Latest / Bloomberg Intelligence / Too Early To Go Long Italy Debt But EU Banks Look Good: Hickmore

Transcript

Too Early To Go Long Italy Debt But EU Banks Look Good: Hickmore · Bloomberg Intelligence

• 0:06
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim
• 0:08
  Speaker 1: Fox along with my co host Lisa Bramowitz. Each day
• 0:11
  Speaker 1: we bring you the most important, noteworthy and useful interviews
• 0:15
  Speaker 1: for you and your money, whether you're at the grocery
• 0:17
  Speaker 1: store or the trading floor. Find the Bloomberg P M
• 0:20
  Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com.
• 0:34
  Speaker 1: Yesterday we were all worried about Italy. Today everyone seems
• 0:38
  Speaker 1: like they're doing just fine. Here to talk about what
• 0:40
  Speaker 1: to look forward to Italy uh and whether the elevated
• 0:44
  Speaker 1: risk continues. As Luke Kickmore, Senior investment manager at Aberdeen
• 0:48
  Speaker 1: Standard Investments, based in Edinburgh, UK, thank you so much
• 0:53
  Speaker 1: for being with us. So what do you make of
• 0:55
  Speaker 1: this right now? I'm looking at the two year Italian yield,
• 0:58
  Speaker 1: which spiked the most to ever yesterday, is down sharply today.
• 1:03
  Speaker 1: The nation was able to auction off debt in an
• 1:06
  Speaker 1: orderly fashion. Is everything back to the way it was
• 1:10
  Speaker 1: last week? No? Not quite. I think the concerns are
• 1:14
  Speaker 1: still very very validly so so the move in the
• 1:17
  Speaker 1: two years is eye watering. And you know we we had,
• 1:21
  Speaker 1: as you said, that biggest move yesterday in the second
• 1:23
  Speaker 1: biggest move today as it went back the other direction.
• 1:27
  Speaker 1: But it's still a very weak economy. It's still unclear
• 1:31
  Speaker 1: what government we're going to have, what the makeup of
• 1:34
  Speaker 1: that government is, and even when the elections will happen.
• 1:37
  Speaker 1: So a little bit less concerned around today may just
• 1:40
  Speaker 1: be short covering. I think we're still quite elevated in
• 1:45
  Speaker 1: terms of spreads over Germany, and around five basis points
• 1:50
  Speaker 1: and three for the ten year yield, more than the
• 1:55
  Speaker 1: US ten year yield, which is a remarkable sticker price
• 1:59
  Speaker 1: in in in Italy and shows you the concerns are
• 2:02
  Speaker 1: still very much there. And actually the auction, as interesting
• 2:07
  Speaker 1: as it was, they reduced the signs of the ten
• 2:10
  Speaker 1: uere to make sure they got it away, so it
• 2:13
  Speaker 1: was good. It was good to see and they did.
• 2:15
  Speaker 1: The five year was pretty strong, but that tenure perhaps
• 2:18
  Speaker 1: not as strong as it first looked. Yeah, so you
• 2:22
  Speaker 1: said it in a story last week. You're quoted as
• 2:25
  Speaker 1: saying that you would think of buying Italian bonds when
• 2:28
  Speaker 1: they were two hundred basis points higher in yield than
• 2:32
  Speaker 1: German bonds of similar maturity. We're past that point by far.
• 2:36
  Speaker 1: So have you been going along Italy. No, no, I
• 2:41
  Speaker 1: did think about it. You thought about it, reversed your
• 2:44
  Speaker 1: position and decided not so much. I think I think
• 2:49
  Speaker 1: I've said it was a sticker price. It's worth revisiting,
• 2:51
  Speaker 1: and I think this two to three hundred area is
• 2:54
  Speaker 1: the right level of risk for Italy, and it could
• 2:58
  Speaker 1: be a very volatile spread from here on out, and
• 3:01
  Speaker 1: it may be just just a reflection. I think that
• 3:04
  Speaker 1: there's a great Bloomberg story this morning over in Europe,
• 3:07
  Speaker 1: by the way, looking at how this is the third
• 3:09
  Speaker 1: volatility event this year, and perhaps we're looking at the
• 3:13
  Speaker 1: wrong thing. It's a bigger systemic issue that the liquidity
• 3:16
  Speaker 1: is being withdrawn around the world, in which case, you know,
• 3:20
  Speaker 1: three hundreds might look attractive, but it could be four
• 3:23
  Speaker 1: hundred tomorrow, it could be two hundred the next day,
• 3:25
  Speaker 1: it could be back to three hundred the day after.
• 3:28
  Speaker 1: I think it's a very difficult contract to get involved
• 3:30
  Speaker 1: with at the moment until you get a little bit
• 3:33
  Speaker 1: more certainty arrayin what's going on with the politics. And
• 3:37
  Speaker 1: if I missed the first thirty forty basis points, I
• 3:39
  Speaker 1: think that's fine, look just to kind of reader it.
• 3:45
  Speaker 1: Lisa's point um previous to the election, Italy really didn't
• 3:50
  Speaker 1: have a government. I believe the last popularly elected Prime
• 3:54
  Speaker 1: Minister of Italy was Sylvia Brellasconi. So it's not as
• 3:59
  Speaker 1: if they ever had a popularly elected government for quite
• 4:02
  Speaker 1: some time. So, really, is it possible to put politics
• 4:06
  Speaker 1: aside and focus just on the government's finances and say,
• 4:09
  Speaker 1: it doesn't matter who's in charge. This is the bill
• 4:13
  Speaker 1: and they still don't have a plan to pay it. Yeah,
• 4:17
  Speaker 1: and they need to pass the budget by the autumn
• 4:20
  Speaker 1: to be able to continue to pay for things. And
• 4:22
  Speaker 1: let's let's look at some of those problems that that
• 4:25
  Speaker 1: GDP ratio is still a hundred, Unemployment still eleven, budget
• 4:32
  Speaker 1: deficits improved by about a half, but it's still a
• 4:35
  Speaker 1: negative two and a half percent of GDP. These are
• 4:38
  Speaker 1: not great numbers for any government to be coming in,
• 4:42
  Speaker 1: but a technocratic one would probably keep it rolling alonger
• 4:46
  Speaker 1: if we got movement, five star and legal all those
• 4:50
  Speaker 1: numbers deteriorate as they try and put in place their
• 4:53
  Speaker 1: fiscal stimulus and try and finance it. And that's the
• 4:57
  Speaker 1: concern that we have. It's it's looked thing as if
• 5:00
  Speaker 1: they may do that, and you know, even if it's
• 5:03
  Speaker 1: July or it's September. You can't. I think you have
• 5:06
  Speaker 1: to sit here and think they are the next people
• 5:08
  Speaker 1: in power in Italy. So I guess, um, just taking
• 5:13
  Speaker 1: a step back looking at what this flash crash or
• 5:17
  Speaker 1: flash spike in yields means for the European bond market.
• 5:21
  Speaker 1: Some people were saying that it was due to a
• 5:23
  Speaker 1: lack of liquidity that the European Central Bank has kind
• 5:26
  Speaker 1: of sucked out so much of the volume from the
• 5:29
  Speaker 1: market that a relatively small group of people are determining prices.
• 5:34
  Speaker 1: Do you think that a lack of liquidity played into
• 5:36
  Speaker 1: what happened yesterday? Almost certainly, um, And it's it's difficult
• 5:41
  Speaker 1: therefore to think about what the right level is if
• 5:43
  Speaker 1: it's been a liquidity driven thing. But it looks a
• 5:45
  Speaker 1: lot of that was at the front end in that
• 5:47
  Speaker 1: two year contract where we've seen the most of the
• 5:49
  Speaker 1: volatility in the ten year space. As I said, I
• 5:52
  Speaker 1: think in the late two hundreds reflects a lot of
• 5:54
  Speaker 1: the risks that we're seeing in Italy that exists already
• 5:57
  Speaker 1: economically and actually could coming down the road. So yes,
• 6:01
  Speaker 1: liquidity is part of part of the question, but fundamentals
• 6:05
  Speaker 1: will reassert and the fundamentals aren't strong. Yeah, what about
• 6:09
  Speaker 1: with banks, because there is so often banks, particularly Italian banks,
• 6:13
  Speaker 1: yesterday and you're seeing a little bit of a recovery
• 6:15
  Speaker 1: today but really quite insignificant. I'm looking at un Credit
• 6:19
  Speaker 1: for example. It's up to touch, but it really had
• 6:21
  Speaker 1: been falling pretty dramatically over the past prior a few days.
• 6:25
  Speaker 1: Are you thinking that this could be an opportunity at
• 6:27
  Speaker 1: this point? Yeah, I think if there's if there's only
• 6:30
  Speaker 1: where i'd write like to go, it would be in banks,
• 6:33
  Speaker 1: perhaps not directly in Italy and maybe actually through places
• 6:36
  Speaker 1: like Spain where good strong domestic banks like Kisher Bank
• 6:41
  Speaker 1: one of our favorite names in the area. Um, they're
• 6:44
  Speaker 1: eight one is down five six points over the last
• 6:47
  Speaker 1: few days. I think that's down to really interesting levels again,
• 6:51
  Speaker 1: and if if we get back involved, I think that's
• 6:54
  Speaker 1: probably a place we do is go almost everywhere else
• 6:58
  Speaker 1: but Italy, because you've still got the same uncertainty if
• 7:00
  Speaker 1: you buy the banks in Italy as if you buy
• 7:02
  Speaker 1: the sovereign. But things like Spain are getting punished in
• 7:06
  Speaker 1: credit lands when they really shouldn't be. Look. I wonder
• 7:10
  Speaker 1: if you could just look a little bit to this
• 7:13
  Speaker 1: to your south, but not so far south. Um. Any
• 7:17
  Speaker 1: thoughts on the Brexit negotiations that are and aren't happening.
• 7:23
  Speaker 1: It's been a breath of fresh air that we've not
• 7:25
  Speaker 1: talked about Brexit for three four days. Yeah right, see,
• 7:27
  Speaker 1: I gave you that was an open up exactly. So
• 7:31
  Speaker 1: you know, I think the UK market's really been pretty
• 7:35
  Speaker 1: much ignoring Brexit. Um Sterling credit has been under performing
• 7:39
  Speaker 1: a little bit, but it's not dramatic. It's so internationally
• 7:43
  Speaker 1: focused anyway. It's one of the biggest markets that've got,
• 7:46
  Speaker 1: you know, non domestic issues in it. Around forty five
• 7:50
  Speaker 1: of the UK market is not UK companies um. And
• 7:53
  Speaker 1: actually things like the foot Sea is heavily dominated by
• 7:57
  Speaker 1: a dollar type companies like EP and Rio Tinto. So
• 8:02
  Speaker 1: the the impact on the UK has not been obvious
• 8:05
  Speaker 1: from a capital markets perspective. You're starting to see it
• 8:08
  Speaker 1: perhaps in the economics, where nervousness is coming out, people's
• 8:14
  Speaker 1: expectations of growth are coming down. UM. And that's where
• 8:18
  Speaker 1: the Bank of England has been flagging up as a concern.
• 8:21
  Speaker 1: And I think all it does it just pushes out
• 8:23
  Speaker 1: the interest rate story. We've got to leave it there,
• 8:26
  Speaker 1: but thanks very much. Luke Hickmore, senior investment manager Aberdeen
• 8:30
  Speaker 1: Standard Investments, joining us from Edinburgh, helping to manage more
• 8:34
  Speaker 1: than eight hundred and fifty billion dollars. Well, we want
• 8:56
  Speaker 1: to visit now with Mike McDonough. Here is the chief
• 9:00
  Speaker 1: on a missed for financial products at Bloomberg, and he
• 9:03
  Speaker 1: joins us here in our eleven three oh studios And
• 9:06
  Speaker 1: you know, Mike, I know we're gonna talk about China,
• 9:09
  Speaker 1: but just a little closer to home, if you don't mind,
• 9:11
  Speaker 1: I'd like to start with what's going on with NAFTA
• 9:13
  Speaker 1: because I understand that there's well, there was a deadline
• 9:16
  Speaker 1: right May seventeenth. Was was one deadline that kind of
• 9:19
  Speaker 1: came and went. There's supposed to be another deadline. I
• 9:22
  Speaker 1: believe it's Friday, in which the exemptions from sanctions from
• 9:28
  Speaker 1: tariffs rather on steel and aluminum, they disappear on on Friday.
• 9:33
  Speaker 1: Uh And then there's this Mexican election which is coming
• 9:36
  Speaker 1: up in July. What is going on with NAFTA? Well,
• 9:40
  Speaker 1: correct me if I'm wrong, but there's been quite a
• 9:41
  Speaker 1: few deadlines that have been postponed, and I think that
• 9:44
  Speaker 1: that is going to be the pattern that we're going
• 9:46
  Speaker 1: to continue seeing. I think that you know, obviously I
• 9:50
  Speaker 1: don't know what's happening in the negotiations, but it sounds
• 9:52
  Speaker 1: like there's some modest progress being made each time, but
• 9:55
  Speaker 1: they're not anywhere near having some sort of holistic conclusion,
• 9:59
  Speaker 1: some analized deal that they could announce, So I suspect
• 10:03
  Speaker 1: they'll kick the can again and hopefully continue working towards
• 10:06
  Speaker 1: a deal everyone could agree on. There's certainly been a
• 10:09
  Speaker 1: lot of and I saw Trudeau yesterday said he'd rather
• 10:12
  Speaker 1: have a no deal than a bad deal, which I
• 10:14
  Speaker 1: thought was interesting. Yeah, and he was speaking today as well.
• 10:18
  Speaker 1: Of course, Uh, A lot of people in the markets
• 10:20
  Speaker 1: have been dismissing trade talks as all noise, and even
• 10:25
  Speaker 1: the increased rhetoric between the U. S And China head
• 10:27
  Speaker 1: of talks this weekend in Beijing didn't really seem to
• 10:30
  Speaker 1: writtle markets that were more focused on Italy. And I'm
• 10:33
  Speaker 1: just wondering, I mean, what do you make of the
• 10:35
  Speaker 1: fact that ahead of this summit in China, President Trump
• 10:40
  Speaker 1: seems to be sort of taking a much harder line
• 10:43
  Speaker 1: and laying out details of tariffs to put on fifty
• 10:46
  Speaker 1: billion dollars of goods from China. Well, I don't think
• 10:49
  Speaker 1: the market has been ignoring what's happening with these trade talks.
• 10:52
  Speaker 1: Right the market is not performing this year like it
• 10:54
  Speaker 1: was performing last year. Uh. And there's a number of
• 10:57
  Speaker 1: reasons for that rates going up, be it what's happening
• 11:00
  Speaker 1: right now with Italy, but I think a lot of
• 11:02
  Speaker 1: that is concerns over what's happening with trade. Uh. You know,
• 11:05
  Speaker 1: I think what we're seeing right now is more of
• 11:07
  Speaker 1: the same we've been seeing. You know, last time I
• 11:10
  Speaker 1: was on the show, I said, you know, in the end,
• 11:12
  Speaker 1: I don't think we're going to see what's actually agreed
• 11:15
  Speaker 1: and put on the table is going to be a
• 11:17
  Speaker 1: shadow of what's being threatened. But I also said Rederick
• 11:20
  Speaker 1: would get worse before it gets better. Yes, although this
• 11:22
  Speaker 1: does have a different feel to it, And the reason
• 11:24
  Speaker 1: why is because it's yet another uh, sort of shift
• 11:29
  Speaker 1: in who's pulling the strings behind the curtain, who is
• 11:32
  Speaker 1: sort of making these decisions, And especially when you've got
• 11:35
  Speaker 1: Senator Marco Rubio trying to take a harder line in Congress,
• 11:39
  Speaker 1: it seems even the more confusing that that was an
• 11:42
  Speaker 1: interesting angle. But I think that what we're seeing right
• 11:44
  Speaker 1: now is positioning ahead of this weekend's talked, right, I
• 11:48
  Speaker 1: think that, um, it's mostly noise what we're hearing right now.
• 11:52
  Speaker 1: I think, you know, my concern would be, I think,
• 11:54
  Speaker 1: you know, there's an advanced team in Beijing right now
• 11:57
  Speaker 1: preparing for a meeting Wilbert Ross is going to be
• 11:59
  Speaker 1: having there this weekend. If for some reason he doesn't
• 12:02
  Speaker 1: end up going, or that meeting gets canceled for the
• 12:05
  Speaker 1: next step of these negotiations, that would be that would
• 12:08
  Speaker 1: be a bit of a red flag. But right now,
• 12:10
  Speaker 1: what we're seeing I don't think is is that alarming.
• 12:13
  Speaker 1: I think it's just posturing ahead of these talks. Well,
• 12:15
  Speaker 1: I understand that they're going to release a list of
• 12:18
  Speaker 1: affected goods for the Chinese tariffs June, with some implementation
• 12:24
  Speaker 1: at some point in the future. So I mean, it's
• 12:26
  Speaker 1: not as if they're going to do this tomorrow. Yeah,
• 12:29
  Speaker 1: and that's after the weekend, right So, you know, the
• 12:32
  Speaker 1: odd thing that we've had happened was we had Steve
• 12:34
  Speaker 1: Manusian come out and say the trade wars on hold. Uh.
• 12:38
  Speaker 1: Now we've had Peter Navarro come out and say, you know,
• 12:40
  Speaker 1: we we I regret that he made those comments and
• 12:43
  Speaker 1: then these threats of these new fifty billion in tariffs,
• 12:46
  Speaker 1: which again I think, you know, it's it's hard to
• 12:48
  Speaker 1: know who's in control of these negotiations from time to time. Well,
• 12:51
  Speaker 1: and just to just to throw this out there, I mean,
• 12:53
  Speaker 1: there's been bipartisan concern uh and frankly probably more support
• 12:58
  Speaker 1: from Democrats and Republicans UH saying that perhaps President Trump
• 13:02
  Speaker 1: will actually take too soft of a deal in his
• 13:05
  Speaker 1: eagerness to try to get some resolution with North Korea.
• 13:08
  Speaker 1: That is sort of one sort of narrative that's out there,
• 13:12
  Speaker 1: that's being put out there by Congress saying, look, he
• 13:15
  Speaker 1: wants a deal done with North Korea, so he is
• 13:17
  Speaker 1: willing to perhaps give up a little bit more, and
• 13:19
  Speaker 1: they want to ensure that that doesn't happen. Do you
• 13:22
  Speaker 1: think that's that's that's legitimate. No. I think that certainly
• 13:25
  Speaker 1: the North Korean negotiations are playing a role in how
• 13:28
  Speaker 1: we're negotiating trade with China. I do agree that you
• 13:31
  Speaker 1: could potentially have that that type of risk is is real.
• 13:35
  Speaker 1: But you know, at the end of the day, I
• 13:39
  Speaker 1: think that you most you know, as you pointed out,
• 13:42
  Speaker 1: both sides agree that there are some unfair trade practices
• 13:46
  Speaker 1: that China is perpetrating. But what's interesting is, you know,
• 13:49
  Speaker 1: a lot of our Western European developed market allies would
• 13:52
  Speaker 1: agree with the same. Uh. You know, I think it's
• 13:55
  Speaker 1: probably too late for this, but the best course of
• 13:57
  Speaker 1: action would have been some sort of multilateral, unified confrontation
• 14:02
  Speaker 1: with China, rather than the US going it alone and
• 14:04
  Speaker 1: almost looking uh, kind of looking like a bad guy
• 14:07
  Speaker 1: in terms of protectionists, you know, the protectionist policies. So
• 14:11
  Speaker 1: it's too late for that, but hopefully maybe somehow we
• 14:14
  Speaker 1: could move towards that direction. I think that would be better.
• 14:17
  Speaker 1: I think we have a better likelihood of winning because
• 14:19
  Speaker 1: instead of US just confronting China by ourselves, we're going
• 14:22
  Speaker 1: in with all of its major trading partners and saying, hey,
• 14:25
  Speaker 1: we believe X, Y and Z is unfair. We'd like
• 14:27
  Speaker 1: you to change this, and um, this becomes less of
• 14:30
  Speaker 1: a concern for markets. Yeah, but real quick, that doesn't
• 14:33
  Speaker 1: seem like that's going to happen, is it all right? Well?
• 14:37
  Speaker 1: Words of optimism and hope that our that He quickly
• 14:40
  Speaker 1: dashes us with Mike mcdonog, chief economist at for Financial
• 14:43
  Speaker 1: Products for Bloomberg LP. He has been prescient when it
• 14:46
  Speaker 1: comes to everything from z T E to that the
• 14:49
  Speaker 1: fact that rhetoric will probably get worse before it gets better.
• 14:52
  Speaker 1: So definitely a voice that is very important to listen to. Yeah,
• 15:10
  Speaker 1: a c change in the way that we look at
• 15:13
  Speaker 1: data protection and data privacy occurred last week in Europe
• 15:18
  Speaker 1: and frankly globally, and that is the implementation of Europe's
• 15:23
  Speaker 1: g d p R. And give us more of an
• 15:26
  Speaker 1: insight into what this means. I want to bring in
• 15:28
  Speaker 1: Scott Vernick. He's a partner at Fox Rothschild in Philadelphia. Scott,
• 15:33
  Speaker 1: before we dig in, just give us a brief overview
• 15:36
  Speaker 1: of the g d p R and how it has
• 15:39
  Speaker 1: been going since its implementation. I believe on Friday, sure,
• 15:44
  Speaker 1: so good morning Friday was the first date that g
• 15:48
  Speaker 1: d p R, or the General Data Protection Regulation coming
• 15:51
  Speaker 1: out of the European Union went into effect. UH. It's
• 15:55
  Speaker 1: been underway UH for about two years, which was the
• 15:59
  Speaker 1: lead time that the European Union and its member states
• 16:03
  Speaker 1: gave both companies in the European Union and companies in
• 16:06
  Speaker 1: the United States UH that have operations either directly in
• 16:11
  Speaker 1: the European Union UM or do business with the European
• 16:14
  Speaker 1: Union to get their house in order from a compliance
• 16:17
  Speaker 1: uh standpoint. And so what we're told is, you know,
• 16:21
  Speaker 1: roughly between you know, somewhere between sixteen eighty five percent
• 16:26
  Speaker 1: of American companies are at least somewhat compliant. UM. I'd
• 16:30
  Speaker 1: say there's a smaller percentage of those that are fully compliant. So, Scott,
• 16:35
  Speaker 1: has it gone pretty seamlessly so far? Is it really uh,
• 16:39
  Speaker 1: you know, are we're talking about full compliance here? Is
• 16:41
  Speaker 1: this going to be a phased in kind of approach well?
• 16:44
  Speaker 1: With the law demands? Is that you were supposed to
• 16:47
  Speaker 1: be fully compliant on May UM, and I think that
• 16:51
  Speaker 1: there will probably be fewer companies that can claim that
• 16:54
  Speaker 1: they are fully compliant, although I'm sure that everybody tried
• 16:57
  Speaker 1: to be fully compliant. Now. What we saw on May twenty,
• 17:00
  Speaker 1: for example, is that a number of media companies based
• 17:04
  Speaker 1: in the US went dark UM and did not enable
• 17:08
  Speaker 1: European residents or European citizens to access their news websites anymore.
• 17:14
  Speaker 1: So this would be true of the Chicago Tribune, for example,
• 17:17
  Speaker 1: and other media websites UM. And that was largely because
• 17:22
  Speaker 1: either they simply didn't want the headache of trying to
• 17:25
  Speaker 1: become gdb R compliant or they didn't want to spend
• 17:27
  Speaker 1: the money associated with it, and they didn't want to
• 17:29
  Speaker 1: risk potentially large fines for companies that are not compliant,
• 17:33
  Speaker 1: and other kinds of businesses as well, um that sell
• 17:37
  Speaker 1: you know, consumer goods and other kinds of products simply
• 17:40
  Speaker 1: went dark because again, the cost of compliance seemed to
• 17:43
  Speaker 1: outweigh the amount of business they might be doing with
• 17:46
  Speaker 1: those in the European Union accessing their websites. It's a
• 17:50
  Speaker 1: bit of a Hobson's choice though, right, because I mean
• 17:52
  Speaker 1: I've been receiving emails from a variety of sources in Europe,
• 17:56
  Speaker 1: in the European Union saying that if you want to
• 17:59
  Speaker 1: continue to receive information or emails from them, that you've
• 18:04
  Speaker 1: got to opt in and you click a box and
• 18:06
  Speaker 1: say I accept the new privacy rules and so on,
• 18:09
  Speaker 1: and then you just stay on with the same list, right.
• 18:11
  Speaker 1: I mean, it's not as if you're going to have
• 18:13
  Speaker 1: to physically do anything other than accept what they've already
• 18:16
  Speaker 1: told you to accept. That's right. I mean, from from
• 18:19
  Speaker 1: the individual consumer's perspective, from someone living in the EU
• 18:24
  Speaker 1: or one of its member states, it's really just a
• 18:26
  Speaker 1: question of giving the service provider UH a hard consent,
• 18:31
  Speaker 1: meaning that you have to click a box as opposed
• 18:33
  Speaker 1: to with default, and so that may seem relatively easy
• 18:37
  Speaker 1: from the standpoint of an individual consumer, although if you're
• 18:40
  Speaker 1: like most of us, you've been getting, you know, dozens
• 18:42
  Speaker 1: of emails saying, hey, can you consent so that we
• 18:45
  Speaker 1: can continue to give you access to our services. But
• 18:49
  Speaker 1: from the standpoint of the company, particularly a company that
• 18:52
  Speaker 1: does not have operations in the EU, the compliance obligations
• 18:56
  Speaker 1: are fairly extensive and fairly expensive. I mean, I think
• 19:00
  Speaker 1: that on average, for example, on average now companies in
• 19:04
  Speaker 1: the American companies have spent something like sixteen million dollars
• 19:08
  Speaker 1: to get compliant. Microsoft had something like fifteen hundred or
• 19:12
  Speaker 1: sixteen hundred engineers working full time to get it compliant.
• 19:16
  Speaker 1: So you know, you those are examples that perhaps it
• 19:20
  Speaker 1: at one end of the spectrum or the other. But
• 19:22
  Speaker 1: as you can see, a burden on a small business
• 19:24
  Speaker 1: could be substantial. So one thing that I'm struck by,
• 19:27
  Speaker 1: Scott is the idea that people are going to get
• 19:30
  Speaker 1: insight into just how valuable their data is and just
• 19:34
  Speaker 1: how much of their data they have out there and
• 19:37
  Speaker 1: I'm wondering, you know, what the progress is on companies
• 19:41
  Speaker 1: or services that allow individuals to sell access to their
• 19:44
  Speaker 1: own data basically profit from their own data, rather than
• 19:48
  Speaker 1: allowing a Facebook or Google to profit by by selling
• 19:52
  Speaker 1: their data to advertisers. Well, I mean that's exactly right.
• 19:57
  Speaker 1: I mean, so this is this is sort of what
• 19:59
  Speaker 1: I would call, uh, you know, this is what I
• 20:01
  Speaker 1: would call it the data security or the privacy sort
• 20:04
  Speaker 1: of paradox. I mean, in this country, essentially the bargain
• 20:08
  Speaker 1: is you give up your information in return you get
• 20:10
  Speaker 1: free products and services, um. And the default has always
• 20:14
  Speaker 1: been that the information doesn't really belong to you, It
• 20:17
  Speaker 1: belongs to whomever you're doing business with, Facebook, Google, you know,
• 20:20
  Speaker 1: you name it. UM. The default now in the in
• 20:24
  Speaker 1: the in the European Union and elsewhere is really something different,
• 20:28
  Speaker 1: and that is it's really about consumer control over the information.
• 20:32
  Speaker 1: Meaning it's my information, and if you want to use it,
• 20:35
  Speaker 1: you're gonna have to tell me exactly how you're using it, um,
• 20:39
  Speaker 1: And you're gonna have to get my consent for every
• 20:41
  Speaker 1: which way you are using it. If I want to
• 20:44
  Speaker 1: correct it, you're gonna have to let me correct it.
• 20:46
  Speaker 1: And if I want to take it with me because
• 20:47
  Speaker 1: I want to change telecom providers. You're gonna have to
• 20:49
  Speaker 1: let me do that. And so you're right that the
• 20:52
  Speaker 1: information then becomes much more valuable and then you know,
• 20:55
  Speaker 1: if you want to do something else with it, perhaps
• 20:57
  Speaker 1: you have to pay me for it. And if you
• 20:59
  Speaker 1: understand the historical underpinnings, particularly in the European Union, that
• 21:04
  Speaker 1: as that uh fear if you will, over aggregating data
• 21:09
  Speaker 1: on individuals is understandable. Thanks very much for being with us.
• 21:13
  Speaker 1: Scott Vernick is a partner at Fox Rothschild in Philadelphia,
• 21:18
  Speaker 1: talking about the new changes to data security rules as
• 21:22
  Speaker 1: a result of European Union regulations and how US companies
• 21:28
  Speaker 1: are and are not complying, which is increasing the cost
• 21:32
  Speaker 1: but also is offering consumers more protection over their individual data. Well,
• 21:53
  Speaker 1: we want to get some insight into what companies have
• 21:55
  Speaker 1: been doing with excess cash and indeed they have it
• 21:58
  Speaker 1: as a result of the tax overhaul plan that was
• 22:02
  Speaker 1: put into effect by the US Congress and signed by
• 22:04
  Speaker 1: President Donald Trump. And here to tell us more is
• 22:07
  Speaker 1: Matt Townsend, our global business reporter for Bloomberg News. And
• 22:11
  Speaker 1: you can follow Matt as we all do on Twitter
• 22:14
  Speaker 1: at Matt underscore Townsend on Twitter. All right, Matt, what
• 22:20
  Speaker 1: are companies doing? And I have a feeling that maybe
• 22:22
  Speaker 1: there isn't just one answer. You're right, um, I think
• 22:27
  Speaker 1: the best way to think about this is obviously the
• 22:29
  Speaker 1: tax cut, corporate tax cut, a lot more money flowing
• 22:32
  Speaker 1: to companies now. And basically we crunch the numbers on
• 22:36
  Speaker 1: the first quarter for the SMP five, basically all the
• 22:39
  Speaker 1: companies that have reported so far, and the big takeaway
• 22:42
  Speaker 1: is they have more money. They're spending more money, but
• 22:45
  Speaker 1: in similar ways. So if you think about a pie,
• 22:47
  Speaker 1: so the pie is getting bigger, but the proportions of
• 22:51
  Speaker 1: each piece are the same. And the way that's played
• 22:55
  Speaker 1: out is, you know, our buybacks of record highs, yes,
• 22:58
  Speaker 1: but as if you look at them as a ratio
• 23:01
  Speaker 1: of the market cap of the SMP space, the same
• 23:05
  Speaker 1: as it has been. And on each thing we looked
• 23:07
  Speaker 1: at capital expenditures, cash holdings, UM, dividends, buy backs, and
• 23:13
  Speaker 1: then you know some wage game data. It basically paints
• 23:17
  Speaker 1: the same picture of they're spending more on everything. Right, Well,
• 23:21
  Speaker 1: I guess that then the question becomes isn't this still
• 23:25
  Speaker 1: a win? Because that would mean that they are spending
• 23:26
  Speaker 1: more for hiring and compensation, and they are you know,
• 23:30
  Speaker 1: spending more are on research and development. So yeah, I
• 23:34
  Speaker 1: mean it's a political football. So you know, if you're
• 23:37
  Speaker 1: the Republicans and you're done the President Trump, I mean
• 23:39
  Speaker 1: you could say, yeah, you know, the tax cuts have
• 23:42
  Speaker 1: spurred more spending on these things that we wanted them to.
• 23:45
  Speaker 1: But the bottom line is corporate behavior and the SMP
• 23:47
  Speaker 1: five hundred hasn't changed. And that was one of the
• 23:50
  Speaker 1: things that you know, the Republicans pushed as as what
• 23:54
  Speaker 1: this might do is pushed companies to invest more in America,
• 23:58
  Speaker 1: to open their pocketbooks and in ways that they had before,
• 24:01
  Speaker 1: and to shift resources towards things that you know, are
• 24:05
  Speaker 1: supposed to help American workers. And we're not seeing that
• 24:08
  Speaker 1: they're spending more on everything. And it's not some sort
• 24:11
  Speaker 1: of big shift. Granted, this is only the first quarter,
• 24:13
  Speaker 1: and it takes a while for companies to sort of
• 24:15
  Speaker 1: react to such a thing so well, but but this
• 24:17
  Speaker 1: is an important point. In other words, people were arguing
• 24:21
  Speaker 1: that companies were holding back some of their investments because
• 24:24
  Speaker 1: tax policies weren't beneficial to them. Now that they've changed,
• 24:28
  Speaker 1: they're not necessarily allocating a greater proportion of their money
• 24:31
  Speaker 1: to those projects that were sort of one of the
• 24:34
  Speaker 1: things that was discussed. I just have to I just
• 24:36
  Speaker 1: have to ask, though, you know, is there a time
• 24:39
  Speaker 1: limit for which we can judge this because there was
• 24:42
  Speaker 1: some kind of benefit to investing in your operations earlier?
• 24:47
  Speaker 1: Correct after this tax law was passed? Right? Um, the
• 24:53
  Speaker 1: easy It was not an easy answer to that, but
• 24:56
  Speaker 1: it could take a lot of really look back and
• 24:58
  Speaker 1: say this had this profound effect or have an effect. Um.
• 25:02
  Speaker 1: But you know, even then, you know, the Chamber of
• 25:04
  Speaker 1: Commerce has basically come out and said one of the
• 25:07
  Speaker 1: pieces recently, we may never know if these tax cards
• 25:09
  Speaker 1: actually worked because there's so many variables and with the
• 25:13
  Speaker 1: economy and where where the economic cycle is. Um. So
• 25:16
  Speaker 1: it's not a great answer your question, but you know,
• 25:19
  Speaker 1: it could take a while. You know that. The early
• 25:21
  Speaker 1: read though is though nothing has changed matt uh on
• 25:25
  Speaker 1: a sight, Well it is on this topic, but it
• 25:27
  Speaker 1: kind of takes it from a different perspective because before,
• 25:30
  Speaker 1: just off the line, we were talking about the previous
• 25:34
  Speaker 1: reporting that had been done by variety of news agencies
• 25:39
  Speaker 1: organizations about this. While you may not be able to
• 25:43
  Speaker 1: really tell whether the tax reform worked in quotes, you
• 25:49
  Speaker 1: aren't able to tell a little bit about the perspective
• 25:52
  Speaker 1: of the news organizations that have been reporting this, right
• 25:54
  Speaker 1: because you know, you've kind of set it out. You said,
• 25:58
  Speaker 1: they're doing more of exactly the same they've all they've
• 26:00
  Speaker 1: been doing. But that's not the way it's been painted, right.
• 26:04
  Speaker 1: I mean, you our buy backs set and all time high, yes,
• 26:09
  Speaker 1: but so it's almost everything else. So if you wanted
• 26:12
  Speaker 1: to look at buy backs and say the tax cuts
• 26:15
  Speaker 1: not working, companies are just spending on buy backs, which
• 26:18
  Speaker 1: was you know, the sort of democratic talking points. Some
• 26:21
  Speaker 1: new news organizations have jumped on that sort of train.
• 26:24
  Speaker 1: You know thought, um, you could, and if you just
• 26:27
  Speaker 1: wanted to write about buy backs, you could. But you know,
• 26:30
  Speaker 1: here at Bloomberg, we focus a lot on how you
• 26:32
  Speaker 1: actually analyze data. And you know, any big number sounds big.
• 26:37
  Speaker 1: But if you look at the ratio which we're looking
• 26:39
  Speaker 1: at trailing twelve month cash flows, which basically is the
• 26:43
  Speaker 1: amount of money companies would have generated in cash over
• 26:45
  Speaker 1: the previous year, the ratio of buy backs to cash
• 26:49
  Speaker 1: flow is not an outlier. It went up a little
• 26:52
  Speaker 1: bit in the first quarter, But it's basically in line
• 26:55
  Speaker 1: with the average over the past five years. That ratio
• 26:57
  Speaker 1: was much higher during the Obama years and some quarters
• 27:00
  Speaker 1: so and then other news organizations have jumped on the
• 27:04
  Speaker 1: capital expenditures. Yes, they're up. Uh. You know a lot
• 27:08
  Speaker 1: of people expected capex to be up anyway this year
• 27:11
  Speaker 1: because of where we are in economic cycle. Um. But
• 27:14
  Speaker 1: if you look again at a ratio of capex versus
• 27:17
  Speaker 1: cash flow, it's not a big outlier. It's it's basically
• 27:19
  Speaker 1: in line with previous quarters in previous years. Really interesting.
• 27:23
  Speaker 1: Thank you so much of writing the story and for
• 27:25
  Speaker 1: bringing it to us. Matt Townsend is a global business
• 27:28
  Speaker 1: reporter for Bloomberg News. I recommend you read the story
• 27:32
  Speaker 1: the title I handed thirty billion dollars Corporate Americas splurging
• 27:36
  Speaker 1: on everything um and definitely an insightful look at the
• 27:39
  Speaker 1: big picture and not just the slice that you want
• 27:43
  Speaker 1: to focus on. Thanks for listening to the Bloomberg P
• 27:48
  Speaker 1: and L podcast. You can subscribe and listen to interviews
• 27:51
  Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 27:55
  Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
• 27:59
  Speaker 1: on Twitter to Lisa Abramo. It's one before the podcast.
• 28:02
  Speaker 1: You can always catch us worldwide on Bloomberg Radio