 We were just looking at a look back at 2015 and we begin a new year very much the way we ended it. Global growth worries have defined markets around the world. These worries have underpinned a massive market meltdown in 2016 for the global market with that slowdown in China unraveling expectations and certainly global equity values. As in the U.S. for one beginning the year with the worst performance of any year Chinese markets right now near bear market territory and European stocks currently at multi-year lows. Of course the story of oil one of the major issues here oil prices cut in half over the last year and while many people say this is going to be a catalyst for good times so far it has been an indicator of what's wrong with the global story. The shadow cast from China hanging over the United States with fears of a recession in the U.S. coming this year. Only time will tell how this plays out but we have assembled a first class panel for you this morning to talk about it. Gentlemen thank you very much for joining us. We are joined right now by Paul Singer founder chief executive officer and co-chief investment officer Elliott management. Martin Sorrell is CEO of WPP. And then we have Zhu Min deputy managing director international monetary fund and also joining the panel this morning Ken Rogoff professor of economics at Harvard University. Carlos Gones sends his apologies he is en route from Zurich as we speak. Thanks very much for being here gentlemen Paul let me kick this off with you. Do you agree with the assessment that was just made in terms of what's behind this market meltdown how do you see the state of the world today. I think the one of the key elements to be thinking about global markets and the strange initial reaction is that for seven years the world has been the developed world directly and the rest of the world indirectly has been existing on a diet of complete reliance virtually complete reliance on central banks and central bank action really a continuation of the emergency action after the global financial crisis during and after the global financial crisis to hold up the global economy. What I mean is zero percent interest rates morphing in some places into negative interest rates quantitative easing which I believe is the effective equivalent of money printing has given has A had a support of course of the global economy but B has given presidents prime ministers congresses parliaments sort of cover to basically do nothing in the way of structural reform so the developed world has been growing very slowly over the last seven years. There isn't much room for error and I think it's a I think it's a it's been a very distorted policy mix the prices obviously of stocks and bonds are distorted by what amounts to date to 15 or so trillion dollars of central bank bond buying and stock buying also but also the distortion is in that the best part of the global economy is how investors are doing how financiers are doing how upper income people are doing and the middle class has been not participating and so after seven years to get to the answer to your question after some context there may be a transition of the way investors feel about feel about the central banks as in terms of complete confidence I'm glad you mentioned the central banks that's it really a critical part of this story and in this panel this morning we're talking about future shocks how to navigate through them and whether or not this is a lot steeper than anyone expected and by the way in about 20 minutes I do want to open it up to all of you we've got some really so many smart global minded people in the audience and certainly we want to hear what you have to add to the conversation as well I mean you wanted to jump in. Yeah I heard you used the words melt down I saw tend to disagree I understand that I'm taking huge risk at the beginning to disagree with the moderator so I expect to some unexpected consequence for my disagreements so you're disagreeing on the assessment of what's behind this meltdown that we've seen in global markets. No the first issues I don't think the market melted down the market in the process adjustments because if you see I mean if you see interest rates is on upside the growth did not pick up follow the interest rates on up the market valuation have to be adjusted right yeah good point we have lost two trillion dollars in market value in the next two and a half weeks that's why I called it meltdown when market adjust the ways all this uncertainty volatility is it can be overshoot it but it's not the market meltdown I was in the next two months if you see the interest to continue on upside if you the growth not a pickup as a strong as interest to pick up in decade why did the market why was the meltdown delayed why didn't it happen immediately after the feds a great question yeah what took what took the market so long to figure out that the economy was a lot weaker than people expected well when when the feather racer is you have a very important because feather did the good communication people understand we did not real shake down until after the new year so was that was that driven by concern also about China a China was a part of that but I think the more important is at end of the year people see more gross story because the valuation is very much driven by we started to drop your GDP forecast but I mean I mean I think I think I don't think I'm ever playing the key role here okay we do forecast but we do reflect the global situation I think of that that's a very important thing is I think we should continue have this idea in money was he continued the market adjust forward we should point out that the IMF has cut global growth expectations how many times in the last six months twice no that's very true because because we see the growth getting slower and the slower okay but two point is very important number one we still have a gross three point four percent but not enough three point four percent for the globe yeah for the globe yeah I think we still have a growth I think that's why it's not below two percent I think it's absolutely important right and number two on the growth side that we also did a study we say in the next five years the potential growth is not a gross is getting down gradually the potential growth also getting down in a longer term you're looking at growth coming down and down and down exactly so that's important have important implication for the market we probably will see more market adjustments for more on this on this market adjustment but can you have been a bear on China for a long time yeah I mean I don't think there's any question that what's set off the most recent events and even the last half year has been concerned about China it doesn't mean that China's definitely growing slower but it's sort of been the myth and the market that China could never you know have a business cycle that it was just a constant a perpetual growth machine and I think that nervousness is kicked in now coming to Paul's point I mean it isn't so much that it the the Fed hiking the interest rate microscopically is what's driven this what's driving it is the central banks are not coming to the rescue I mean people have been saying you know when there's a recession the Fed typically cuts interest rates four or five percent and the European central bank maybe three percent well there's no room to do that here so I I again stick my neck out a little bit but I mean I think the the next year is going to see a lot of risk in emerging markets and in China Russian Brazil are already having recessions I think the United States in Europe you can have a recession in any year but I wouldn't say you know it's it's incredibly elevated at the moment at the moment I don't think it's a question of the Fed not coming to the rescue or central banks not coming to the rescue I think in effect they've been part of the problem by enabling the complete lack of structural and fiscal reforms I believe the developed and the developing world is capable of and therefore I disagree that the long term growth rate of the world is trending down it doesn't it has been but it doesn't have to be and what I mean is that a better mix of policies tax regulatory education training retraining let's just talk for a moment about technological destruction everyone knows and everyone sees in 2015's markets the technological destruction in some industries has accelerated the retailing industry where we've known that clicks were going to replace going to the store but all of a sudden in 2015 important parts of the top line have been removed by just a couple of internet companies so I think the world could do a much better job of being more flexible in a rapid response when their industries or become competitive uncompetitive either because of global I really think it's because of technological it's much more complex than that I think and this is macro stuff and so let's look at it from the firm level the micro level I think we underestimate the impact of that weekend in September 2008 the weekend that Lehman went on the impact on consumers why has the oil price fall which is effectively a tax cut not had a more fundamental impact on consumer confidence because I think people are still cautious at the corporate level it's even worse so let's take what Paul just said about technological disruption so you have two situations one is you're facing what we've just touched on a world that is growing slowly the post Lehman with the with the exception of the snap back in 2010 which surprised it was v-shaped recovery 11 12 13 14 has been slow and steady growth with relatively no inflation little impact therefore very little pricing power therefore firms very focused particularly legacy firms on cutting cost so that's one thing second thing is if you look at the spectrum in which you operate a legacy company not a disruptor at one end you have the disruption you have Airbnb you have Uber right at the using them as icons at the other end you have the 3g zero base budget as I remind you that a bi now the zero base budgeting company has a market kappa 200 billion its second string craft Heinz has a market kappa will always 100 billion so we're talking about between the two in one sort of group 300 billion you have koti buying 12 and a half billion worth of assets from Proctor and Gamble Reckett Ben Kieser all that so that's the other in the middle you have people like Paul Dan Loeb Bill Aikman Nelson Pelts who are putting pressure on companies for short-term performance the activists yes they want change if you put those three things together that's a pretty difficult cocktail for a CEO who on average lasts five to six years a CFO who on average lasts four to five years and the CMO chief marketing officer which obviously impacts our business particularly who last two years hallelujah that's up from 12 months ago when it was 18 months in that world I don't think what do we see you zoom in we said in the green room we're not seeing capital investment in fact capital investment has come down and you're not seeing pricing power no pricing power where is it so so the standard firm if there is one at the micro level is unwilling to commit and make investments ironically paradoxically it is those companies that are protected by what the corporate governance wonks don't like i.e concentration of voting power that I think are the best models so if I take a Rupert Murdoch for example I'm not saying that because we happen to be on a Fox business program but if I take a Rupert Murdoch if I take a Roberts family if I take a Zuckerberg at Facebook because along they have an ownership in the company voting here geared structure which offends corporate governance you know one man one vote one woman one vote about which gives the management the ability to take long-term decisions fundamentally we joined the long-term group a McKinsey Dow Larry Fink Blackrock he's wrote he's written I think to the chairman CEOs of the S&P 500 twice saying concentrate on the long term that's right so I think that's the fundamental thing that has happened now I think we're pulled is absolutely bang on right is there some fundamental things that you have to do to make corporates take a longer term view some of the things he mentioned education technology well they want to take a longer term view but over the short term they're not seeing the demand no I mean there is a demand problem is it that right yes I don't believe so can I I'd like to respond to two things two themes that you just talked about one is the the post 2008 environment it felt implicit in your comment that that it almost didn't matter what the policy mix was that people were cautious they remained cautious that impacted demand that impacted the business climate I don't actually believe that's true that policy implicitly doesn't matter I think better policies more growth supportive policies you're talking about fiscal policy you're talking about tax reform and regulation well which hasn't come which hasn't come it's monetary well it is driven I mean how do you explain but I'm saying that that that it's the mix of policies not just the spirit of course fundamental things how do you explain that companies are sitting on seven trillion dollars of net cash at least last time I looked at it relatively unleveraged balance sheets how do you explain the s and p 500 in 2014 payback more in dividends and buybacks than it retained in other words it shrank if it took s and p 500 as one firm it shrank it probably shrank also in 2015 so we've gone through two years where the biggest companies in the world have taken a view about the world economy which is limiting and is not expansive it has implications for employment one of the main reasons why they're taking that view is that the policy landscape that they face in two respects supports those actions and that attitude one is that the policy mix does not is not welcoming capital will go where it's well so what do we have to do what do we have to get governments but I would stop raising taxes I would also put deal with regulation and make regulation rational I'm not a deregulate this is a really good point because over the last seven years all we've had was central bank policy and so we haven't seen the kind of fiscal policies that you're talking about paul can but I'd also say the financial regulation that's come in and also the general environments made it very hard for small and medium sized businesses around the world to invest that the there are a lot of measures of monopoly power in major economies that's increased and you know I think these companies are holding back from investment trying to regain pricing power because they're not under pressure from the small and medium-sized businesses that might have been coming in and competing so I think it's even worse because the m&a activity that we saw last year I think it was a record year john record year m&a yeah it's a record year so what was that activity that was cost-based you know we ran out of options or they ran out of options to reduce cost so let's get another cost base into reduced costs and by the way the way we analyze m&a how do you analyze m&a if you're a commentator I have a comment about the m&a story in a minute I want to share with you yeah all of that too is investment issues the seven trillion dollars while it's sitting there don't do anything and Alan Greenspan showed me the one of his chart tell me today the copper cash investments to the cash ratio as a lower as a 1930 so why the copper don't invest I think that's the key question for the girls we found today in globally in terms of investment to GDP shares today is a below than 2007 exactly and when you speak with bankers today and this is the point that I wanted to make we just had Jamie Dimon from JPMorgan on the program the other day and one of the issues I see is much of the lending that we're seeing to corporates the lending is going toward m&a the lending is not going toward cap x increases for companies to spend in their business I think that's a telltale sign yeah I think so set the policy framework to encourage a copper sector to invest provide the transparency and the certainty I think the uncertainty is a big issue if you ask the world I think a modern you ask a thousand CEOs around the world why do you don't invest people will say number one is uncertainty the uncertainty about the market about the future about the growth about the tax policy and about the financial market because race is so low they expect race going up how far how soon so I think it's the key issue for the global policy maker in this order ensure you have a clear policy framework transparency give the business section the certainty and lead them to invest in the futures right this is so many new technologies innovations pump out as Paul just mentioned so it's a huge room for the investment infrastructure is needed everywhere yeah right I believe it's 3.6 trillion dollars needed in America alone ridges and roads have deteriorated Martin doesn't doesn't the interest rate landscape also encourage financial engineering discourage bank lending bank mark bank lending margins are inherently challenged when interest rates are based on zero I agree with that but it's it's because Paul there is a short-term philosophy then because come back to M&A for a minute how do you as an investor evaluate M&A in the companies in which you invest you look at the cost synergies that they get you tax them you apply appropriate multiple and if the result and sum is greater than the premium it's a great deal if it's less than the premium it's a lousy deal if that company comes out with revenue synergies they get laughed out right you know the interesting about SAB Miller and ABI I remember is if if beer consumption in Africa rises to levels that we see in the western world that's a massive impact on the top line and profitability of SAB Miller but those sort of things really get ignored in fact lex breaking views and the others really laugh them out of court it's a focus on cost it's a focus on short-term and frankly you know I think activist investors do have a responsibility activists investors tell us that they're long term not short-term I don't think that's how they're perceived it depends on which activist investor you're talking about certainly some are all more short-term than others I mean let's let's explore this for a moment because I think it's important and I think it's interesting and provocative but interesting that one of the deliberately trying to be provocative thank you and I thank you for that it's interesting that one of the really good managers in corporate in the corporate world is raising this point you don't have that many peers at the moment are going to always change but let's talk about it let's start with the concept of short-term and short-termism a little known fact Elliot is among the firms you mentioned as activist investors it's only a part of what we do we're a multi-strategy fund but our equity positions our activist positions we are holding period over a long period of time we've measured this over many many episodes is longer than the average institutional holding of of common stocks the average institutional holding of common stocks is a year and a half or something like that and ours is longer and when you take an activist position you're looking for change in how long well can I address it please but so the entire world has drifted towards a shorter and shorter because this this number the institutional driven by the incentives that fund managers get because the you know the criticism of corporate incentives they're not long-term enough institutional investor incentives I agree with our two short-term based I agree with that but you know whatever you say the perception is the perception is the reality the perception is that activists are short-term so what I would recommend is a very high level mainly television corporate advertising campaign but but I think what position right we appreciate the advice we hope you don't charge for it I love that that is your I think what you men can go ahead what you men said about uncertainty is a big driving force here people are very nervous about what the long-term is and that's holding back investment also I mean and if you want to know why they're short-termism it's because they're nervous about the long term right but can let me ask you we started earlier on China should the global markets be reacting so closely and immediately to the happenings in China I mean do you think it's warranted for us to be so worried about the growth story of China right now for emerging markets absolutely I mean they're commodity exporters and not just oil exporters this has been a big driving force it's not all China there's also just a cycle of investment when metal prices are high there's a big over investment they're long lead and lag times so there's there's still new production coming online and in metals industries where they had no idea I mean there's so much oil in the world now on the global market is there any reason to believe that oil should be at $100 a barrel anytime soon and now you've got Iran oil coming back on the market as well listen oil prices are so volatile never say never I mean you know these things there's no investments just disappeared and you know if growth picks up the prices are very sensitive to a couple million barrels you know if I last year what I was here I was asked what the price of oil would be in a year and I said I don't know it might be 20 it might be 100 and I think if you're looking at two or three years you just don't know and look at the oil price when you say you just don't know you do know something I mean we've got more oil than you thought on the market you know now would you say that now in the next few years oil should be where it is is it priced properly oh few years is a strong statement six months okay but a few years you can get well who knows where the global economy will be what can soak up those few million barrels and there's no investment going on it's just completely collapsed in the oil sector so that'll come back but if I said you buried oil sector I think we have to understand there's a fundamental strength change number one the shiogas share all you become the swing producer because the technology that can move in and move out their cost set a ceiling of oil cost so I don't think the price will go back 100 quickly it's not easy because this is a big amount of oil output now today I think that's a big stretch change on the surprise side OPEC clearly lost the monopoly power so that's another issue but they will not be able to set the ceiling of the price as they did they only be able to set the bottom of the price that means they compete to each other they produce more the price will on downside if they can work together that produce less price can be up high enough the shiogas share or you move in push the class gone down you know mark mark that's very important structure change but martin was talking about oil as being a real positive for the consumer and over the last year I think it's been more of a of an indicator of where we are in the balance of the impact on the emerging markets or fast growth market but there are the Iranians coming into the oil supply situation as well you have the Saudis I'm willing to cut off cut off oil and see the oil price and the impact on the the economies but just come back to if I said to you Maria what was the price of oil per barrel when John Brown at BP bought amico and arco in 2001 2001 I want to say ten dollars it's exactly right ten and eleven dollars and we're complaining about you know a twenty dollar price so yeah I remember but if you look at it from again from a micro point of view from a ceo's point of view you come to Davos what if I just jotted down before we started what are the major sort of risks that that we in our company see so China oil Saudi Arabia migration in Europe and elsewhere US political situation brexit cyber I mean you put that little lot together what what what is anybody going to do when they're looking at their budgets for 2016 or beyond they're going to be very conservative so I think I don't think this is a particularly gloomy scenario but the new normal is a low growth world where inflation is probably under too much control because we'd like a little bit of inflation to get some pricing power for our clients and also to get something into the the wage system but I think that's the scenario that will continue this is the new normal low growth because by definition the system couldn't sustain pre-layment growth rates because it blew up by the end of this panel I certainly want to find out where the growth stories are I recognize this is a new normal we're talking about a low growth story but we all want to find out where the bright spots are but Min you wanted to jump in you also raised a very interesting the good question about the low oil price and why it did not push for the consumption because there's also a structure change when we say oil price drop we always say it's just a redistribution of the wealth right from export to the import and before 10 15 years ago the export have very low consumption elasticities they save three quarter of their profit into the overseas investments so stimulating for the consumption is limited when you move to the import side if oil prices lower every penny they they get it's a rainfall right they consume today is complete change because all your export country use up to more than 90 percent of their profit to consume so the consumption elasticity against oil price is way way high and in advanced economy consumer elasticity against oil price is a much lower so that's what we see in united states the consumers household saving rates increase rather than decrease they save part of their income from the low oil price rather than spend all of this to the other grocery shopping yeah i mean this is a big consumer behave change also reflect in a certain way why do you think do you think that's because of 2008 or for yeah because the balance is repelling and uncertainty and also people understand that you're going to live longer you need more money for the future i'd like to frame it a little bit differently but but i agree with what you said about the consumer in in the united states a tremendous amount of infrastructure not just direct infrastructure of oil exploration but infrastructure surrounding it had been built up based upon certain expectations of price and profitability therefore there was a balance when oil prices collapsed but i felt and feel that the the benefit to consumers is diffuse and turns out to have gone more into savings but the detriment to those places companies places debt capital structures that relied upon the continuation of medium to high prices was very direct and very impactful as well of course being very impactful on emerging markets and places that explore for oil there's one more part of the oil equation that worth putting into the mix and that's the geopolitical on the supply side Iran is coming into the mix Saudi Arabia is has challenges to to its political stability and other places that drill and export oil are under various potential geopolitical challenges and i think i think those things are not necessarily long-term impacts on the the oil markets but they certainly could cause disruptions and volatility this is really important point and i wonder if you all believe that part of the uncertainty and worry out there is what's happening in the middle east i mean this most recent upset between the Saudis and Iran and some other countries following Saudi Arabia's lead in cutting ties with Iran is this also an underpinning to to the uncertainty out there the fact that we're seeing the middle east issues worsen i mean i want to say yes but at the same time historically that's usually translated into will the oil price go up and if the oil price goes up that's going to cause a problem okay so i mean i think i mean on the central bank question can the federal reserve in the u.s raise interest rates in 2016 when all of its colleagues around the world japan europe are lowering interest rates well it if you know it depends on where the u.s economy is going so if u.s labor markets continue to tighten and the u.s domestic demand continues to be strong it certainly can i mean if this continues then obviously they won't they'll be looking to go into reverse but on the other hand i mean i'm not sure that it will i mean i bet they do raise interest rates further i don't think that's a decisive factor in what's going on i don't well the strong dollar has put pressure on us multinational profits and that yeah that's caused more of a trigger on this issue of cost control and you know if i look at the the 16 budgets when you look at the strength of the u.s dollar that's causing more pressure in the system to cut costs it certainly it certainly hits the stock prices in u.s profits it doesn't necessarily translate quickly into employment because everything's priced in dollars and the short-run impact there's not as much just come back to you know the question you raised i mean there if an economy is growing at three or four whatever it is that means that certain sectors can grow at sort of six or eight and some can go at zero some can be at negative some can be at higher positive rates now just take the automotive industry which is key and i just went to c.e.s and i went to the Detroit auto show lot of technology now in the auto business well you you see more technology at c.e.s on auto than you do in Detroit which is interesting in and of itself because it tells you a little bit about the disruptive technologies but if you're running an automotive company what do you face Singapore has an rfp out for a driverless car zone which as far as in a google a bidding for gm is bidding for and continental are bidding for oslo has announced it will have a car-free zone by 2019 i think another city is already yeah this is really most mayors most mayors will do this and Milan is in the midst of a car sharing experiment is reduced the sales of autos by 10 so if you're running an automotive company which is a legacy company you have to switch and by the way another thing 3d printing i saw a two-seater sports car full-size which was 3d printed with the exception of seats and tires absolutely unfortunately it was on cmbc a sport box but but but it was so it can't be true so we we saw it i don't i didn't see it working but i thought that is fascinating so so what does this mean for somebody who's running and so you have to make some big bets yeah unless you're insulated you take forward which is our largest client it is insulated well it's also going to make it can make trying to do its own driverless it can make the investments that it needs to make i agree there's a massive attack on the global auto business right now how many people in the audience would put their family in a driverless car how many people would not put their family in a driverless car it's interesting it more people would not but the truth is is with a driverless car you don't have to worry that the that the driver is texting you don't have to worry that the driver didn't get enough sleep had alcohol last night and the driver knows everything or the driverless car knows everything around them although i'm i think i might be with the people who who are not going to put the family i don't know why but um but it's interesting when you look at the point the point is the people who and most of the businesses we're talking about that have an impact on employment our legacy businesses i'm using that word that's the bad word to use but they are that they're rooted in in older technologies the disruption causes tremendous disruption to long-term thinking too uh unless you're insulated and i think it's really interesting the companies that we deal with yeah the insulated with the do well i think of the insulated well we go ahead min yeah on the technology side i mean paul and martin you know mentioned all this and you everybody see so many new innovations in the product bomb out but the mystery is the key issues we see productivity is still on downward trends right so that's two it's only two ends for the number one that's a management issue right so they are not properly measured into the gdp growth or whatever and i think that's that that's possible we still don't know how to measure those issues but clearly another issue is those technology haven't been industrialized i think that's very important we haven't seen the things that bring all the technology together i mean the jobless car could be one but unless and until it's industry and commercially in the scale is not there see i think health care the disruption going on in health care and the fact that we have such longevity now is really one of the growth stories we have to get to the growth stories where you all believe there is growth and will be growth in the global economy and i also want to get to the issue of liquidity paul which you mentioned to me early but first let's get some interaction from the audience question for our first class panel right here we have microphones walking around and we would love to hear yes sir right here in the front and john stedinsky as well thank you the subject of this panel is preventing future shocks we have talked a lot about the past and the present but i would like to hear what should we do fundamentally to prevent future shocks thank you for that very important question paul i think the most significant thing that can be done to prevent future shocks that are preventable is deleveraging the financial system over a period of 40 years or so the major financial institutions in the world have evolved from being banks to basically being banks and investment banks together with the largest and most leveraged trading firms and on the on the planet through the use of derivatives each one of the major financial institutions has a balance sheet that looks something like 150 to 200 billion dollars of capital equity and preferred two to three trillion dollars of assets balance sheet assets and at present 40 to 80 trillion dollars notional amount of derivatives it's still opaque it's still highly leveraged these derivatives are largely although notional amounts are not the proper measure of risk among that those trillions are the effective equivalent of balance sheet assets but you can't figure it out from disclosures and so there's no reason in my view why major financial institutions shouldn't be a margin to like customers so that they are sound if they were sounder and i disagree with sir martin in the way he framed the growth up to 2008 and then the growth subsequent to 2008 it wasn't that the economy crashed or the global system crashed because it couldn't grow with those rates it was it was over leveraged and very vulnerable in a way the policymakers financial institution heads as well as investors didn't understand and so deleveraging the financial system would go a long way towards and is the single biggest element now we've seen a lot of deleveraging this year by the way so you're saying deleverage if you're a corporation individual government just continue the deleveraging i'm talking about the financial system just the financial institutions and they have it has come down but if you look at a 1970 or 1980 2007 and today so today the leverage is lower than in 2007 but 2007 was insane and today compared to when banks were sound and weren't primarily trading vehicles that's good preventing future shocks i would argue that the leverage increased increased growth rate the corporate sector is probably deleveraged to a very significant degree and to some extent you've got a lot of capital at this point a lot of over in fact it's the opposite with the corporate sector i think the corporate sector has to be encouraged to take risk yeah i think the deleveraging is important but it's not enough i mean what else how else do you prevent future shocks the key challenge of your question with suffering in the past we're going to continue to face in the future we still don't fully understand is that global interconnectivity and the speed over we live such close interconnected the world and every small activities events will speed over across the whole financial market the financial market co-movements across different class of assets increase dramatically before crisis the market co-movements from you know the emerging market equity events and the bonds equity whatever higher yields 20% during the crisis 80% today around 50 to 60 and anytime market volatiles go back to 80% if a market move in the same direction 80% of correlation how do you prevent the crisis i think that's the real real channel in the past 12 months we observe the largest volatility for example in the u.s equity market four times the deviation one day against the 100 day averaging since 1932 in the bonds market six time deviation standard deviation widen against the 100 days moving average since 1970s loss it will observe so many volatilities break the records in the history because it's co-movements and interconnectivities but let me let me and this is further even worse what we document we found when the market move together the real scaring thing is a liquidity so dramatically theoretically you can think about that if everybody moving to the guy i want to say i want to buy i want to move things you don't have a liquid at all yeah the liquid is a really key issue when the it's close so close associated with co-movements increase on upside the the liquidity drop immediately so then the key issue is when market have uncertainty have anticipate events happen rip out the whole world systems the the spillover and the market volatiles and the liquidity so dramatically which scares everyone yeah and i want to get in their sense let me put a little policy i think is very important for the macro level i think clearly for the policy maker today regulators you have to understand situation you have to be ready to act very fast very very important and also for the copper sector you got to understand this huge volatility but short volatility it's not a meltdown let me emphasize again it's a huge volatility but short you got to have enough buffer to prepare it's a huge shock but short know what you're dealing with get in front of it yeah your thoughts on preventing future shocks but i think the sensitivity is a reflection of the over leveraging that paul was talking about and in a lot of countries in europe the leverage has not come down you know very much we have a lot of zombie banks china has been leveraging up like crazy the united states has sort of had microscopic deleveraging in some sectors you talk about the financial sector yeah well the financial sector is deleveraged more and i and i think the way forward in the financial sector is to have require much greater equity for banks and to have new financial instruments that are less sense it less sensitive to bank runs and such so you know i think really what we're talking about with policy you can't stop countries from having uh frictions wars migration problems productivity shocks you can try to not amplify them when they come i think that's really what you can work on of course we'd like to guess what global warming is going to be in what trends are going to be but we we have a system that amplifies shocks and and certainly the global connectivity is very important although i think a part of this is the leverage and then that's making when the central banks move a little everybody jumps right and i think what you said earlier in terms of fiscal policy was very important do you feel that nothing in the geopolitical front there is nothing to what do you think should be done sir no it is a question for my thing no it's not probably it for me that's more for you than it is for me well it's an important question because that really has been where the uncertainty has been uh putting markets aside global uncertainty yeah in fact geopolitical issues we're missing good global coordination yeah and i think that there is much more to be done from our leaders our political leaders uh mostly in the western world but certainly with the newcomers into better coordination yeah because the lack of coordination has created us as a consequence a lot of these problems that we have we are observing and coordination means negotiation and negotiation means well give and take but i think that if we take a long-term view to the problems and we act in a coordinated way we have to accept in short terms some adjustments but we have at least a direction where to move and our leaders are responsible for achieving yeah thank you sir we have two questions here john sedinsky and lucky is our from japan go ahead sir maria thank you for organizing and orchestrating a very feisty discussion here this morning preventing future shocks i'm gonna take carlos's word of leadership the elephant in the room from my perspective is leadership the activist community paul you've talked about it activists generally go after situations where they feel there's a a dearth of leadership or direction martin talking about m&a and strategy companies need leadership min talking about capital expenditures a lot of that the perception now among shareholders is chief executives lack a sense of direction and leadership in the future what are the two or three ingredients required or characteristics required for the real true leaders of the future because there is a theory that a lot of the uncertainty right now in the markets a lot of the turbulence is just a pure reaction to a perceived lack of leadership certainly in the corporate sector in the government sector that's on leadership gentlemen well you moderated the presidential debate so what do you think yes i did yeah and i think that uh during that debate we were able to draw out uh some some ideas in terms of fiscal policy like tax policy like immigration and these are look these are the fundamental issues for the people as well as the geopolitical story there are a number of leaders i think uh who are up for the job we'll see what the people believe you know coming to come into john's point quite yeah yeah but but the corporate sector mirrors the corporate sector i think john mirrors what you see politically i mean let's take the uk for a minute uh we have a fixed five-year election now i get the feeling this is not a criticism i think it's just a political fact that the the government conservatives with a clear majority uh that the chancellor who's now the coo of the government he's no longer the cfo is more than the and potentially the ceo is thinking about what happens in 2020 so we will see the uk economy be not not it will do well i think it but it will not be as robust as it's been in the last few years you know gearing up for an election in 2020 in other words we get into these cycles and they can be four years five years six years depending on what the political cycle is in the corporate area i i think you know we've been at it at wpp for 30 years right um some people say that's too long um but i i think it is enabled us to think about the long term so when maria says where's the growth despite all the timing despite the new normal right which i think is the thing where do we see the growth there's there's growth in the fast-growing markets we look 25 years hence the bricks on the next 11 is still a concept that we think is fundamental so you still think that the emerging markets will be the leaders in terms of emerging it's insulting china is the second largest economy in the world it's emerged okay it's a fast market that has slowed down but it's still fast-growing if you believe the 6.9 it's still fast-growing it's a 10 11 trillion dollar market even if it's growing at four it's the delta is greater than the u.s economy this year so bricks and next 11 i'm still pinning the hopes of wpp for the next 30 years on that digital is 40 percent of our business we're still pilling it with pinning our hopes on that data still so there are growth sectors because even if economy as i said is growing at 304 percent there are fast growth sectors you have to avoid the slow growth so there's still but i think to john's point the leadership has to come around long-term vision and so i i really applaud the efforts that are being made in the corporate sector which is where we interact most most most of our time not all of our time but most in the corporate sector to set a vision to stick to it and not be subject to the vagaries of short term short termism which i think is the fundamental problem that we face in the corporate sector okay thank you for identifying growth stories go ahead paul i think john's question is a very important question i have two comments on two aspects of it it's not a comprehensive comment on leadership and corporations but two things that affect it structural when for example financial institutions migrated several decades ago from privately owned to publicly owned publicly traded i think a very important change in incentives disincentives attention to risk stewardship culture with thrown into the garbage can and in a very harmful way which i believe had this had a denouement in in the fall of 2008 also structural in terms of corporate governance and i'll focus on america for this one the the idea real briefly the idea in america is that shareholders in a public and it's it's broad america a great amount of prosperity but i i believe it's deeply damaged at this point shareholders elect the board of directors which sets strategy and hires the management and has has supervision of the management i think that model is broken i think in a lot of cases management selects the board of directors in a lot of cases i recommend to everyone looking at the composition of the boards of directors of every major global financial institution in the summer of 2008 it could be 2007 six and it could be today actually but look at your board look at the board and see what proportion of board members are actually experts in the particular business understanding the particular industry or sub-industry or sub-sector and that will exhibit leadership to you versus versus versus luminaries etc the leadership point is that the the leaders that are selected by a process that they're not selected they select the boards and they're entrenched and the institutional community just reflexively supports them which is evolving and changing yeah this is a very good point yeah in that world you get leaders you get some great leaders you get some some very ordinary leaders and you get some people that that shareholders and stakeholders because debt holders so how would you alter the structure um i'd actually um that's a that's a great question i'd actually address it in the united states legislatively and by by rules concerning separating elections chairman and ceo i don't think that's such an impactful but make sure that people on the board have a clear understanding of the business where it's going not just that they have a relationship with the ceo i think that's something that could be self self-selective but yes that's very important i don't but we have about five minutes left i certainly want to get min uh and and ken and paul your ideas in terms of where growth is but we want to hear from lucky isawa right now from japan real quick lucky i'm lucky isawa uh black oak japan ceo black rock japan yeah i changed uh thank you very much for the very interesting discussion it's our last three weeks uh world is a uh tamburans it's uh it's especially japan it's the uh stock price market is terrible but we have to think about the more and more longer term vision uh i'm the base of the long-term view the uh he asked the question the leader's role of the uh uh for long term vision uh mr singer replied very good to answer the uh cobalt governance or shareship this is very important for future they're preventing the future risk it's uh each corporation and the uh make it healthy and uh sustainable growth it's very important and i think four things i asked the uh each or we asked each or top management in the world one is a capital investment more and the second one the r and d investment more third one is a uh human resource investment investment to the human resource and the fourth dependent company you are wage up this is on the base of the top management leader what should do the uh generally speaking in japan the us and europe the uh large company uh mostly are sitting on the cash right so when are we going to see that cash move and and do those kinds of things that you're talking about investing in capex investing in r and d that comes in right like that they're seeing seeing wages move higher let me uh make uh two point a quickly sort of a response to your question the first issue is the gentleman's point the geopolitical crossing uh crosses and the risk i will say this year the political risk is the key risk we still have a growth 3.4 right now not as strong as we want we thought we're still 3.4 we had a market volatility tomboy but market still does not melt down as i disagree with you but i think the political risk today is really the key risk which imply we're facing a lot of uncertainties and a lot of shocks i think that's we need to keep in mind because those things it's hard to predict hard to understand but things link to each other i think that that's the key issue is really if we look looking to the prevent for the future shocks that's the key area although we don't know how but i think we had you just dinged capital investment budgets of most major private corporation called the corporate sector by introducing further risk no no no the second issue is a response to your question the where the growth comes from i will say globally growth comes from structural structural reform because clearly we we don't have aggregate demand right we don't have a physical policy space we don't have an entrepreneurial policy space interest rates are zero already that takes me back to what paul said and that is things like tax reform but there are huge room for the structural reform the product market reform labor market reform and the pension reform tax reform i think that's the huge area for the potential growth for the whole world all the politicians makes should put efforts in this area to promote the growth for today and for tomorrow okay so we need structural reform for for growth and that's where you're finding it ken rogolf where is the growth in the world and where will it be well reinforcing this point if you don't have good institutions if you don't have good governance if you don't have good leadership nothing's going to help you can have all the technology in the world you're not going to get growth we do have a lot of technology fourth industrial revolution i don't know but a lot of things a lot of it's frozen up because there's not investment we've gone through what i call a debt supercycle china's the last leg of it we're still emerging but i think in the long run if you get these things right you don't have to get everything straight just something straight some improvements it's been pretty lame the last few years then i think we can see growth artificial intelligence the medical sector etc so there exactly there are growth stories in the world final final moment here you mentioned liquidity is an issue poll singer touch on that and give me your recommendation for growth i think liquidity and the changes in the liquidity posture of markets is a kind of an overlay to everything that we've been saying in this on this panel and i think there's no question that it's it's it's diminished and the prospects are that if what's happening in the last couple of weeks turns into something significant it's not yet i agree it's not yet a meltdown but something significant the some of the moves of the last few years have given some indication that that at some point things could be very disorderly the august 24th episode several flash crashes bank liquidity has been sharply impacted anyone here who's as a banker knows the constant regulatory pressures to to reduce positions to to fire customers in effect a lot of my peers have been ejected from prime brokerage from closures yes it sounds like you're expecting things to get worse before they get better i'm saying that if they get worse if they get worse the liquidity posture of markets a combination of banks lowering liquidity this new force of sovereign wealth funds very few people are thinking about that as a liquidity there are also commodity companies that are under tremendous pressure sure we're going to see probably talking to some hedge funds last night some some bankruptcies chapter 11's in commodity because of the commodity energy one more element yes one more element i think very few people have focused on this to the extent that securities prices stocks and bonds particularly bonds around the world are distorted in price by central bank buying there's a potential for a tectonic shift if holders of those securities decide that they've lost confidence in central bankers for any one of a host of reasons so liquidity is a concern of mine going forward i couldn't put it any better than can in terms of a global growth we've discussed the elements leadership and governance etc policy i think i think martin and men you are a bit more positive well there is growth there i mean the corporate sector corporate profits is a proportion of gmp at all time high yeah yeah labor actually it's a proportion gb all-time low no that's low yeah that's the issue so that's the balance issue this is has been a very smart discussion and i appreciate it thanks very much ken rogoth juman martin sorrell and paul say ladies and gentlemen thank you