tv Bloomberg Go Bloomberg June 27, 2016 7:00am-10:01am EDT
brexit aftershocks. fallout continues to reverberate across the market. stephanie: european bank stocks and use lenders among the biggest losers as italy is weighing a $44 billion bank investment. jonathan: johnny from the city of london. the markets reopened. they resume the slide. after a weekend of digesting, a lot of politics. david: yeah, it doesn't look like all the time off did not enough -- did not do enough to calm investment jitters. former fed chairman
go>n greenspan is joining < this morning. david: for now, let's look at where the markets stand. jonathan: things softening up in the last hour or so. down about -- down about .7%. did the is off by 1.7% acute pain being felt in european banks. the index down about 20% over the last two sessions. down by 7% to date. that is a topic for discussion in the next three hours of programming. it is the pound the resumes the slide, breaks 132 at one point for the first time in 30 years. down another 3.5% on the session. you see the risk aversion in
yields, in crude. 1.47% on a -- on the 10 year in the u.s. right now. alix: want to check in with our bloomberg team for the very latest in the aftermath of brexit. we have reporters in london, new york, hong kong, brussels and madrid, every part of the story covered for you. we begin our global team coverage with an edwards at 10 downing street. the debate is now about what article 50 has -- of the lisbon treaty is triggered. the ukip you seem to be on different pages. anna: absolutely. behind me, number 10 downing street. we have a cabinet meeting taking place. some members of the cabinet have left. some have not yet key questions really -- are they crafting some kind of plan for the u.k. to leave the eu?
we see articlel 50 of the lisbon treaty ask the triggered? we heard from george osborne, chancellor. he was talking about contingency plans. he talked about oracle 50. only articleborne: -- only the u.k. can trigger article 50. in the meantime, during the negotiations that will follow, there will be no change to people's rights to travel and work and to the way our goods and services are treated or to the way our economy and financial system is regulated. anna: so george osborne, the chancellor, talking about taking -- the u.k. taking its time. we have heard that for many in the u.k. in recent days. one prominent member of the conservative party cabinet talking about only triggering
article 50 after informal talks have taken place. meanwhile, the eu his specs income and no, no, there can't be any talks, not any negotiations until article 50 is triggered. but the u.k. is mindful, once they trigger that, that clock starts ticking and they have two years to get out. alix: thank you. at how theook politics and the uncertainty has played out in the markets. the big question of the week and would be how would we open on monday. sterling seems to be the relief valve in this whole story come along with the financials. let me run you through what is going on and what the story is. friday, post the announcement that the u.k. was going to leave the eu, we saw sterling slide very sharply. now, we are below those levels us again. we are now trading 132.18.
so we are below where we were on friday. while we are seeing here is the 10-year guilt -- gilt moving below the 1% level. we have never seen that. this is the date move. we continue to see money flooding in to the u.k. bond market. we mention the banks. fx seven p, the european banking sector, you look at the losers. not in positive territory today. scandinavians playing a little catch up today. royal bank of scotland, this is on the session, down another 17%. barclays down 15%. what is interesting, while some of the italian banks are sliding, there is bloomberg
the italianggesting government may be getting ready to inject $44 billion into the banking sector in concerns over what is happening within that space. it has been an ongoing story for quite some time. the potentially brexit could provide an opportunity under about systemic events. brexit could be one of those potential maybe the italians can circumnavigate those rules. and do fairly well -- the get some resolution within their banking sector. jonathan: thank you very much. quite clearly, the pain felt much more acutely on lenders here. david: indeed, jonathan tieu let's come back to the united states and compare with what is going on here. how are you spank stocks doing here, julie? julie: not nearly as poorly as the european banks. and not as poorly as on friday. although they are trending downward. obviously, there is less direct exposure to the situation in the united kingdom and in europe here in the u.s..
these banking stocks fell between 6% and 10% on friday. still trending lower this morning, but not seeing the same magnitude that we were on friday. indeed, some analysts are coming in and saying you might want to look to buy some u.s. financial us. citigroup noting her the week and that you would look at some of the undervalued financial stocks that have may be fallen in sympathy with the competitors across the pond. -- wellok at these least of all universal banks, also want to look at some of the pure play investment banks. morgan stanley saying defines us morning. also financials are they worst-performing group in the united states thus far this year. so when citigroup talks about looking for potential undervalued stock, it is a group that in theory makes sense. going to talk about the aftermath in asia. mostchina weekending the
since august. >> that's right. the -- it's like you mentioned. what reflects the clear rally we have seen in the dollar of the last few days, it underlines the delicate rings for china has a try to navigate brexit. they don't want to get to week because it might trigger capital outflows. -- the economy is in slow growth mode. triggers have to intervene to prop up the currency. -- demonstrates the david: let's go to brussels.
john kerry, the u.s. secretary of state is on it -- on his way to brussels today. the question.ses how concerned is the united states not only with the economic effects of brexit but also the security effects? think they're very concerned. blasting united states wants is a divided europe. will meet the secretary general of nato. there is a summit coming up and he wants to make sure everybody is on the same page. states aree united very concerned. there are already eu sanctions imposed on russia along with u.s. engines. he will be concerned about softening conviction around that. and he will meet his counterpart here as well. he is going to go to london and meet the foreign secretary there. is the message i think really simple. we love you both. we are here for you both as you go through this process. so he is something like a
marriage/divorce counselor. trade, thety to u.s., the eu together account for more than 60% of global gdp. they have been working for three years now on a free-trade deal. there was already a lot of headlands when he came to actually getting that deal done. the hope was, by the end of president obama as stay in office, there is a lot of the was biggest economy leaving the european union, those talks could be dead. david: thank you. jonathan: political uncertainty raining across the weekend. little bit of relief or anyone along spanish assets. as you say, a bit of relief out there. the people's party did better than the opinion polls had suggested commodified better than the exit polls had
suggested. the anti-austerity and anti-establishment did not do as well as the opinion polls and the exit polls had predicted. the upshot of that is that mariano rajoy is now in a good position. he says spain deserves a stable and modern government as soon as possible. he wants to get that in place within a month. but even now with his natural ally, here in congress in spain, they still wouldn't get to have that majority in congress. so they may have to reach out to regional parties. we can still see the possibility of a minority government. and here's the one that no one really wants to that is the potential for a 30 election. square one.to analysts political already exhausted. faye give her a coming up, the -- at of brexit to well it brexit. what will it mean?
campaigning our view? sorrell: we did say during the campaign there were three issues. the first was the economy. the second was sovereignty. and the third was immigration. as you notice, bastad's and's telegraph this morning saying sovereignty is the key -- as you boris johnson's telegraph this morning saying sovereignty is the key issue. the campaign focused on mr. tollway on the economy -- focused almost totally on the economy. lastly, immigration, which is a very emotional issue. the other area they forgot about is this was not a general election. this was a referendum. if you look at some of the [indiscernible] certainly middle england, the -- thest of england
concern was mainly the impact on jobs, impact on health service, education, wage rates and, of course, general social services. that played to the emotional level. david: if you were advising the new prime minister -- sorrell: and an american advisor to cameron, they quote that i was given was emphasize the economic issues until the electorate is sick of hearing about it. maybe that's the problem. david: if you were advising the new prime minister, how would you advise them to put this country back together? it is badly divided on an emotional issue, as you say. sir sorrell: it is extremely we shouldto some say get this article 50 process overs quickly as possible. but it is so technically difficult. i remember talking to somebody before the vote. it will come in his view, and he came out of the foreign office,
it will take 10 years to renegotiate all of these trade agreements with the many nations that the u.k. will have to renegotiate. so this is extremely collocated. what business wants, what i want is the elimination of uncertainty. uncertainty is the enemy of growth, the enemy of decision-making. what has happened since friday actually,y people -- since the announcement of the referenda month ago, people have been reassessing their decisions. in a world that has already been so short term, this provides another excuse to put off the evil day, not make decisions about investments, about plants, about moving people are employing people. it just adds to the great uncertainty. gdp is quite clear. it will hurt the u.k.'s gdp most. alix: some are saying, with by saying i amid
not the one who will trigger article 50, that will be the next guy. he said that person up. sir sorrell: i don't the he deliberately did that. i was interrupted in the middle of an in two new -- of an interview to find a what i thought about the prime minister's resignation. i was a little bit surprised at how quickly he resigned. i don't think you a city met -- setting anybody up for it. what is really interesting is the brexiteers. i don't think they had any detailed plan b, let alone plan a. the reason they wish to delay it so much is that they have to sort through the debris and there is a considerable amount of debris to soar through.
it seems to indicate they are try to hammer out some plan. view,s from my point of although i would like to see quick decision made and the uncertainty removed, you don't want any serious mistakes being made by undue haste. extremely difficult decision. then you have the referenda in europe itself. brexitill be other haven't have been vans. we have seen talks in france and denmark and other countries in europe. then we have the question of scotland and northern ireland and our island and wales. the last thing that is this wants is the sort of uncertainty. jonathan: let's talk about your company. about 6.5% in the last couple of days. how have you communicated with your investor base since the
decision was made? a little bitit is difficult, jonathan. we are sitting there talking to people in continuous dialogue since 5:00 a.m. london time, 6:00 a.m. french time on friday. think it is no exaggeration to say that we have been talking to on thatstors based incessantly. we will have to see how it shapes out over time. but investor analysts mainly are of analyst number numbers already that had given the indication that, given the fact that 90% of our revenues come outside of the u.k., the impact on us from the reporting point of view is ironically positive, if i can put it that way. because the pound has been so weak against the yeller -- the dollar and he continues to weaken against the euro. our reported profits and reported cells will increase as a result. so it is not a complete disaster from that point.
the valuation of the company in the stock was off in the u.s. by 12%. of which about 7% was the currency devaluation of the pound against the dollar. the impact on us i think is a little bit different. if you look at the top 10 markets, germany, france, italy and spain are all in our top 10. they are significant and important markets for us because they are good markets in themselves with a gdp of $2.5 trillion or $3.5 trillion. from an eu point of view, that's important. the point is that to those big for markets will become in a sense even more important to us. ironically, we will be spending more time on them. haveher words, britain may -- great britain may have voted for brexit, but wpp hasn't. david: you have let us
alix: institute of duress -- u.k.tors polled found firms are weighing job cuts. back with us is sir martin sorrell. sir martin, you were talking about -- sir sorrell: we are not planning job cuts. if the growth is last, the increase in jobs. we have increased our employee base to 17,000 by a third over the last for years because of growth in the business. alix: so is your job plans today different than last thursday? we balance revenue growth with growth of people.
we are a less capital-intensive business. every time our revenues grow, we increase our headcount. and try to balance it effectively. perhaps a little bit less than revenue growth to improve margins. we invest $12 billion a year in people. david: you have your finger on the pulse of advertising. and that can get cut back quickly. have you seen the so far? sir sorrell: historically, when people are worried -- we are the worst in both worlds. they don't increase their investment. wait. so we get the worst of both worlds. morebeen a little bit muted in the u.k. in the first five months of the year. but we haven't seen the full impact of brexit. obviously, it will have an impact on u.k., more on u.k. then eu and more on eu than the world.
that you see the chinese premier this morning talking about it and its impact, which obviously the chinese are worried about it, too. a littlethe russians less worried about it. as they looking at this disintegration or potential disintegration of europe, because we've got that is a possibility as well. jonathan: by generally come economic activity will slow in an air of uncertainty. the two-year -- it is more complicated than that did -- than that. alix: we've got to leave it there. much more from sir martin sorrell. ♪
lost count but both parties, there is a lot of fragmentation for the conservatives and labour party. equity markets in london are down again. otherget through the boards. beginning with equities, they are soft. european banks are down 20% in two days on the stoxx 600 bank index led by british lenders. the pound is at $1.32. for the first time in 31 years. down by 3.5%. risk off moves are continuing. that's the market action. let's look at some of the headlines. george osborne is trying
to reach financial markets. the contingency plans are in place to shore up the economy, he says. >> i want to reassure the british people and the global community that britain is ready to confront what the future holds for us from a position of strength. that is because in the last six years, the government and british people have worked hard to rebuild the british economy. we have worked systematically through a plan that means britain has the strongest major advanced economy in the world. taylor: he admitted it will not be smooth sailing in the days ahead. minister prime consolidated his position in the second general election in six months in spain. increase the number of seats in parliament and voters backed away from the insurgent hardy at the last moment. more flooding may be on the way
for west virginia. a flash flood watch has been issued for 22 county today since thursday, 22 people have died. global news, 24 hours per day, powered by more than 2600 journalists in 26 countries. david: it's time for the morning must read. --s also time for the more for the morning must watch. the chancellor has come out and said some reassuring things thatrket and its clear project fear is over and there panic in the markets. david: he wrote an op-ed.
is this a change in his attitude or part of his campaign to be prime minister? jon: it certainly a change in town. -- in town. - in tone. it's significant he offered his support to governor carney. the fragility i see in the market is the kind of in you need at the central bank. in that particular video, with the pound the way it is an bank stem aggressively, i'm not sure anyone would see this as stability in markets this morning. the pound-dollar
relationship is down three point 5% at least. jon: when you look at the banks down and suspended from trading for a certain time, that's weighing on the market. joining us now to discuss the bank of england is andrew and dannyt pwc blanchflower joining us from dartmouth halogen -- college. great to have you with us. some soothing words from boris johnson on governor carney. is it ditch -- disingenuous? >> he is in a panic. they said everything would be fine. clearly, there is huge of marts of market -- huge amounts of market turmoil.
these are tough days. we will see how things will go but this does not look to have calmed anything. it was a mistake area it was a andake that the mpc treasury had no plan really of what to do if there was a brexit vote. where in major economic turmoil and we are in political turmoil. andrew and i want to talk together to say we agree on many of these things and now it's time for calm. jon: for anyone not familiar these two are best of friends after being divergent unshipped -- on issues in the past. you would very the hatchet on this? >> in the depths of the financial crisis, danny and i
agreed on what to do. in a difficult situation like this, it's fairly clear that we need stability. a major business shock. the important things is to make your the economy remains stable as it can be. move for is the first the mpc and bank of england? mpc to have an emergency meeting is the first move. i think about what their forecast would be in the space of a brexit. they made all their forecasts conditional on remain. we heard from the governor on friday. it would be crucial like after 9/11 and it took them one week to sort them out, to have a meeting and decide what is the right action.
on the one hand, you might worry that inflation will rage because of the fall in the exchange rate and you worry about this huge negative shock that is coming and you say you might raise rates only other hand, you might cut them. if you do something, is it enough and does it matter? my view is the mpc should be having a meeting so andrew and i can sit in the room and say what do we see? not a move on the very a but prepare. do quantitative easing down the road, they have to start the process. it takes a while. should do itg they but they should be meeting and thinking and planning and looking at its forecast in the light of the events and trying to calm the world. what would the monetary policy response look like? below --ields are below 1%.
will that do some of the hard work for the bank of england? >> i'm not sure that monetary policy can be much because interest rates are so low. emphasis andferent you have to be careful about creating a sense of urgency. i have lost track of when the mpc is due to meet because they keep changing the meeting schedule. i thought that was a bad idea. >> so did i. >> that's another thing we agree on. quick changes in interest rates come i don't think it would be very effective take themu cannot down much more and it might add to the panic. i agreed that the outlook from the monetary policy committee and their statements are going to be important. alix: goldman sachs came out with a third option asking about corporate bond purchases by the
bank of england in addition to cutting rates. what do you think of that? >> andrew and i were both on the committee where we did that. it was not a very large amount. the mpc today has permission to do that. i agree with andrew that it's not absolutely clear you have to do something today. that might look like panic. maybe you should think about cutting rates and maybe you should think about a purchase of corporate bonds. that takes a while. the practical question is, which one? what will the impact be? i agree that you should not jump in which might add to the sense of panic but you certainly should be planning and thinking about perhaps buying corporate bonds. how you do it and which ones would take a while to work out. alix: under what circumstances do you think trying certain
corporate bonds would make sense? >> what happened in the financial crisis was that risk went up significantly. of the corporate bond purchases was to neutralize that. one thing the mpc should have him their radar is what is happening to risk premiums including corporate bond risk premiums. the we did our analysis at were ank premiums important generator for that shock. see how theait and financial markets develop. bond yields have come down. unless the risk premium on corporate bonds goes up dramatically, there may be no need to do anything on that front. david: how concerned are you
about a recession in the u.k. if there were to be one, would real estate prices lead us to that? it's probable now that the u.k. will go toward recession. if youry that i have is think about what happened in 2008, we saw problem's with the tanks and the housing market. beenwo sectors that have hit hard have been bank stocks which are down and the u.k. holdings are down about 40-50% and the other ones that have been killed or home builders. the expectation of the market will be big declines in home building and companies are pulling back on investments. companies are pulling back on hiring so that is likely to generate a recession. the mpc has to think about that and think about some retaliation early not least because the treasury has clearly been able.
the chancellor admitted he had nobody at the treasury working on plans of what to do if there was a brexit vote. they need to get their act together and so does the treasury. it has to work around a huge political crisis. thank you both for sticking with us. andng up, the risk financial system and barclays down 19% on the session. we will talk financial stocks here on "bloomberg ." ♪
9:00 a.m. new york time. jon: from the heart of london, european banks are in focus. shares of several bank stocks were halted earlier in u.k. trading but have since resumed trading. are down another 18.7% in the session and rbs down by 24 percentage points. committee members at the tank of --land, it dan he lent power danny bunch flour is with us along with andrew sentence. you don'tancials, need superlatives in bank stocks, down 18.8% right now. how significant is that to the financial system?
>> it's a signal of some of the on tour -- uncertainty and volatility following this decision and that's not just economic volatility. disadvantage in the fiscal market are. the -- an important of part of the banks balance sheets. we need to be careful about overreacting to these signals. this is only the second trading day since the referendum decision. i think people are still trying to orient themselves as to what the significance of this is. i think a removal of the political uncertainty should be helpful. >> i agree. this is obviously early days
. the hope is that we don't have a three or four or five or six days situation. we have a severe economic crisis but we did not have a political crisis. we knew who is in charge and we knew that they were -- you may not have agreed how they acted but we knew who was in charge for it we don't know who was in charge now. was that thered would be more resignations. we don't have a viable government at the moment and don't have a viable opposition. the central bank has been attacked from all sides. the credibility of economic policy response is in question at a time when the economy is being battered. this is a very worrying fine because the market will respond
to the fact that they don't think the guys in the u.k. have a clue as to what they are doing. the credit weight ratings are under threat but come nerves and hoping this is the bottom and the political shenanigans in great britain are making it more likely that it is not the bottom. for me, it's how parliament response to the situation and we have not had a parliamentary debate. david cameron will make a statement this afternoon. plenty of time to parliament to debate the consequences of this decision. one thing i think is right is we should not be moving quickly to article 15 to trigger that. we have not worked out what the leave plan is. we don't have a government plan
to implement that. will happenhat that is sensible and we could see other developments before them. the focus is more on the bank of england. they are the actor in the markets who can perhaps do more. terms of the situation facing the banks, they have to provide liquidity if it's needed. you brought up looking toward 2008 but i'm looking at i financial condition. i've charted financial great britain, the eu and the u.s. and financial conditions were tightening. 2008, wempare it to were no nowhere -- we are nowhere near those conditions. are these comparisons overblown?
potential toe reach this crisis level? >> we can look back with hindsight and work out what went on in 2008. unexpected event that was not priced into the markets friday we don't know where it's going. clue now what the state of public finances will be. the office for budget responsibility made a forecast for public finances based on a remain vote. we now have no clue what the public finances will look like because they have to go back and start over. this is the beginning. if we could stop it now and save this is as far as it goes, that's fine but you look at the shares which jet
have fallen because maybe people will not go on vacation. much of anow how shock this will develop. a viablehave government right now. and that was not true in 2008. jon: we had a housing crisis then. the real estate agent in london is down another 23%. people are taking a view on what will happen to real estate. the buildup of risk on some of these balance sheets around the housing sector -- how concerned would you be about that if you are back on the mpc? >> i have been saying that house prices look extremely worrying.
they are driven by london but these house price earnings ratios are at the levels they were that predicted a crash coming in 2006 and 2007. that is a big concern. it looks like the only way was to go down. it looked for a while that london had already started to turn. it appeared people were making deals and putting down the posits conditional upon brexit. classic animal spirit. if people think it will go down, it will go down. people sentiment is being impacted. suggest this was confidence is falling and that will feed through to confront -- to consumer conference in the housing market and the brexit
they are at a high level. alix: we are looking at potentially a lifeline of $44 billion added to italian banks. julie: from the italian government to we have been watching the bond yields and the bond spread the ticket we between italian and spanish. debt we are seeing that get closer. yieldingebt before was less than spanish debt. it was negative and now it's getting back to parity. that's a story we are watching all the day. coming up, the former fed chairman alan greenspan will be joining us, much more next. ♪
punish the pound. alix: equities remain under pressure as thanks stocks in europe are dropping. italy is said to consider a $44 billion bank injection. david: welcome to the second hour of "bloomberg ." second day since investors had a chance to digest what happened on friday. seem to begh markets more steady today, we're seeing big moves to the downside in sterling and bank stocks. european rank stocks were led by british lenders. in an interview you can only see here, former fed chairman alan greenspan will be
joining us to talk about brexit, the fed and much more. a lot of action the markets today. ahead of the open in new york city, futures are a little bit soft. in london, down by two full percentage points at the egg moves to the downside are european banks. over the last couple of days, the stoxx 600 bank index was down around 20 percentage points. weakness, $1.31 for the first time in 30 years. of onee currency south dollar 10 and wheels grinding lower on treasuries. the uncertainty is raining over these markets. let me get you up to speed on
david cameron. this is his spokesperson speaking to reporters in london. a second referendum is not in the cards. david cameron is setting up a unit to work on brexit. how long will that take? between now and getting that set they trigger article 50, there is a lot of uncertainty for market participants. alix: when will article 50 be triggered as well western mark less check in with our bloomberg -- as well? let's check in with our bloomberg team. we go to westminster with anna edwards. when will article 50 be triggered? the u.k. cabinet has been meeting in westminster today trying to come up with a plan.
i caught up with the leader of the house of commons who is a member of the cabinet and was involved in those conversations. i asked whether the government has a plan. he said it's simple, we hold conversations and work out what is the best interest of the united kingdom. i asked whether there was a sense of urgency? do we really have time for them to go through this plan? he said it was in the best interest of the united kingdom they were operating. that's what they were going to do. the plan he said is simple. davidl also talk to cameron who will set up a unit to work on brexit and the business secretary will meet with businesses tomorrow.
alix: thanks very much. : it's difficult to get up to that put with policies politics but also european equities. we have seen phenomenal moves, in particular u.k. stocks. sector,x 600 banking you can see the worst performers like a spanish stock. rbs is off by 25%. it was already down about 30% yesterday. barclays is also leading is lower. there are probably concerns that would give lower
yields in the united states. how much can companies headquartered in london do business with the rest of the eu? rbs over the past three days as performed down 36%. the government still owes about of the equity and they wanted to start selling it. so much further to go before the government can get into profit. can we get stability from the government? in berlin, leaders from italy and france will meet later today.
can the european council president give some stability to the market? it seems european and global financials are also in focus. david: david: we want to take a look in the united states and we will go to julie hyman to look at u.s. banks stocks. julie: selling has been accelerating and all the american banks were down less than 2%. we are now approaching it or exceeding it. one analyst said there could be some buying opportunities here among u.s. financials. bankswnturn here in these has mirrored futures. the minis made run at unchanged but now are down 8/10 of 1%.
weaknesseing continued in all of the travel related stocks and airline stocks. they have concerns about the currency effect and potential local weakening and what they'll mean for travel. thisue stuck out because company gets 100% of its revenue in the americas3. . yet it is down at that as well. david: thanks very much. we also had an election in spain over the weekend. we are joined by elliott got in gotkinedrid -- got in from madrid. on the surface, this has
gotten them closer in the sense that the people party of the acting prime minister has won a larger number of seats than they did last time. his natural ally in this -- you are still seven short of the magic number of 176. secondialists who came have been saying they will not mccoy for prime minister. they may have to go for a minority government. we may end up with more elections. that is something the socialized parties spoke on television a few minutes ago.
analyst expected a rally this morning and it has now turned negative in terms of spanish stocks. we are pretty much back to square one. we still cannot see precisely how we will get a majority stable government here. but on the plus side, we did not see any gain toward the party.tablishment, anti- david: secretary of state john kerry will be meeting with his counterpart in brussels and we will bring you any news. let's get an update of what's making headlines outside the business news. taylor: hillary clinton has released a new television ad blasting donald trump for his response to the brexit vote. she says every president is tested by world events but donald trump is thinking how his golf course can profit from
that. chum said the drop in the pound means more people will visit his resort. a senior iraqi commander says the city of falluja has been liberated. the iraqis were backed by us-led airstrikes. more than 85 house and people have led illusion. a singapore airlines jet caught firewall landing in singapore today. it was returning after a flight to italy. crew weressengers and evacuated safely. jon: thank you. impact on the brexit central policies.
david: joining us now from boston is jurian timmer. let's start with european banks and particularly british banks who have had dramatic falloff in stock friday and again today. how about a problem is this? >> obviously, this has been a shock. were only backs to where we were a week ago when the markets were pricing in a higher likelihood of a brexit. adjust. economy needs to
and therefore this financial markets and currency needs to get re-rated to deal with this new reality which means much slower growth for some time. and much more uncertainty in the markets don't like uncertainty so they demand a higher risk premium. and the u.k. banks financial system being important and systemic in the u.k. and in europe, it's not surprising the financial sector is taking the brunt of the hits are. david: what are the causes of the focus on the british banks? is it because they will have to readjust how they do business? >> if you look at the global financial system as a well oiled machine, somebody just through a
bunch of sand into the ears. they have to figure out what this means. it's a time of reassessing where the growth is in with the reach of the bank is beyond the yuki and how the trade -- beyond the u.k. and how the trade in packs. it's the uncertainty. investors tend to sell first and ask questions later. alix: uncertainty is permeating markets in the u.s. as well. this is a simple one year chart of the s&p 500. here is the 2100 level. we failed that six or seven times. is the s&p falling due to the uncertainty or is it that we cannot break out of any kind trading range?
>> the snp has been stuck in a range. for about a year and a half. we have talked about what is needed. break out, itwill needs either higher earnings or some sort of valuation boost. in the absence of either easy liquidity or an uptick in global growth, it's hard to see either happen. i was always of the opinion that gradients were not in place to take us out. we have a negative capitalist that i think will lead to some ting of u.s. and global equity valuations. if we are entering a time of either de-globalization or at least the peak, we may see less growth and higher inflation --ng forward, some port of
some sort of stagflation. we are currently at 18 times earnings. i think this makes sense and is pretty orderly but the market needs to re-rate on the basis of a new fundamental regime. david: we talk about raking out. -- you can break out to the upside and now you can break out to the downside. to go tod be required the downside? >> it depends on how systemic brexit is. it's somewhat systemic right now.
for a u.s. investor, i think it's somewhat systemic. the referendum in the u.k. is being repeated elsewhere. even in the u.s. election, you can see it as a referendum on global unity. g is in ordertin but it it depends on the degree. the u.s. is relatively isolated. export.is only 13% we are a somewhat closed economy here anyway. we can get back to the bottom and of the range but not much lower than that. coming up, crisis versus shock and will the financial markets be on the defensive for the foreseeable future. ♪
alix: it is a beautiful day in new york city and we are one hour before the opening bell. still with us is fidelity jurianmnt officer timmer. , a portfolioend manager at new river investments has often commented that 2016 may be the year of a political lehman brothers. bnp bara podbe suspending abs hf redemptions with trump being lehman. what do you think about the kind of set up? >> the lehman brothers moment
was a liquidity crisis, a funding crisis. nobody could get trades done and companies were defaulting and there was no the quiddity -- no liquidity. with central bank policy overly accommodating here, that will not be an issue. people undeserved last friday that selling was orderly. the fundamentals have changed in the facts have changed in the te to aneeds tore-ra potential new reality but i don't see it necessarily as a crisis. if the euro comes under attack from a maybe that's a different situation. it's way too early to make that parallel. here.y, politics mattered this is the political economy taking over a little bit. we can see the rise to populism. i see that as a backlash against sluggish growth. when you have imbalances like
excessive debt and when growth is strong, you can paper over that. it goeswth disappears, to the surface. whether that gets replicated in the u.s. in november remains to be seen. says shela merkel cannot allow an extended waiting game with the u.k., saying she has sympathy if the u.k. needs time to file. it we areaddition, watching u.s. secretary of state john kerry appearing with his counterpart at the eu in brussels. he is also meeting with the head of nato. we have been talking about the downside. let's look at the upside.
what does this say that the fed will do in the future? they's amazing how quickly can re-rate the fed cycle. they have fallen to 10% last week and were less than the odds of a december cut. the market is declaring the fed cycle over. that may look different one-month from now. if the fed is moving to the sides, that is an offset three be moving one would into a regime where the emphasis will be less of monetary policy and more toward fiscal policy. i think that is something we fiscalake a look at area
policy could boost nominal growth. as you plan your investments, do you have the possibility this would be such a shock to the system? yes, i think we will go to fiscal stimulus. i thought it was japan would go there first but it may well be the u.k.3+. no country around the world wants a strong currency but no one wants a collapsing currency. the fact that the count as being restated downward in the long run may not be such a bad idea of u.k.. maybe the u.k. ends up being a test case for others. even in the u.s., even without a
increased focus on fiscal stimulus is likely during the election season. we are waiting for john kerry to begin speaking in brussels currently. his livering you comments as they cross. we haveeantime, as global target downsides, what are the opportunities? >> if we are moving toward a --d stagflation environment that was about higher growth and low inflation. more competition led to better growth or prices. if we are slowly reversing that or if that is peaking, we could see less growth with more inflation. some form of inflation protection is a good idea. david: we will join secretary of state john kerry now from brussels. .
>> to spend some time with the representative and the president area to hear from them first down personally how they view the beginning of this trend translational effort. it's a reflection of our current respect for and the need to honor a vote which was taken by people in a democratic process. the vote did not come out the way president obama and others thought it would. that's democracy and we race act rights of voters in respect the process area it is now incumbent to implement the will of the people and do so in a way that is responsible, sensitive, thoughtful and i hope strategic. notenk it's important to
that ever since world war ii, we happen working together on the development of a structure to be able to make our country stronger and be able to deliver a good life with an of its to our people. the interests and the values which have united us for such a long time, did not change on the day of that vote. the interest on the values which brought us together to work for, are the same after that vote as they were before. even though political people may have responded differently to this situation. what is important is that we stay focused on those interests
and stay focused on those values. forward tocal going understand the importance of a strong eu. the united states cares about a strong eu. because there is not one issue on which we work today whether it's climate change or whether it is counterterrorism or innovation, we are working together. it's from the strength of those countries coming together that we are able to make good things happen. i think it is absolutely essential that we stay focused on how, in this transitional time, nobody loses their heads or goes off half cocked. we look for ways to maintain the
strength that will serve the interest and values that brought us together in the first. lace that is what is important. confident that, on those life of our citizens, we have an ability to be able to find a strong way forward. and i am also confident that with the reforms that are currently being addressed within the european parliament, the european parliament has already and the european leaders are moving aggressively to respond to some of the complaints that people have had with respect to the process. so i look forward to working even more closely with my , with the other members of the eu as we seek the strength that is so important to all of our interest. at the same time, the united
states will maintain its special relationship and strong relationship with great britain. great britain is a p5 member. great britain has long had a special relationship with the united states. i'm going from here to london where i will have the opportunity to talk directly with foreign secretary hammond. and then meet with prime minister cameron. it is my intention in furtherance of president obama's commitment to both the eu and the special relationship to do everything in our power to make this transitional process as sensible and as smooth as it can be. does that mean it doesn't present difficulties? no. there are challenges.
does that mean it was without any impact? no. clearly that's not possible either. because there are consequences. but there are ways to make certain that we are trying to chart out a path for the future that actually strengthens the eu and serves the interest and values that have brought us together and keep us together even now as there is a political decision regarding one country's membership. but that doesn't alter the fundamental interest and values that we are serving in governance. take you for the chance to be with you. we have been watching secretary of state john kerry appear live in brussels talking about brexit. he made two general points. we need to honor the will of the people. he admits president obama did not agree but he says we must honor it. we must implement it with respect in a thoughtful way.
he says the things that brought us together before, the values that we have have not changed with this vote. we need to think about how we can go forward in the states. i must say of all the secretaries of state we have had , we've had none with the ties to europe that john kerry has. he is actually related to a french politician. he spent many years in france and is a fluent french speaker. he has real international perspective. his father was a diplomat stationed in norway. alix: the market chatter is if the eu wants to avoid another , itit somewhere else depends on the kinds of terms they end up offering the u.k. ,f they offer them nice terms the rhetoric is, they got off easy, maybe we can, too. jonathan: he is speaking in the
capacity of secretary of state. when he says the u.s. will maintain strong relationships with the u.k. have to think about what capacity he is speaking and. in. presidentron had obama over for a trade deal and obama said, get to the back of the queue. amount of money the u.k. spends on the military is crucial the u.s. maintains a strong relationship with the u.k. on the economics, i think that's incredibly difficult. david: absolutely. it will be challenging for the united states to the extent that u.s. companies are doing business in europe. jonathan: looking out for headlines from the secretary of state throughout the day. let's recap what's happening in markets. about an hour away from the opening.
crude. let's get to today's morning meeting. we will go to james barty, head of european equity strategy at bank of america merrill lynch. you look at the statistics and they look really ugly. euro stocks are down 10% in two days. you also have convertible bonds starting to selloff. a lot of fixed income funds and investors on these guys. what is the risk? >> it is significant. we said prior to the vote on thursday that we thought european equity markets had about extreme percent downside in the event of a brexit. we have done just under two thirds of that so far. we have also said the financials would be the epicenter of this. you have to price in a u.k. and additional risks
to financial markets from that. are notlover effects finished. but we saw dollar china start to go to new highs this morning in addition to sterling going to new lows. volatility has risen sharply. there would be some contagion from this. we're beginning to see that. it will probably continue for another while. eventually investors will say this has gone too far. i think that's the way away. you hedge this when everybody seems to be wanting to rush into the same asset class? >> i think the hedges were easier to put on before the event. we spent a lot of time saying to the investors, you must not underestimate the downside. for the investors who did put hedges on they got some protection. we said to people, you've got to
be in defensive stocks. like things like health care stocks. is a dollarch earner in the u.k. is also benefiting. the stuff people are avoiding at the moment is anything exposed to the domestic u.k. economy. investors are being put --ational about those who david: where is the pony in all this? in the exporters within the u.k. because the pound has gone down so much? that is where people are understandably wanting to hide. a lot of big international companies that are not really u.k. companies but listed in the u.k.. on friday some u.k.
stocks actually were up in the day on friday. i'm not sure that would continue through the course of today. investors are saying, i'm going to be defensive, i'm going to see how this pans out and eventually if things get cheap enough. we are only on day two of this. it's far too early to be looking at fun fishing in market at the moment. some of these banks have lost a considerable amount of their equity caps. it's pretty dramatic stuff. from mainland europe i think here is the question. when does it become a big issue for government to look at the situation and say i don't like this, we need to do something about it. inject $44ady to billion into the financial system.
do you expect to see that actually happene? >> the governments around europe are looking at this and saying actually we need to look at what measures we can take to stabilize it. there's a huge amount of uncertainty about how this is .oing to pan out t the fact is that the uncertainty to remain here, all governments can do is stand in an stabilize markets as much as they possibly can. alix: what will we see when it comes to volatility? euro stock volatility versus the vix here in the u.s. they both spiked but nowhere
near 2011 or even back in 2003. thought it would head into the high 30's. that is where we have gone. we expect the vix to follow it. this is not a 2008 style event. it's probably not even as 2011 but it is a significant event. when markets experience a shock now that does refer of the brain into higher volatility because markets are less like within they used to be. so i see a. period of relatively sustained volatility.
jonathan: this is bloomberg . we are joined by caroline hyde from berlin on angela merkel's most recent comments. it's a very fluid situation. we are now learning that the tory leadership nominations close on thursday. the details will be announced in london. the contest to be concluded by friday, september 2. to getpe wants the u.k. a moveon we have to wait at least until september 2 when we actually find out if party. >> exactly. it is being echoed by angela merkel saying she cannot dictate at what point the united kingdom pulled the trigger on article 50. it is a balancing act going on throughout europe. she is trying to take the lead
and quiet down the noise coming and thence -- france belgian foreign minister. potential he even informal talks with david cameron or whoever leads to start the process of getting rid of the u.k. noela merkel wants to have informal talks until article 50 is triggered which we will have to wait for a new leader to have that. dictate says she cannot when the u.k. does that and also she has sympathy for the united kingdom if they need some time. patience is what is being advocated. withne area of firmness the united kingdom is they have to iron out and becomes the leader of the conservative party is, we cannot allow an extended waiting game.
being reiterated by one of her main spokespeople. a lot of talk about not allowing disagreement to run right. they're worried about centrifugal forces. jonathan: clearly the chancellor has softened her tone. has the rest of her coalition? in,rom an outsider looking she is trying the tug-of-war with her coalition partners. the foreign minister is from the social democrat party but he was advocating the need for speed on saturday. she is also trying to rein in the harshness of her finance minutes. potentially looking
at ways they can quickly put in new agreements with the united thatom in terms of trading will not be all that pleasant for the u.k. to swallow. she has a lot of different plates spinning. she is trying to keep her coalition together. look out for more statements today. she will be meeting with the leaders of france and italy today. jonathan: confusion and uncertainty throughout european politics. david: i'm afraid so. let's try to bring less confusion to the table. we will turn to bloomberg trends. these are the top stories terminal users are reading. i will start with one that struck me. $100 trillion bond markets got your problems than just brexit. this is a piece particular
around hsbc. making research predictions on fixed income. grexit. we have we may even have donald trump as president. but the biggest problems are a matter of demographics. governments are leveraged up too much. and disparity between the rich and poor. that will guarantee low yields. jonathan: i know him really well. our remember when he put out this call. i asked people what they thought of the call and they shrugged and almost laughed and guess where we are trading right now? he was right and has been right many times about where the treasury market is heading. i would say listen to him. he has proved to be right over the last couple of beers. wrotenaire george soros
that date op-ed about the potential for the fall in sterling. francine lacqua reached out to the spokesman of george soros who said in an e-mailed statement that he was long on the pound. he did not speculate against sterling while he was arguing for britain to remain. given his very bearish outlook on almost everything else, he did pretty well on friday. david: he may not have done so well on the pound but he did very well in a lot of other asset class. friday was a pretty good day for hedge funds. they did well because they were doing their own research. coming up, we will talk about our next top story of the day. china weakening the yuan the
david: this is bloomberg . i'm david weston. time for battle of the charts. we have an all-female battle of the charts. alix steel versus julie hyman. julie: the women battle. i'm looking at the remarkable resilience of the markets. of the human spirit perhaps. the inspiration of this chart came from the chief global investment strategist at charles schwab. recovered from these shocks down the road. the white line is the earthquake in japan. we are also looking at the debt ceiling crisis here in the united states.
the stoxx europe 600 in the wake of the recession triggered by the debt crisis. and i went down to september 11. in all of the cases you saw the markets pulled back by at least 11% in the days and weeks following the shock. but then have recovered to pre-shock levels in about three or four months. here's the zero line. it's not necessarily that they were positive in that time but had gone back above the levels they had fallen to post those particular shocks. could we recover in the coming months? history might indicate that it's possible. sox: here is not reassurance. to theeakened the yuan
lowest levels since august. this chart is one of my favorites and it starts to explain what's going on. the white line is the offshore yuan fixing. the dollar is rising and the yuan is falling. the blue line is the onshore rate. they are diverging. the offshore yuan is actually falling more than onshore. the purple line is the shanghai composite. when we have seen the divergence in the rate in august, the shanghai composite fell. back in january, it felt. l. david: you want to vote first? make it: i'm going to very simple and short. i'm going to go with alix steel. chart other day, alix's would have been the biggest story in markets.
no debate. the fact that breaks it is dominating the headlines doesn't make it any less significant. isthe fact that brexit dominating the headlines doesn't make it any less significant. david: i deeply appreciate julie's because i could use some reassurance today. i'm going to vote for alix as well. this morning i said, what happened to the spread with the offshore? and you answered the question. jonathan: alix steel the winter. this is bloomberg . coming up, former fed chairman alan greenspan. a bloomberg exclusive. ♪
talks will even happen before britain starts exit papers. david: sterling resumes its slide after record drops. equities under pressure. british lenders among the biggest losers if italy considers a bank injection. ♪ david: we are just under 30 minutes away from the opening bell. this is bloomberg . i'm david westin with alix steel in new york. jonathan ferro is in london. alix: coming up, tom keene and michael mckee are sitting down with formal censure alan greenspan. jonathan: we will bring you that on bloomberg tv and bloomberg radio. futures soft.
negative nine points on the s&p 500. the drama in bank stocks. stoxx 600 bank index down another 7%. u.k. lenders lead in the losses. the pound getting pounded again. biggest two-day drop on record. the 31 year low. look at those yields. alix: lower. joining us for the hour is head of fixed-income krishna money. krishnana met bonnie -- memani. a we have benefited from
growth perspective from globalization and if this is a direct shot at globalization and do not find akly worthwhile solution and we are going to have problems from a growth perspective in the long run. david: have the odds of a global recession gone up? >> the odds have certainly gone up. this is a shot that the global economy didn't need. we will just have to deal with it. it is early to predict how much impact it will have. question. out of the at all.lix alix: do you want to sell multinational? >> i'm a true believer in global so i don't want to give up too early.
emerging markets probably go up some because there is a tremendous amount of uncertainty and that environment ends up being a safe haven. : are there any winners? >> emerging markets may end up being a relative winner relative to developed markets. the reason for that is valuations in emerging markets were cheap to begin with and that help things -- helps things. policy support coming down the pipe on coordinated basis will help emerging markets as well. alix: you have the dollar rising and oil falling. combination evil for s&p earnings in the first quarter. what happens now? equities arenal very vulnerable as a result. u.s. equities are somewhat vulnerable. it's all a relative game on talking about.
overall the risk environment has gone up and it's too soon to declare everything is ok. david: does this have any ramifications on china? >> the strength of the dollar and if they don't do anything. clearly they are making those adjustments. the policy response on a global basis is going to be far forceful and far more coordinated than it has been so far after the financial crisis. jonathan: kirhsna memani sitting and davidalix steel westin. coming up, former fed chair alan greenspan sitting down with tom onne and michael mckee bloomberg radio in washington, d.c. we will bring you that very shortly. soft ahead of the open in new york city. equities down in new york city.
debtee the stoxx 600 bank .- bank index down i will hand you over to alan greenspan with tom keene and michael mckee in washington, d.c. tom: we welcome to bloomberg television worldwide our conversation with alan greenspan. let's pick it up for a television audience as well. e: you have said in the past that the euro has become something of a failed experiment here. does that suggest that you think the british are right to be concerned about being in the european union? leave aside the damage that may be caused by leaving. do you have any sympathy for the idea they are better off outside? >> no. there's a fundamental difference between being in a structure where everyone is forced into the same currency irrespective
of differentials in culture, economic status and a variety of other things. the eu is fundamentally a very good idea. structuree trade zone which we need an awful lot of so that the choice of britain to stay in the eu and get out of the eurozone was i thought the most sensible action that could be taken. and gordon brown who was instrumental in that decision i distressed by be what is going on. michael: the question comes up. of the problems they have is a lack of fiscal authority. the only way they can get their is to centralize more power in brussels which is exactly what the united kingdom does not want.
with the euro is not going to be solved by that. the problem is a much more fundamentally difficult one which will arise fairly shortly. let me suggest someone -- something which nobody discusses and i think it ought to be discussed. if the federal reserve or i should say -- if the federal reserve were to run into financial trouble and the dollar were in a very extreme case, the sovereign credit of the dollar back -- which the treasury department would back up the federal reserve and there would be no problem. in thes no backup european central banks. theoretically domestic training is the means by which they would be financed if they got into trouble but that's not going to have it in. the that speaks to fractious nature.
where is the leadership to drive a solution? we have been saying this for four or five days. do you observe leaders that can make tough decisions as the acclaimed chancellor merkel has made? tony blair and gordon brown made some very -- tom: they are not in office right now. >> i don't see anybody to match them. the basic problem is it's very difficult for somebody from the united states no longer in government. i don't have direct daily contact as i did in 20 years. tom: you have not been speaking to mr. trump recently. >> no. michael: we may want to get back to that a little bit later.
if you go into here office on friday, how do you think about it as a central bank? you have lived through market meltdowns before. what's the first thing you do? the first thing i would ask is what is the cause. theng to ameliorate symptoms of a problem is never a successful course because it doesn't get at the root. nobody is getting at the root issue that confronts all of the developing world which is the cause of the problem now. because what is happening is ,roductivity growth as you know i think more of two thirds of is running at less than half a percent per year for five years.
that means incomes are stagnating. you see that in disposable income across england just like this. this is a problem which is not strictly in the united states but as i have said all the oecd countries. doing is creating a general stagnation in the developed countries which is causing desperation on the part of the electorate. tom: i want to go to the economic point of the last number of days. people linking currency to interest rate and inflation and declining gdp and shows within a reduced deficit for the united kingdom. aybe you bring up the idea of phrase from another time, twin it's. tell us your experience with the nation that has to work with rapidly worsening current account deficit.
problem which you have isn't only two choices. one you flood the particular problem with reserve balances of some form or another perspective of where it's coming from. or you allow the currency to float. the first is obviously a desirable one if it works but it's a risky one. and you are always better off to allow the markets to run their course. in other words free of the currency. which allowions prices to move. if you are trying to stop prices you will get a huge problem. that has always been my view as to what should be done. mike trout is there a risk in the u.k. situation to doing that when you have a 7% credit account debt? >> there's a risk in doing
everything. the question is what's the least worst risk. ?ike: what is it right now would not be that concerned about the currency because there is not much you can do about it. the effect of the pound sterling against the u.s. dollar is as much our doing as it is the irs. if you are up against the strong currency, good luck. that's why i suggest that the worst thing you can do is futile activities which seems to be successful. do: what should the japanese with a failed -- the currency
goes completely the other way of the desire of mr. abe. should they use the greenspan yen?ription and ignore 90 >> i'm not about to give the prime minister advice on this. i would just as soon leave it where it is at the moment. as a central banker, during the period it you were in office at the fed, when you came to office intervention was a regular practice of government. by the time you left it was not being done anymore. have we outgrown that as a tool? >> i hope so. mike: it doesn't work or it has consequences?
distorting the currency for the purpose of achieving stabilization is a loser's game. currencyr you get the adjusted to the market place then you get the positive forces that people will say, it's gone too far into the downside. let's come in on it. that's what you need. what you need now is all of a sudden the pound to be undervalued. mike: do you have some sympathy with the swiss who are facing a tsunami of money fleeing the eurozone and it is sort of the only tool they have? is, what they are ending up with our severe and negative interest rates. what is fascinating is the extent to which nobody can get enough swiss ranks -- swiss
francs. there are not enough out there to meet the demand. so what you are getting is that the swiss are charging holding current surrey. link your world of economics into the responsibility of any central bank to the financial system. the banks are troubled this morning in europe. what should mr. draghi do? what should mr. carney do if he keeps his job? and other leaders to support european banks who seem to not be able to make tough decisions? forex went -- paulen i was in office, rocher never commented on any of the monetary policy that the fed did while i was there. that was extraordinarily useful operation to have a former central bankers like myself
second-guessing and carping on or should notould do i don't think is very profitable. 0-2.i'm mike: we were talking earlier this morning about whether or not the decision by voters in is leap. to take th is a sign globalization may have peaked and might go into retreat. diffuseenefits are so compared to the very visible losses some people take, you have come to sort of a tipping point. >> i think we are already moving. it's just a matter of time before scotland gets another referendum. it will make it a lot easier to stay in the eurozone. i'm sorry, the eu.
if in fact they don't have to take too many actions. freeing themselves from the u.k. holde article 50 takes would make it easier for them to stay. so i think they are going to get very soon a significant renewal of the referendum on scotland and i'm almost certain it's going to pass. michael: does it spread to other european countries? you can't stop the march of progress. you can't throw a lot of sand into the gears. >> i think the vulnerable institution right now is the eurozone. there is no backup to the ecb yet. the european central bank assets which had gotten off to a high level and then came all the way back down has now come all the way back to the height of where
we were. that raises serious questions of what happens if all of a sudden the euro ceases to be a hard currency. it happens overnight. there will be very significant difficulties as far as i can. i think the thing to do is what they should have been doing a long time ago. greece outut -- get because they are a toxic liability sitting in the middle of a very important economic -- mike: is it just greece or would you have to get rid of portugal and maybe italy? >> it depends on them. if you ask me what with the eurozone basically consist of, netherlands, finland. which the best
way to put it is when a crisis happens they all moved together. the europeanbout experiment. are we seeing the death of the washington consensus here? the atlantic charter to president bush senior's work with trade. is this referendum the first signal of the death of your washington consensus? >> it's too soon to say. incidentally that is too strong a word. it absolutely means readjustment. the eurozone cannot go on structurally the way it has been put together. now it is fundamentally the northern states of the eurozone funding the southern states. is you result of that whichn unstable system cannot go on indefinitely and you'red currency if going to put more than one currency together.
it has to have a similar culture. you cannot have differential cultures. the argument i used to get is when europe comes in the italians would behave like germans. they never did from day one. tom: is the united kingdom the differential culture from germany? >> most certainly in the sense that. the united kingdom -- it's hard to define. generations of squeezing down from british empire empire at 1913 was at its peak. world war i did very great damage. world war ii obviously significant. margaret thatcher coming in.
it wouldn't be in as good shape as it is today. remember that when labor came in , tony blair and gordon brown didn't change anything but thatcher did. what can the next president do to assist europe with its immense challenges? tom: the united kingdom had to remain because of tensions from 70 years ago. the outcome of world war ii. how can we assist europe to stay away from those primeval tensions? >> i wish i knew the answer. we are feeling now the very early days of a crisis which has a way to go. we have triggered a series of events here which when scotland
goes, northern ireland. be clear, you are predicting that scotland back to 1703 will leave the united kingdom? >> yes. cap -- mike: northern ireland as well? >> it's not the same type of problem. antland wanted to become independent nation because it had all of the oil in the north sea. by the time they finally got to the referendum, that whole reserve was almost gone. and it's gone now. so the economic problem that scotland is going to run into when it moves are going to be very difficult i think because they don't realize the extent to which oil was funding them.
it's going to be a lot of wrenching things that are going on. tom: we have about two minutes here. where are we in the debate of rules versus discretion? give us an update on where that is for our next discussion. >> i would say that discretion has won the day. every time you're trying to lock get themules, you locked in incorrectly because you can't anticipate how the markets going to behave. mike: there is still a movement to put thehill federal reserve rules-based procedure. what would happen if that were to pass? >> we would find ourselves trying to support the currency in unsupportable position. legislativeto
version of going back on the gold standard? if we went back on the gold standard and we adhered to the actual structure of the gold standard as it existed in 1913, we would be fine. that 1870 to 1913 was one of the most progressive period we have had in the united states. and that was a golden period of the gold standard. i am known as a goldbug and everyone laughs at me. why do central banks own gold now? alan greenspan, goldbug with us today. we will continue this discussion. it is something to see that headline come across the bloomberg -- david: we will be rejoining the
conversation with alan greenspan shortly. we will take a short break. since we have been listening, it was announced by the fed in washington that janet yellen the ecb be attending forum on central banking in portugal that happening later this week. that's because she is too busy at home? >> they have plenty to do at home. they don't want the risk of it being perceived as courtney did action of some port. i think it's best for the markets. alix: what would it take for central banks to coordinate if we see some liquidity banking contagion crisis? >> from the liquidity standpoint they are very court made it already. if there were pockets of liquidity stress as i think all of them will do something on an organized basis. we don't see that in the markets at all in the moment. jonathan: krishna memani, you will stay with us. think you for joining us. let me get you up to speed on the global financial state of play.
futures soft ahead of the open with negative nine points for the s&p 500. went to keep in negative territory. down by 6.8% on the session. yields down by seven basis points. the pound getting pounded once again. three fullby percentage points. it is the biggest two-day drop on record. ahead of the open in new york city, equities down in europe and futures soft. we will bring that to you live on bloomberg next. ♪
the ftse down by 1.9%. the open, negative eight points is how we trade on s&p 500 futures. another thing that is soft is sterling. down by over three full percentage points. for the first time in 31 years, the story in the bond market is clear that the yield is lower. we trace out that 1.5% on the 10 year yield. risk off extends to commodities. down by 1.7%. just going to tell you the sectors on the move. julie hyman is in new york city. julie: we saw u.s. stocks open lower and not seeing the same depths of decline on friday. the nasdaq is the worst performer of the three major asrages, down 9/10 of 1%
investors continue to try to assess what happens now between the u.k. and europe and also what implications it will have. i want to take a look at the this to get it an idea and a look at the roller coaster we have been on. this was the drop after the vote to leave the u.k. stocks ended near the lows of the session. overnight heading into today, bumping along the lows, but not seeing as big of of th a decline. we have been watching banks very closely and we continue to watch them. here are the european banks and how they are trading in europe. barclays still seeing double-digit declines. the losses here are not really moderating, certainly not to the same degree in the u.s.. as we switch it up and look at the u.s. banks, still seeing declines but not nearly as large
as some investors come in here and say that some of these stocks are a buy. david: we still have the cio for oppenheimer. you have $220 billion under asset management. going to ask you briefly about asset management. is there potential that this crisis might have a good effect on the eurozone? >> absolutely. i think the last few days have been extraordinarily negative there are two crucial things to be hopeful about. perhaps it forces the eurozone to come up with a solution of a long-term problem of how to generate growth in the eurozone. that is really they read cause of why you have to move away from everything. the second thing is a reduced interest rate environment gives china basically the cover that it needs for a more just economy.
startwe had some statements from greenspan that they might leave the u.k.. we want to head back to that conversation with tom keene and michael mckee speaking to alan greenspan over in th d.c. tom: we say good morning to all on bloomberg live. our guest now is alan greenspan . let's start with some thoughts on why we are here. michael: that's interesting question because back in march when tom and i last spoke with you, you noted at the time that there is something beyond the individual day-to-day news that we are watching. in thedeterioration standards of living that people have these days. that is around the world. it is global. that is leading to symptoms like what we are seeing in the united kingdom's that are not the cause
of themselves. alan: well, i think the problems that we have come as i mentioned that it isthe fact often useful to start with the end result and go back with causation an in reverse. what we see is a desperate operation out there. we are seeing it in the united states. we see it during the election period. it's a fear. it's a desperation. they're are looking for somebody to come and help them out. this is basically what brexit is. we are seeing it in europe generally. the question is why? nobody wishes to discuss this because it is politically very difficult to discuss because nobody knows what to do about it. in the united states, which is
not by itself by any means, in fact, the u.s. this best to talk about because the data system is better. it pretty much exist throughout the developed world. that is that as the populations age and they all are now in their baby-boom peruiod and goig into retirement, that has created a major fiscal problems in all these countries. the issue is essentially that entitlements are legal issues. they have nothing to do with economics. you reach a certain age or you are ill or something of that nature and you are entitled to certain expenditures at the budget without any reference to how it's going to be funded. where the productivity levels are now, we are lucky to 2%
annual growth rate. that annual growth rate of 2% is not adequate to finance. experience policymakers adjust productivity higher? alan: no. if they were to slow down the rate of growth the rate of entitlements and enabled -- remember, what is happening which is a remarkable statistic, for the united states, the sum of gross domestic savings plus entitlements as a percent of gdp half-century. that means for basically every dollar of entitlement, it crowds at one dollar. the gross savings adjusted for the current account balance what
gross domestic investment is. ws thatur 10 year sho nothing gets done without crisis. does alan greenspan just wait for the next crisis? alan: i said in a book that i finished recently that i do not know how it is going to resolve, but there's going to be a crisis. tom: you said that in the last book. michael: and he was right! these solutions come on the fiscal side. alan: yes. michael: it's not like people on capitol hill or people in westminster don't know what to do. they don't want to do it. what is the communication? how do you tell them? how do you get through to them about these issues? alan: this is one of the great problems of democracy. it goes back to the founding fathers. how you handle a situation like
troublesome,s very but eventually you get things like margaret thatcher showing up in britain. their situation is far worse than ours. what she did is she turned it all around essentially by, as i the miners were going to strike and she decided -- she knew that they were going to strike. at that point, the government owned these coal mines and she built up a huge inventory so that when they went on strike there was enough coal in britain so that eventually the whole union structure collapsed. that put her on a whole -- she fundamentally
changed britain to this day. the fact that we are doing so eu is not ultimate clear whether it was the eu or margaret thatcher. michael: do we need an accident of history? alan: probably. in the united states, social term,ts, the more generic or entitlements are considered the third rail of american politics. lose.uch them and you now that is a general view. republicans don't want to touch it. democrats don't want to touch it. they don't even want to talk about. this is what the election should be all about in the united states. you will never hear one word from either side. tom: alan greenspan with us on
bloomberg radio and bloomberg television. it's a deteriorating take with negative to 11 on the dow. vix at 24.70. the mathematics is a bit out of kilter to say the least. sterling with a modest bid off a very difficult mornings. did you read marvin king's book? alan: yes. tom: what did you think? alan: like everything marvin king does, it was splendid. tom: what would be your advice for governor carney and i do not isen in terms of rac rates because i know you will not answer me, but set the tone? a lot of what margaret thatcher and winston churchill was was setting the tone. what would alan greenspan do? alan: [laughter] wrench inh a monkey
the last phrase. tom: i try. seriously, a tone has to be set. alan: the first thing you do is what we always did when we have a crisis. 10 ort together like a geniu a g7 bilateral meeting. in such economic meetings coming never hea, you never hear about. judgmentlly requires a of trading off one terrible thing versus another. i hesitate to give anybody advice. first of all, they have access to far more information than i do. most of what is available is publicly available, but not all. i know that that is a critical difference. secondly, i like paul volcker's basic view of people sitting on
the sidelines having been around. and giving advice -- it's not helpful. michael: we're going to switch topics a little here and talk more about the u.s. economy. when i was a reporter chasing you around the halls of congress, we used to always talk about what was alan greenspan favorite indicator of the moment. there was scrap metal and railroad car loadings. give us your view now on the outlook for the u.s. economy and what you are looking at that tells you. alan: the fundamental issue is the fact that productivity growth has ground to a halt. we are running out of people. everyone is very pleased that the fact the employment rate is rising, but the statistics tell us that we need more and more people to produce less and less. that is not a prescription for a viable political system.
and so what we have at this stage the stagnation. i do not think there is anything out there which suggests that there is a recession, but i don't know that. what i do know is that the money , which has always been a critical indicator of inflation, is for the first time going up 7%,rkably steadily at 6%, almost a straight line. in the lastd up several months. it has added a percentage point or two. the thing that we should be worrying about now, which we have given no thought to whatsoever, is that this type of economic environment ends with inflation.
historically, fiat money has always ended up that way. michael: i'm going to get a lot of letters when you say that with people saying, what is he talking about? there is no inflation. the markets see no inflation. futures indicator see no inflation. how do you defend that call? saying is that i do not know when it is coming. if you look at human history, there are times and times again where we thought that there was no inflation and everything was just going fine. wait. basically say this is not the way this thing ordinarily comes up. i don't know. i cannot say it is on the horizon. in fact, commodity prices are soggy. been addedhave terrific impact on global inflation. about to emerge
quickly, but i would not be surprised to see the next unexpected move to be on the inflation side. you don't have inflation now. tom: how do you respond to paul krugman's essay the other day that there is a glory to simple models? he goes back to 1939 and he has a chart. like you, from a different angle, i'm going to lump greenspan with krugman. but if i took paul krugman and alan greenspan's primal cry, you want simple models. is the solution to think simply or is there a value to globalization? which way should we turn now? alan: you want to have a simple model that you can get that
actually captures the complexity of the forces that are in play. simple models merely to slim them down. that is to do, but they may not work. tom: do they work with negative interest rates and other distortions? michael: the argument has been that bill dudley of the new york fed said this that models that you use do not do well at incorporating financial markets into the market. alan: that is correct. model worked exceptionally well for nonfinancial areas. . have many inputs myself metricsine was a common and you can argue with the people on values of things like that. the financial model was
awful. it captured nothing and did not grasp what the issue is. -- what i reproduce would do is mapping the territory 2.0, which is the latest version. that what westrate have going that we do not measure correctly are bubbles and their implications. bubbles per se are not toxic. bubble collapsed and you could barely see change in the economic activity. on october 19 19 87, the dow jones went down 23% in one day. you would not find the slightest indication that collapse and that bubble in the gdp numbers or in industrial production or anything else. i think that you basically have
to decide what is causing what. i think the major issue in the financial models has got to be to capture the bubble effect. bubbles are essentially part of the fact that human nature is not wholly rational. you can see it in the data very clearly. tom: one question, if i may stay away from fed policy, negative interest rates -- i do not believe they are in your textbook at nyu. we are learning about negative interest rates. what have you observed and what will we see if we see even deeper negative interest rates in the coming months? alan: let's understand where negative interest rates come from. if you go back and look at the period where the u.s. 10 year thereabouts or one normal relationships
existed, negative rates would not exist. if you take for example when , let's see, you have test five or 10 years ago, the swiss franc, i should say, the yield on swiss long-term debt 200-400 basis points or rather less desirable. that spread would move up and down. tom: and now it's broken. alan: no, it hasn't broken. what has happened is that if the overall rate comes down, then in order to keep that spread, the swiss franc has to go negative. thatyou would have is they're going to start to stock up on currency and it's going to make a difference. tom: we have run forever and we
can go forever particularly on the united kingdom. alan greenspan, thank you so much for joining us today here on bloomberg radio and bloomberg television. alan greenspan on the united kingdom and american economics. jonathan: that's a conversation with alan greenspan sitting down with michael mckee and tom ke ene. you can continue to listen to that program on radio station serious xm 119. this is "bloomberg ." let me get you up to speed what is happening in markets. futures are soft going into this and equities are lower at the cash open. we are down by 1.36% on the s&p 500. london is down by 24 percentage points with the bank leading the losses. if you switch of the board quickly, with the s&p of 500 below, it is the banks that are taking us there.
goldman sachs down by 2.42%. we are down by 1.64% on goldman' sachs. bank of america down by five full percentage points. switching up the board very quickly, and i will wait through the other asset classes. cable is the standout in the fx market. the biggest two-day drop on record. we trade close to a 31 year low with yields moving south down by nine basis points at 1.47%. isll with us on this program the oppenheim or cio. the standout up for me was his comments on inflation. at a time when the globe does not look like it is generating any time soon, what did you make of that? krishna: i think greenspan is talking about a different era. right now if you look around the world, there is no sign of
inflation. if there are signs of inflation, that would be a high-class problem for the world to do with, but what we worry about is deflation rather than inflation at this point. when it comes to the markets, i'm looking at the s&p versus the 200 day moving average. the green line is the 200 day and we have breached that level back in january. we did see about an 11% slide in the s&p. ubs had a no doubt that said selling. you had quite funds selling when i trie a tread is lower. do you see that momentum happening in the market shorter-term? krishna: there is certainly risk of that happening. however, i would say for that to be the case, the economic environment actually has to meaningfully. i think the outlook for u.s. growth is not that dire just
yet. we may get there, but i do not think we are there. it is too early for us to be looking at that environment. david: the inflation point certainly stood out. the other thing that stood out to me was his assessment of productivity or lack of productivity growth, not just the united states but other countries. and how he tied that to what we call entitlements and the extent to which entitlements are soaking up money that could be put to productive use. and going back to a bygone era, margaret thatcher. he referred to her in glowing terms for what she did in the u.k. what can be done to get productivity going against? ? krishna: i think tying it to entitlements is a stretch of the moment. the real issue is that capital investment has been on a lowering trend for a very long time. it is that probably that drives lack of productivity growth far more than anything else. we need to invest more, especially in developed markets, where rates are relatively low.
you can go out and borrow money and invest in the economy. fiscal spending rather than entitlement reform would be my recognition. alix: i like that you brought that up because that is what we hear from janet yellen the last few weeks, buying it to larry summers stagflation thesis. stagflation and businesses that won't invest, how do you help your portfolio against that? krishna: the way we help our portfolio is to buy companies where we think they will be able to deliver significantly higher growth rates and productivity growth rates than the rest of the market. the high-quality companies are not tied to the economic cycle are how you structure your portfolio. there are lots of consumer product companies. there are lots of brand product companies that do really well. i cannot talk about specifics, but i think high-quality companies that can generate significantly higher rate of returns than what the underlying economy is generating.
david: it strikes me that's not a problem of getting access to money, goodness knows. money is cheap, so what is preventing companies from taking that money and putting it to good use and getting productivity growing again? krishna: because they do not perceive the uptrend in growth rates. effectively, they need that confidence for the economy to be coming back for them to go out and invest. i think that is really the biggest risk with respect to this u.k. referendum. it may kill business investment in the u.k. and that will lead to really bad results down the road. alix: if you take a look at the globalization thesis, we talked about this before. does that mean you need to step back from emerging markets if that thesis comes the past? krishna: not at all. let's say you are investing for 20 years. the growth in the world is going to come from emerging markets for that 20 years. anignoring markets is not something you can do it all despite the fact that emergent
markets face challenges. alix: staying relatively focused and positive, krishna thanks for sticking with us. jonathan: a full day of brexit coverage continues right here on bloomberg television with some great interviews ahead, including city cohead of global m&a. you do not want to miss that conversation. it is brexit fallout day two. u.s. equities almost 30 minutes into the session opening lower. bank stocks globally getting hammered. the acute losses right here in europe. the stoxx 600 bank index down by 21% over the last two sessions. almost 8% today alone. that does it today for "bloomberg ." ♪
bloomberg television. ♪ mark: special coverage in the aftermath of the u.k. vote to leave the eu. we're going to take you live to , andminster, milan elsewhere in the half hour. a weekend of political turmoil left britain and a direction. not having a functioning government or in opposition. vonnie: after talks reverberating across the financial market, stocks are falling led by global banks. u.k. bonds surge. the british pound falling to its lowest level since 1985. injectingonsidering capital to some of its lenders