finance health, you cannot finance security, you cannot finance anything. it is about gaining maneuver. you will not move forward for proper economy, social, and
security policies. for europe it is a security policy. >> i have to say, tom, it is a little interesting to me that when china was growing, everyone said they were exporting deflation. they are making everything cheap. now they are collapsing. something is missing. francine: now they are deflating. [laughter] tom: are they escorting the -- exporting inflation, or is that an undergraduate fallacy? >> it was productivity shock that was good and now they are collapsing and it is not good. i certainly think that the overarching phenomenon of these -- is these central banks facing these real interest rates, and that has driven them down. i think, you know, they have to think about negative interest rates. i have written for 20 years about so you could go to negative interest rates. that is considered wacko, but who knows? tom: what is your policy prescription to amend the
nascent situation in america? bob: the proposal for what it is plan, so to make a that the taxes on the rich go up in such a way that you kind of preserve the inequality that we have today. so that taxes on the rich go up in such a way to preserve the inequality we have today. i am not proposing that we address it now. we have heavily agreed that it has gone far enough. tom: what about the republican party talking about too much taxes, when you look at the aggregate sum of so many taxes, and even if it i give them my tax dollars, they won't know how to spend it? these are ancient traditions within our conservative either -- ethos. bob: if i am talking to republicans --
tom: this is exclusive, mr. bob schiller talks to republicans. [laughter] bob: i have a free market side. the other thing is, we need to develop insurance, free market insurance vehicles to protect people against inequality. of course, we already have that, to some extent. life insurance, fire insurance, they are all engines protecting us from inequality. if your house burned down, you used to be poor. not true anymore. we have to expand the scope of our insurance industry and we should start insuring livelihoods. hans: coming up, more interviews from "bloomberg best." ♪