 Good morning, everyone. Thank you so much for joining us. Hello, and welcome to this special World Economic Forum, Fox Business Network Collaboration, kicking off the 45th annual World Economic Forum, coming to you today from Davos, Switzerland. Today, we examine the new growth context, a changing world facing business and individuals everywhere. A new set of challenges now seven years after the worst recession in a generation. Today, a sharp sell-off in commodities, a slowing global economy, unconventional monetary policy, persistent youth unemployment, and a new type of terrorist dragging at our well-being. The global economy has come out of one conundrum to face yet another one. What are the risks of 2015? How are they reshaping the global economy? On stage, these very leaders who are focusing and facing these challenges head-on and reacting. John Rice, Vice Chairman of Global Powerhouse General Electric, with revenues of $146 billion in operations spread across 170 countries. David Rubenstein, co-founder and co-CEO of Investment Powerhouse, the Carlisle Group, with over $200 billion in assets under management. Dr. Axel Weber, Chairman of the Board of Directors of Global Banking and Asset Management, giant UBS, with $2.5 trillion in assets under management. Zheng Xin, Chief Executive Officer, co-founder of Soho China, the leading real estate developer in Shanghai and Beijing, among other places in the world. And Zhu Min, Deputy Managing Director, International Monetary Fund, the IMF this week, lowering its expectation for global economic growth by the worst in three years. We begin with the stage set for major change. The European Central Bank expected to announce tomorrow new stimulus to jumpstart the eurozone. But before that, the Swiss Central Bank making its own decisions, rattling global markets. Axel Weber, let me kick this off with you. You approached this environment, both as a business person, but also as a former policymaker, having been the president of the Bundesbank. Can you assess what the Swiss National Bank did last week and what your expectations are for the ECB tomorrow? Well, first, it was always clear that the Swiss bank or the floor to the euro was temporary. And what's temporary got to end sometime, and it was at least clear to me from the start, it would be unexpected and unannounced. And therefore, they did the right thing. There is a saying in German, better an end with a shock than shocks with no end. And we've clearly seen the depreciation of the euro pretty strongly across the board. And the Swiss National Bank did the right thing to stop pegging to the euro or at least having a floor. International Flexible Exchange Rate are the norm and they move back to normality. And I think that's the right thing to do. Now, there are challenges and pressures, but I think they're manageable. There'll be a big impact on the Swiss economy this year. There will be, I think, at least some reversal of this overshooting that we've seen in the market. So I'm quite confident that once the dust settles, we're moving back to more normality with a more normal exchange regime for Switzerland. On the ECB this week, very hard to say. I mean, I'm not privy to any information anymore. And living in Switzerland, I probably have less insight in the discussions in Europe than many others, but I think there is a wide expectations, which will be justified this week by action that the ECB will embark on a program of purchases of assets, QE. They'll have a mix of assets they buy. They'll buy corporate bonds, covered bonds. They already do that. They'll add sovereign bonds. They'll have a sizeable program. I'm not sure I want to add to any of speculation of the size of the program and its features, but I think the real issue is the ECB has continuously bought time for European policymakers to fix the issue. I said on this very same panel last year, and the topic was, is Europe back? And I said, Europe is not back. The headlines have gone. The tension has somewhat gone. And Europe should use the fact that they're flying under the radar screen to do the real reforms and to do what is necessary to have escape velocity for the economy. They didn't do that. Now, Europe's not back. The problems are back. And with the problems there, you have to do these reforms under the scrutiny of financial markets and, so to say, in the spotlight of the international finance community. And once what you put on the table as a policymaker is not convincing, markets will evaluate that and markets will immediately price that. So Europe has lost a good opportunity to do many of the necessary things they could have done in a morbid nine environment, and now they need to deliver. The ECB can only be part of a fix in Europe. In my view, they shouldn't go too far because the more they do, I think they set big incentives for governments to do less. And the real problem is, if you continue to buy time and that time is not used for reforms, I think you have to ask yourself that whether more of the same is the best recipe or whether you should actually change the medication. If so far over the last five, six years, the medication hasn't really led to any sustained improvement in European periphery and in many countries. Europe is in a sluggish, gross environment. They face many challenges. Falling prices is just one of them. But the other problems are really too high on employment, no strong gross environment, lack of reforms, and policymakers shouldn't kid themselves. Policymakers are in charge of reforms. If they don't deliver reforms, they don't do their job. By not doing your job in Europe as a policymaker, you don't add to a better environment. And we've seen too much of this. So really, we need to see policymakers stepping up to the table and doing what is needed. Labor markets are locked in an unemployment rate that is way too high. Product markets are not flexible. Many, many things can be done on unemployment, on insurance schemes, on pension schemes. All of this is heavy lifting, but at some point, at least you've got to start. And I've not seen enough reforms in Europe, and the ECB will not fix this issue. And you have talked about this critical need for structural reform beyond monetary policy and what the ECB can do. In fact, Jumin, one of the catalysts for the IMF this week, lowering expectations for global growth, is the persistent weakness coming out of Europe? Yes, and the European economy still goes slowly. And the last year growth is about 0.8%. So we forecast roughly about only 1.1%. It's a very much relatively low. Why so low? I mean, the one issue is, for example, the investments so weak. Compared today with 2007, the whole euro area investment dropped 5% of GDP, which is a big number, which reflects the fragility of the region, the weak confidence, and also the policy environments. Consumption is a little bit strong, but not as strong enough to overcome the weak investments. So I think this is very important. So I very much agree with what you said. I think that in Europe today, we really need the three key policies to push the growth. Number one, we still need accommodating monetary policy, which we are very much looking forward for the ECB's announcements tomorrow. I think it's absolutely important to, for sure, we have accommodating monetary policy to create a space, but also, as Axel mentioned, to do more on the supply side. I mean, we need the push investments. This is very clear. We need the structural reforms. We need to bring the productivity in service areas. We need to bring productivity in the products sectors. We need the reform in the labor markets. Because when all of the decades of Europe, the whole countries, whole industries, still operate as a silo, I think we have to change their situations. If it is so obvious in terms of what we need, why isn't it happening? Because when we don't have aggregate demand side of policies, because we don't have a fiscal space, the debt is way, way high. In advanced economy, debt will be about 100% end of, say, 2020. We don't have a very much monetary policy. Because central bank's balance is big enough, interest rate is zero already. So what do you do? You need a supply side policy. You need a structural reform. You need smart investments. You need investments in infrastructures, in innovative SMEs, in all these acknowledging economies. But when you do the structural reform, you need a political leadership. Because you have to change, for example, labor laws. You have to change the tax on wages. You need to have to change the pension funds. You have to change the mobility issues. You have to change the service regulatory frameworks. All those things require the political leadership, which we don't see that yet. And there are so many political leaderships in the Eurozone, which, of course, was the criticism as the Euro was first being formed. We will get back to that. Mimol Zhenzhen, the elephant in the room, if you will, is the strength of China, or the slowdown of that strength in terms of real estate and other industries, having been really the engine of growth for the world for so many years. Can you characterize the growth in China right now? You're just listening to the two gentlemen. I feel like China is on the other side of the spectrum, which is so much of the growth was driven by investment and for the last 20 decades. And now we're actually seeing the other problem, which is the return on investment has become less and less, lower and lower. Because of the excess investment and not enough consumption. So China is on the other side, which is how do we grow the consumption? And again, it needs reforms. And if we don't have a tax reform that supports the growth of the consumption, then we can talk about the consumption growth. In the end of the day, we still will see very little consumption growth. The last time we spoke, Zhen, you were talking about some of the measures that the government was taking to actually slow down the Red Hot real estate market. Where are we in that regard? Are we still seeing new measures put in place to limit the number of homes people can buy or limit the number of investments people can make? Well, China has dramatically changed, as I spoke to you last time. The real estate has moved from Red Hot to deep cold. So right now, it's the cold, cold sector of the economy that no money wants to go into real estate. And we can comfortably say that China's urbanization led growth is almost coming to an end. Very, very little money going into buying new land, building new buildings, because there's been so much building being built. Developer like me, who used to spend most of the time buying land building buildings, now are also moving on the consumption side, which is how do I get more people to come in to use my office buildings? And can I come up with a new product that can suit the new generation of the mobile generation? Because people don't want to be renting a whole office building. People want to have mobile office. So that's very, very quick mindset change in China. David Rubenstein, you're investing in the midst of all of this on a global basis. Last night, we heard from President Obama talking about what he'd like to see. You've spent time with him recently. Is it true that the US is seeing the most vibrancy here relatively speaking? And how do you invest around the world right now? Well, let me first say that if we were all here a year ago and we were asked what we were going to think the US economy or the global economy would do, we would probably have been wrong. And so discount everything, at least I say. I wouldn't have predicted oil prices would go down. I wouldn't have predicted the US growth to be as strong as it has been. I wouldn't have predicted the slowdown in some of the emerging markets. And I certainly wouldn't have predicted deflation in Europe. So caution everything I say about what's likely to happen. Right now, the United States seems to be the greatest place in the world in which to invest, because we have growth of over 3%. The IMF is predicting 3.4%. Our own numbers would suggest something like that for this year. Inflation is very low. The Fed, if it increased interest rates, are going to be very, very modest if it does it at all this year. We have a problem in the United States historically of some political dysfunction. And we've seen the President and Congress aren't getting along all that well. But that hasn't slowed down the US economy. And the US economy is doing quite well despite the political dysfunction, which suggests maybe political dysfunction is something that maybe is not so bad, because we're actually doing pretty well despite it. Just imagine if Congress and the President get along, what the economy could do. We're not likely in the United States to grow at 5% or 6% anytime soon. But 3.5% is still very good growth when you have a $19 trillion economy. And the biggest problem in the United States right now is that the dollar could become very, very strong, because as interest rates maybe go up a little bit and the US economy has seen such a great place to invest, more and more money is going to go in there into the US. And the result is that the dollar will get stronger. And I think it could hurt some exports at some point from the United States. Secondly, we have a big problem in the United States in that the numbers we use to measure our economy, GDP growth, unemployment going down, and so forth, these numbers are somewhat dated because they don't take into account the people that are left behind. So if our GDP growth is 3.5%, that sounds great, and corporate profits are terrific, stock market prices are very high, but what about the people left behind? And we're seeing very good indications on Fortune United States that many people in the middle class are being left behind and obviously people in the underclass are left behind. So the people who are in the investment world are doing quite well. People below that are not doing so well and that's a real problem in the United States. In terms of investing, I'd say there's nothing better right now than the United States because of the rule of law, transparency, good economic factors, but still, the emerging market is still the largest part of the global economy. It's now 85% of the population of the world is in the emerging markets and 55% of the GDP. And although it's slowed down, it's now probably a buying opportunity, not a selling opportunity. So I'm still really bullish on many emerging markets, particularly China and Sub-Saharan Africa and India. Particularly as valuations in the U.S. have been rising. They have been. And it's a trade-off. I think that in the emerging markets, you probably can get things at lower prices or somewhat greater risk, political risk and other things. But in the United States right now, prices are not cheap. EBITDA multiples for buyouts are roughly the same as they were in 2007. And one other thing that is a concern that should be for everybody is that typically in the West and typically in the United States, we have recessions every seven years. And we are about seven years from the last recession. So while no arm would have had a recession, things happen. A year from now, we will say, well, it was obvious that something was gonna happen, but it's not that obvious today that we'll be in a recession. And I'm not predicting it, but something is going to happen in the United States and the global economy that we're not projecting. Something similar to the oil price tax cut in effect. And I say tax cut because the oil prices are going down. It's an effect of the gigantic tax cut in the United States and in Europe. In the United States for a family of four, average income of $65,000, which is the middle class media and income. It's about a tax cut of about $900 to $1,000 per family. And that is gonna spur consumer spending in the United States and it will spur consumer spending in Europe as well. I hope the United States will do certain things to take advantage of this and build some of the infrastructure we need to do and take advantage of the fact that oil prices are low and that we don't allow our energy industry to kind of go to sleep. You know, it's interesting. We have been talking about the positive ramifications of a 50 plus percent sell-off in the price of oil now for a little while. More money in people's pockets, obviously, expected to jump start things. And yet, what have we seen as a result of the 50 plus percent sell-off in the price of oil? We've seen layoffs in the oil industry. We've seen contract cancellations in terms of rigs and we have seen some speculation about the biggest growth story of America, the Shale Revolution getting hampered as a result of the price of oil. So we're waiting for that positive impact. For Shale oil to be efficient and profitable, you probably, for a new well, probably need to be able to sell it at $70 to $80 a barrel. And so if oil is at $40 a barrel, are you gonna still expend the money to keep the well open, knowing you're probably gonna lose money when you sell the oil? So I think some people are taking rigs offline. We're probably down 500 rigs from the peak of the number of rigs in the United States, 500 down, and I suspect it will go down another couple hundred. I think the oil industry in the United States is not the dominant part of the United States economy. Consumer part of the economy is much larger, it's about 65% of the economy. Still, it's an important part of our economy and now we're producing about nine and a half million barrels of oil a day and it would be important to continue to produce those number of barrels of oil a day. I am afraid that some oil will not be produced because of this lower prices. I do think that the prices will stay low for a while. It's not the case that it went down quickly and all of a sudden it's gonna come back in six months. It's likely to come back over a multi-year period of time, probably two or three years. John Rice, 170 countries you're doing business in, how do you assess what you've heard this morning and how do you decide how to allocate capital? Well, I think we live in a world where everybody is focused on jobs and one of the themes you've heard some of the other panelists mentioned and you hear a lot around the world, economic form is around sustainable inclusive growth. You don't have that if you're not creating jobs and every country has figured that out and they have to be the right jobs. So companies like ours are being called on to create jobs in lots of places including the United States. You don't have sustainable inclusive growth if you're not creating jobs. So countries with high unemployment where unemployment rates among youth, educated youth in some cases are at 30 or 40 or 50% have a real issue and companies like ours are being called on to help solve the problem. You don't create jobs if you don't have basic infrastructure. If you don't have electricity, you don't have good healthcare, you don't have good forms of education, you can't create those jobs. So for us, amidst all this swirl, it ends up being resulting in a continuing demand for infrastructure, whether that's power generation or basic forms of healthcare that are available to all. You still have a billion and a half people in this world that lack the basics. We and others need to be involved in fixing that and helping to create the jobs and then you can solve some of those issues. Men, you want to- I just want to come back to David's comments on the oil issues. Oil do have a multiple impact on the global economies. On one hand, David's right. It's terrific news for the consumers and for the consumer driven economies. It's a good impact. But it's not a good news for producers, David Ray mentioned also these things. And also for the investments probably will slow down. And also there's more than trillion dollars the energy industry's bonds in the markets. How do you reprise these bonds and how is the express change? This also may have an impact on the financial sector as well. And particularly for the oil export countries, the physical production costs are still relatively low. For many countries, lower than $20 per barrel. But I mean for the physical, but fiscal, the budgetary cost is way, way higher. For many countries, around $100 per barrel to meet that budget needs. So obviously those countries will suffer the lower kind of surplus and deficits and all the low growths, exchange rate depreciations, equity market drops. So we saw all those things happens which may have a speed over impact for the other countries as well. So I would say oil, and I agree with David's, oil probably will stay as a low. And net to net is positive, but we should not overestimate this positive impact from oil. I didn't mean to say it's an unalloyed wonderful thing because there are consequences to it. For example, there will be layoffs and already are some in the energy companies. The companies, the countries that produce a lot of oil, they have budgets as you suggested are either $80, $90 a barrel. And now they're not going to get that. So they're going to have to go into deficit spending. But here's a good example of something that you wouldn't have anticipated. Russia, Russian companies have borrowed roughly $650 billion from the West. The Russian companies, because their economy is weak, can't service that debt. That's going to be a problem. And who is owned most of that debt? I think it's mostly European banks. So the European banks, which have been struggling for a while, they could struggle again if the Russians can't pay off that debt. I would say the single greatest new energy opportunity to invest is probably distressed debt and energy. In other words, the debt of companies that expanded a lot, assuming that oil would be at $100 a barrel or higher, now when that's not the case, their debt isn't going to be worth $0.100 a dollar. And a lot of people are going to spend time buying that debt at discounted and taking maybe perhaps control of some of these entities. But you make the, Axel. So I think it's very useful to think about oil as normalizing. And it's normalizing because two things happened. First, the US central bank has stopped adding liquidity to its balance sheet. It's actually running off. They're in a normal interest rate environment where they talk interest rate hikes. We're starting a tightening cycle. Going forward, global liquidity is coming down. So if you look back over the last seven years, there was a lot of money that flew into the oil markets and actually was driving commodities also as part of an asset class. That's normalizing. Commodities are back to being more commodities. And the other thing, don't forget, in the US, the biggest marginal supplier of energy is actually now the United States. It's changing its energy balance and that has an impact. OPEC as a cartel is now producing less than one-third of the known supplies of oil in the next couple of years. And that means that there is very little ability to basically reduce capacity utilization in a fast way. And therefore, I think we've seen a strong correction in the oil market. I think oil will trade back to something between 50 and 70 because that's where the largest part of global marginal supplies, but it does not go up to where it was. And I think that should be welcome as a normalization of what used to be a pure commodity area and which kind of over the couple of years after the crisis became driven by many other things. I think we're seeing that disappear. With oil at 100, when oil was at 140, there were more people predicting 200 than 50. And I think we live in a world where this commodity is gonna cycle and we have to live and work in those cycles. I think at 50, you've gotten rid of some of the marginal projects that probably shouldn't have been contemplated anyways. So the point that Axel and others talked about, I mean in the 70 or 70 to 80 range, that would seem to make sense, but oil is always gonna cycle. Projects that you invest in are long-term projects. So part of this is a reaction to today's price at 50 or below 50. And part of it's a long-term view as to what's gonna happen to this commodity and the technologies you have to have to get it out and produce it. I guess the point that I was raising was there was a report by the Dallas Federal Reserve recently which basically said all of the job creation that we have seen from 2007 has been in Texas in the United States. Well, you would expect the Dallas people to say that, right? The Dallas Federal Reserve. I don't know that I wanna question the Dallas Federal Reserve however on this. I mean that's all of the jobs. So does the decline in oil put a crimp in what has been the strongest industry in relatively speaking the strongest country economically? It puts a crimp in that industry but it also puts a crimp in the renewable energy industry. Renewables work maybe on oil is at 80, 90, $100 a barrel. But when oil is at 40 or $50 a barrel you can't really justify the expenditure in many types of renewable energy because it just doesn't economically work without enormous subsidies. So I suspect unfortunately that renewable energy as a form of energy will go down in terms of the industry's strength and that will be an unfortunate consequence of the lower oil prices. I wanna get back to something you said David and that is the European banks and their vulnerability as a result of what we're hearing this morning because we are trying to identify what could be the catalyst in terms of sending us back into recession. How vulnerable is Europe right now? Well the American banks went through lots of heartache and lots of angst and today they are in reasonably strong shape. They're not happy with all the government constraints and the Volcker rule and so forth but they're in reasonably good shape. The European banks honestly didn't do all the things the American banks did maybe the government regulators didn't force them to do it. Today they are not in a strong shape as the American banks. So if for example there were defaults from Russia I suspect it would hurt the European banks and I suspect as well some there will be a lot more currency turbulence I suspect in Europe and I suspect that's gonna hurt some of the banks as well. So I think the banks really are much more vulnerable to turbulence in the US and the global economy than maybe the American banks are but actually you may disagree. And unfortunately oftentimes it's politics that gets in the way. Axel I want you to look at this headline which no doubt you saw this morning in the financial times. Tension simmer over Eurozone QE as investors buy up Spanish debt. Can you talk to us about the political backdrop within the Eurozone and why there is such a fight in terms of what is required or needed from the European central bank. That could have been your picture right on there. I prefer not to be. So no look the point is very simple. Europe has moved to the European level and I'm talking the EU and the Eurozone in particular has moved to the European level two responsibilities that are government responsibilities. The first one is a common market was created so there is a European competition authority at the EU commission and that has all the antitrust responsibility for that common market. And the second thing that happened is we created one currency. So there's one central bank. We're building a banking union so there's one banking supervisor for the large bank that's emerging. It just started operating January this year. We're building a capital market union which is a sort of fuzzy concept of integrating all other markets in addition to banking. We have no fiscal union. We have no political union. There is no risk sharing among governments and when you really want to go back to the picture it's not the European commission that's in charge of structural reforms in Spain, in Portugal, in Greece, in France, in Italy. It's national governments. And so what we're seeing now is a mismatch between the monetary policy that's a single monetary policy that can act without governments because we have an independent central bank and the fiscal dimension of some of this action that is taken, for example, when the central bank buys sovereign debt. The contention around not having a fiscal union, not having risk sharing and a single budget at the European level always plays out when unusual monetary policy has that edge to it that it involves sovereign debt purchases. And that's why you have a debate currently at the ECB whether they should risk share or should not risk share these purchases, whether they empower national central banks to do the purchases of their sovereign in these programs. And that's basically reflecting the state at which Europe is. It's not a fiscal union and doing monetary policy focused on QE is much more difficult because the safe haven assets were usually considered to be sovereign debt and therefore operating in sovereign debt markets has this fiscal dimension whether you want it or not and that's what's pulling the ECB back and forth. You're better off today because it has the euro. If the euro had never come into existence, would Europe be worse off or better off than it is today? It's very hard to say. Look, I now work in Switzerland. I'm speaking for a Swiss bank. Switzerland is that part of Europe where they always put the flag so you don't see that Switzerland's not part of the EU and Switzerland has its problems with 60% of the exports go into Europe. You just talked at the start about the Swiss National Bank choice on policy. So it's very hard to say. I think Europe, particularly the euro zone, needs to continue to work at integration and they need to deliver policy reforms rather than just lose monetary policy. If that doesn't happen, the project of a single currency area that you've seen that had benefits very much so becomes increasingly a difficult project to run. We need to move Europe to that next stage and if that doesn't happen, I think there will always be questions about the viability of the project and Europe has not done enough to dispel these concerns. The central bank can dispel them to some degree so they can exclude tail risks and they did in 2012 but since then we haven't really seen governments unite and take action, bold action to move Europe forward to a new normal and that's what's troubling Europe and it increasingly sort of comes back. We do have cyclical development so we don't want every second year at Davos to have a discussion is Europe back, is Europe not back, are the problems back but I can predict if nothing really happens you have that debate every two years and I really don't see the bold action that is needed on the government side to kick in and that's where Europe doesn't get to escape velocity. 1% growth against the demographics that Europe has is just not enough, 3.5% the US growth, US growth at the moment globally is almost unique in the sense that it's above long-term potential and the rest is suffering from growth at subpar, output gaps that are big, inflation very low and that cannot just be fixed by monetary policy and the real difference between the US which we all, we basically told all our clients we're overweight US and we're overweight on basically the dollar developments and we've seen a very strong investment in Asia but the real problem is US unemployment increase was largely cyclical as a result of the deepest crisis the US had in post-war history. European unemployment is largely structural. Whatever the central bank does might eliminate a small part of that but the ballpark of use unemployment is weaknesses in labor markets, no competitive reforms, a sort of pension system that doesn't entice you to be active so they need to work on these structural issues if they want European unemployment down. All these years later we're still trying to contemplate whether or not the euro was a success or is a success so far. Let me put one point on the banking sector. I think I agree with Axel and David say that on banking sector overall today the whole world banking sector is much stronger than a few years ago including European banks, the capital issues, liquidity issues and SS. Although there are concerns on European banks after its SS reviews you will see non-performing increase roughly $136 billion, added them to the $800 billion for the whole banking sector which is quite a bit. But overall I would say banking sector today is stronger than a few years ago. Now if you're looking for the whole financial sector. US or global? Global, even including the European banks I think the situation is better, that's very clear. But the risk, everything have a but. In financial sector the risk has really shifted into the shadow banking sector now. I mean if you're looking for even US since the crisis to today, the copper credit they received from banking sector actually reduced it's a net negative of $300 billion, $300 billion. But if you see how much the credit were received from serial banking, from SS management company, from Davis families and 1.3 trillion. Are you benefiting from the regulatory stranglehold that the banks are facing today David? Yes absolutely because the banks had to get out of certain businesses and because they're out of certain businesses people like firms like mine are going into these businesses and not just in investing but in lending. We have businesses as do other firms like mine that are lending money to people who can't get it from regular banks. Now banks are stronger than they were before but they're not more profitable than they were before and they're not actually the engines of creativity. The most creative people in the financial world generally don't go work at the biggest banks in the world. They're going to work in hedge funds or private equity or other kinds of places where you can get more adequately rewarded we would say. But I think banks have an important role in society but I don't think their role 20 years from today is going to be as important as it has been historically because many other vehicles were being set up to take advantage of the fact that banks can't do certain things. You're a long time investor. David get opportunity at moving. I mean this is fine but the real issues and from the whole regulatory framework point of views like you will see all the credit intermediation moving into the non-banking sectors and the transparency is not there. You have to think about the risk and we see the concentrations on particularly on the asset management companies. The top 10 asset management companies really hold quite a big chunk of the bonds issuing and the credit provider to the copper sector as well. So I think that's the key risks today and not particularly in the banking sector. It's different but for example in our firms we don't have FDIC protection. So in other words the banks were basically doing certain things they would argue was argued and they had deposit money that they were risking and the U.S. government was on the hook in effect for the FDIC guarantee. In our case and other firms like mine we're not really guaranteeing people that they're gonna get their money back if they invest with us. But that's an equity issue I think still because a lot of asset management is leveraged on the financing from the bank side. Which is an issue. A lot happened in the banking sector. Look we have done a major overhaul of our strategy and nowadays if you're in banking we move to asset management. We're the largest wealth management global and we have a very good asset management business and we're the largest universal bank in Switzerland. So you gotta move to the core of your competences and where you compete you gotta be top of the league. And I think many banks are looking at their strategy and trying to devise a strategy where they actually serve their clients best and we're the best capitalized bank in the world and actually I don't see the capital regime that was introduced after the crisis as a problem because if you're managing wealth your clients don't wanna have sleepless nights because they're worried about your capital ratios. So having high capital ratios and a very good leverage ratio that is prudent funding helps you in the eyes of your business model if it's about managing assets and if it's about wealthy clients and managing their money. Jean Jean Penn. Well recently we have been in China we've been encouraged by the government to go out outside of China to invest. So I had an opportunity to look at an asset in Europe and we bid it like many other bidders and in the end we all backed off because we see that because of the monetary policy in Europe that making the borrowing so cheap, so low, right? Like if you buy a building then your long-term borrowing is probably gonna cost you 3% but then the future of the building, the growth of the economy which is gonna be led by the growth of the economy is not there. So while yes you have this cheap borrowing rate that everybody rushes in to borrow and to buy and yet on the demand side you really don't know. Like this is what Drew mean talked about because of the lack of an investment. Then so Europe is becoming another place that is deflation, like Japan, deflation driven and return on asset are really, really low. But that only applies to certain assets, so take Europe. Real estate, I'm talking about buildings. Well but exactly, so what you've seen in China you talked about China is the real estate market boom for a long period of time, it's now correcting. There's a big inventory overhang. We've seen a price correction last year. We're probably gonna see another 10% decline of housing starts this year but what has happened is there was a big rotation. Investors that were real estate and property related investments rotated these investments into the equity markets. There's a big influx of overseas monies into China and so there was a rotation from the property markets to the equity markets, so a major rally which will continue given these conditions in China. The same is happening in Europe. It happens always when QE starts. Look at the Fed, you have a very low interest rate pass for years to come, a balance sheet that is expanding. You don't get a return on fixed income assets in particular, sovereign debt. You move to equities and in the US, the equity boom happened with a relatively stable dollar. In Japan, the equity moves happened with a depreciation of the yen and what you've seen in Europe is a depreciation of the currency but we're now overweight European equities because there will be a pickup in the equity markets and it's not right that European equity is dependent on European demand. Many of the European corporates are global companies that export, their main export markets now are the US and is China. So you buy in European governance but actually global demand and that's why I think you really need to look very closely and we're helping investors to make these choices which companies you invest in. In generalizing the equity markets will pick up in Europe as a result of these policies for quite a period of time but you have to exactly do an analysis of what you're investing in. Like always, not every European company is the same but I think we see things improving. But from your standpoint, you're a long-term real estate investor, you're not ready to even look at valuations that have come down so much in Europe. Well, in fixed asset in real estate, the price not only has not come down, has gone up because of the monetary policy because so cheap to borrow, right? So these buildings, you cannot all use equity, you have to borrow. So if half of your money is borrowed at the very low interest rate, you will borrow. So that makes the buying, the price of the building very expensive. Now, you'll buy the price of the building expensive if you know that the growth will be there, the rent will go up. But if you are not confident about the economy's growth, if you're not confident that the rent will go up, you won't do it. Yeah, years ago, I remember inflation was a big problem in the West, particularly in the United States for a number of years. Now deflation is a much more serious problem in Europe, certainly, it has been in Japan. And the United States, I wouldn't say, has a deflation problem, but we certainly don't have an inflation problem. We had inflation at 1.4% last year, and it's probably not gonna get much higher this year. So deflation is a much more pernicious problem because economists and central bankers are much better at solving inflation than they are in deflation. Deflation is a much more pernicious problem, and it takes much longer time to get out of it, and it gets to be a vicious cycle, and it takes a long time to get out of deflationary cycles. John Rice. So this point to zoom in and David, we're talking about before, about the significance of the non-bank banking system, the shadow banking, I think when you get back to a comment I made early about the importance of infrastructure investments, it's a pivotal point. There's no bank in Europe that's investing in infrastructure today like they were before the financial crisis, and few banks in the United States. So if you're gonna get capital to flow to these infrastructure projects, you need sovereign wealth funds and private equity, and lots of other investors beyond the traditional banks, and if you don't have them, this stuff isn't gonna get built. Yes, I agree with that. Government historically built infrastructure, and now government isn't going to do it as much, so it's gonna be dependent on private sector, maybe with public-private partnerships doing it, and if you have reasonable expectations for your rates of return in infrastructure, you can be pretty happy with what you're gonna get out of good infrastructure projects. I think a mid-team to upper-team rate of return on infrastructure equity was probably a reasonable rate of return, and you're gonna see more and more projects done this way, I think in the United States and in Europe, but there's no doubt that, as you mentioned, that private equity is the solution to all problems in the world, and if there's more private equity, I think the world would be a better place. We're gonna open it up to a question shortly, but Axel, let me ask you ahead of this important announcement tomorrow from the ECB, can you tell us what you think in terms of the size? Do you think this will be a very large number, and what is already priced into the market? There's already a very high expectation priced into the market, so... So if it's not a large number? Well, I think the ECB would definitely not try and disappoint, and they're making compromises to get to such a number that is more or less in the market, but if you really look deeper down, the unorthodox policies we're seeing everywhere now require central banks to do things that are usually not associated. I mean, you just said that. They don't really have an easy way to bring inflation up. Central banks saying inflation is too low, doesn't sound right to the general public. Central banks, like in Japan, supporting unions to have wage increases towards 2% isn't usually the thing you associate with central bank policy, but what they're trying to do is anchor inflation expectations, and wage increases and price increases at the target rate, and if you're below that target, and I think that's where we are, I wouldn't subscribe to the view that we're in a deflation scenario, we're with sub-target inflation, and bringing inflation back to target haven't made this credible announcement that we have certain inflation targets. The central banks will have to do some work, and really the usual way inflation comes around is by a pickup of the economy. I don't think that's gonna happen in Europe any time soon. However much Mario Draghi will buy, you will not see inflation readings close to their target for the next years to come, and therefore they need to resort to other policies in Europe to bring inflation up, and getting lower unemployment, getting the economy going, doing more labor market reforms and product markets reform, opening up for competition, that will get the economy going, and with a more vibrant economy, you will get inflation pick up, and prices pick up, and wages pick up. We touched on Japan, and I wanna get the panel's take on Japan in a moment, and this other program that we're seeing from Abenomics, but first, hearing from all of you, the audience, we have microphones walking around, questions from the audience for our esteemed panel. Right there, yes sir. If you could just state where you're from, and ask the question please. Thanks, my name is Ivan from Algebra's Investments. I was wondering if anyone on the panel feels like giving us their insight on the topic of currency wars more broadly. What their take on it is, and do they see any particular risks that they can cost central banks to lose credibility later on this year? That's a tough question, you go first. I think we have a problem, and Minjoo can add to that. I think the international monetary system at the moment is seriously unanchored. Most central banks are pursuing policy that is exclusively focused on their own economy and what they need, and there is a massive QE in Japan, there will be strong QE in Europe, China is easing policies as well, so they'll reduce interest rate. The rest of the world is on an easing pass, and the US has announced that they'll tighten policy. We've seen major movements in the exchange rate as a result of that. I wouldn't say it's currency wars, it's market adjustments to reasonable economic perspectives going forward, but along the same line. I don't think the Fed will continue on the pass that is currently priced in, or that they've announced, because really there is very little reasons in the US economy why the Fed, in addition to maybe just turning interest rates around and moving to 25 basis points for their rates, will have a series of rate hikes that is already pre-announced. They'll become very data-driven, and the data will look good, some of the data will look weaker, and I don't really expect the Fed to be on autopilot as many in the market believe, because that would create additional repercussions in the global economy and on the currency front with an appreciating dollar continuing on its pass, and with all the kind of fallout you will see with the US policy turnaround on emerging markets, or more risky asset classes, or US high yield. So I think we'll see a more muted policy response going forward than what is priced in, and probably for overall stability, that's probably a better development than a strong policy reaction that is at the moment priced in. Let me just add before you speak that historically the Fed's job was to worry about inflation and the value of the currency, and the Fed has taken on the job of stirring the economy a bit by worrying about unemployment, and they still worry a lot about that, but they're also now saying that they're gonna worry about the impact on currencies, and they're gonna look at the impact on currency or whatever they might do, so I think that will probably be a change for the Fed to really take it into account what the impact they might do would be on the euro, or the dollar, or other currencies, and that's a relatively novel. It's a new coming. The answer for your question is a short answer, so yes and no. Yes, that's a concern, because you see the divergence between the amount central bank's market policies. The U.S. and the U.K. is about to tighten it, and the ECB and the BUJ are still on the losing side, and that's just right. All the emerging market central bank is on the losing side now, so you will see the different policy orientation change, not only aggregate size of the liquidity, but also change the structure of the liquidity. I think the question is a quite a long question, because when the Fed pumping money into the systems where the dollar goes is quite clear, but all other central banks are doing the same thing, so where those currencies go is not all clear at all. So I think that there is a concern about that, and we see the currency market volatility already, but whether there's a currency wall, we don't see that. I think it's very important for the international community to work together very hard to prevent the currency wall, which is absolutely no winner at all for the whole world. Does everyone on the panel believe that the dollar stays strong in the coming couple of years? Yeah, I think the dollar was the strongest in you to go through. I do think so, though. You'll never get a secretary of the treasury to really tell you anything about where he thinks the dollar will go. They're not allowed to talk about it. I'm asking all of you questions from the audience, yes, sir. But they always will say they're interested in a strong dollar. Yes, but the action is what we really care about. Jacob Frankel, and then Lucky Azaba. Thank you, Jacob Frankel, JP Morgan. The subject of the session is growth, and there seems to be a consensus that central banks are the only game in town and that it is not sustainable. There is also seems to be a consensus that the solution is unemployment, dealing with unemployment, education, infrastructure, tax policies, all the things that are not in the territory of central banks. If we had here on the panel policymakers for whom it is in their territory to deal with these matters and you ask them, why hasn't it been done yet? What would they answer? Can anyone simulate such a conversation? John Rice. I think it's because you've got to have the stomach for the fight. And with all of these reforms, you have a dislocation that goes with them. And I'm talking about reforming state-owned enterprises in China. You end up having sometimes people out of work in one area so you can employ more in another area. And I think we live in a world where the policymakers, you can come up with the theory of the case, but actually doing it and living through that dislocation and ending up with a better state at some point, you just don't have enough people with the stomach for the fight. I wouldn't say that years ago, a century ago, politicians were enormously courageous all the time. But today, politicians have everything they do known by everybody around the world every second. And as a result, they're afraid to do anything that might upset anybody. So the Federal Reserve in our country has taken on the role of basically being the person or the entity that's going to strengthen the economy. A Congress has been unwilling to thoroughly adopt any new physical policies, do anything for years. And I think you're going to see that pattern continue for quite a while. If you want to look, and Jacob is right, before I moved to the central bank, I was actually on the Council of Economic Advisors for the German government. And this was in 2002. Germany was the sick man of Europe. And any discussion in Davos, it was Germany's the taillight of developments. We had a number of reforms called the Agenda 2010 under the Schroeder government that the Council at the time, and many proposed labor market reform, pension reform, Medicare, all of this stuff. We made a joke on the Council that it was Agenda 2010 because the 20 suggestions we made to the government, they did only 10. But at least they did those 10. And the result of that, the German economy improved vastly, but it was not re-elected. Now, not being re-elected. People did not want it. It was unpopular. This hurts. But 10 years later, that's why Germany is so strong because of these reforms. Now, if you're the leader of a government and you're focused on reform and you're courageous to do it, you do your country a service. If you don't get re-elected, so be it. But policymakers nowadays are too exclusively focused on being re-elected. And therefore, they don't do the things that risk not being re-elected. Well, that's called politics versus governing. I think you see that now in the United States a bit. President Obama is not running for election again, as he reminded everybody last night. And he's got two years, and I think he feels very liberated to do the kind of things he thinks are necessary. And I think that is probably a good thing for our economy because I think generally he'll take stands that might be tougher than the ones he might have taken before if he's worrying about political concerns. And I think generally, sometimes you get the best things done in lame duck sessions of Congress or politicians can't run for election again. Yeah, I, Jacob, you have a good point, but I don't think you have the right answer. I'm sorry to say that. The Central Bank was the game in the town in the past few years, but not today. I think today, restructuring the political leadership is the game of the town. Because we don't have very much space for the monetary policy. So we have to move to surprise sides. So we need a structural reform. We need infrastructure investments. So we need smart investments into all those knowledge economy assumptions, into innovative SMEs. And we need to do the reform on the labor market and all those things that require the political leadership. I think a political leadership is the game of the town today. Do you have a time frame? What if it's not done in the next few years? So how long should the market wait for these structural reforms? Market have no time to wait at all because the growth is at the right weight. We need the politicians to act strongly today. And you can't wait because you can only do these things in your first year of government. Because then you need three years with a usual four-year election cycle for these reforms to work out for the economy improve because it's a slow pickup. Now, if you miss the first year, largely all governments do that because the main focus in the first year is to undo all the things the predecessor has done that got out of government and that were unpopular. They're wasting the first year to do the undoing and then they're in year two. They start thinking about reforms before they do the reforms, it's year three. And whenever they then look at the election cycle, they say, we'll do that in the next cycle. Well, we're in a second. I don't think that everything is so election driven. We in China, we don't have election. Okay. And we should be having reforms every day and we don't. After the people party congress and the plenary. We had a lot of talks about the reforms. We still don't see enough reforms. Jin, what does the market, what do the people not understand about China in your view? I mean, we see so many headlines, so much speculation about this slow move toward becoming a consumption economy from an export led economy. Tell us something that we don't know. What I think people expect this new government come in with a huge reforms. And again, this is not election driven. It's not because they worried about being not reelected. But still, there's a lot of talks about the reforms. There's been very little action really implemented. People generally been hoping that more reforms would come. Now, why there hasn't been more reforms? And what would the economy go? Where is it heading to? Frankly, people don't really know. Because if you have a very clear agenda on reforms, that even though if we're urbanization coming to an end, people will quickly form what will be the next. But if you don't have a clear roadmap to the future, then nobody really knows. Companies don't know how to form a future policy. What country have you been investing the most in in the last two years? United States? United States. Yeah, but I think in general, we should give Chinese government credit. They are doing a lot of reforms. Not enough. Not enough, that's true. Because China's emerging market transitioning and changing every day, right? I mean, if you're looking for the last year's number, it's quite impressive. China is doing slower, but doing better. Because the first time you will see the consumption contributing more than investment to the growth. First time you see the service sector is bigger than industry. So you see the structure is changing. When you change the structure, the growth will slow down, which is very much welcome. Yeah, expectation. A question here from Lucky Izawa, Japan. Lucky Izawa from Japan Pulse Bank. Thank you very much for the whole of the issues. Now we are facing Euro and 25th I'm looking for. And oil issue, we are so interesting. And regulation and central bank's role. Everything I'm interested in. My concern this year, I'd like to ask you where we should invest. Because we are the bank, but kind of the institutional investor. We have a huge money of it, but we are not allowed to invest the asset, a real estate. Mostly they are fixed income and a little bit of equity. So where and we should invest this year and what we should do? Private equity everywhere. David, where are you investing right now? Well, we are investing in Japan. For example, we think Japan is a very attractive place. That Japan does have demographic issues that we can probably talk about later. We do think the United States is attractive. We still are very bullish on China. On China, people have to have obsessed over a Chinese growth rate. Because it grew 10% a year for 30 years in a row, people think China should grow with 10% a year every year. It's not realistic at its size. If it's about a $10 trillion economy, growing at 6% a year, 6.5% is still spectacular at that size of economy. The United States cannot grow at 6.5% a year. We're happy at 3.5% or so. So I think China doesn't get the credit it deserves for growing at the rate that it's growing. Oh, it does have some issues and disequilibriums. But I'd say generally, we do think that private equity or private investments are probably gonna outperform public investments in the next couple of years. We do think that Japan and lots of other places in Asia are very attractive places to invest right now. John, guys, where are you investing right now? I'm probably with the whole knowledge of economy. Take it off now. And you see how many of this new industry in Germany and in the United States. And this is a whole new area with technology support, very innovative, not necessarily being big size on the rest of the future. And the productivity is way high and returns very good. So in that sense, I would say the financial sector should take more risk to move into this new area. Finances, John. I'm sorry. Lucky, what did you say? Until last year, we invested US and Europe. US and Europe until last year. Well, you did okay. Yeah, that was good. That was the trade. Look, you gotta invest in gross. If you look at where the US is growing, three and a half percent. And you overweight equities in the US. We're overweight equities in the US. We just moved to an overweight of equities in Europe because we think the same thing will play out as in many other countries. And we're overweight on emerging markets and China, the market. So look, you gotta invest in gross because you gotta participate in that gross dividend. If you're located in a no gross area, and some of the course of Europe and some of the more challenged economies have that, you gotta have an exposure to gross. And you can only get it through equity exposures because fixed income is very low everywhere. And you gotta get it from the gross regions. The US is less than twice the size of GDP of China. But with China growing at roughly seven percent, it's still contributing to most to global growth at the moment. So China exposures are very important to have for non-Chinese investors. I understand that Chinese companies are sort of impatient with a set of reforms, but I can tell you for our China investments, it's very, very important. The anti-corruption campaign, the rule of law, the establishment of solid institutions, that really is something that induces consumer and investor trust in the region. And therefore it don't underestimate that what the current government is doing to build these institutions because one reason why everyone is invested in the US, safe investments, rule of law, institutional, reliable framework, and that is really something that outside investors value a lot. Jin, is the anti-corruption campaign working? Working very well. And I think that it's true that if you look at equity, China's equity is really cheap. And if you compare Chinese equity versus US equity. Volatile though. Volatile, very volatile. Job 7.7 percent two days ago. Correct. So running the anti-corruption campaign is a very talented individual Wang Qishan. He used to be in charge of the economy. He's now running the anti-corruption campaign. One of the unfortunate side effects though is that some Chinese business people and others are, and government officials are afraid to spend money because hotels and restaurants and so forth, that might be seen as expensive. They don't want to be seen as going there. So it has slowed down a bit some spending, but overall it's a possibility. Sean Rice, your investments right now. Well, we're looking at the growth markets, the developing markets. If you look at market size, the growth of the middle class, this incoming equality, the demand for infrastructure. There's no country that's off limits. Well, there's a few that are off limits. What's off limits? Well, the legally sanctioned ones that we're not allowed to participate in. But that leaves us 170 or 180 or 190 to work with. And when you add it up for us, we've got to take a long-term view so we can't be swayed by short-term moves in raw material prices or currency. And we look at the growth of the middle class and the demand for basic forms of infrastructure and that guides where we invest. And that's Southeast Asia, it's Africa, it's Latin America, the places you would expect. Final question, Axel, for you. Do you think Abenomics will work in Japan? Same issue. The monetary and the fiscal, that's traditional policy and we know how to align it, even the unconventional monetary policy. The big discussion in Japan is about will the reform part work, the third arrow. And there we're seeing some challenges. And again, it's a bit like the same is true in Europe. If the reforms don't work, then basically the monetary and the fiscal start a bushfire that eventually disappears. So you've got to have the structural. And therefore I'm always surprised that policy makers continue to start from the monetary and fiscal and don't really start from the structural because the monetary and fiscal can buy you the time and smooth the transition. If you do the structural, if you really don't embark on the structure in a credible way on the reform agendas, the rest will not deliver on its own. And so Japan faces the same problem as in Europe at the buying time, but governments are not using that time wisely. I have a bigger demographic problem. The biggest problem in Japan is people need to reproduce more because they're not enough people who are younger. I want to thank our esteemed panel. A couple of comments that I wrote down, Zheng Jin, the real estate market in China has gone from red hot to deep cold. All of our panelists said that the dollar will continue stronger in the next couple of years. David Rubenstein said that there was opportunity in distressed debt in energy. And Axel Weber made the call that oil prices are likely to go back to $50 to $70 a barrel. Thank you very much for joining us, everybody. And thank you for joining us in the audience. We wish you a successful Davos and we appreciate you joining us at home as well and we wish you a successful year. Good night from Davos. Thank you, I think that went really well. Okay, thank you.