Compliance With OPEC Quotas is Striking, Yergin Says

of course on the Bloomberg. We begin with an Urgen, Vice Chairman h S. Market, author of the prize and the Quest, and he joins us here in New York on bloom Big Surveillance. And Dan, let me start with that news we got yesterday about Saudi Arabia telling OPE could produced production last by the most in eight years, more than it had pledged to do. Give us the significance of that and why were they able to cut

more than they forecast that they'd be able to. What's going on is a very high degree of compliance within OPEC. People have always been skeptical with good reason of OPEC cuts, and two thousand and eight when they cut, they only cut about sixty percent, and now it looks like they've cut over. Saudi Arabia has taken the lead, and I think Saudi Arabia is the most important member by far, and they want this, uh this, this and this new type of agreement between OPEC and non OPEC to be

a success. And we can see the impact in the marketplace more. And this is just one we want to break a headline here crossing the Bloomberg, Etna and Humana are ending their merger pack that had been called into question by the federal government and it's not going to pay one billion dollar fee. Having spoken Mark Bertolini, the CEO of in a couple of weeks ago, it sounded like they were weighing whether or not to go forward. Indeed, and no human I have decided not to go forward

with their merger pack. Now back to Dan, you're get how surprising was this news about Saudi Arabie said, The importance can't be understated. How surprising was the news that they had cut so much. I don't think it was surprising uh so much because you saw that the new relatively new Saudi patrollingum minister called alf Fala, that he really was taking the lead in making this work, and I think that the cuts are demonstration and a message

to everybody else. And just before they made a deal last November, they said, if there's not a deal, we're going to produce as much as we can. So the other side of it is that there is a deal and if it's holding with other people, including the Russians by the way, who are cutting back, which there was skepticism about. Uh, they want to do their part to

make this work. We're gonna have the Minister at our conference in Houston in a couple of weeks and I think he's going to give a strong message about wanting to see some stability in the oil market. When you survey when you look at the parties to that agreement, both OPEC and NON who's having the biggest trouble keeping up the end of the bargain? Uh, Well, there's certain countries that are out of it. Libya and Nigeria were

given a free pass. I think the al of the cults, the most determined people are there, Saudi Arabia and the other Gulf countries. They're the ones who really stand out. People were looking very carefully at the Russians have been cutting they still have more to cut. And the Iranians. It was a very unusual deal because they sort of there was a kind of a deal or everybody could claim a victory. The Iranians could have a higher quota,

except the others field they can't reach that quota. A couple of nights ago, there was a small matter of the Ninth District Court in San Francisco, and I, like everybody else, was riveted with a phone call on television of the appeals court going to the process and David Gura. The bad news was. I was watching MSNBC and they kept playing in the upper right corner the President meeting with muckety MUCKs within the oil business, and he walked

around the table shaking hands. And I swear every time he walked around the table and shook Dan Jurgen's hand, he was there. You handed him a copy of Commanding Heights. I only you love that book so much time that you imagined that you saw it happened. I only wish that were the case. But it is a very uh. That was the media of the Presidential Strategic and Policy community. Um I learned that. I mean, there are a couple

of things that really jumped out. One was just this whole question of regulation, not just is there too much regulation, but contradictory regulation from too many different agencies. And the other was a really big focus on infrastructure. Within this is if you had had handed the president your iconic book Commanding Heights, what in it should he learn? Well,

I think that these things go in cycles. The role of the frontier between governments and markets is shifting and continually shifts, and I think we're seeing that now and I think kind of right now around the world there's kind of confusion about kind of what are the new rules of globalization. But your book is the arch non zero sum book. Your book is one primal scream about anti mercantilism, about a value to cooperation and ord nation.

Do you see any likelihood of that within this administration? Well, I think that if with some of the people, I think that there's still the you know, the US. We have forty million jobs, over forty million jobs in the US that the result of foreign trade, and I think that number has kind of been left out of the debate. What have you heard from the administration about energy policy at this point? How inco it is it? Do we have a sense of what it's going to be. Well,

I think it's gonna be uh not. First of all, it's going to be not more regulation. And secondly, I think it's going to be trying to solve this bottleneck about infrastructure where it takes seven years and several billion dollars not to approve a pipeline. Things have to be done in reasonable times, and there has to be reasonable times in terms of challenges to it. But there's a mismatch between where our new supplies are and our infrastructure, and we've got to get that fixed. How catalytic is

that Keystone exhale? In other words, if if Donald Trump pushes it through, if we get it built, are we going to see more like it? What's it going to lead to? Well, that was a very particular case because it needed State Department approval to just cross the border. And I think it will be a message trans Canada. The pipeline company has to decide that it wants to go ahead and build it. To some degree, we've seen a shift in uh where new supplies coming from it.

There's a lot of new Canadian supplies coming from I think it would be a big message because you know, pipeline approval. It seems to be as exciting as watching paint dry. But then now that became really a potemic. Well, these pipelines that are in the news, will they change the price of oil? Uh? If you build yes, I mean I think if you if you have more flexible supply, uh, and if you can bring more supply to markets, then

that thing called supply and demand will work. It's talked a lot about how rex dealers and skills add accent moble would be applicable to the State Department. Let's take another step back and just look at sort of the degree to which the Secretary of State has to deal with oil and energy issues. How how how big, how

big a portion of the plate does that occupy? Well, there is an energy aurow in this State Department that was set up a few years ago, and so energy is one of the geopolitical issues that the President the Secretary of State will deal with. But I think that it's going to be a relatively small part, and I think that Mr Tillerson is going to focus on the you know, the big complicated questions are out there. He's

a very experienced person in the global economy. He knows a lot of countries and UH, and he's very measured in terms of his decision making. Help us with the interplay here between the dollar, which is slightly weaker this morning, and the price of oil. But what's the what's the correlation there? Well, there isn't always a correlation, but often there's a correlation in which a stronger dollar means oil

prices are down and vice versa. But of course there are a lot of other factors that go into it, and the predictions about what the dollar is going to do is one of the UH factors. In the discussion about this border adjustment tax, we started out talking about Saudi Arabia OPEC and UH and the deal, the agreement. UH. Let's mean, why back at the ranch. What's happening here in the US? When you look at the energy landscape right now, it's perman mania. The Permian basin is the

place to be. That's where people are spending money. And we've seen that US production has bottomed out and it's going to start increasing, and it's an industry that's a lot more efficient than it was a couple of years ago.

At I H S market we were we just did this analysis and see if you spend a dollar today, you're gonna get about two and a half times as much oil for that dollar as you would have in I have the clearest recollection too many years ago you're talking about forty dollar oil and basically being left off the show. You were more than right. Okay, the fifty plus a minus ten bucks. Who's counting? What is the Urgan five year out call the barrel? You know, don't

have a single number. I think this year we're probably in a fifty to sixty dollar range. I think at the end of the decade we'll see price We should probably see prices, uh, you know, higher than they are today, because you're gonna need it in order to get the kind of long, mid term and long term investment that isn't happening right now around the world. I mentioned you're gonna hear from the minister at that conference in Houston.

Who else you're looking forward to hearing from? When when you look at who's talking to whom and where where the conversation is at, Well, we're gonna we'll we'll have the Russian minister will be there. Uh. The we're hoping we'll have the new people from the administration and we'll have a lot of the uh CEOs from the major companies there. So I think it's you know, altogether, we're gonna have three hundred speakers, so it's gonna be a

very rich conference in terms of content. Will have both the Secretary General of OPEC and the head of the International Energy Agency together and so uh And I think of what a tension does that create on stage? Well, it's you know that used to be budding heads, but now it's like a dialogue between the two of them. Uh. I think the other thing, there's a big question about what's happening with mobility. Dan, You're gonna thank you so much.

And again, folks, some more modern work I mentioned commanding Eyes. Look at the quest It is outstanding. David Gura and Tom Keene in New York. This is Bloomberg Surveillance on Bloombergerdy. I'm looking at the latest issue of Foreign Affairs magazine, the March April issue. Trump Time is the headline. Donald Trump picture there surveying his domain and others looking at the world. We see Vladimir putting their stride a horse.

A number of great pieces in this issue, including one by Peter Fever with whom we spoke yesterday of Duke University. A great conversation. You can check it out on our podcast as well. The editor of Foreign Affairs, Gideon Roses with us now, and let's pick up with what Chris Kirkin was just talking about their the resignation of Michael Flynn's national security advisor. How much of Donald Trump's foreign policy was a Flynn foreign policy? Well, nobody knows, uh.

And the biggest question that people in my area are wondering now is, okay, if Pence was out of the loop, was the president out of the loop as well or not? And nobody knows. And we will just have to see where do we go from here. There were all of these allegations that General Flynt had spoken with the ambassador from Russia to the United States during this interregnum between the election and when Donald Trump was sworn in. Will there be an investigation we have any sense of where

things go from here? Well, there is going to be investgation. There already are investigations about contacts between the Trump campaign and Trump Operation and Russia. Um. Look, basically, there's this nagging possibility that keep that can't be denied of something truly nefarious, but nobody can really believe that there actually is anything nefarious going on, and it so so people

are puzzled. Right, There's been this positive relationship with Russia that the Trump campaign has been steadfast about the only thing in fact, that they've been really constantly consistent about. Uh, And no one can quite figure out why. And so you can't quite No one can believe the notion that there's some weird behind this conspiracy, but no one can fully dismiss it on the basis of the evidence so far. Either.

I mentioned we were talking with Peter Fever yesterday about the National Security Council staff and the reported disarray within. What does this mean for that? Fold this into that you've got You've got Michael Flynn out now, does that stand to complicate things further or is this an opportunity for the NSC and its staff to reset. Well. Uh. The NSC is basically the president's personal foreign policy and national security staff, so the president gets whatever the president wants.

It'll be fascinating to see who the replacement for Flynn will be. One thing that's already interesting is they promoted Kellogg to the number one spot, the acting spot, rather than the number two. Technically, Katie McFarland, Uh, that would suggest that they don't have a whole lot of confidence in her necessarily, But we don't know, and um the we you know. Look, the best way I can talk about the difficulty in analyzing this administration is to look

at the number two at State. So Rec Tillerson impressive guy, but somebody who's never had much foreign policy experience doesn't know the building and so forth. So there's been everybody has said, well, that's why he's going to get a deputy who actually is a farm policy professional. But they've kept floating names people like Richard Hass, people like Elliott Abram's, people like John Bolton, and the names all get shot down.

So they still haven't filled that post. But the names themselves range across the farm policy spectrum, from realists to neo conservatives to other things people you would never actually think of as being sent up by the same people for uh, for suggestions. So no one really knows what's going on or who they'll actually pick away from General Flynn. And we'll all be buried in this in the next couple of days. You had cell phone national security over

dessert at Mara Lago. I was stunned that they did the photos of the nuclear bag, the atomic bag. How to prose like you respond to that nobody who's a foreign policy profession and all that I know is anything other than just flabbergasted by the last month. They're they're they're trying to be like a tech company and fail faster because the pace at which this is playing out is so uh rapid uh that that nobody knows where it's gonna go. The visibility, you know, the five day

forecast is three days. I can't fathom the vice president doing anything but being stunned at the juvenility of some of these actions. Um. The problem is that you know what was it? That was it George Bush who GARYT. Trudeau, George Bush father that Garret Judo said had his manhood

and the blind trust. A lot of the people of this administration, uh unfortunately, seemed to have their manhood or femalehood in a in a blind trust because the boss is doing something and when the boss says that you have to go and do whatever the boss says, just too short to the Guindeon Rose, thank you so much? What a half hour if a dan you're going to

Gideon Rose together. I mean, David, is this right? This is incredible, by the way it is with the tweets, with the little birds tweeting around Foreign Affairs magazine, folks check it out, is superb. It's the price of a fancy Martini. Geon Rosen was going to go to the cheap Martini. But a subscription, a print subscription, is something

John Tucker looks forward to every month. I don't know these days we could use the fancy Martini times Trump times, Trump time rather Okay, we like a little tension here. Robert Sinch nailing the strong Sterling call and certainly calling for Sterling stability, stability. Agreeing with him. Shahab Jollinus at Credit sweets really looking for moderate moderation within Sterling, and Shahab, we've got other houses looking for really dramatically weak Sterling.

George servelis at Deutsche Bank looking under one ten HSBC's at long term one ten call. What is the distinctive feature between your call of Sterling stability versus those that have a much gloomier outlook. Well, I guess it also depends on what time horizon we look at this on. In the sense that uh, you know, over the next year or so, it's unclear to us what type of new political news is going to materialize that dramatically moves Sterling relative to the news we've had in the past year.

And I think if we see in that time period obvious signs that is going to be huge disruption in terms of the talks between the EU and the UK, then I'd be prepared to look again at my forecast. But in the absence of that, there's not really a strong catalyst for a dramatic fall at this point in time.

Better in mind, this currency has already had a very substantial fall in the past year um and kind tend not to move in straight lines on a permanent basis without fresh information how much it is going to change here when Article fifty is triggered, when this all begins. In other words, there's a lot that's priced in, but there is still a great, a huge unknown they're living on the horizon. Well, certainly an Article fifty, you know, has been discussed now for a long time and as

timing as well. And I think the other very important dimension here is that for some time the market wasn't sure whether we'd see hard brexit or soft Brexit, hard Brexit being the idea that you have a more disruptive, potentially break in trade links. But what's been chriced in

now is effectively that is heart Brexit. Nobody is really discussing anymore the idea of a of a soft Brexit, so that's already going a long way towards some of the worst scenarios that people had for the pound if you go back to un let's say six months ago, um, which really means that going forward we have to ask ourselves a new question, are you going to see a disruptive Brexit or a more benign version of hard Brexit.

I think disruptive would require very obvious signs of stresses um in the negotiations between the rest of the EU and the UK UM And as I said, I think that will take time to materialize, not least because we don't even know what position the EU will take, given that many believe that you have to get through the French and German elections this year before there's even a very clear perspective on that. So that's many many months ahead from our perspectives. The bigger driver here now is

a politics is at Central Bank. I look at the Swiss National Bank and we wonder about the potential for more intervention. Same thing with the Bank of Japan. I mean, is politics trumping everything at this point? I think I think that's right. I think politics is now ascendant. UM. And really, uh what the Trump election is obviously one factor behind that, um, in fact, probably the key factor.

For example, let's look at the Swiss frank. You mentioned that the Swiss National Bank has had an intervention strategy on the currency for some period of time, um, even after the floor went UM. Now, if the US decides to press on the issue of currency manipulation, um, not

just on China, but on other countries as well. Are the trading regions that puts Switzerland in a potentially vulnerable place, And I think it makes the market have to consider whether, for example, the Swiss National Bank would feel its politically expedient to continue with the current strategy. UM. So that's one of the areas we need to consider. How will

politics come through into central bank policy decisions. Another way to think about this as well, UM, if for example, the US pushes through with border adjust to taxation on the fiscal front, and that leads to strong dollar rally. Will there be political pressure, for example, in the Federal Reserve not to high grates in that type of environment as a function of having to acknowledge the unusual physical

reasons that the dollar is rallying. These are all new things for the market to digest and not easy to do at this point. Where are we in the digestion of US policy towards Mexico and how that's playing out in in the Mexican currency. We've, as you said, had a long relation about article fifties since since back in June UM we've seen this sort of the potential for a wall or new policies play out in Mexico every sometimes as well. Is that priced in there when you

look at at the value of the Mexican currency. Well, certainly the Mexican policy felt so substantially last year. It's a bit like the pound discussion, um, that it became harder for new news to take it even even lower, or at least, let's just put it another way, the absence of new news was enough reason for it to go higher, especially as interest rates in Mexico or relatively high as well. So it's not easy to just sit

there with a short Mexican past of position. Um, I think really for the currency to start to fall again, you do need to see bad news come through on the NAFTA renegotiation front. Now, what we saw yesterday, for example, when Canadian Prime Minister Trudeau visited the US was a more benign outcome for Canada at least um, and that would have raised hopes that maybe in Mexico will get will catch a break as well. So I think while that feeling persists, the Mexican petsons should hold up quite well.

We've been getting great currency pair trades off of the simple question where's the opportunity right now? We're all buried in the politics. I get that you just give us a great review. Where's the single trade to make ALFA this morning? Well this morning, you know, we we still like the high Carrie currencies, so that the likes of the Brazilian rao are performing well, the Russian rouble, in

our view, will continue to perform well. These trades are seen as crowded trades by some, but in the same way that the market believes that, for example, the US stock market is very high. Um, that doesn't necessarily mean it doesn't have more underline, momentum to go high. So which pairer within real and ruble do you like. Well, we've for a long time like the ruble best in the emerging market space dollar, ruble, euro, ruble, sterling, ruble, Euro at the time is our favorite short position um

and for for a number of reasons. Firstly, the political environment in Europe is clearly more more stressful than in many other regions. And while people say that the French election is now what understood in fully price in our view when we look at things like option volatilities, we don't we disagree with that. There's more room to price in more risk for the era. Of course, you also have the fact that you still have the Euro is

still a negative rate currency. So the combination of offering negative rates and a lots of political risk that's not really a good a good one from a NFX perspective. So Euro is definitely a one of our favorite funding currencies. And as I mentioned it, right to summarize your strong ruble week euro, that's what we like at the moment, and we've as I said, buying the Russian ruble was one of our trades of the year at the start of the year. Uh and I haven't changed my view

on that one. UM and Euro as we approached the French election has much more downside. It's lastly here, how are you watching Beijing in the year two thousand and seventeen. What are you looking for when you look at the Chinese currency? A number of things. Firstly, capital controls. Are

the Chinese going to increase capital controls? Because if if the currency is under downward pressure, one of the most effective ways to stop that is to basically stop the selling and stop the locals trying to get out of their own currency. The second aspect I'm looking at is

interest rates local interest rates in China. Is China prepared to raise rates significantly to alleviate the downward pressure on the currency against the backdrop of an economy that many believe is still very leveraged and vulnerable to a sharp rise in interest rates. UM and I think these two factors in the near term of the most important factors

to consider. In fact, what we've seen so far this year is movement on both fronts, and that's one of the reasons an argue that Chinese currency has outperformed expectations so far this year. The question really is Canada, Chinese economy tolerate persistent application of these policies. This has been great. I just put on a Twitter that chart of the Bloomberg. Will do that on Facebook Live and most certainly will

put that on TV. That's tomorrow morning. The idea of stronger ruble against weaker You're I love doing that, David. We get the most interesting things that the pair yesterday was something. It was Sterling Kiwia Stronger New Zealand versus the Brexity Sterling. Although you just heard jobs, look there for some Sterling resilience versus the gloom crowd. Brought you by Bank of America, Mary Lynch. Dedicated to bringing our clients insights and solutions to meet the challenges of a

transforming world. That's the power of global connections, Mary Lynch. Pierce Federan Smith Incorporated Member s I P. C. Robin Niblett with us right now with Chatham House on short notice. So good to catch up with you, Robin. After I saw General Flynn exit uh last night. Tell us about the disarray within any government. When you have to move

people out abruptly, it's got to be a destabilizer, isn't it. Well, I think it will be destabilizing, not least given the fact that this is a presidency that obviously did not have a deep bench to draw upon from the outset when it was establishing its administration. You know, for Hillary Clinton had one people say she had the first four thousand positions already lined up to to take their their

you know, their position in the government. The talk of the Trump administration is fairly empty corridors in the West wing. And so if you lose somebody at such a central node in government, um, and you don't have a deep bench behind it, it's going to make life even more complicated. And we have very complicated well to deal with. What was appealing to President Trump about General Flynn? What did

you like about him? I think the loyalty factor. Here's somebody you stepped up close to the president right from the beginning, uh, you know, stood, took his back, took the most ardent and campaign worthy messages, including the locker up on Harry Clinton. Uh, completely uncompromising stance on radical Islam, but on fighting isis He was really the general that gave Trump credibility when at that point the Republican defense establishment was best leery and in many cases stepping out

against him. So I think the loyalty stakes um, and that kind of get it done military figure who had played importantly in Afghanistan with the key issues for him. Yeah, the general who gave him credibility with the defense establishment. Are you thinking here that the replacement is going to be somebody who's been in the military as well? It seems like President Trump has an affinity for likes to to surround himself in the foreign policy round by those

who have served in the military. Well, just yeah, on on the credibility, I think Flynn had credibility in terms with President Trump for being a tough guy and with somebody who stepped up as part of the defense establishment. But of course he was not popular within the defense establishment itself, having been in essencis fired from his position

and a head of the Defense Intelligence Agency. So where we go here is potentially that if he sticks with the military track, and there's a a general who stepped in, General Keith Kellogg who stepped in as acting Nation Security Advisor, Um, you know, with David Petrays's name in the in the frame, another at least Admiral Harward's name as well in the frame. It looks highly likely that we would get another military figure, and we can clearly see that the present feels comfortable

with them, given the appointments he's made to Secretary Defense. However, you know, I think he's gonna think very carefully about the balance. You know, when we saw Steve Bannon appointed as a principal to National Security Council, you felt there was a desire to balance let's call it establishment defense with the more some more you know, unpredictable and and

tough voices. So you've got to work out who would it be in the defense establishment who could play the kind of flint type role and be a counter balance to the more uh predictable. How can I put it? Um straightforward internationalist realist approach you associate with general matters, so picking the right persons can be very complicated. We're talking with Peter Fever yesterday from Duke University about the

NSC and he said that he has gotten pretty size. Well, Donald Trump hasn't been shy about saying he wants to reduce its its size. Help us understand how the foreign policy landscape changes in Washington, d C. Under President Trump. Do we see the Defense Department getting more power back power that had been transitioned over to the NSC. Well, I you know, my first singing would be to say that in all countries, not just in the US, UM security and foreign policy is concentrating more and more at

the heart of the executive. You don't just see this in the United States. You saw it under present Obama, where in many cases, uh, you know, senior advice was coming from Secretary Clinton, Foreign Secretary, from Leon Panetta, mothers was ignored, if for example, in the case of Syria. So the whole idea of a centralization of power I

think is going to continue even under President Trump. It will be very difficult given the way that people look to presidents these days or heads of government in any country to take the lead on foreign policy. We're even seen this in China, you know, at the momentum, I think would be very hard to turn that back and suddenly find big power fiefdoms um in other parts of government.

That being said, the Pentagon has a huge budget. General Flynn has great experience, and it's probably likely the most powerful agency of the lot at the moment. How did the adults get back in the room, if you presume they're not there now, how did you get back in the room? Well, as I think I was indicating earlier to him, I think the if general you know, we're General Flynn gone, there's going to be a hope that adults, uh,

you know, will will will reassert. I think a lot depends on whether the president you know who who likes to be the leader, the man who's in charge. He does not want to be seen as somebody who's having to cow chow to advice from more experienced people. He wants his own voice, especially in the National Security Council, which really is leave through to the security sector. So I think, you know, how does how do how do we? He may not want a return to the sense of

adults in the room. The whole idea of a more unpredictable foreign policy is one that I think he's championed. He feels at the moment the cards have ended up being stacked against the US and the very unpredictability he brings is part of America reacquiring strength, not least visa

the Russia. A number of articles about this resignation, including artist Bloomberg, reference the Munich Security Conference, which has taken place in a couple of days and it made me me wonder about how this administration sees multilateral gatherings like those versus what we've seen play out here over the past few weeks. Meetings with Prime Minister May, meetings with Prime Minister Sian zo Abe, meetings with Prime Minister Trudeau yesterday.

Clearly it seems like the personal relationship is being prioritized, at least in these early days, over the multilateral meetings. I think this is a time for the to establish his personal relationships with the other heads of state, given as I said a minute ago, you know, these are the people who make the big decisions on foreign security policy. However, you know the Munich Security Conference is what it says on the tin, it's probably the top security conference takes

place in Europe each year. This would be a good place for General Matthis to to show up. He's at some meetings to NATO and Brussels this week. He may stop buying. This has been a traditional position for U S Secretary Defense to come and share the view of the administration with other gathered figures. Now this is different, I would say, from the kind of multilateralism that maybe the G twenty or NATO or the European Union or

even the U N represents here. I think we can see a more muscular uh U S approach to all of those institutions than we've seen in the past. What do you make of the role the General Maddis now Secretary Madis has played thus far? How well has he fit into that new role as Secretary of Defense As as somebody looking at this from the outside from London,

I think he's aided very well. Um. You know, he was the person who was sent out to calm nerves in East Asia, in particular after the uh you know, the uncertainty there would a company the president's arrival, not at least giving his comments about Japan being a currency manipulator, and his comments about to South Korea and Japan and maybe aming to look after their own defense and nuclear weapons.

You know, these are incendury comments in normal circumstances, but with North Korea looking unpredictable, you needed somebody who could go out and and and carry the message of continuity. And I think without looking like he's on the wrong side of the president, without looking like he's overtaking his position, he's played it very well. The most striking moment for me was when the President in the press conference with Prime Minister Treasa Mayor the UK said look, I I

think what your works, but on this is Hume. General Maddis overrides me. I mean that was a powerful statement. Rabbin Nibbles, thank you so much, and short notice this morning after General Flynn exits last night, Rabbi nibble with Chatham House. Uh this morning. Bob Haber, who worked at Fortress Johnson for years and essentially invented the oddity of convertible and preferred analysis. Bob Haber has worked for years

at Fidelity. Among other things, he teaches or has taught it Tough I should say Toughs University, on Federal Reserve history, and most particularly on the board of the Boston Celtics. Bob, let's get serious. Nine and one, six fifty five ball. The Celtics are the real thing. There's a modest team from Cleveland a little bit better than them. Can they

do it to Cleveland? Well, um, happy Valentine's Day. I thought you were going to give us some some trade ideas that you know the trade deadlines coming up so on fire so yeah, yeah, um, but no, uh, we're I think we're right in the mix. Yeah, you're in the mix nine and one. It's actually like a real Celtics very little grounds for basketball optimism in New York City. That's true. Well, we have to talk Celtics. Good morning, Bloomberg, Boston, Bob.

It is a melt up long ago at Fidelity. You didn't witness twenty thousand or twenty one thousand now, but you did arguably invent the idea of grabbing a coupon in some form of optionality into the future with convertibles and preferreds. Tell me about total return right now within a melt up? Should I pay respect to total return? Um? Yeah, we should, you know, should always pay respect to total return.

I was looking back up, you know, at some of the securities I got to own when I started the Fidelity Convertible Securities Final and comparing UH yields and dividends and the convertible market to now, and it's it's it's an entirely different solar system. Back then, convertibles UH just traded not so much on all the Greeks, but they actually traded on yield relative to premium. They were spectacular securities.

They were the best that if you look back over that period, I think the Convertible Securities Fund was one of the best funds in the country. That's all changed, that's obviously all changed, and with great still silly low um, a lot of those games have moved on. Do you assume when we normalize at some point Bill Gross would suggest it's going to be years out, decades out, Others

would say tomorrow. But when we normalize, do you just assume bond prices move, sell sell sells and the only place to find protection is equities, you know, normalized um. You know. One of the series that I keep is that over a long period of time, the twenty year government bond UH is attracted to the nominal g DP. It's like a magnet. It doesn't happen as you know, these things take some time to work, but over long

periods of time, that's the magnet. So people can think what their nominal GDP estimate is right now on the Bloomberg you can look and say that for the gues estimates are that nominal will be about five. Well, if the if the your bond actually gets the five were in trouble and a lot of asset classes, so it will take time. UM and it will take a lot of action by the FETE, because this still may be the easiest fed ever. Yes, you just quickly about the

Trump trade will come back. But what do you what do you make of the Trump trade that we've seen, uh, and and the life that it had here and now sort of reckoning I think with the reality of the fact that tax form is going to take a lot of time to get downe. Yeah, that's that's one of the things I've written about recently in Forbes that you can measure. I mean, I think people understand the Trump

trade now is coming back. Uh. The idea is going to get a full economic cycle, which is before in the corner of what was called the new normal, it really was nothing we'd seen before. Now I think people are imagining a full economic cycle. By that, I mean animal spirits, banks making loans to people that really shouldn't get them and they don't pay it back, and so on and so forth, some inflation of fat eventually having

to take the punch ball away. That's a full economic cycle that we could only dream about when the Trump trade started. Right now, what we see in the Trump trade is an enormous uh increase in the confidence surveys. So surveys. Surveys are way up no matter how you look at them. The national um, small business surveys Michigan, you know the conference board, but it's a long way

from there to actual economic um growth. Right now, with this bomb Habor, many of you older know the name from Fidelity ages ago in convertible securities and preferreds Bob Abor with Proficio and of course are not in acquaintance with a basketball team from Boston as well. But I want to go back to dividends. I believe Mr Lynch paid homage to dividends and be Tina Dalton, Will Danoff would pay attentions. But now dividend and dividend growth borders

on religion. How does Bob Behavior respond to the new religion that is, dividends are a yield equivalent. Yeah, I won't surprise you that our our families UM like yield. I like dividend yield. Uh, but we've got to be careful where we source it from. Uh. So we've kind of come off some of the traditional names and utilities and telecom and right now we think people might want to take a look at the MLPs and own them individually.

If they can because there's some good tax benefits. So that looks like an area that's had a you know, it's had a complete flame out, it's stabilized. And the parts of the Trump agenda that looked to be moving forward include infrastructure, which tends to include a lot of pipelines and the types of stuff the MLPs are involved in. So that's an area that we really um are excited about. Help me understand how you're regarding volatility right now, I

look at the vixit of you hovering around eleven. What do you make of that? What do you make a volatility at this moment? Yeah, so that's both vote both for treasuries and um for equities. Almost vix is almost record low and treasury volatility is low, so you know, it makes UM. It's an opportunity that the market can give you. So it's also an indicator. It's not it's not an indicator of higher price is usually it's an indicator of of you know, a yellow light of caution.

But just for example, one trade you know that we're looking at that people could consider is you can take out a lot of capital in the market by some short term investment grade paper and combine that with very cheap call options and get yourself a terrific asymmetric risk trade where you virtually have no downside over a couple of three years if you pick the credit correctly, and you'll ride in something like three quarters or eight percent

of the upside. So we try and look for opportunities when the market is at these you know, whatever extremes. How different is this post election environment than those in the past. He had a great line, I think in a recent column of your as you said, the twist and turns have already begun, because twisty is going to be the new reality as you're allocating, as you're looking

at portfolios. What's different about this moment in time? Well, I think what's different is where seven years into a bull market and an economic cycle, and just now the market seems to want to think we're entering a full economic cycle, and assets are expensive, almost all are expensive. So we think hedging or thoughts about hedging and really

paying attention to sentiment are important. But help me here with the double digit realities is too thousand nine and the cult of a single digit return and actual assumptions going down down. We saw Harvard Management step aside from fancy investments. I guess to go back to something where Bob behabor vanilla, what what what do we do now to catch up if we haven't been in a buy and holding on the SMP. Yeah, so you know, I'm sure, as you know better than me, that you'd never want

to feel like you've got to catch up. Um. And so what we believe in, what we preach is extreme diversification, especially at this point in time. So we have holdings in equities, bonds, commodities, precious metals, and then truly uncorrelated assets as well. And at this point, because the future really is so cloudy and so many things are at

extreme uh, that that's the way we've approached it. We think there's value in holding all of those and getting an I get of co variance and all those are the kind of great mass things and getting h looked to risk adjusted return because if you try and catch up, if you've missed the bolmarket train catch up, um, you're buying everything at very expensive prices. How do you define or discover or use a risk adjusted approach, say a sharp ratio approach in a time of financial distortion? Do

you plug in your own guestimate. We we only use instruments that have reasonably long trading histories, and that means they've got to they must have gone through the you know, the recent financial turbulence, so that we can check out if they are truly uncorrelated, because as you know, in those periods, everything the correlations go to one. So we want to make sure we try and battle test it

that way. And then we use a common sense test, so when we buy catastrophe bonds for people, we think, well, that really is just common sense, not correlated to the equity market. So it's a combination of the mass to science and common sense. At the top of the segment here Tom mentioned that you taught a course of Tufts on the history of the Federal Reserve. Uh, and I don't need to tell you. We're a very interesting moment

for the FED. As Jannet Young prepares to testify on Capitol Hill today, we had the resignation of Dan Tarulo on on Friday. There are three seats to be filled here filled on the Board of Governors. Let's look back and look forward, and what does history tell us about where the FEED is headed? Do you think the FED has entered a tightening cycle, right, so the pace of which, uh, you can have like a thousand shows on. But we

know what the direction is. It's a tightening cycle. But it is so incredibly easy because of the excess reserve amount. That is no history on this. It's this is all the great human experiment the FED has created for us. So we know the direction, but we have no idea the time frame, and and and the other you know, some of the other factors. Bob Heyri thinks so much, greatly appreciated for years with fidelity, Bob behavior with Officio UH and of course his work on the Pillow Reserve

at Tough University of Note as well. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm out on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio, brought you by Bank of America Mary Lynch, dedicated to bringing our clients insights and solutions to meet

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