tv Bloomberg Surveillance Bloomberg March 15, 2018 5:00am-7:00am EDT
larry kudlow wastes no time backing taxes and security. theresa may expelled 23 russian diplomat's. we're live in moscow. unilever abandons u.k. headquarters, choosing one single base in the netherlands. another brexit blow for the u.k. good morning, this is "bloomberg surveillance", i'm francine lacqua in london. tom keene is in new york. i'mw incoming economic advisor -- the new incoming economic advisor to donald trump. tom: one of the things that the centers around is, the dollar. francine: we're seeing movement on the dollar. let's look at yen. and the bloomberg first world news. reporter: the u.s. senate has
given the banking industry its best chance and years of rolling back rules and codes after the financial crisis. lawmakers passed legislation easing constraints on community banks while mostly snubbing wall street. canada's prime minister justin trudeau says he is willing to speed up nafta talks if needed. he is optimistic there will be a win win win deal on the trade agreement. president trump has repeatedly called out canada for being unfair with the u.s. on trade. theresa may is waiting for russia to retaliate. russianlled 23 diplomats in response to the poisoning of a former spy and his daughter on a foreign soil. a statement from the kremlin suggested it would go further. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. leinz, ♪ley this is bloomberg..
tom: let's get right to it. futures up fractionally, a difficult day yesterday. oil going nowhere over the last seven days. curve flattening, over the last three days as well. 17.09. migrating toward 3.0. down a good five basis points over the last two days. a lower yield across america. there is yen with 1.05. that is important. looking at was yen-european stocks, overall climbing. understand theto latest personal changes in the trump administration. let's get the board up. the pound is climbing. signs which i would not lose sight of. aitain may get -- may clinch two year grace. whe period when it leaves the
eu. tom: a quick glance, this is bitcoin. we looked at it as it came down, down through the end of last year into january. up we go with stability at 10,000. lastve rolled over in the number of days. bitcoin, part of that is government action and what governments will do with bitcoin. i will suggest toward the 7000 retest, on a0 technical basis. terrific news this morning. so much centers around the u.s. dollar. with us right now, hans-guenter iteker of morgan stanley, will be good to speak to him through this hour, with a focus in the united states on mr. kudlow, and economist -- an economist.
with a focus on supply-side economics. can you explain how the dollar will change once we lock in $1.4 trillion and $1.5 trillion deficit? what do you anticipate, the dollar will be which will greet mr. kudlow and the president once we get those estimates? hans-guenter: when you talk about a strong u.s. dollar, a long-term perspective, you have seen in yesterday's market reaction, dollar-yen went off, the market is quite right in means.ng, what strength they put that into context and that is, the gross potential of the u.s. economy. what america wants to have is to increase potential. if they are successful and that still needs to be seen, you can have a stronger u.s. dollar. a bettero you achieve
gross potential? we have already mentioned the fiscal policy, structural reform. you have to consider the exchange rate. for the interim. this type of combination will keep the u.s. dollar week for now -- the u.s. dollar weak for now. i wroteis thursday, about the convergence between leading indicators and what you have in the curve in the u.s. and wide emergence is playing out. the leading indicator suggesting, believe in the fiscal impulse and deregulation while the curve is responding in the opposite direction. there is still a glut of european and asian savings. these savings, we have to reduce. hans, critically, this is
brian, where will that excess savings flow to? hans-guenter: currently exported out of europe and japan, first stop to other markets. what we have seen in the past, you have a bund market, a significant flow of funds into exporters. a changest few weeks, taking place from a japanese perspective. you may recall that last time i was making it very clear that i am bearish on dollar-yen and i was the only one. i was saying, the flow of funds, are changing. the liquidation of bond holdings in the united states. liquidation of bond holdings has a lot to do with risk structure of debt portfolios. hastitative easing
increased the risk structure. where no longer holding a aaa bond. maybe a b quality. francine: will that continue to change? hans-guenter: we are in the middle. we have to consider dollar-yen will stay weak for long. time look -- i am looking for a rebound. dollar-yen is a long-term seller. the market has not come around. francine: going back to lawrence kudlow, he seems to be an economic optimist. higher stocks, spurring up the spirit. is this a good person to have in the white house at the moment because it is what the president needs? or would you rather have someone was looking for the next financial crisis? a consolidation within the white house to ensure, instead of having
various samples of opinion. we are seeing that in previous administrations. if this new advisor is going to develop performance, he needs to prove that. the point is completely different. we should not talk about politics so much. at the end of the day, politics and the implication on markets tends to be short-lived. you have to look into, what our economic fundamentals on a relative it basis -- on a relative basis? what does it mean for border flows? the exchange rate? people getting obsessed by political comments, i can only refuse that. it is not going to make a long-term trend. the long-term trend will be made if the u.s. is going to be successful in increasing gross potential. here the jury is out. tom: this is critical.
what does alan say about increasing the growth potential, above the new lower set potential gdp? the politics of the moment, whether republican or democrat, whether tory or labor, there is not enough economic growth. system,t to goose the whatever the theory is. what is the outcome if you goose the system with the fiscal impulse you speak of? hans-guenter: we have to make a comparison. this is not the first fiscal reform, deregulation. what is the different to the bush administration's efforts? for the reagan administration's efforts? are we going to see a significant increase? months, the next few will be very crucial. in the first quarter, the
atlantic index has declined. the economy is weakening despite prospects of lower taxation and deregulation. we have to see if there will be a come back into the economy. thene second quarter, markets will openly debate about the potential of close being increased in the united states. you may have a temporary u.s. dollar rebound. youour forecast, we think could see a stronger u.s. dollar in the second quarter precisely because of that reason. francine: we will get back to you shortly and talk about yen. staying with us. coming up, a conversation with stephen roach, a yale senior fellow. this is bloomberg. ♪
♪ is "bloomberg surveillance". >> let's get the bloomberg business flash. unilever saying goodbye to the british base, it has had for almost a century. the maker of dove is consolidating headquarters in the netherlands. this is a blow to theresa may. she has tried to keep investment in the country after it leaves the eu. the biggest broadcaster in the u.s. filing for bankruptcy protection. a plan to cut the $20 billion debt load by half. stations, xm have cut into ad sales. that is your "bloomberg business flash". ccusedne: britain has a clue
russia. they expelled the 23 diplomats. standing shoulder to shoulder. joining us now, john, the senior executive editor. welcome to "bloomberg surveillance". how bad can this get? was it expected? the last time we saw this, it was four diplomats expelled. >> it can get pretty bad. right now relations between the u.k. and russia are in freefall. we're not seen anything like this. this is probably worse given the context it is happening in. it was not long ago, the annexation of crimea. now we are waiting to see how russia retaliates. where this goes from here. francine: how much can it escalate?
theresa may has a weak position at home. does that make her more emboldened? what about vladimir putin? john: she has been taking a lot of hits, but national security is one of her strong points. she used to be home secretary. she can use this as a rallying point across party lines, we saw some of that in the house of commons yesterday. perhaps jeremy corbyn misjudged the mood. there is, she says something she will not talk about for national security reasons. expelling diplomats, saying the royal family attending soccer matches at the world cup, that is not something that will stop vladimir putin retaliating further. tom: let me look at the back and forth. in "theris johnson, washington post." you can imagine written's sense
of violation over the fact -- britain's sense of violation over the fact that a tranquil city has experienced the use of a nerve agent. the kremlin's reckless defiance of essential international rules, i hope and believe that our friends will stand alongside us." yesterday, a playoff of sherlock holmes, in a scotland yard of the 19th century. i know the telegraph playing that up as well. there is the rhetoric that is miles apart. john, what is the actual evidence that russia did this? insn't scotland yard weigh that they did it? john: they will argue that this nerve agent could only be level,d at a military sponsored by a government. that russia is one of the few countries that could do this.
targeting a russian citizen. they are as certain as you possibly can be that this was a russian state directed operation. they will argue that they can't give all the details away because of national security. you are right. we never know 100%. the russians are contesting that. show us proof. across party lines, all lines of government in the u.k., there seems to be certainty about this. we are seeing that from allies in europe and the u.s. as well. there is very little doubt that russia was responsible. tom: with all your experience, what will be the moscow response? tat, whatever the number of bodies is? or even further to show who is boss? latter.obably the more expulsion of diplomats is a given.
in the last three years, russia has pursued tactics, violation of airspace, you can imagine military vessels showing up close to u.k. shores. lots of things that push everything to the edge but don't quite step over the edge. that has been vladimir putin's tactics for years. to do just enough to show that you are there, but you don't go so far that it would be a declaration of war, that would prompt nato. everything up to that point but he will not exceed that limit. in a way, this is an extension of what he has been doing for the last decade, since he went into georgia. this asymmetric warfare that russia is expert at, that will most likely continue. tom: john, continuing with us, with bloomberg news. hans-guenter redeker also with us for the hour.
after mr. kudlow, as he should. your is the reality, 14 years ago this was the definitive paper in 2002 from robert eisen bice of the atlanta fed. this changed market economics. it was wicked good. federal reserve bank of atlanta math. you cannot see it on tv. all you have to know. francine: or on radio. tom: the top-of-the-line, doing marketow, economics and forecasting. larry kudlow back in the day was a hell of a market forecaster. with that, hans-guenter redeker,
the dollar and trump. should he speak about dollar policy or should that be the territory of the secretary of treasury? hans-guenter: the dollar and in order to avoid confusion, it should stay within the treasury. i'm sure, this will continue like that. what this think about strong u.s. dollar policy means. yes, of course to keep confidence for the u.s. dollar in financial markets, you want to ensure that america is getting funded. at the same time you want to walk a fine line. you want to improve trade positions. america is in the belief that it has been disadvantaged for several reasons. they want to reduce the disadvantage. the weaker u.s. dollar is the quickest way to get that achievement. weak.s. dollar will stay tom: within the dollar staying weak, the asymmetric nature. if you look at strong yen versus weak dollar, who is that based on?
u.s. actions or japanese actions? hans-guenter: japan is the biggest holder of assets, traditionally invested in bonds. portfolios, the debt portfolio, the past two years, increasingly geared toward the risky side. corporate bonds, agencies, equities, they will use the treasury holdings. when you have a treasury bond in your portfolio, aaa, you want to mature it, an opportunity. when corporate bonds are in your portfolio, you liquidate. francine: talk to me about this chart. we are putting the 10 year treasury yield versus dollar-yen. sinceuenter:, sharp
december we said in december, this will be the year where you see correlations breaking in markets. the point here, many people are saying divergence, this means that it will meet in the middle somewhere. reestablishing toward conversion. the question you have to ask, why is this diverging? reason in, exactly the have been bringing up. number one, debt portfolios are geared up. secondly, debt flow dominance over the asset flow. francine: thanks so much. we will be back, talking tariffs . this is bloomberg. ♪ mom you called?
right now with your first word news in new york city. reporter: moscow warns it will retaliate for the uk's expulsion of 23 diplomats. a kremlin spokeswoman accusing the u.k. of hiding the truth about the poisoning of a armor spy. she rejects -- of a former spy. she rejects accusations that russia is responsible. the european central bank has told lenders they have to be tougher in dealing with bad loans. theylimits for how quickly should set aside capital. struggling with bad debts amounting to $1 trillion. former trump campaign manager paul manafort once a judge to dismiss the charges against him. 's lawyers argue that robert mueller exceeded his authority in the case. the judge has says paul manafort can spend the rest of his life in prison. in manhattan, landlords racing. ownersng to her report, are cutting rent, offering
incentives, doing whatever is needed to attract tenants. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. leinz, this is bloomberg.. francine: thanks so much. justin trudeau says he will not flinch in the face of president trump's protectionist threat. is willing to accelerate nafta talks if needed. he told michael mckee he remains confident that the three nafta countries will reach an accord. >> we have a long-term stability on economy, politics, social, immigration, that is very attractive, in our diversity. yes there is still a couple people saying, what is going to happen with nafta? i'm confident we will get to the right place on nafta. there is an eminently achievable when win win, out of nafta.
francine: with hans-guenter redeker of morgan stanley. when you look at the impact tariffs would have on businesses, is there an industry that has rationalized investments just in case they are put in place? john: that is something everyone is worried about. their come so quickly that businesses have not had time to assess. anis interesting, interesting interview yesterday that mike did with prime minister trudeau. the priority is trying to seal a deal on this before, on nafta, to get a permanent exclusion for canada before the political timetable changes. elections in mexico later this year, midterms as well. francine: there could be so many exemptions. teeth for the trump
administration -- would it have teeth for the trump administration? we,: it stands to reason mexico and canada, are optimistic they will get a fairly decent long-term exemption. if you look at global politics, where business and economics intersect, the real one to look at is china. all the rhetoric out of the white house, top on china right now. -- is tough on china right now. it will be tough to walk back. it the financial companies from the u.s. that would be excluded from taking part in china? which businesses lose most? john: it is interesting, on the financial part, china has made a big noise about the fact that it
wants to open up the chinese financial system to wall street banks. that will be significant, showing that side of things to retaliate. manufacturers, this would be a positive. these will actually push up consumer prices. if you look at the end of prices of tariffs four cars in the u.s. market, it is not a good view for the u.s. consumer. tom: hans-guenter redeker, one of the things in the mix four larry kudlow, some form of multilateral trade discussion to defend against china's trade policy. from where morgan stanley says, is tpp back on the front burner? nothingnter: we think, is eaten hot, unless it is cooked.
this trade issue. we are in a face of a change. we believe that the outcome of that, there will be exemptions but there will be a price for this type of exemptions. an advantagell be be in u.s., which could several forms, instead of looking into that type of specifics, you have to think about, could america tell its main trading partners, you have to do more for your own, your own consumption, your excess of savings relative to consumption, and investment. that is going to be the next news highlight coming out. maybe that the others have to make a concession in that direction. let's wait for the upcoming g20 finance ministers meeting, going to come up with on the 19th and
the 20th of march. i would not be surprised if america is going into that saying, what we want is economic growth, deficits lower, what can you give us that we are successful in this? nobody can have an interest in escalating this trade stuff. china, a country which needs to be careful in that respect. tom: john, so much of this goes to your work in transportation for bloomberg, world flows. whether government or transportation, it is about flows. do we see flows, logistics, the dynamics of the world decreasing, in this nascent trade war? john: so far not. so far this has been largely symbolic. if you look at these deeply entrenched supply lines, how they have built up in the world economy over the last 30 years, since the opening up of china, they are so entrenched, even if you saw tariffs on chinese
steel, it is difficult to see it being totally disruptive. looking at flows, look at chinese protections, allowing technology firms to go into china, look at one of the great big battles, economic and business battles over the next 20 years, the domination of ai. that is something where china is not allowing access for western technology firms into china, into the work they're doing there. the trade debate is interesting from a short-term political perspective but if you take a longer-term view, it is very important to look at the barriers china is raising, not necessarily to goods and trade but to intellectual flows of ideas. francine: we also spoke to stephen schwarzman, blackstone cofounder, he was saying there is no doubt the u.s. and china have imbalances. >> there is no doubt that there
is a serious imbalance between the u.s. and china in terms of market access. non-tariffls, barriers and limitations. part of this happens in the natural course of things. hans, is there a way to renegotiate with china without being too aggressive? good the rules of the game change without it turning ugly? hans: i think we are going to get concessions. i am not a strong believer that this is going to escalate. we have to consider that china is in a specific situation. balance sheets, they have been successful but one thing is clear: in order to do that you need strong global growth. with escalation, you sacrifice. you run the risk that the
economy will roll over and then you sit there with extended balance sheets and wonder, how can you derisk your balance sheets with global growth being weak? the stakes are high. the likelihood of getting positive flows on the back is much higher. you look at every newspaper, every news channel, you say, ok, this is going to be bad, this is going to happen, where we are going to retaliate? where is the common tree, where are we going to agree? that agreement is a key thing. francine: you can also see a president that makes deals. thinks, hetly so, he has brought north and south korea together. make them more aggressive with china to get something back? john: he is becoming more confident in his judgment. my colleagues in ec wrote an
article talking about -- my colleagues in washington dc wrote an article talking about the politics of one. he does not lack confidence. is posting in this interesting piece in "the washington post" today, he openly bragged about negotiations with justin trudeau, he made up the fact that the u.s. has a trade deficit. we all know he has a very unique attitude. seems to be he more involved in the core messages of his campaign. being tough on north korea and china, it looks like the tariff -- the pushe bus will continue. francine: you stay with us. as we had to break, breaking news out of the foreign affairs of russia. the is according to ria,
♪ francine: good morning everyone. this is "bloomberg surveillance" , tom and francine from london and new york. consolidating unilever headquarters in the netherlands, leaving a base it has maintained for a century amid the prime minister's efforts to keep investment in the u.k. after staving off a takeover bid, shares are trading lower in amsterdam in london.
brexit, johnside, and hans. talk to us about unilever. john: the optics are not great. the pro-brexit campaigners made this argument that when brexit happens, britain will be more open for business than it has ever been before. companies will want to do business. this does not look great on one level. at the same time, look at the caveats. part of the thinking behind this, was the kraft heinz bid for unilever last year. that sharpens within the company, m&a and regulatory regimes. if you base yourself in the netherlands, it is easier because of the takeover rules, standoff, corporate rising, corporate tax. it is not just about brexit.
there were also interesting corporate business regulatory reasons. francine: you could argue, it brexit happens the u.k. can choose the rules. will they muddle themselves in the netherlands? john: interesting point. when brexit happens, the regulatory regime, and, much more in the competition, within the purview of the u.k. authority. it is something they will be thinking about. part of the thinking about brexit, we can do our own, take power back, make our own rules and make britain a more attractive place to do business. if you look at how britain has been wooing saudi arabia, that is a clear part of the thinking. brexit will create a hole in the economy, and we need to think hard about how we can fill that gap by bringing more in. the regulatory takeover regime will be something everyone will
be taking a close look at. tom: i know it is lever brothers, i understand that royal dutch shell, or deutsche bank, european companies have a shingle in london. evidence of london culture companies leaving the united kingdom? i don't see it. john: not massive evidence. one of the big questions the banks are considering, how much of our resources, enterprises do we move? harris? -- paris? amsterdam? more of those moves are happening. these old british blue-chip companies actually leaving the u.k. and relocating, there is few evidence of that actually happening. francine: let me jump in. we are getting a kremlin response on the u.k. yesterday
expelling diplomats. choosing atin, response that best suits russia's interests, that is all we know so far. a kremlin spokesperson saying position on the spy poisoning case is irresponsible. this may embolden president trump to be more position on thy poisoning case is forceful, le's go back to brexit. have you value success in brexit? all in the currency? hans: i think currency plays an important part, what we have seen recently, more optimism coming in. "the times", article saying that the u.k. could be in a position to make a deal to the outside world during transition. that is all very important.
concerning sterling, we have given a recommendation on monday on this, we made it one important observation that had a lot to do with what is happening in bond markets, the flow, where do you park your money when the fed is going to hike at a faster pace? obviously you have stability in the bond market. places have less fear. we have seen significant inflows into australia and the bond market. recently, people looked into spain, portugal as a force. the same is happening in the u k sterling is getting support. we might see 144. i doubt we are in a position to break the big resistance. why i doubt we will break that level, you have an economy which
is still underperforming within the g10 context. that is equivalent to a price that will take us back into the 1.30 handle once the optimism is gone. francine: thank you both for joining us. john,f morgan stanley and staying with us to talk about the future of transportation. coming up on bloomberg markets. more on the future of europe. greece's new democracy president. this is bloomberg. ♪
♪ francine: this is "bloomberg surveillance", tom and francine from london and new york. ♪let's talk about the auto industry changing. we talk about tesla, driverless cars, at the center, elon musk making strides in the industry on land and in air. from production difficulties with the tesla model three two management turnover, rife with challenges. still with us, john.
i encourage everyone to go on our website, to check out hyperdrive. ai,alks about robotics, driverless cars. john: hyperdrive essentially brings together our teams that cover technology, to focus. one of the most interesting business stories right now and over the next decade, as you point out, the center, tesla. mostould argue, maybe the interesting business question of this year, whether they can figure out how to turn itself into a mask maker of the -- a mass maker of the model three? it has been difficult and it has taken other car companies decades to get to where they are now. they are trying to do this in a short timeframe. thecine: also their models,
fight to get into space. is there a chinese equivalent? john: you can certainly make the argument that china is well-placed to dominate the global, the next phase of the global car industry. a good, steady reliable access to cobalt. a key figure for the batteries. highly developed ai capabilities. self driving cars are the mostly, right now, obvious example of how ai will be deployed in our lives. they have a market of 1.4 billion consumers, so they can research how people drive. having these advantages. we saw that investment, a few weeks ago, that is a harbinger of things to come. francine: we are fascinated by this. nowmberg news also broke, carmakers are going directly to the source. cutting the middleman? john: they are turning into
metal prospectors. they don't have expertise in this but there is a mass scramble, to secure access to cobalt for the next 25 years. this an important commodity for apple phones, but there is also ongoing speculation of whether they will get into cars. tom: does anybody want this stuff? there is a raging debate in the united states over self driving. is there a demand? does the public want this stuff? john: again, the market will tell us. if you look at the amount of money and resources that companies like google, also in china, baidu, there is a broad concessions -- a broad consensus willard rooms, yes, this
be an incredibly important part of the car industry going forward. whether anyone or everyone will want them remains open. if you look at the amount of money to be saved, when it comes to long-haul freight transport, there is certainly a strong economic rationale behind it. uber argues that 60% of the price of a taxi ride is the human driver. tom: thank you so much. greatly appreciated this morning, with bloomberg in london. coming up, any number of important conversations with stephen roach of yale university . this is bloomberg. ♪
1600nce kudlow enters pennsylvania avenue. forget supply-side economics in this hour, stephen roach on america's pending twin upsets. the republicans losing, they will adjust. in parliament and all of the united kingdom await putin's reactions in action. anne-marie is in moscow. this is "bloomberg surveillance ." we see headlines over the last 20 minutes from the kremlin. give us an idea this morning of the flow out of moscow. francine: the flow is actually quite slow. we heard from the kremlin and one of the chief spokespeople russia will notify the u.k. of steps before putting them in place. we understand that may be a tat for tat expulsion of u.k. diplomats in russia. we heard from theresa may she diplomats.l 23
there haven't been that many dispelled since the cold war. there was a murder with plutonium a couple years ago and on the back of that the u.k. expelled 4 diplomats. we are keeping a close eye to see what happens next and we heard from the russian foreign ministry saying they will notify the u.k. of retaliatory measures before disclosing them to the rest of the world. tom: we will have much more on this through the hour and through the morning. there is kailey leinz freight kailey: the u.s. senate has given the banking industry its best chance in years of rolling back rules imposed after the crisis. lawmakers passed legislation that would ease restraints while mostly snubbing wall street. it would strike them from the banks considered too big to fail. canada's prime minister says he's willing to speed up nasa talks to avoid election pressures in the u.s. -- nafta talks to avoid election
pressures in u.s. and mexico. president trump has repeatedly called out canada for being unfair with the u.s. on trade. tolduropean central bank lenders they have to be tougher dealing with bad loans. the ecb came out with new time limits for how quickly banks should set aside capital for loans that turned bad. bad debt amounts to almost $1 trillion. global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. i am kailey leinz. this is bloomberg. tom: equities, bonds, currencies, commodities quickly. we will get to kevin cirilli and roach.he -- dr. yields over16.99 the last few days. stronger yen. francine: european stocks climbing and u.s. for tours --
futures point to a stronger open. yen gaining for a second day and steady.ding let's bring the board up so you can see what we are talking about. i am looking at oil holding steady. treasury yields holding near february lows. tom: extraordinary news flow out of the united kingdom come out of moscow. right now to washington and our kevin cirilli. southwest pennsylvania is ancient news. let me cut to the chase. is general mcmaster watching his tweet flow this morning? kevin: absolutely. the rumors of a shakeup inside the trump administration are running rampant and there's a lot of speculation there could be more following secretary tillerson's ousting. president trump will be up on capitol hill attending speaker ryan's st. patrick's day luncheon. it's anybody's guess what will
come up in the luncheon. maybe even the french rumblings about the -- different rumblings about this shakeup and where the party goes forward months away from midterms. the tea are looking at leaves coming out of reagan yesterday back from pittsburgh. will we see retirements this weekend? kevin: if not this weekend, over the next couple of weeks because even just the remarkable turnaround in that particular district, a lot of republicans think that could be a microcosm of things to come and there could be a blue wave similarly a couple of cycles ago when republicans had that wave into the white house following the installment of the affordable care act. -- what: if you look president trump wants to do is basically no dissent in the white house, that is how a lot of commentators are reading
this. could this be a genius move for the midterm elections in the next presidential elections because it means no one -- there's no opposition? kevin: i think the bottom line are two things. to your point about not having dissension, i would disagree with those commentators. based on my reporting, i would argue president trump likes to have different factions within his administration and have them duke it out and fight and he goes with an unpredictable move of which plan he will proceed with. the second point i would make is about the shakeup and that is it is similar to what we saw on the campaign trail as well as with the different chiefs of staff. the president every now and then likes to shake things up and get new energy into an administration when he feels he has lost and i think there's a lot of pressure on him ahead of midterms to get new energy as they march forward.
tom: thank you so much, get some sleep. great work and pennsylvania. we are well-timed having stephen roach with us on any accounts. stephen roach on market economics and what market economics does under the bright lights of political washington. markety inventing economics at his tour of duty at morgan stanley and joins us this morning. i would suggest supply side untilics can be a theory it is not and that is when demand-side economics comes in with a vengeance. if we see an expanded fiscal deficit, if we see an expanded trade deficit and we get back to twinime you and i and deficits, does that upset his supply-side certitude? stephen: there's a lot that will be challenging for larry as he
moves into the white house. economy, tom,.s. the national savings rate adjusted for depreciation is 2% right now. with multiyear budget deficits, it will go towards zero and we have to borrow surplus savings from abroad and run big current account and multilateral trade deficits with lots of countries to attract the capital. they've got to deal with that. tom: they've got to deal with that and larry's job with kevin is to be a voice of reason. i bring this up, i showed this earlier. this is the eisen by study -- there was a larry kudlow that you and i knew a million years ago who often killed it in market forecasting economics. that is not the job. what should be larry's job with
this president? stephen: they have a history that goes back to 1993 set up under president clinton, first director was bob rubin. the key initial in any c is the "c." it is the council. airedertain strategy is on all sides of the argument. it should not be a platform for political advocacy. unfortunately under succeeding administrations, the politics have dominated the debate and that is never more so the case than right now. bringing an ardent supply-sider in that is purely an advocate for the trump view does not allow the debate to be aired as openly and as frankly as it needs to be. the president says and your former commentator kevin just said they like debate.
if they like debate, they are stacking the deck. there no debate in the white house right now. the president's intuition is ist rules and the nec supposed to be an intellectual check on that intuition and that does not appear to be the case. tom: francine? francine: should the nec incoming director be talking about dollar strength or weakness? stephen: no. the view of the dollar is predominately, francine, something expressed by the treasury secretary and just let the treasury secretary say it. i realized the first time he was asked to comment on the dollar he was unprepared and had not read the script. i think he has read the script by now and he should be the one to make the comments on the dollar. like everyhas been,
other forecaster, up and down. he's got it right and very wrong, we have all been in that position. going toawrence kudlow lean over and say to the president when we enjoy the twin deficits? trillion,t a $1.4 deficit. he's not going to say, we can grow our way out of it? stephen: he said that, tom. tom: i know he said that, but what we -- what will he say when it actually happens? stephen: he's going to say we need more growth. he's a strong believer tax cuts believe -- provide incentives and generate growth. he is aligned shoulder to shoulder with -- in our view. a larry, to his credit, was champion the corporate tax cut for a long time. i debated him a couple of years ago on this at el. he was right out there with that and argued that this is the needs to become
competitive again and it would pay for itself. tom: we will touch on this again later in the hour with stephen roach. we will drive forward the conversation on all the events. he would not make an appearance unless i bring up the yankees and spring training, douglas cass has visited all the great fruit leak in the past two weeks, sea breeze investment with us in the next half hour. please, stay with us. ♪
the british space it has had for almost a century. they are consolidating the headquarters in the netherlands. toir decision is a blow british prime minister theresa may as she try to keep investment in the country as it leaves the european union. lufthansa is warning 2018 be tougher than last year. they were able -- they were able to cash in on the collapse of is berlin, but they say that set to dissolve this year. they plan to cut capacity because european carriers are flooding the market with more seats. toys "r" us is going out of business. the collapse could lead to the shutdown of hundreds of stores around the world and jeopardize tens of thousands of jobs. they filed for bankruptcy last fall with a plan to turn the chain around, but sales faltered during the crucial holiday season. that's the bloomberg business flash. francine: thank you so much. agency citednews
the foreign minister saying the u.k.'s actions are outrageous and moscow will expel u.k. envoys soon as a retaliation. -- accused britain of hiding the truth over a poisoning of a former spy. and joins us from moscow. covering the elections. talk about the timing of all of this. russia is basically saying these are crazy allegations and that it was not them with this poison attack. how does it play into, if at all, the elections on sunday? anne-marie: good morning. we are waiting to hear what russia's retaliation will be. the foreign ministry called the u.k. pm crazy in terms of them getting rid of 23 diplomats. we are likely to see a similar response from russia also throwing out british diplomats.
the kremlin's press secretary is saying putin should decide. in terms of the election, this is the coverage ahead of this election and it's actually playing into putin's hands. he has next to nothing to lose and is set to win the election. they want voter turnout and we have opposition saying boycott the vote, the local newspapers and television -- it's all ramping up in terms of motherland russia, protect russia, -- moscow under siege from the west. it's useful in terms of this boost of russian patriotism ahead of the vote on sunday. francine: we understand from the british authorities that this attack was done with a special nerve agent developed by the soviet union. what has been the response from the kremlin on this? annmarie: the kremlin are saying it is ridiculous, this is not state-sponsored and they
actually want to see the evidence that the u.k. has. if are saying it's unfair and they are being put up to an ultimatum. speaking of that nerve agent, one of the local papers -- this is really the state paper -- is theg a play on words using nerve paralytic response and saying theresa may's response is very neurotic. tom: let's play dueling papers. we can do that with the new york x-by hishy attack on e fearless defender -- what is the mood in moscow? thanw is so different -- the rest of the country. where is mr. putin's greatest strength? annmarie: that is right. one thing is moscow is very cold right now and the mood is that everyone is excited that it's
not -20. his greatest strength is break withoned -- breakmanship the west. his not so greatest strength is in the 2000's when he was coming into power, what he needs to do in this next 6 years is get standard living wages up again and get disposable income back again. 2014a took a hit before and in 2014 with the dive in oil price. on top of that, sanctions. in terms of the economic up play, that is where he needs to drum up support for russians going to the polls. finalanship, this is his hour and it's really playing to him on sunday. tom: stephen roach has been a student of all of this for years. let us talk about the path of
the russian economy. i have had people say in some ways, borderline emerging-market and almost borderline frontier greaty and mr. putin's economic mission is to say we are bigger than that. is he succeeded? stephen: until the russian economy means it's self off of 1 product,itself off one one market, i think that is wishful thinking. russia has made some progress building out more of a services-based to its economy, but it's fortunes and budget deficits rise and fall with the price of oil and so it remains, i think, very constricted and restrains in turn -- restrained in terms of how it can utilize domestic fundamentals to a company it's geostrategic reach. tom: we've got to come back on a china with dr. roach, certainly
of the united kingdom and russia on those affairs. stephen roach with us, which means we must speak on china. how is hong kong doing and does hong kong change under the permanency of a president xi? now 20: hong kong is years past the handover. the political environment has certainly changed and has been tempered. it's still a vibrant city. i was there a month ago. i'm headed to beijing next week. i think the big questions really are where is china headed in political andf governance changes that have been announced. tom: your massive victory lap as opposed to say mr. navarro is people have been talking about the blowup of china for x number of years and steve roach has
always said the hard landing story doesn't work. all of our reports is it is still an economic resilient growth machine. is that true? stephen: the strength of chinese fundamentals -- it has a strategy. we were talking earlier about the national economic council in the u.s.. that's supposed to be our strategy function and it has been politicized. china has a strategy function housed in this organization called the national development reform commission and they put a andof thought into strategy resigning five-year plans. we may not like the way they sound, but the architect of the was probably plans the senior chinese economic official now in charge of the economy. he was in washington a couple of weeks ago to deal with these contentious trade issues. strategic,rt,
thoughtful, analytical thinker. with an enormous challenge in taking china which has been so export led into a more consumer-type economy. tom: we will come back with stephen roach. where are we going from here? francine: we will talk about china and we are waiting for the new -- governor to be announced and pick up the new issue of bloomberg businessweek. on the front page is the change is coming at goldman sachs. it's a funny cover. this is bloomberg. ♪ mom, dad, can we talk?
that's a good one. seems a bit long, but okay... set a memorable wifi password with xfinity my account. one more way comcast is working to fit into your life, not the other way around. ♪ thank you for being with us. francine lacqua in london. i am tom keene in new york. an extraordinary international
news day. with our first word news coming years kailey leinz. kailey: prime minister shinzo abe's bad month has gotten worse. he got a warning sign from members of his own party that a scandal won't go away soon. deputy were ordered to deny they doctored documents. it came from his own liberal democratic party. paul manafort wants a judge to dismiss money laundering and -- charges against him. the judge has said paul manafort could spend the rest of his life in prison. --manhattan, landlords are according to a report, owners are cutting rent, offering incentive, and doing whatever else to attract tenants. apartments that were filled last month spent 34 days on the market, the shortest period since 2011. global news 24 hours a day,
powered by more 2700 journalists and analysts in more than 120 countries. i am kailey leinz. this is bloomberg. francine: thank you so much. the canadian prime minister, justin trudeau, says he believes president trump he speaks. he spoke to michael mckee about the relationship between the u.s. and canada. : we arenister trudeau not going to apply national .ecurity penalties to canada yes, there was a lot of reflection and back-and-forth, but he ended up following through exactly as he said. in terms of commitments he made to me in conversations we had about things that matter, he has been consistent with me. francine: joining us from terrazzo is michael mckee -- toronto is michael mckee. thet conversation with prime minister of canada. it was interesting to get his take on tariffs and trade.
what stuck with you in what he was saying? michael: it's obvious the normal diplomatic niceties don't apply to donald trump, but they do apply to justin trudeau and he was very polite in discussing his relationship with the leader of the united states. clearly, he has a tough job. as the washington post pointed out, donald trump is admitting he's making up a lot of facts and figures. it's hard to trudeau to have a firm base and footing. what he's doing now is taking down trump at face value, but also saying i'm not making any concessions to that effect -- concessions and stories to that effect are wrong. polite and firm is the way he put it. francine: will he accelerate the nafta talks and how quickly can they get going? michael: it's a real issue. we've got electoral politics coming into play with the and theelection july 1
u.s. midterms in november. when you get into the political season, people don't want to negotiate because they don't know who will be on the other side. there's a question about whether they can get this done in time. the mexican negotiators suggested by the end of april they hope to have half the treaty negotiated. trudeau cold me yesterday canada doesn't have the same political pressures, so they are willing to accelerate the timetable. they just need to get to the table and start making concessions. tom: we are at a critical part with canada right now. what is the leverage that mr. trudeau has on trade? what is the bargaining chip they have with 1600 pennsylvania avenue? michael: basically what the prime minister suggested is the economies of the two countries are so intertwined that the u.s.
letot afford to elect -- canada go or wall off congress between the two. with supply chains as tight as they are and the u.s. as dependent on canada for exports as it is, they buy a lot of our stuff, they are our biggest customer. if don't see the u.s. having any benefit destroying that relationship. that is the leverage and what the prime minister continues to point out. in: what is the immediacy the next five or 10 days for canada? michael: for canada there's a couple of things going on. obviously being asked to at least participate or support theresa may. justin trudeau is working on that. there is nafta negotiations and what happens going forward and now they are also going to be talking about what happens with not just russia, but mexico, canada, and the united states in terms of tariffs going forward. when the president announces
something on china, do they join in? francine: professor stephen roach, what do you make of the tariffs? there were a lot of people coming in favor of renegotiating or resetting the trade relationship with china. can you do that without it turning ugly or being too antagonistic? stephen: the question is not what has been done, but what is coming. the so-called section 301 investigations into technology transfer and intellectual property -- the president ordered his advisor to come up with bigger tariffs. the initial recommendation was too small, so light heiser is going to double it -- lightheizer is going to double it. china will retaliate. china is our third largest and most rapidly growing export market and the biggest buyer of
treasuries. this is an example of an administration that doesn't understand the strategy of sort of the policy recommendations it is advocating and so the idea that we can do things to china without consequences for them doing things back to us misses the whole point of a strongly codependent economic relationship. francine: how would you qualify the trade relationship between the u.s. and china so far? is it balanced or is it imbalanced and if it's him balanced should we address it -- imbalanced, should we address it? currentlyhe president refers to our $500 billion trade deficit with china and it is dead wrong. the number is $375 billion. we have trade deficits with 102 countries. we have a multilateral trade deficit because we don't save.
when you don't save and want to grow, you import surplus from abroad. we want to address the china deficit, we have to look at it in the overall condition of macroeconomic imbalanced. we don't jus fix -- just six china without -- talkwe are not going to canadian hockey and the horrific teams of canada except for the toronto maple leafs, you and i have known very forever. he was an esteemed economist in the 1980's and 1990's. in the 2002y well classic study of the game, but 1600e has a shift into pennsylvania avenue. would you suggest he can go from a supply side commentator to a more balanced advice approach to the president?
michael: no. i have known larry for a long time, but he has a political philosophy and his all about bringing his own -- he is all about bringing his own philosophy to the white house. he is an ardent free trader and the president is not. on all other aspects, the idea that tax cuts cure everything, that is larry kudlow 101. unfortunately, he does not have a good record of forecasting and the atlanta fed's survey found he was 53rd among wall street forecasters at the time. looking forwill be him to do is keep the president at least focused on macker abenomics. -- macroeconomics. tom: you are squirming over here? is right.ecause mike we are not bringing larry in as a forecaster. the national economic council is
a council that is supposed to convene to debate and look at all sides of these tough -- tom: did mr. cohn succeed at that? stephen: he was not particularly good at that either. he gave the president what the president wanted and what larry advocated, which was a very large corporate tax cut, ignoring the role fiscal policy plays for a saving short trade deficit disposed u.s. economy is an example of the strategy function that is not being well thought out in the trump administration. larry is not going to change that. tom: let's come on this. surveillance break exclusive, montreal in toronto. tonight, maybe tomorrow night. stay the weekend and see the canadians play the maple leaf. mr. mckee from our toronto news bureau. we continue with dr. roach.
stations and newer media such as sirius xm and spot if i into ad sales. -- settle fraud allegations. making up claims about the effectiveness of testing products. they will pay a $500,000 fine. no sign yet of a turnaround at swedish close this -- clothing giant. revenue was unchanged. european clothing retailer suffered from warm temperatures in december and january and a cold spell in february. that is the bloomberg business flash. tom: thank you so much. brief of the moment with brian wieser, he is truly expert on the linkage of our modern media, changing media to the advertising world. stephen roach with us as well. i have been dying to speak with
you, bryant, about what's going on and the place to start is where are the big at agencies -- at agencies in five years? brian: they are still around, but they will evolve. the best description is they are cockroaches and not dinosaurs. they will evolve and found niche is -- niches. they have more entrepreneurial capacity than most countries in -- companies in silicon valley. what excites you in this drama that my kids in every other kids that will not watch conventional tv? disney in a panic to move their platform over, what gets you going -- is it youtube tv? brian: from a marketer perspective it's about experience and that's where the isbe's and salesforce's
trying to do as well. when the average person is consuming five hours of tv a day. tom: how will we consume it? brian: the vast majority will be inside the living room, that is still true today, there's just different ways to consume it. there may not be as much app support as it used to be. traditional tv is dependent on a large group of marketers and they are taking on a lesser role in the economy being replaced by direct brands. it's dollar shave club rather than gillette. it also is hurting the agencies they have worked with. francine: does that mean we are going to see much more consolidation? brian: i think it will be. if we are looking at the agency -- absolutely, one of the big holding companies -- i've always
thought interpublic is the most likely to be consolidated. you've got a lot of players between vivendi that will be around in some form. omnicom probably stays around. -- could go in a lot of different directions whether they merge with a services -- i.t. services firm or on their own. when you look at sellers of advertising, you are going to see more consolidation. whether you look at disney, fox, going together and time warner will either end up with at&t or someone else. you will see more consolidation. francine: where does that leave twitter, facebook, is there going to be in advertising play from tech giants? brian: >> i think -- brian: i sonk facebook and google are
big, it's hard to imagine them going away in any form. the question is how big they will get and how much will theirments work to strain growth. we are seeing proposals in europe that revenues get taxed. there is definitely a lot of support to try to hurt them and constrain their growth, but it can still be dominant. stephen: can i ask you one question? with of the new technology, google and facebook driving so much of the digital advertising, how does pricing work in the old wpp andodel -- the big the like him is there business model being ripped apart? season services, marketers will generally have a budget and say what did we pay last year and can we get more for less? pointg is output, not in
-- input in that sense. stephen: they are getting a lot less than from their agencies. brian: except you are worse off if you ended up directly with a platform then when you use an agency as an intermediary. bloomberg surveillance this morning, francine lacqua in london and i am here with my co-anchor, stephen roach interviewing brian wieser this morning. are we going to 6 second ads or 16? ng to short hulu-iziare we going branding messages? brian: it's not true we don't watch the ads, we always watch the ads and don't think we watch the ads. rating stock right now i think is time warner. i think the deal will go through. if it doesn't, there's other problems. tom: what does at&t need to do to convince the trump administration to get this deal done?
brian: i think they need to convince the judge. if the deal doesn't happen, someone else will buy them. disney could end up not with fox because comcast could come in and try to buy fox and disney could buy time warner. someone will buy time warner. tom: back to back canadians with michael mckee and brian wieser with us as well. stephen roach will continue with us. we have a chart to observe with mr. roach as well. tv , your morning briefing. you are at morgan stanley reading and you want to watch stephen roach, that is how you do it over on tv . stay with us. from london, from new york, this is bloomberg. ♪
this is already possibly the chart of the year, two faint lines. it's the fiscal and the trade deficit and they some out -- sum out to the rollover in the trade deficit. is this a given you assume we will back to what you and i enjoyed in the middle 1980's? stephen: it goes back to the role savings place for any economy in driving its trade position. everybody including the president ignores this. give us the reading of how savings rolls into lousy presidential analysis? stephen: if you don't save as a nation, and you want to grow, you either stop growing or borrow savings abroad. that is what we do. we seem to have no trouble borrowing surplus savings from
abroad. to do that, you have to run a balance of deficit and you need trade deficits to balance your international accounts. our overall savings rate is 17% in gross terms adjusted for that'sation, it's 2% and very little savings for the united states. it's one third the rate it was in the final decades of the 20th century. balancedeen running pain deficits every year, with one exception 1981 when we charged the world for winning the gulf. with this balance comes trade deficit with lots of countries. it's a multilateral problem. we had trade deficit last year with 102 countries. the folly of saying we can fix trade by going after china or building a wall with mexico or putting tariffs on canada -- you cannot do multilateral trade deficits one by one on a
bilateral basis. you have to go back to the saving issue and the biggest issue we have a shortfall of saving is the budget deficit, which is going from bad to worse as we speak. this chart, keep it up there every week, every month it's going to be more and more important in understanding the overall strategic overlay from the united states economy. francine: given what you have the trump is it that administration doesn't understand what you were saying or they don't care because they have a different agenda, which is delivering on their campaign promises? stephen: it's a combination of the two, which is really disturbing. agendave a politicized and they don't want to pay any attention to the broader macroeconomic relations that are shaping this political agenda. that is the role, by the way,
for the national economic council and larry kudlow has got to appreciate the fact that his role is to convene the type of debate on these issues that is sorely needed and missing in washington right now. tom: stephen roach, thank you so much for our global television audience. we will continue this debate on bloomberg radio. i believe jon ferro has entered the building and will do that on bloomberg surveillance. our continued coverage from moscow and our print team as well in our moscow news bureau. 106.tronger, nicely under this is bloomberg. ♪
dodd-frank and the big winners are regional banks. from's new director of -- trump's new director says by the dollar, sell gold. nafta can be a win-win win. justin trudeau plays nice with president trump and says the country has been making kudlow says-- and the country has been making concessions. david: it's the ides of march, so be careful out there. alyx: and shakespeare something. in the trading market, it feels very choppy. the s&p at a one-week low yesterday and now futures basically flat. market, 123 is how we -- 1.23 is how we print the eurodollar. 10 year yield pretty much know where. we had some selling and now some