tv Charlie Rose Bloomberg December 9, 2016 7:00pm-8:01pm EST
scarlet: welcome to the best of bloomberg markets. the top stories driving the headlines this way, gold is accessible for the first time. the group that sets standards for the industry adopted rules for trading the press just metal. rags and donald trump are the biggest surprises of the year. what awaits us next year?
questions remain on how successful opec's agreement to andproduction will be whether producers will stick to the plan. the cartel will act again as prices continue to decline and look for non-opec nations to pull their weight. >> i think it is going to be difficult because we have opec asking non-opec to predose production cots. -- produce production cots. going to cut over the second quarter. non-opec, i don't know how much they are going to do. of those carts, -- production was coming down no matter what.
mother nature is bringing down production. the same thing happened in other countries. in anyion is coming down case. let's call it cots. his opec going to be satisfied? -- is opec going to be satisfied? how much is priced in? >> it is essential. cotswith opec production you do not balance the market next year. you don't bond the market. countries,non-opec then you really get rebalancing and you can sustain prices. the difference is we have the 60-70 dollars next year. >> let's cross back to the saudi transportation story. that is what the government has
been pushing. what is being affected is the corporate sector. in the past they have had lower oil prices. let's get insight into how this is playing out. great to have you on the show. this dramatic turnaround story in the second half of the year. corporate sector is under massive pressure. >> the private companies as well. not just the government companies. the private sector is saying the difference. this year is different to previous times when oil prices were low and the government had to borrow. it was business as usual. for time they're looking change the way they operate. it is no longer that comfortable . it is a difficult time.
the question is how long is this going to last? recover,ing oil prices is that going to stop the transformation story? just when you thought the crisis was going to move forward, what about that? >> in the short term that would be easy. i don't think they will do that. even if oil prices go back up they have to change. they have a huge bulge of young saudi's they need to educate and employ. youth unemployment is high, around 30%. they need to do something. bloomberg -- yousef: bloomberg markets most influential. sheila has had an interesting view on emerging markets and the
rebound we have seen. her take as well on what it means for the region. we have the recovery oil prices and improving sentiment. she is still inclined to put money in this part of the world. that includes saudi arabia and the other markets. we all get that perspective now. forla patel, thank you joining us on the program. you are up the world. >> there is a lot to be upbeat about. i think when you look at the trends, particularly the opening of the market in saudi, hopefully that continues, there is interesting investments to look at. yousef: talk to me about saudi arabia. i mentioned how people had written off the kingdom. now a remarkable turnaround.
where is it going? what are you telling your clients? >> i think since vision 2030 was announced many people are asking where does it go from here? institutional investors globally , reform opening of markets, and you see steps being taken towards that. as long as we continue to have progress on the things that will develop like more free flows, access to the markets, that will build well for the entire region. it needs to be open. yousef: what about the rest of the middle east. there are interesting stories. we have the egypt story. is that of interest? is of interest. people continue to look at the political situation and be concerned. quite a bit to be interested about. continuing to diversify away.
oil.eople see just chinese tourism in dubai and abu dhabi is growing by leaps and bounds and growing with the middle class in china. too arisen from the chinese has gone up 300%. it?ow realistic is it is not going to be. analysts are telling us it's going to take time. what are the risks as you tried to move away from the dependence of oil? years toyears and execute. shelia: absolutely. it takes time. starts often come from changes in reform. the more that you look at this region and around the world, take a look at india.
when investors feel they know what their opportunities will be judged, they come. the key question will be what are the opportunities as tourism continues to develop? i think you will see this region investing in that. alix: you voice some -- yousef: you voice concerned about the rising tide of anti-globalization. you were caught off guard by donald trump. politics, continuing in that trend, how do we quantify political risk as we draw 2016 to a close? political risk is the hardest to judge. abilityto look at the set of what may happen versus the realities. we found trading opportunities despite the fact that most
prognosticators were wrong about outcomes. there are mispricing caused by these surprising -- surprises. we believe in 2017 you will see more dispersion in the emerging markets. selectivity is key. figuring out where there are stories that will grow will be critical. great but you have the strengthening u.s. dollar which may cut into dramatic euphoria. when you see the dollar strength going? continued dollar strength. most performance from e.m. has come from earnings growth, even know that is the feeling, not the reality. when you see what is going on in the u.s. there are a few factors. u.s. exports are not as big a concern for emerging markets as a whole. experts -- exports are about 10%.
then europe comes into play and that is a concern. or lessustries are more exposed. goingor the less exposed on in the year ahead. if you do those things, there are opportunities. 5 coming up up, pricescoming surged to their biggest weekly advance since 2009. more on the opec debate next. this is bloomberg. ♪
held going back to algiers in september. mainly russia. we know they should be on board for some cots. -- some cuts. we will be seeing more countries like mexico or kazakhstan. they are trying to bring production on those companies themselves. we will be looking to see who steps up to the plate for these non-opec countries and agrees to cut alongside the group. that will allow us to gauge what kind of impact they will have. yousef: given the fragility and the long path that it will have been for opec to come to this agreement, what could derail it?
>> as you mentioned earlier in oilrun-up, the minister who said opec countries tend to cheat. will be members stick to the production quotas they have agreed to indiana? -- in the end of? some were exempted and allowed to increase production. we will see how nigeria and libya are able to come into the market and increase their production. we've got these other non-opec countries that we are still trying to bring into the fold. these are some issues that will remain to be seen how they impact and how those implemented along the way and how compliance goes. we still have those issues outstanding to see how they impact the market. yousef: thank you. to continue that discussion we are joined by the founding
partner of morton french consulting. thank you for joining us. coming the key surprises out of this opec meeting. iraq or saudi arabia taking on more than anyone expected? guest: the fact that there was a deal and it was stronger that anyone was expecting, and iraq after being difficult raising objections has indeed agreed to cut quite significant ones. the effective exemption of iran, there are no real standouts. everyone is cutting equally. yousef: this is opec. you can do that on the bloomberg. it shows you the state of play when it comes to the individual members. it shows them on several charts as well.
let me bring you into this conversation. is this enough to make a meaningful impact? we have seen energy prices surge. how sustainable is this? >> idle think it is going to be sustainable. two things are going to happen. there is a lot of oil in storage. with this high price and the flattening curve must some of that product is not going to quickly come into the market. secondly is christmas coming early for shell producers in north america? yousef: how sustainable is this? you are going to give shale in the u.s. a significant floor. they are going to come back online and put more oil into this market. >> it is a six-month deal. they always reduce production
because demand is lower. production will have to come back. the question is, she'll starts coming back, will opec continue to stick with these cots? -- these cuts? yousef: a lot of the analysts we have been speaking to have told us again and again that the deal is done. the compliance, the execution, they are supposed to oversee the agreement they stood by. are you optimistic given the track record that we have had? a doesn't speak to significant degree of compliance. are they going to be able to turn things around? >> for opec that will be good if it happens. listen to the wise old man of the oil industry. he is skeptical and i am with him.
yousef: you're going to leave it at that? he may comments, not very upbeat about up lamenting that. very made comments, not upbeat about that. >> the motto should be cheap but not too much. everyone will cheat a little bit on their quotas. perhaps it will be effectively a cut of one, or one million barrels. if one member starts cheating into extreme a way it all falls apart. yousef: good you see a scenario where they increase the concept or six months after the initial data and adjust accordingly? six months is the baseline. where does this go from here? i would like to see a longer-term horizon. >> absolutely. six months to start with.
extending for another six months. the non-opec producers are going to be part of it. on themdeal depending cutting 600? putin has had a strong hand in making this deal happen. also, the direct communication with saudi arabia. starting with the jew 20 meeting -- starting with the g-20 meeting this year. wantatest is the russians this on the 10th of december. what is going to happen? meetingl the opec today. up next, tensions over the iranian nuclear deal grow as israel seeks to hold donald trump in the debate.
yousef: >> this is the best of bloomberg markets, middle east. israel's trimester meets donald trump. benjamin netanyahu may gain some traction. >> the question we can raise is what can netanyahu do? the answer is it is complicated. that was a multilateral deal. doesn't have the power to put an end to this deal. what netanyahu can do is try to influence u.s. policy. election,onald trump we have more of the republican party power and we know there
have been more things and demand. there needs to be pressure on it. what can happen is for additional sanctions to be ,pplied through the congress that would reach a level that would undo any benefit that iran may have gained from the deal. yousef: the benefits iran has gained, which lays out how much iran is producing in terms of crude oil and where it has come from, what kind of reaction can we expect? if that tension continues to build? >> what we have seen is the --sident who had started his he had gone on with the policy of outreach. that is how the nuclear deal came about. he has championed engagement and
opening up. he has changed his tone. he has called on the u.s. to stand by its side of the commitment as iran has been doing. >> how does the u.s. stand to benefit from the iran deal? >> that is interesting. despite theaverse history of animosity between the countries. one of the first big deals that we saw go through after sanctions were lifted, a big 100 boeing planes.
we are talking about a deal that is yet to be finalized but valued as much as $25 billion. that can support jobs in the u.s.. that will have an impact on both countries. yousef: how investors in the region are reacting to the big changes in the united states. take a closer look. that is ahead. >> we see a normalized volatility environment. it has dominated since the global financial crisis. it does seem to be coming to an end. is the 35 year bull market in bonds. 14% sinceond is down
yousef: this is the best of bloomberg markets middle east. , the most influential summit made its way to the region. as the blackr rock director what is happening in united states. keeley at black rock. you are here in the middle east in the gulf region visiting some clients.ost important what have you learned? >> the principal thing we have learned is that investors in the
region are welcoming the changes in washington. i would just say supporters of donald trump globally are right now projecting their greatest hopes and greatest fears. there is an interplay between those fears and hopes. i think since we have arrived there have been more people that lesseningl about the of the reliance on monetary policy globally. it has brought optimism i would say. guest: does the optimism surprise you. ,f you were to sample opinions you might not come to a similar point of view. >> you would not. surprising that international investors in particular, looking at the
united states seem willing to be supporters, or give the administration the benefit of the doubt. that is not what is being sold at home. >> i heard the same thing in saudi arabia. i heard the same thing in mexico city. , there is a difference obviously between optimism and expectation. let's talk expectations. institutions,with what kinds of expectations do they have? there is a broad expectation and realization that in actual fact the overreliance of monetary policy -- we need to go back to the beginning of the year am a concerned about global ,eflation, a messy devaluation oil prices were going towards 20.
the were going one direction down. that is not where we are at today. we seem to be romancing the ideas of a reflation environment, a genuine fiscal stimulus, clarity with regards to taxes in the united states, and i think that certainty in the united states is welcome. >> these institutions are beginning to invest with an anticipation global growth is going to pick up and we are going to see returns favoring equities over bonds. >> i think that a lot of investors came into the year with a lot of cash. they were very scared. there was a story that donald trump sold all of his stocks in july. a lot of investors are underinvested. this market move has been relatively painful and uninspected.
>> these investors have too much cash. -- i don't like to talk generically about the whole segment. it is different from institution to institution. is aroadly speaking there sense of relief here in the gulf with oil prices back into the 50's. with a realization that kids of they can understand one critical advantage as they are pivoting and worrying about reliance on oil. are -- balance sheets they have the ability to borrow, to tap huge reserves. that is what they have been doing. >> nevertheless a big difference
compared to russia. >> russia has very different circumstances, yes. >> to draw the contrast. >> oil is back into the 50's. >> yes. but it is still back in 2014. over the long term, how has the drop in oil prices change the way these institutions are committing capital? number of countries that are oil-based have had to liquefy assets, to put assets in more usable form for precautionary purposes. that has led a number of central banks in the gulf to increase their reserves. reserves are important policy tool. they allow institutions to act quickly. there has been a move to lick with acacia and in some cases -- ationd vacation -- liquific
in some cases. e.m. versus dm. emerging markets versus developing markets. dollar,s a stronger what does the future path of interest rate increases by the for assets across the capital stack? if we are going to raise basis points that is one thing. john taylor said yesterday he thinks that fund should be at 1.5%. if we are going to move to 1.5% quickly we are going to have to reprice globally. >> how does that change the investing mandate? >> if you have a longer-term horizon, you are willing to take some volatility. we see normal volatility environment.
it does seem to be coming to an end. it is a bull market in bonds. it is down 14% since the end of september. that was not the right security dome. >> you are not the first person to call the end of the bond market. >> in these meetings that you have had with the sovereign institutions, how much concern is there are not about what appears to be the resurgence of populism? i'm not just talking about donald trump. i'm talking about the situation in france, in germany, which will play out in elections. >> there is recognition of that problem. there is genuine concern. there is just as much concern about the possible removal of the united states in terms of leadership from the global stage
which many international actor see others more than willing to build the vacuum. china coming in. there is a great desire on behalf of gulf members to see the united states not lose its assertiveness and lose its position of power and influence. plan b is to seek out investments in far and wide territories. blackrock has done work on the infrastructure of public private partnership. infrastructure is one of the more attractive asset classes. flowsyou expect to see out of public markets and into private investment such as infrastructure? >> and already has. >> that has been happening. >> commercial real estate is a question mark. as long-termerated
fixed income investments. if you purchased a lease on a building making a yield and those rates are going back to 1.5, that commercial real estate is overvalued. not every single asset class should be treated similarly. private equity infrastructure, more promises. >> speaking of these sovereign wealth funds, flows out of public markets, but then within public markets. intothose assets move passive vehicles? >> the debate is interesting and important one. there is a clear case to be made to pivot from passive to active in the environment that we are going into. curve,eping of the yield a lot of sectors that have been
muslims are allowed to own gold jewelry, allowed to use gold coins, but there has been debate about whether or not the middle qualifies as currency or commodity which has made other types of investment more complicated. the aim of these rules is to create a unifying standard that will allow easier access for more complicated investment products. we are seeing talk that the gold with 32he biggest etf billion worth of assets, they will qualify under these new rules. that is quite a change to what we have seen in the past. >> how much is there is expected to boost demand? >> i just gave you one big number. $32 billion in assets. there are others i could throw out at you. 2 trillion worth of assets in
the islamic finance business. 1.6 billion muslims around the world. could be ahink this significant source of demand. i have not seen a lot of analysts getting excited about this news just yet. it could be they are waiting to see how many companies actually start to offer new products aimed at this growing investment base. one of the interesting things i have heard, islamic banks may be able to use gold to meet requirements to hold high quality liquid assets under rules. that could be a significant source of demand. could use all of the demand it can get. we have seen that fall 10% since the end of october. in abu dhabi. thank you for that.
let's stay with commodities. bloomberg's top forecasters, the president and chief economist at prestige economics. he joins us from austin, texas. it is turning out to be a party when it comes to the commodity space. what is underpinning this? >> two things. seene metals side, we have fundamental improvements in chinese manufacturing. it has been significantly more positive showing expansions in recent months, having been what that really shows us is that may be manufacturing recession going on in china is over. that is boosting metals demand. it is all about opec. angie: all about opec.
it is boosting prices. what we have seen is that lower gas prices, lower oil prices have shrunk supply. with the shrinking of supply now , boosting the price of oil, do you think we're going to see an inverse of what we are seeing going into next year? a couple ofhere is things going on. we have seen low prices in places like the united states, a regulators, banking pulling the credit for oil and gas drilling, there is a seasonality to demand. we expect prices are likely to be bolstered into the trading role. past the contract we see the demand for the u.s. summer driving season pulling
prices up. between now and then i think opec's announcement -- i was in vienna next week. helped supports markets during a time of year when you typically see a reduction in demand from refineries. >> jason. the election of donald trump has put a fire under a lot of commodities. speculating it has driven them to highs we have not seen before. play thatcontrarian might materialize. >> part of the reason you have seen prices rise, if you look at copper, their price was rising before the election. that was driven by significant improvements in the chinese manufacturing index. if we look at aluminum, that has been rising all year long.
a lot of these metals have been moving higher. i think that for the election of donald trump, the implication is there could be more inflation. you see some of the money rolling out of bonds. you are seeing a cell in the bond market. are rising so quickly here. money is going elsewhere into equities. and into commodities which have been rising. then you get a fundamental support, breaking through technical support and sending the price higher. next, it is 2016 brought some surprises come away until next year. the bloomberg pessimist guide predicting for 2017. ♪
if you think 2016 has been bad brace yourself. bloomberg has compiled the pessimist got for 2017. there could be just as much chaos in the next 12 months as the past 12 months. david had the story. >> donald trump's chances of being elected were pretty slim according to most people looking at it. they miss read what they should have been looking at. what we have tried to do is look at a lot of different things that could happen in 2017. it is not a prediction. it is tongue-in-cheek. a lot of it looks scary. i want to start looking at what could happen in the u.s.. we talk about what could happen if there was a trade war between china and the u.s.. that is something that is a realistic prospect. let's consider what could happen in the united states. you could have a situation where
donald trump becomes popular in the first months of his property -- residency. -- presidency. past some measures repeal president obama's presidency. may battle that. that is what the risk is. maybe we see curfews in american cities. maybe we see the national guard. these are the risks. that we have a big split going on in the domestic area. you have the crystal ball, what is missing from this list? >> i reckon one of the things i would have added, the possibility of actually having a nuclear arms race in asia.
it is something we have touched on. that donald trump may allow japan and saudi arabia to get nuclear weapons if it withdraws a nuclear umbrella. thatave this possibility south korea gets nuclear weapons. then you have japan and south korea. how would china react? china would beef up nuclear arsenal. react to china with more nuclear weapons? they would do the same thing. they would try to boost their nuclear arsenal. pakistan, i don't think so. these are the things that could these are the hidden consequences of policy that is not properly filled out. yousef: a busy week ahead with the region. plus the head of the karachi stock exchange will also be with us in dubai.
>> coming up on bloomberg best, italy's prime minister steps down. the ecb adjusts qe. open a stock markets little lighter. >> we have seen the offshore you lower since these tweets. monthhas been a monster since donald trump's election. investors tell us what they expect when he takes office. >> the consensus will be good for some markets an