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The Smart Money May Be Getting Out of the Market Now: Booth · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim
• 0:08
  Speaker 1: Fox along with my co host Lisa A. Bramowitz. Each
• 0:11
  Speaker 1: day we bring you the most important, noteworthy, and useful
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• 0:17
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• 0:27
  Speaker 1: I want to focus in on housing a little bit more.
• 0:29
  Speaker 1: Danielle DiMartino Booth joining us now chief executive and Director
• 0:33
  Speaker 1: of Intelligence for Quill Intelligence l l C, also a
• 0:37
  Speaker 1: columnist for Bloomberg Opinion, and Danielle, before we go to
• 0:41
  Speaker 1: the Fed meeting minutes, I want to talk a little
• 0:44
  Speaker 1: bit about housing and what we've been seeing there, because
• 0:46
  Speaker 1: we got the disappointing housing starts yesterday. Today we get
• 0:49
  Speaker 1: a report from Zillo saying that rents have declined for
• 0:52
  Speaker 1: the first time since two thousand and twelve. What do
• 0:54
  Speaker 1: you make of this weakness? Well, I think it's a
• 0:57
  Speaker 1: simple matter matter of affordability at this point. Um uh Night.
• 1:02
  Speaker 1: Black Night put out an interesting report last week that
• 1:04
  Speaker 1: showed that in two thousand seven two in two thousand seventeen,
• 1:07
  Speaker 1: the monthly mortgage payment for a household increased by three percent,
• 1:11
  Speaker 1: and as we know, was in a time of very
• 1:14
  Speaker 1: rapidly rising home prices. But because mortgage rates have ticked
• 1:17
  Speaker 1: up so far this year, they're up sixteen and that's
• 1:21
  Speaker 1: before we had this latest uptick. Okay, so where do
• 1:24
  Speaker 1: you see how it's going from here? I think housing
• 1:26
  Speaker 1: has has has peaked. I think housing has peaked and
• 1:29
  Speaker 1: rolled over. Um. I'm a good friend with David Rosenberg,
• 1:31
  Speaker 1: and he and I were early on and calling the
• 1:34
  Speaker 1: last peak and housing. And you know, if you look
• 1:37
  Speaker 1: across the spectrum, the hottest, hottest markets like San Jose,
• 1:41
  Speaker 1: San Francisco um actually eight of the top ten uh
• 1:45
  Speaker 1: markets um UM in terms of losing home prices falling
• 1:49
  Speaker 1: home prices last month. We're on the West coast and
• 1:52
  Speaker 1: these are usually you're leading indicators when you're when your
• 1:55
  Speaker 1: hottest markets start to see home price declines. And that's
• 1:57
  Speaker 1: exactly what we've seen. Price leads demand and we're obviously
• 2:01
  Speaker 1: seeing a steep fall off in demand, especially if you
• 2:04
  Speaker 1: looked at those uh NBA purchase applications for yesterday morning,
• 2:07
  Speaker 1: we've gone net net year over year eight percent down
• 2:11
  Speaker 1: in terms of purchase applications. That's a twenty month low.
• 2:15
  Speaker 1: Danielle speak about the automobile industry. Is that another industry
• 2:20
  Speaker 1: group that you believe has peaked in terms of sales?
• 2:23
  Speaker 1: What ms? Yes, and it's peaked so very quickly. For
• 2:28
  Speaker 1: some time now, the used car business has really been
• 2:31
  Speaker 1: holding up consumption, and it's been holding up the entire
• 2:34
  Speaker 1: auto industry because people were able to get a relative
• 2:37
  Speaker 1: bargain because over half of the cars coming off lease
• 2:40
  Speaker 1: in two thousand eighteen or SUVs, so you can go
• 2:44
  Speaker 1: in and get something for basically half the price. But
• 2:47
  Speaker 1: the inventories have shot up on used cars. The inventories
• 2:50
  Speaker 1: are going up very rapidly for new cars. And I
• 2:54
  Speaker 1: think that households has hit their pain threshold with the
• 2:56
  Speaker 1: average car price hitting record levels, and that the same
• 3:00
  Speaker 1: was the case with uth car Again, those prices are
• 3:03
  Speaker 1: turning as well. And if you look at housing and
• 3:05
  Speaker 1: autos in the aggregate, they always lead the economy into
• 3:08
  Speaker 1: recovery and into recession. Here's what I'm struggling with. I'm
• 3:12
  Speaker 1: trying to uh square this idea of a slowing housing
• 3:16
  Speaker 1: market a slowing auto market, the idea that households in
• 3:20
  Speaker 1: America aren't willing to shell out for a car, don't
• 3:22
  Speaker 1: want to incur the extra debt. At the same time
• 3:25
  Speaker 1: that small business and consumer confidence is soaring through the
• 3:28
  Speaker 1: roof to record highs, the leading economic indicators that just
• 3:31
  Speaker 1: came out show ongoing strength. It seems to be accelerating
• 3:34
  Speaker 1: going forward. I don't get the disconnect here. Can you
• 3:38
  Speaker 1: try to help me with that? Yeah, no, it's it is. Uh,
• 3:41
  Speaker 1: there are definitely cross current in the economic data right now.
• 3:45
  Speaker 1: A lot of things don't make sense. Um. But if
• 3:49
  Speaker 1: you actually look at the latest University of Michigan confidence survey,
• 3:52
  Speaker 1: home buying conditions and auto buying conditions have crashed to
• 3:57
  Speaker 1: the lowest level together since the early nineteen eighties. I mean,
• 4:02
  Speaker 1: we've already shot well passed the priority in terms of
• 4:06
  Speaker 1: how households perceived buying conditions for automobiles and homes. And
• 4:10
  Speaker 1: I think part of the problem is, Yes, wages have
• 4:13
  Speaker 1: picked up off the floor. If you look at average
• 4:16
  Speaker 1: our learnings, they're up two. That's great, but that can
• 4:20
  Speaker 1: in no way offset the increase that I just mentioned
• 4:24
  Speaker 1: in the average monthly mortgage payment so far this year.
• 4:27
  Speaker 1: You just can't You can't square the circle. Well, Danyelle,
• 4:30
  Speaker 1: does that mean in your opinion that investors on a
• 4:32
  Speaker 1: panic now and avoid the rush later on. Well, I
• 4:36
  Speaker 1: think that investors should be very weary of the fact
• 4:40
  Speaker 1: that the FED is intent on continuing to raise interest rates.
• 4:43
  Speaker 1: Of course, we're seeing a cycle high today in the
• 4:45
  Speaker 1: two years, so I think those FED meeting minutes are
• 4:47
  Speaker 1: being interpreted right rightly so as being hawkish because so
• 4:51
  Speaker 1: many of the prior doves are saying that it's appropriate
• 4:54
  Speaker 1: to continue raising beyond the neutral rate, people like Lele Brainer,
• 4:57
  Speaker 1: Charlie evans Um. So I think that investors should be
• 5:02
  Speaker 1: paying very close attention. I mean when when companies like
• 5:05
  Speaker 1: Lenar put rialto Capital It's real estate lending group up
• 5:08
  Speaker 1: for sale, When Goldman Sachs steps back from its direct
• 5:11
  Speaker 1: lending to consumers, these are all again, They're just there,
• 5:15
  Speaker 1: their red flags that all be right, that are being
• 5:18
  Speaker 1: raised that maybe the smart money is trying to get
• 5:20
  Speaker 1: out now. So just you mentioned the FED FED meeting
• 5:24
  Speaker 1: minutes that we got yesterday, and I'm looking right now
• 5:26
  Speaker 1: at FED funds futures for December and they are absolutely
• 5:31
  Speaker 1: getting slammed. In other words, people are quickly priced again
• 5:34
  Speaker 1: an extra hike later this year. What was it in
• 5:36
  Speaker 1: the meeting minutes that you think gave traders such confidence
• 5:39
  Speaker 1: that this was a hawkish Fed. Well, again, um, I'll
• 5:43
  Speaker 1: go back to the idea of the FED being comfortable
• 5:47
  Speaker 1: with going beyond neutral, the knowledge that J. Powell believes
• 5:50
  Speaker 1: that neutral is three and therefore you are implying one
• 5:54
  Speaker 1: to three or four five more interest rate increases before
• 5:58
  Speaker 1: the Fed feels that it's appropriate to step back and pause.
• 6:02
  Speaker 1: And I think that going into the minutes, I think
• 6:04
  Speaker 1: that there was a hope that there was going to
• 6:07
  Speaker 1: be a signal that the FED would potentially pause in
• 6:10
  Speaker 1: December and revisit come March. But again, I think investors
• 6:15
  Speaker 1: have to be you know, there's only a six percent
• 6:16
  Speaker 1: probability that the FED goes in January. But if Jo
• 6:20
  Speaker 1: feels like he needs to get this, and I think
• 6:21
  Speaker 1: he'll show the markets that he's scheduled press conferences after
• 6:25
  Speaker 1: every single FOMC meeting for a reason, So I'll be
• 6:28
  Speaker 1: paying very attention to what he has to say at
• 6:30
  Speaker 1: the press conference in December. Thanks very much for being
• 6:33
  Speaker 1: with us. Danielle DiMartino Booth, chief Executive director of Intelligence
• 6:38
  Speaker 1: for Quill Intelligence she's also a columnist for Bloomberg Opinion.
• 6:47
  Speaker 1: We're getting some conflicting messages out of Washington, d C.
• 6:50
  Speaker 1: On one hand, we just heard from Secretary of State
• 6:53
  Speaker 1: Mike Pompeo saying that we want to give Saudi Arabia
• 6:56
  Speaker 1: a couple more days to conduct a full investigation and
• 6:58
  Speaker 1: then we'll take it from there in order to determine
• 7:01
  Speaker 1: what to do over the the missing journalists who wrote
• 7:05
  Speaker 1: for the Washington Post. And now we're getting news the
• 7:07
  Speaker 1: Treasure Secretary Stephen Minichian Minution has withdrawn from the Saudi
• 7:11
  Speaker 1: Arabian conference that was heralded as a momentous period for
• 7:16
  Speaker 1: the nation with respect to attracting international investments. Joining us
• 7:21
  Speaker 1: now to try to passe through what this means for
• 7:23
  Speaker 1: the relationship between the U S and Saudi Arabia is
• 7:26
  Speaker 1: Dr ellen Wald, president of Transversal Consulting and author of
• 7:29
  Speaker 1: Saudi Inc. Joining us by phone. Dr Wald, thank you
• 7:33
  Speaker 1: so much for being here. So let's just start with
• 7:36
  Speaker 1: what is the relationship between the US and Saudi Arabia
• 7:40
  Speaker 1: and how much do both sides have to lose? Here?
• 7:43
  Speaker 1: I would I would describe the relationship between Saudi Arabia
• 7:48
  Speaker 1: and the United States as one of strategic partnership. I
• 7:51
  Speaker 1: wouldn't go so far to say as the two countries
• 7:54
  Speaker 1: are allies, but they are strategic partners, and right now
• 7:59
  Speaker 1: I think the relations ship is rather lopsided in favor
• 8:02
  Speaker 1: of the United States. Actually, unlike as was the case
• 8:07
  Speaker 1: in Ninete, the United States is not reliant on Saudi oil.
• 8:12
  Speaker 1: Is still a component of the makeup of the US
• 8:17
  Speaker 1: all of the oil at the US imports, but it's
• 8:19
  Speaker 1: not an especially significant one, and I think that that
• 8:23
  Speaker 1: really shifts the relationship. Not only that, but Saudi Arabia
• 8:27
  Speaker 1: is trying to attract foreign business, in particular American businesses
• 8:31
  Speaker 1: to come to the kingdom to really jump start their
• 8:35
  Speaker 1: non oil economy. So I think this gives us quite
• 8:38
  Speaker 1: a bit of leverage in terms of the relationship. Why
• 8:42
  Speaker 1: is the United States and Saudi Arabia, Why is that
• 8:46
  Speaker 1: relationship described as so strategic by administration officials? What does
• 8:51
  Speaker 1: the United States get from Saudi Arabia other than around
• 8:55
  Speaker 1: what eight thousand barrels of oil? Well, we do get
• 9:00
  Speaker 1: strategic uh advantages in terms of the Middle East. Saudi
• 9:05
  Speaker 1: Arabia to support US efforts against Iran, and they can
• 9:10
  Speaker 1: be or they can play an important stabilizing role. I
• 9:14
  Speaker 1: think that, Um, we've been hearing a lot about how
• 9:17
  Speaker 1: important it is to use Saudi Arabia as a counterweight
• 9:20
  Speaker 1: to Iran, and I can definitely see that that would
• 9:23
  Speaker 1: be an important role going forward. But but hang on,
• 9:26
  Speaker 1: hang on one second, doctor, Well, is it possible though that,
• 9:30
  Speaker 1: in fact you described it earlier, said the United States
• 9:32
  Speaker 1: has the greater leverage here? Is it possible that Saudi
• 9:36
  Speaker 1: Arabia itself will become destabilized? Aren't they involved in a
• 9:40
  Speaker 1: civil war and Yemen? Well, they are, and that is
• 9:44
  Speaker 1: a big issue here because the Saudis see themselves as
• 9:47
  Speaker 1: kind of holding back these Iranian backed forces in Yemen.
• 9:52
  Speaker 1: But I think we need to ask the question of well,
• 9:54
  Speaker 1: just how good a job are they actually doing in
• 9:57
  Speaker 1: this and is this war really in America's strategic interests.
• 10:01
  Speaker 1: It's becoming up a political, uh nightmare in some senses,
• 10:05
  Speaker 1: because UM politicians are really questioning whether the U should
• 10:09
  Speaker 1: even be supplying the Saudis with the weapons to continue
• 10:13
  Speaker 1: to conduct the war that doesn't seem to have any
• 10:15
  Speaker 1: hope of succeeding. So, Dr World, I want to shift
• 10:18
  Speaker 1: back to the news that we got this morning with
• 10:21
  Speaker 1: respect to Treasury Secretary Steven Mnuchin pulling out of this
• 10:24
  Speaker 1: forum which was supposed to bring in American and other
• 10:28
  Speaker 1: international business to Saudi Arabia, that they in a way
• 10:31
  Speaker 1: that they would like. And meanwhile, on the flip side,
• 10:34
  Speaker 1: Mike Pompeio saying, give them the benefit of the doubt
• 10:37
  Speaker 1: for now, not guilty and not guilty until proven. So,
• 10:41
  Speaker 1: uh so, what's your perspective? Why are we getting conflicting messages,
• 10:45
  Speaker 1: especially at a time when even Republican leaders are coming
• 10:48
  Speaker 1: out and saying this smells bad. It wasn't. What we're
• 10:52
  Speaker 1: seeing is we're seeing companies and now the Secretary of
• 10:58
  Speaker 1: Treasury take a symbolic stance saying, look, this is an issue,
• 11:02
  Speaker 1: this is a huge public relations issue, and we're making
• 11:04
  Speaker 1: a statement by not showing up ourselves. However, just because
• 11:09
  Speaker 1: the executives aren't going doesn't mean or the top executives
• 11:12
  Speaker 1: doesn't mean they're not sending other people to this conference.
• 11:16
  Speaker 1: I know that some of the high profile CEO pull
• 11:18
  Speaker 1: outs are there, they're still sending a lower level executives
• 11:22
  Speaker 1: to the conference. So I think it's mainly symbolic in
• 11:26
  Speaker 1: that sense. And I do think what Pompeo is saying
• 11:29
  Speaker 1: is that we're going to hold off on any potential
• 11:32
  Speaker 1: UM retributions or any targeted sanctions. So I don't think
• 11:37
  Speaker 1: that they're giving the Saudis a free path, but they
• 11:41
  Speaker 1: do want to at least see if they can find
• 11:43
  Speaker 1: out what happened to this man and then determine what
• 11:47
  Speaker 1: measures might be appropriate. With Turkey as a NATO ally
• 11:51
  Speaker 1: of the United States, doesn't it present a quandary for
• 11:56
  Speaker 1: the administration to believe either what the Turkish government says
• 12:02
  Speaker 1: or what the Saudi Arabian government says. And this is
• 12:07
  Speaker 1: this is part of this huge conundrum, which is who's believable?
• 12:11
  Speaker 1: Who can we trust as credible. I think that there's
• 12:15
  Speaker 1: been there's been a lot of statements coming out of
• 12:18
  Speaker 1: the Turkish media, possibly pushed by the Turkish government, which
• 12:22
  Speaker 1: don't really add up. And the Saudis are not always
• 12:26
  Speaker 1: the most credible when it comes to um being transparent.
• 12:31
  Speaker 1: They're not very transparent about what goes on within their
• 12:33
  Speaker 1: kingdom for sure, So I don't think we can necessarily
• 12:36
  Speaker 1: count on them to be transparent. So it would be
• 12:39
  Speaker 1: very interesting to see what they do come up with.
• 12:41
  Speaker 1: And how credible or not that is well, And I
• 12:45
  Speaker 1: just I guess that if things stay the way they are.
• 12:47
  Speaker 1: How big of a liability is this for businesses in
• 12:50
  Speaker 1: Saudi Arabia, including ones that you speak with. I think
• 12:54
  Speaker 1: that include potentially be a big liability, particularly the public
• 12:58
  Speaker 1: relations aspect. And I don't see that for for companies
• 13:03
  Speaker 1: it's such a huge up necessarily a part of their business.
• 13:06
  Speaker 1: They could pull out and you know, go find plenty
• 13:09
  Speaker 1: of business elsewhere. But for Saudi Arabia that could present
• 13:12
  Speaker 1: a problem. If a lot of American businesses just suddenly
• 13:15
  Speaker 1: pick up and leave as a result of the terrible
• 13:18
  Speaker 1: pr or as a result even of some American actions
• 13:22
  Speaker 1: against Saudi Arabia, I think it would be much worse
• 13:24
  Speaker 1: for Saudi Arabia as a country than it would be
• 13:27
  Speaker 1: for the businesses that do work there. Have you formed
• 13:31
  Speaker 1: an opinion as to what happened to Jamal kashog in
• 13:36
  Speaker 1: the Saudi Arabian consulate in is stumble? You know, every
• 13:42
  Speaker 1: time I think I have formed an opinion, then more
• 13:45
  Speaker 1: information comes out that then makes me question it. So um,
• 13:50
  Speaker 1: I really can't say at this point what did or
• 13:53
  Speaker 1: did not go on there all right, Well, I guess
• 13:56
  Speaker 1: this is going to be an unfold Is there anything
• 13:58
  Speaker 1: that we should be paying attention to just breathe fee
• 14:00
  Speaker 1: that we are not mentioning As far the U Saudi
• 14:02
  Speaker 1: Arai Arabia relationship, I think we should be paying attention
• 14:07
  Speaker 1: to what's going on UM Within the administration. I think
• 14:11
  Speaker 1: that they're probably trying to work out what the possible
• 14:16
  Speaker 1: set of responses could be. UM. There's definitely a tension
• 14:19
  Speaker 1: between these military deals and whatnot. But I do think
• 14:23
  Speaker 1: that we are potentially coming to a place where the
• 14:26
  Speaker 1: United States may have leverage to be able to put
• 14:29
  Speaker 1: some pressure on Saudi Arabia to to maybe make some
• 14:32
  Speaker 1: changes in the kind of things that are most bothersome
• 14:35
  Speaker 1: to us, like these human rights violations. Political. We've got
• 14:39
  Speaker 1: to leave We've got to leave it there. Dr ellen
• 14:41
  Speaker 1: Wald is the president of Transversal Consulting and the author
• 14:44
  Speaker 1: of Saudi Inc. All right, let's talk about active management
• 14:51
  Speaker 1: when it comes to equities. Invest Go is putting five
• 14:55
  Speaker 1: point seven billion dollars behind active management as it acquires
• 15:00
  Speaker 1: Oppenheimer Funds, and here to tell us more about it
• 15:03
  Speaker 1: is Peggy Collins, us investing team leader here at Bloomberg, Peggy,
• 15:08
  Speaker 1: this is a pretty big deal, isn't it? It is.
• 15:10
  Speaker 1: It's a really big deal for two main reasons. One
• 15:14
  Speaker 1: because Oppenheimer Funds is this company that's been around for decades.
• 15:17
  Speaker 1: It's known as a stock and bond picking firm, and
• 15:20
  Speaker 1: they've been owned in the last several years by a
• 15:23
  Speaker 1: big insurance exactly called Mass Mutual. And today the deal
• 15:27
  Speaker 1: was it was a big deal valued at about five
• 15:29
  Speaker 1: point seven billion dollars. Where Investco, which is the fourth
• 15:32
  Speaker 1: largest provider of E t F products, so passive not
• 15:36
  Speaker 1: the active type strategies that Oppenheimer has, is the one
• 15:39
  Speaker 1: that bought it. So it was it was it is
• 15:41
  Speaker 1: a big deal because essentially, what they're saying is we're
• 15:44
  Speaker 1: making a bet that active management is not dead. So
• 15:48
  Speaker 1: is that the bet, or is the bet that if
• 15:50
  Speaker 1: you consolidate enough assets, it doesn't matter how much you
• 15:54
  Speaker 1: have in active management because you can just collect the
• 15:57
  Speaker 1: fees on passive funds. In other words, is this just
• 16:00
  Speaker 1: an economies of scale issue? I think it is in part.
• 16:03
  Speaker 1: But I do think that what firms are starting to realize,
• 16:06
  Speaker 1: or at least the bet that they're making, is you
• 16:08
  Speaker 1: not only need scale but you need something other than
• 16:12
  Speaker 1: low fee index funds and ETFs. Why because you need
• 16:15
  Speaker 1: to make revenue somehow. So if you can bring people
• 16:19
  Speaker 1: into the company or into your products via low cost
• 16:22
  Speaker 1: or even free funds like we saw Fidelity announced in August,
• 16:26
  Speaker 1: then you can potentially sell them something more expensive, like
• 16:29
  Speaker 1: your international funds. I say international because Oppenheimer Funds is
• 16:33
  Speaker 1: known for some of its emerging market strategies, international strategies
• 16:36
  Speaker 1: which do tend to charge higher fees. And just to
• 16:39
  Speaker 1: give the numbers here, Oppenheimer Funds has about two hundred
• 16:43
  Speaker 1: and forty two hundred and fifty billion dollars work assets.
• 16:48
  Speaker 1: You add that to what invest Go already has and
• 16:51
  Speaker 1: what are we at? A trillion four one point to
• 16:54
  Speaker 1: trillions nicely right? Well? These days you know a billion here,
• 16:59
  Speaker 1: a billion there are. So it is this also an
• 17:03
  Speaker 1: admission that the revenue uh capitalization for investments is worth
• 17:11
  Speaker 1: paying attention to because Oppenheimer has a variety of funds
• 17:15
  Speaker 1: that are not so much weighted based on a company's
• 17:18
  Speaker 1: market cap, but they're weighted on the revenue performance of
• 17:22
  Speaker 1: a company. That's right. And they're also they do have
• 17:24
  Speaker 1: some smart beta type strategies so they're they're betting on again,
• 17:29
  Speaker 1: like making a different mix of selection, whether it be
• 17:32
  Speaker 1: for emerging market stocks with a lot of managers spend
• 17:35
  Speaker 1: a lot of time on or in terms of creating
• 17:37
  Speaker 1: some of these smart beta e t f s where
• 17:39
  Speaker 1: you use different things than market cap to follow them.
• 17:41
  Speaker 1: So I think it's interesting. But I do think on
• 17:43
  Speaker 1: the revenue point, and to Lisa's point, when you have
• 17:46
  Speaker 1: more scale, even if you have investors buying low fee products,
• 17:50
  Speaker 1: that's that's a lot of revenue on low fee which
• 17:52
  Speaker 1: helps you. So we're really seeing a barbelling in the
• 17:54
  Speaker 1: industry is squeezing out of the middle between those who
• 17:57
  Speaker 1: are managing over a trillion assets and those who are
• 18:00
  Speaker 1: really really niche players. In the middle is getting squeezed out.
• 18:03
  Speaker 1: Is there anything we can infer from the price tag here?
• 18:07
  Speaker 1: I think it's a question mark. I'm not sure if
• 18:09
  Speaker 1: we know yet how much we can infer the stock.
• 18:12
  Speaker 1: The stock is doing well. Investco shares are up this
• 18:14
  Speaker 1: morning about three point seven percent so far, so the
• 18:17
  Speaker 1: market is reacting pretty well to it, meaning that probably
• 18:20
  Speaker 1: Investco got a little bit of a deal in the
• 18:22
  Speaker 1: market size. Well. It's interesting because when we first reported
• 18:26
  Speaker 1: the potential for the deal back in September, a lot
• 18:29
  Speaker 1: of analysts were saying, WHOA, that sounds like a lot
• 18:31
  Speaker 1: of money to pay for for an asset manager. Today,
• 18:34
  Speaker 1: we've seen asset manager stocks really struggle over the past
• 18:37
  Speaker 1: year in part because of this feed compression, but the
• 18:39
  Speaker 1: market seems to be reacting pretty well today to it.
• 18:42
  Speaker 1: So we'll see if they're really able to cut some costs,
• 18:45
  Speaker 1: make some cost savings out of it, and then continue
• 18:47
  Speaker 1: to generate more revenue with the bigger scale. And and
• 18:51
  Speaker 1: just to be clear there, the deal involves preferred shares, right,
• 18:55
  Speaker 1: I mean this is preferred in common stock of invest
• 18:59
  Speaker 1: Go to pay for the deal. I definitely had to
• 19:01
  Speaker 1: get my calculator out this morning before seven am, which
• 19:05
  Speaker 1: was a little rough around the edges. But yes, because
• 19:08
  Speaker 1: this then means that mass mutual by getting stock, ends
• 19:11
  Speaker 1: up owning fifteen per cent of Investco. That's right, They're
• 19:16
  Speaker 1: they're ending up as a big shareholder. And yes, it
• 19:20
  Speaker 1: was a combo deal of about four billion in preferred
• 19:23
  Speaker 1: chairs and then eighty one point nine million in common chairs,
• 19:26
  Speaker 1: which based on the price yesterday, brings you of Investco yesterday.
• 19:29
  Speaker 1: I'm sorry, um, yesterday brings you to about five point
• 19:33
  Speaker 1: seven billion. Peggy Collins, thank you so much for being
• 19:36
  Speaker 1: with us. I'm sure this will not be the last
• 19:37
  Speaker 1: time that we talked about consolidation in the asset management sector.
• 19:40
  Speaker 1: As many predict, there is much more to come. Peggy Collins,
• 19:44
  Speaker 1: the US investing team leader and extraordinary person all around.
• 19:51
  Speaker 1: The U S. Treasury Department has stopped short at declaring
• 19:54
  Speaker 1: China a currency manipulator. This as part of its semi
• 19:58
  Speaker 1: annual report on far nex change rates. Here to tell
• 20:01
  Speaker 1: us more, Stephen Englander, global head of g ten FX
• 20:05
  Speaker 1: Research and North American macro Strategy for Standard Charter Bank.
• 20:09
  Speaker 1: He is also a Bloomberg opinion columnist. Stephen Englander, thanks
• 20:13
  Speaker 1: very much for being with us. Does it matter that
• 20:16
  Speaker 1: the US Treasury has not accused China of currency manipulation
• 20:23
  Speaker 1: when President Donald Trump seems to be in a contradictory
• 20:28
  Speaker 1: position by saying that the Chinese have been gaming the
• 20:32
  Speaker 1: value of the Chinese currency you want in order to
• 20:34
  Speaker 1: gain an advantage in trade? Well, yeah, I think the
• 20:40
  Speaker 1: US is a difficult situation and certainly, um any country
• 20:44
  Speaker 1: that's not on the list, can you know, make a
• 20:47
  Speaker 1: case that they've been certified innocent of currency manipulation. UM.
• 20:52
  Speaker 1: And then actually the language and the report you know,
• 20:54
  Speaker 1: with respect to China and a couple of the other
• 20:56
  Speaker 1: countries was was not UM. Well, it was very a
• 20:59
  Speaker 1: matter of fact act and and and you know, quite
• 21:01
  Speaker 1: accurate in terms of saying that it doesn't look like
• 21:03
  Speaker 1: they've been doing much in the market. UM. You know.
• 21:08
  Speaker 1: But the thing is the currency manipulation law itself. Uh,
• 21:12
  Speaker 1: it's a very dated law. UM. It comes from a
• 21:15
  Speaker 1: period of time when um modest threats of sanctions from
• 21:20
  Speaker 1: the US UM would have a big impact on what
• 21:24
  Speaker 1: other countries we're doing. And you know, the two thousand
• 21:27
  Speaker 1: and fifteen law, which was the son of law UM
• 21:32
  Speaker 1: had the three criterion which are are actually quite hard
• 21:35
  Speaker 1: to meet, and no country met it. So it would
• 21:37
  Speaker 1: have been hard to actually come out and say, look, UM,
• 21:41
  Speaker 1: by our standards, we you know they're manipulating. UM. But
• 21:44
  Speaker 1: the the actual trade dispute has gone so far beyond
• 21:48
  Speaker 1: you know what this law was meant to deal with
• 21:51
  Speaker 1: that the the finding is not very relevant. Okay, so
• 21:54
  Speaker 1: the finding may not be relevant, but the market reaction is.
• 21:57
  Speaker 1: And a lot of people are attributing the sell off
• 21:59
  Speaker 1: in the U n uh to this ruling that basically
• 22:04
  Speaker 1: traders are betting that China will allow its currency to
• 22:07
  Speaker 1: devalue more given the fact that the US has not
• 22:11
  Speaker 1: labeled it a currency manipulator. Are traders right? Um? Well,
• 22:16
  Speaker 1: I I think you know, I think the seven in
• 22:20
  Speaker 1: in you know, this sort of hard read line of
• 22:23
  Speaker 1: seven was always more in traders minds than than anywhere else.
• 22:28
  Speaker 1: Just to be clear, that means seven U per dollar
• 22:30
  Speaker 1: and currently where at six point nine five per dollar Carran. Yeah,
• 22:34
  Speaker 1: And you know, I think it's it's genuinely the case
• 22:38
  Speaker 1: that the you know, the Chinese want the currency to
• 22:40
  Speaker 1: be stable. But you know, again it doesn't mean in
• 22:42
  Speaker 1: all times, in all places and under all circumstances. Um.
• 22:45
  Speaker 1: But the I think it's a stretch to say that
• 22:49
  Speaker 1: not being named a manipulator changes their decision you know, parameters,
• 22:56
  Speaker 1: to any significant degree. I mean, um, I think it's
• 23:01
  Speaker 1: all things being equal to the U s we have
• 23:02
  Speaker 1: just as soon not had to issue this report because
• 23:07
  Speaker 1: it was it's clear doesn't do the much good. Um.
• 23:10
  Speaker 1: And it's it's it's dated as a as a as
• 23:13
  Speaker 1: a tool for trade negotiations or currency negotiations. Stephen Englander,
• 23:18
  Speaker 1: you mentioned that there are other countries mentioned in the report,
• 23:22
  Speaker 1: for example the Euro appearing undervalued and Germany being called out. Yes,
• 23:31
  Speaker 1: and and the promin calling out Germany is that they
• 23:34
  Speaker 1: don't have a currency. Um, you know, they're subject to
• 23:39
  Speaker 1: you know, their currency moves subject to what the the
• 23:41
  Speaker 1: ECB decides. But truly the U. S. Treasury knows that, well,
• 23:46
  Speaker 1: they know that. But that's kind of not you know,
• 23:49
  Speaker 1: not the way the law is written. Right, So is
• 23:51
  Speaker 1: this a political document at this point? You know, I'd
• 23:55
  Speaker 1: say it's more anachronism. It dates back from a period
• 23:59
  Speaker 1: where this sort of pressure would be enough to get
• 24:03
  Speaker 1: you know, certain countries or currencies to change their policies.
• 24:07
  Speaker 1: But the I'd say that the tone of negotiations has become,
• 24:11
  Speaker 1: um so much more intense that this doesn't contribute much,
• 24:15
  Speaker 1: um what you do see. And again the the they're
• 24:19
  Speaker 1: very professional people at the Treasury. What they're saying is,
• 24:21
  Speaker 1: look at it would be better in our view if
• 24:24
  Speaker 1: domestic demand was stronger in Europe, if they were more
• 24:28
  Speaker 1: aggressive and pushing a growth agenda, and that would push
• 24:32
  Speaker 1: up the rates and that would sort of automatically um,
• 24:36
  Speaker 1: appreciate their currency or put up word pressure on the
• 24:38
  Speaker 1: currency so they rate it carefully. So Steve, just real
• 24:44
  Speaker 1: quick here, I'm just wondering before we let you go.
• 24:47
  Speaker 1: The dollar it is strengthening for a second day. I'm
• 24:50
  Speaker 1: just wondering, do you think this will continue into the
• 24:52
  Speaker 1: year end? UM. Look, I think the dollar is going
• 24:55
  Speaker 1: to have difficulty. I think that the um deficits are
• 24:59
  Speaker 1: already weighing the dollar because we know there's a reckoning
• 25:02
  Speaker 1: as soon as the business cycle begins to slow and
• 25:05
  Speaker 1: the market seems to be looking beyond two thousand nineteen,
• 25:08
  Speaker 1: when we know that the FETE is going to be hiking,
• 25:09
  Speaker 1: they're looking to what the FET is going to be
• 25:11
  Speaker 1: doing in one and there. The expectation is the ECB
• 25:15
  Speaker 1: will be hiking and the FET will be flat, so
• 25:17
  Speaker 1: that that's preventing the dollar from moving as far as
• 25:20
  Speaker 1: that normally would on on this kind of great move.
• 25:23
  Speaker 1: Thank you so much for being with us. Steve Englander,
• 25:25
  Speaker 1: Global head of G ten Fects Research North America Strategy
• 25:28
  Speaker 1: for Standard Chartered Bank, as well as a Bloomberg opinion columnist.
• 25:34
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 25:37
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 25:41
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 25:44
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 25:48
  Speaker 1: It's one before the podcast. You can always catch us
• 25:51
  Speaker 1: worldwide on Bloomberg Radio