Courtesy of John Nyaradi.
Exclusive interview with Bloomberg’s Sara Eisen discussing Europe, the economy and what to watch for in 2012.
John Nyaradi: Hi, everyone, I’m John Nyaradi publisher of Wall Street Sector Selector, a financial media site specializing in exchange traded funds and global markets. Today, I’m really pleased to welcome our special guest, Sara Eisen. Sara, welcome to Wall Street Sector Selector.
Sara Eisen: Thank you very much for having me, John.
John Nyaradi: Sara is a markets reporter for Bloomberg Television. She is co-host of “Bloomberg on the Economy” on Bloomberg radio. Based in New York City, she appears weekdays as part of Bloomberg Television’s morning team on “Inside Track.” Her specialty is global macroeconomics. She has extensively covered the European debt crisis and has interviewed top political leaders and finance ministers across Europe from Germany to Greece.
Sara, let’s start with Europe. You have a close relationship with Olli Rehn, the European Commissioner for Economic and Financial Affairs and point man of the European debt crisis. So, starting with Europe, what’s happening there and what do you think is going to happen next?
Sara Eisen: What’s happening right now, John is a flare up of the European debt crisis. It was quiet for several weeks, months even, after we saw a few of the liquidity measures taken by the European Central Bank calm things down. But it is back and it is front and center on investors’ minds. And the new flashpoint of the crisis is really Spain and the Spanish bond yield surging. In fact just today, we saw the Spanish 10-year yield hit 6%, a very important psychological level, and just a signal that things have returned with a vengeance. It’s also a reminder, John that things never really went away. The crisis was never solved; it was just kicked down the road. I mean how many times have we heard “kicking the can down the road,” and this really is an example how that was done. The political leaders did not fundamentally address the concerns. And, you know, you talk to any market participant, we were speaking with Mohamed El-Erian of PIMCO the other day, and he said, look, none of this was fundamentally addressed so it was only a matter of time before these concerns about high deficits and debts came back to the forefront. And once the European Central Bank liquidity has worn off a bit, Spain and Italy are back in the center of a financial crisis in Europe and investors are priming themselves yet again for another turbulent period.
John Nyaradi: You regularly talk to a lot of interesting and well known people. What are you hearing about where does this go, where does this end up?
Sara Eisen: The question is what we will see next from policy makers now that we have started to see the carnage return to the European bond markets, to the stock markets. I mean one day this week, Italian stocks were down 5%. I called Brussels and spoke to Olli Rehn’s spokesperson earlier in the week and he said, look Spain is taking the necessary adjustments that it needs to. It outlined a budget deficit that included the sharpest austerity measures in 30 years but investors did not seem content with that. So Brussels is back in its firefighting mode and its damage control mode. Everyone wants to know what the policy response is going to be.
As you see this market flare up again, the spotlight turns to the European Central Bank and Mario Draghi because he can move faster and more efficiently in the markets than what we’ve seen out of the politicians. I mean, at least 15-20 Summits and meetings among European politicians and very little progress to show for it, or at least in the eyes of the bond markets and the bond investors. It just really has not been sufficient to get at the core of the problem which is a combination of significantly high debts, competitiveness problems and growth problems across Europe and some of the weaker countries.
John Nyaradi: You have interviewed several Federal Reserve Presidents. The Fed has been a major player all along. What’s the Fed’s next move going to be?
Sara Eisen: That’s one of the hottest debates right now in financial markets and on global economics. On one side, you have people saying there’s going to be QE3. Bill Gross of PIMCO has also said this and, in fact, Bill Gross has put his money where his mouth is because in February, we saw him unloading some of his treasuries in the Total Return Fund and stocking up on mortgages. And the bet there is that the Fed is going to buy more assets and this time, it’s going to be mortgages to boost the housing market and to boost the overall economy. But by no means is that a consensus view. Much of the economic data has been better than predicted, and as far as the Fed goes, you listen to Ben Bernanke, you listen to his number two, Janet Yellen, who spoke recently, Bill Dudley at the New York’s FED, and the consensus seems to be, they’re in wait and see mode, they’re on hold mode. They’d be very willing to do extra action, QE3 if the economy turns worse, but for now, they’re going to monitor the situation, see if the improvements, the underlying improvement continues and most importantly, see if the unemployment rate continues to move in a lower direction. As long as the unemployment rate is at this stubbornly high level, Ben Bernanke has made it very clear that he’s going to be nervous about the strength of the economic recovery.
John Nyaradi: Sara, you started out as a journalist covering Forex markets, you’re an expert in that area. Let’s talk about what’s ahead of the US dollar and for the Euro?
Sara Eisen: Something very interesting is happening with the US dollar. It’s having a bit of a moment in the sun right now. I talk to a lot of Foreign Exchange experts and generally, in the long term, people are very bearish on the dollar, that it is in a long term structural decline. But right now, with the US reasserting itself as the engine of global growth, with China slowing down from those super fast growth rates of 9-10%, with Europe mired in crisis and recession, investors are really looking to the United States and you can see that in the out performance of the US stock market and you can see it in the relative safety of the US bonds and that money flowing into the US dollar. You know, I talked to John Taylor of FX Concepts, he runs one of the world’s biggest currency hedge funds, and he says the dollar is the only show in town right now.
John Nyaradi: Let’s shift a little bit and talk about you and your work at Bloomberg. I know you do “Inside Track” on television and “Bloomberg On the Economy” on Bloomberg Radio. Maybe just give us a thumbnail view of both of those shows and what viewers and listeners could expect there.
Sara Eisen: Well, “Inside Track” is a lot of fun, I have to say, because I get to share the space with three very smart, very dynamic people. We’re all completely different. We have totally different interests and backgrounds. Erik Schatzker who is the main anchor of “Inside Track” comes from a banking journalist background. He knows everything there is to know inside JP Morgan and Goldman Sachs. Stephanie Ruhle comes from a Wall Street background. She knows everybody on the Street. Scarlet Fu, markets reporter, can go through an earnings report faster than anybody I’ve ever seen in my life. And then I’m the one on the macro economic beat who’s always paying attention to what’s happening overseas, whether it’s a China GDP report or the Japanese trade balance, or the European debt crisis. So the four of us together have a really great time, and what we do is we try to set you up for the trading day, and even if you’re not a trader, just tell you what stories are getting attention. And we always try to give it some financial and economic spin, and the goal is to talk about all the stories that you’re going to be hearing about all day long before they actually manifest themselves in the markets because it’s a 6 to 8 am show so it’s just the perfect way to set up the day.
“On the Economy,” very different; we do a two hours deep dive into the macro economy. We’ll spend an hour with one of the best known, most prominent economists in the world just talking about Fed policy. We talk to former Fed governors; we talk to leading academics in the field. We talk to fund managers but really the focus on that show is the economic data and it’s great because on radio, you just get time to spend with the guest. So, different fields to both shows, but for me, they’ve both been a really perfect fit for what I can bring to the table which is the background and the economics and speaking with various policy makers, economists and academics in the field.
John Nyaradi: Sara, I always like to end these discussions with a sort of an open-ended question. Our audience is mostly retail investors and some financial professionals. So what’s the one thing on your mind right now, maybe the one thing that keeps you awake at night or that people should watch out for here as we move further into 2012?
Sara Eisen: I have two things, two risks that I hear a lot about from some of the sources that I talk to. Number one for 2012, the key question is going to be China, is it a hard landing or a soft landing? You’ve heard that debate before but we’ve really started to see super fast growth slowing down. We saw that in the GDP number today coming in at 8.1% which is a 3-year low. The question is, are things going to get worse in China?
The other one is Japan, and you know Japan is near and dear to me because I spent some time in the wake of the Japanese earthquake there. I was actually there at the onset of the nuclear crisis in Fukushima reporting live. We have yet to see the full economic impact as the triple disasters in Japan, the earthquake, tsunami and nuclear disaster, not to mention the fact that Japan has the highest debt load in the world, or at least in the developed world, at over 200% of its economy. You talk to a number of investors, like hedge fund manager, Kyle Bass, saying Japan is a ticking time bomb in terms of its debt. And as we have the spotlight on the debt crisis in Europe, the question is, where does it hit next? Japan is a debt bomb and we’re talking about the third biggest economy in the world.
John Nyaradi: Well, folks, we’ve been talking with Sara Eisen who is a markets reporter from Bloomberg Television, co-host of “Bloomberg on the Economy” and a member of the morning news team on “Inside Track.” You can go to the link at the bottom of this interview which will take you to Sara’s page at Bloomberg and learn more about Sara and her work. I watch her program, it’s a great show and I know you’re going to like it, too. Sara, it has been wonderful chatting with you today. Thanks for joining us and I know we’re all looking forward to talking with you again soon.
Sara Eisen: It was a pleasure John, I really appreciate it.
Visit Sara Eisen at Bloomberg.com
(recorded transcript edited for length and clarity)
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