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The Odds Are Increasing For A Second Brexit Referendum · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul swing you,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits. Each day
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  Speaker 1: we bring you the most noteworthy and useful interviews for
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  Speaker 1: the trading floor. Find a Bloomberg penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: that Bloomberg dot com. Could there be another UK referendum
• 0:24
  Speaker 1: on leaving the European Union? Today we heard from Prime
• 0:27
  Speaker 1: Minister Theresa May who seemed to put that squarely back
• 0:30
  Speaker 1: on the table, which really raises questions about whether this
• 0:34
  Speaker 1: time maybe this is going to happen. To raise Raphael
• 0:37
  Speaker 1: Bloomberg Opinion editor, joining us now from London to raise
• 0:41
  Speaker 1: what what actually happened today? High They said, well, this
• 0:44
  Speaker 1: was May's last roll of the dice, so talks with
• 0:47
  Speaker 1: the Labor Party broke down last week. May has promised
• 0:52
  Speaker 1: to bring her Withdrawal Agreement Bill, which is the bill
• 0:55
  Speaker 1: that implements the Brexit deal, to Parliament next week and
• 0:58
  Speaker 1: she needed to do something uh quite dramatic to overcome
• 1:02
  Speaker 1: the wall of opposition she has faced in Parliament, which
• 1:06
  Speaker 1: is delivered three defeats of her Brexit deal. So what
• 1:09
  Speaker 1: she's done is promised a number of measures, some of
• 1:13
  Speaker 1: which are not going to be controversial, so environmental protection
• 1:17
  Speaker 1: levels maintaining at the same level as the EU, workers
• 1:20
  Speaker 1: rights being aligned with the EU. But the the sort
• 1:24
  Speaker 1: of headline is that she has given the MPs a
• 1:27
  Speaker 1: vote on whether to hold a second referendum and she
• 1:30
  Speaker 1: is promising some kind of customs compromised. She didn't tell UH,
• 1:35
  Speaker 1: she didn't tell us today what that would be, but
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  Speaker 1: she has said it will be a temporary customs union
• 1:41
  Speaker 1: type compromise rather than the permanent one that the UH
• 1:44
  Speaker 1: Labor Party had asked for. But thereas there's a catcher, right,
• 1:48
  Speaker 1: I mean, this doesn't something have to happen first before
• 1:51
  Speaker 1: this can all occur. Well, there's always a catch with
• 1:55
  Speaker 1: with brexit. UH. The withdrawal Bill has to go into
• 1:58
  Speaker 1: a second reading, which allows the MPs to make amendments
• 2:02
  Speaker 1: to it, so that UH, so that all of these
• 2:06
  Speaker 1: different changes that different MPs want UH can be UH
• 2:10
  Speaker 1: can be put forth. It has to be approved to
• 2:13
  Speaker 1: be put forward to the MPs, which it probably will
• 2:16
  Speaker 1: because it's being changed substantially. But you know, I think
• 2:19
  Speaker 1: the real question is whether she's overcome enough of the
• 2:22
  Speaker 1: opposition from both the Labor Party and from her Conservative
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  Speaker 1: backbenches to cobble together a majority here. Um, you know,
• 2:31
  Speaker 1: we've yet to see the reaction, We've yet to see
• 2:33
  Speaker 1: what the exact details are. We don't know how Thursday's
• 2:36
  Speaker 1: European Parliamentary elections are going to play out. But just
• 2:40
  Speaker 1: looking at it, you know, from a few minutes after
• 2:43
  Speaker 1: she's spoken, it's really hard to see how this does enough.
• 2:46
  Speaker 1: My one caveat is it depends on fear. How much
• 2:50
  Speaker 1: do MPs fear no deal? How much do they fear
• 2:53
  Speaker 1: a Jeremy Corbin leadership. If you're a conservative voter, how
• 2:56
  Speaker 1: much do they fear Nigel Farage is Brexit party, which
• 2:59
  Speaker 1: is been rising in the polls. If there's enough fear,
• 3:02
  Speaker 1: maybe she has a chance. It's interesting when you talk
• 3:05
  Speaker 1: about the reaction. I'm looking at the pound and the
• 3:07
  Speaker 1: initial reaction just that the concept of a second referendum
• 3:10
  Speaker 1: was incredible. It was a spike in the pound versus
• 3:13
  Speaker 1: the dollar. Uh that has since retreated almost entirely as
• 3:17
  Speaker 1: people look through the fine print and see that, you
• 3:20
  Speaker 1: know what this is just a carriage try to get
• 3:22
  Speaker 1: some MPs through this process to at least not totally
• 3:25
  Speaker 1: snubbed their nose on voting. Yet again, does this make
• 3:29
  Speaker 1: does what happened today and Theresa May's proposal make it
• 3:32
  Speaker 1: more likely that there will be a second referendum or
• 3:35
  Speaker 1: is it just basically paying lip service and trying to
• 3:38
  Speaker 1: throw a bone enough to get this thing through. Well,
• 3:40
  Speaker 1: I would say a second referendum has become marginally more likely,
• 3:45
  Speaker 1: both after her speech but even before that, because a
• 3:47
  Speaker 1: a new Tory leader. She has said she will step down.
• 3:50
  Speaker 1: There is a reasonable presumption that a hard Brexit or
• 3:54
  Speaker 1: someone who wants a hard no deal exit will take
• 3:56
  Speaker 1: her place if that happens. If we get to October
• 3:59
  Speaker 1: three first, if Parliament somehow refuses to allow a no Deal,
• 4:04
  Speaker 1: there's still a likelihood that this could go to another
• 4:07
  Speaker 1: vote before it goes to a general election, which both
• 4:10
  Speaker 1: parties want to avoid. Now, so I think the chances
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  Speaker 1: of a second referendum are getting a little bit stronger.
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  Speaker 1: So Theresa, what is the future of Theresa May right now?
• 4:19
  Speaker 1: How long does she have left? Would you guess? Well,
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  Speaker 1: she has very little time left. She will probably announce
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  Speaker 1: her a timetable for her departure once this vote happens,
• 4:29
  Speaker 1: but she has said she will go regardless. So you know,
• 4:32
  Speaker 1: even if her dream scenario plays out and she gets
• 4:36
  Speaker 1: a Brexit deal through, she has still announced that she
• 4:38
  Speaker 1: will leave. So I think we are likely to see
• 4:41
  Speaker 1: you know, the leadership race is already underway. We may
• 4:43
  Speaker 1: very well see a new Tory Party leader and a
• 4:45
  Speaker 1: new Prime Minister before the end of the summer. We
• 4:48
  Speaker 1: know that several members of the European Commissioned European Union
• 4:52
  Speaker 1: have supported another referendum, would like to see this whole
• 4:55
  Speaker 1: thing go away and the UK just simply rejoin the
• 4:59
  Speaker 1: European in Union. Are they involved at all in this
• 5:02
  Speaker 1: whole process as it's sort of muddles through Parliament. Well,
• 5:07
  Speaker 1: we'll have to see what sort of reaction we get there.
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  Speaker 1: But from the list of ten changes that she announced today,
• 5:12
  Speaker 1: I couldn't see any that would really bother the EU.
• 5:16
  Speaker 1: They will, you know, they were pleased that there were
• 5:18
  Speaker 1: cross party talks and and and I think there was
• 5:21
  Speaker 1: a measure of dismay when they broke down. Um, I
• 5:23
  Speaker 1: think the EU is sort of braced for the worst.
• 5:25
  Speaker 1: Their brace for Theresa may uh leaving the scene and
• 5:30
  Speaker 1: for a hard Brexitter taking her place, so that I
• 5:32
  Speaker 1: think they'll be They'll be happy to see one last
• 5:35
  Speaker 1: roll of the dice and and hopeful that it turns
• 5:38
  Speaker 1: up either agreement to her deal or possibly UH move
• 5:42
  Speaker 1: towards a second referendum. But at this stage I don't
• 5:44
  Speaker 1: think on any side of anyone is counting on that happening. Well,
• 5:49
  Speaker 1: Theresa who is is the right front runner to replace
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  Speaker 1: Theresa May? I think if the front runner we'd have
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  Speaker 1: to say as Boris Johnson. He is uh the the
• 6:00
  Speaker 1: the best known Conservative figure. He's the one that a
• 6:04
  Speaker 1: lot of Tories believe is best place to take on
• 6:07
  Speaker 1: Jeremy Corbyn. And now you know, Nigel Farage is Brexit
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  Speaker 1: party which is winning over a lot of Conservative votes.
• 6:14
  Speaker 1: And of course he is a real Brexitter who has
• 6:17
  Speaker 1: UH advocated leaving even with the no deal, so he
• 6:22
  Speaker 1: would be amenable uh to UH to either not negotiating
• 6:27
  Speaker 1: at all or negotiating a a new arrangement. But he
• 6:30
  Speaker 1: would be UH the He would be certainly the preferred
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  Speaker 1: choice of the Conservative Party members and it is likely
• 6:36
  Speaker 1: they who will get to choose because the Parliamentary Party
• 6:39
  Speaker 1: would submit two names to the membership, and the membership
• 6:43
  Speaker 1: um are are pretty unequivocally for Boris just thirty seconds
• 6:47
  Speaker 1: Boris Johnson and I tell Farrage. Could either of them win?
• 6:53
  Speaker 1: Could either of them win the election? Win in a
• 6:56
  Speaker 1: general election? For Farrage, it's still a big uphill battle.
• 6:59
  Speaker 1: Britain's parlia mentory system as a first past supposed system,
• 7:02
  Speaker 1: so small parties don't tend to do well. But that said,
• 7:05
  Speaker 1: I've just seen him in the West Midlands. He has
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  Speaker 1: exactly those ambitions. So as Raphael Bloomberg Opinion editor, thank
• 7:12
  Speaker 1: you so much calling in from London. Well. Rising trade
• 7:17
  Speaker 1: tensions with China have royal financial markets over the past
• 7:20
  Speaker 1: several weeks, yet they are still holding onto double digit
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  Speaker 1: gains in SMP. To get a sense of where we
• 7:25
  Speaker 1: go from here, return to Jonathan McKay john as head
• 7:29
  Speaker 1: of sales for the Wealth Management Solutions at Schroeder's based
• 7:32
  Speaker 1: in New York City. John, thanks so much for joining us. Boy,
• 7:35
  Speaker 1: it's been a kind of a bumpy last couple of
• 7:37
  Speaker 1: weeks and the trade tensions have kind of come back
• 7:40
  Speaker 1: into investors focus. How does that fit into your view
• 7:43
  Speaker 1: of the equity markets? Currently. Thanks Paul for having me
• 7:47
  Speaker 1: and shout out to your optimism over a our excitement
• 7:50
  Speaker 1: or a second potential second referendum in the UK. It's
• 7:53
  Speaker 1: been my call, share share, I share that excitement. So
• 7:58
  Speaker 1: OURBU is that the mark it should be lower UM,
• 8:02
  Speaker 1: specifically US markets. I think there's way too much optimism
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  Speaker 1: of the reaction function of UM, both policymakers from a
• 8:09
  Speaker 1: political perspective as well as from essential bank perspective and
• 8:12
  Speaker 1: what they can do to offset the risks of the
• 8:14
  Speaker 1: trade war. The rally at the beginning of the year
• 8:17
  Speaker 1: was basically built on a three legged stool. You had
• 8:19
  Speaker 1: cheap valuations start with, and optimism over the growth outlook
• 8:24
  Speaker 1: given where we were in the fourth quarter of last year,
• 8:26
  Speaker 1: which was essentially that the U S economy was at
• 8:28
  Speaker 1: risk of going into recession, a dobash turn by central banks,
• 8:31
  Speaker 1: as well as optimism around the trade deal. You've knocked
• 8:34
  Speaker 1: out one of those legs UM with their rising escalation
• 8:37
  Speaker 1: and trade tensions here with China UM, so then you
• 8:40
  Speaker 1: get back to well dovash central banks help at the margin. UM.
• 8:44
  Speaker 1: The growth outlook isn't as bad as it was in
• 8:46
  Speaker 1: the fourth quarter of last year, but it's not that good,
• 8:48
  Speaker 1: and the earnings outlook isn't that good. So why should
• 8:50
  Speaker 1: markets rally um after rallying this year at the levels
• 8:54
  Speaker 1: are currently at. So I think there's more downside potential
• 8:57
  Speaker 1: from him than there is upside even in a good
• 8:59
  Speaker 1: outcome in the trade are how much downside? It's tough
• 9:03
  Speaker 1: to say. I mean, look, you're three to four percent
• 9:05
  Speaker 1: down um off the peak, somewhere in that range um.
• 9:09
  Speaker 1: The US equity market is still trading at roughly sixteen
• 9:12
  Speaker 1: and a half times forward pe. I think there's too
• 9:15
  Speaker 1: much optimism of our earnings growth. So if earnings estimates
• 9:18
  Speaker 1: actually come down as we moved through the second and
• 9:19
  Speaker 1: third quarter, the marketing theory get richer, right, unless that
• 9:23
  Speaker 1: multiple decline. So I think a multiple suwhere in the
• 9:26
  Speaker 1: range of sort of fifteen to fifteen and a half,
• 9:28
  Speaker 1: it's fairer value for the US equity market, which means
• 9:30
  Speaker 1: you've got probably you know, somewhere in the somewhere in
• 9:32
  Speaker 1: the range of about five to seven percent additional downside.
• 9:35
  Speaker 1: So you started off commenting on Paul Squeeney's excitement about
• 9:39
  Speaker 1: another referendum in Great Britain, and I have to wonder
• 9:42
  Speaker 1: how much of a game changer that would be from
• 9:45
  Speaker 1: an asset perspective. Currently looking at the pound that is
• 9:49
  Speaker 1: gaining a versus the dollar, but not by that much,
• 9:51
  Speaker 1: So it seems like it's not exactly as if the
• 9:53
  Speaker 1: markets are pricing in this possibility. But is this something
• 9:56
  Speaker 1: that would materially change your outlook for European assets? Uh? Yes,
• 10:01
  Speaker 1: it would make us. So we're already on a relative basis,
• 10:04
  Speaker 1: we're already more optimistic about European equities. Um, even with
• 10:08
  Speaker 1: all the turmoil that you've seen happening in the UK
• 10:11
  Speaker 1: over the last six months or so, UM, all the
• 10:13
  Speaker 1: Theresa A deals coming to a getting rejected, etcetera. Um,
• 10:17
  Speaker 1: then we are relative to the US. It doesn't mean
• 10:19
  Speaker 1: we expect gangbuster returns in Europe, but expectations are lower
• 10:22
  Speaker 1: earning his growth is actually better based on consensus expectations
• 10:26
  Speaker 1: in Europe than it is in the US. And we
• 10:27
  Speaker 1: think the dollars over valued and should decline versus the euro.
• 10:30
  Speaker 1: And that helps you from a total re term perspective
• 10:33
  Speaker 1: if you're a US based investor, so you added in
• 10:36
  Speaker 1: a second referendum with a likelihood that it actually gets passed,
• 10:39
  Speaker 1: that they stay UM in the euro in the European Union.
• 10:42
  Speaker 1: I think that would definitely help sentiment and provide UM,
• 10:45
  Speaker 1: you know, a little bit of more bullish upside for
• 10:48
  Speaker 1: European equities as a whole. But I'd be a little
• 10:51
  Speaker 1: bit cautious. I was being a little bit cynical about
• 10:53
  Speaker 1: jumping on Paul's bandwagon there, just because we've seen so
• 10:56
  Speaker 1: many false starts over the past six months. But if
• 10:58
  Speaker 1: it does move down that direction, I think we can UM,
• 11:01
  Speaker 1: you know, we can get more bullish on Europe. John.
• 11:03
  Speaker 1: I'm looking at the w I RP function on the
• 11:06
  Speaker 1: Bloomer terminal, which and it shows that the investors are
• 11:09
  Speaker 1: looking roughly seventy percent of investors are looking for a
• 11:12
  Speaker 1: rate cut by the Fed. By your end, what is
• 11:15
  Speaker 1: your view? So I think that's look at rates are
• 11:18
  Speaker 1: going to head lower at some point. Right we're near
• 11:20
  Speaker 1: the nearer the end of the cycle than we are
• 11:22
  Speaker 1: near the beginning. I think there's a little bit too
• 11:24
  Speaker 1: much optimism in UM the likelihood of a rate cut.
• 11:28
  Speaker 1: I think part of that is because of the escalation
• 11:30
  Speaker 1: in the trade war and the fear that UM if
• 11:32
  Speaker 1: we do putariffs that does move forward on the remaining
• 11:36
  Speaker 1: three billion dollars of Chinese inputs, and then China retaliates,
• 11:39
  Speaker 1: the count retaliate, and kind that they can do other
• 11:42
  Speaker 1: things to try and hold our economy indirectly. UM that
• 11:46
  Speaker 1: the federal react in the automatically cut rates. What everyone's
• 11:48
  Speaker 1: forgetting is that that adds to inflationary pressures. We saw that,
• 11:52
  Speaker 1: you know, the primary example of being washing machine prices
• 11:54
  Speaker 1: at the beginning of last year, and so you'd get
• 11:57
  Speaker 1: a direct follow through to UM core goods price inflation
• 12:00
  Speaker 1: going up, not to mention wage inflation which has been
• 12:03
  Speaker 1: rising for the past three to four years. So I
• 12:05
  Speaker 1: think the Fed would cut rates, but probably not as
• 12:08
  Speaker 1: quickly and as much as the market is hoping for.
• 12:11
  Speaker 1: John McKay one quick question, Hi, yould bonds pro or
• 12:15
  Speaker 1: anti anti? Why elaborate there? I'll give you. So the
• 12:23
  Speaker 1: quick story is valuations a way too rich. Um. If
• 12:26
  Speaker 1: you think corporate earnings are slowing down, the amount of
• 12:28
  Speaker 1: debt that UM corporates in the US have taken on
• 12:31
  Speaker 1: over the past seven or eight years, UM, they're gonna
• 12:33
  Speaker 1: have to pay a price to that. Not suggesting a
• 12:36
  Speaker 1: you know, a quick rise in the default rate, but
• 12:39
  Speaker 1: you will see companies losing access to the capital markets,
• 12:42
  Speaker 1: and thus investors will amount of higher risk premium meanings.
• 12:44
  Speaker 1: Hi you old spreads will have to widen from current levels,
• 12:48
  Speaker 1: which are around three sixty three eighty basis points off.
• 12:51
  Speaker 1: I think we think there are better options out there
• 12:53
  Speaker 1: for investors to get yield. I would throw non agency
• 12:57
  Speaker 1: securitized out there, as well as certain parts of the
• 13:00
  Speaker 1: E merging market debt universe. John McKay, well done, Thank
• 13:02
  Speaker 1: you so much for joining us. John McKay a head
• 13:04
  Speaker 1: of sales focusing on wealth management solutions at Schroeder's based
• 13:08
  Speaker 1: in New York. Well, yesterday it was an odd day
• 13:14
  Speaker 1: for the pending Sprint t Mobile merger. First, the FEC
• 13:17
  Speaker 1: said that it was inclined to approve the deal. Then
• 13:20
  Speaker 1: just a couple of hours later, the d o J
• 13:22
  Speaker 1: said not so fast. So hopefully our next guest can
• 13:25
  Speaker 1: help us clear things up. Jennifer Rees a senior litigation
• 13:28
  Speaker 1: analysts for Bloomberg Intelligence. She joins us live here on
• 13:31
  Speaker 1: the Bloomberg Interactive broke her studio, So, Jen, I have
• 13:34
  Speaker 1: to admit, of my thirty years roughly of following communications deals,
• 13:37
  Speaker 1: I don't ever recall the d O J and the
• 13:40
  Speaker 1: f c C, you know, opining on the same day
• 13:43
  Speaker 1: and having different views. What do you think is going
• 13:45
  Speaker 1: on here? You know, it's really strange, And you are
• 13:47
  Speaker 1: exactly right because I did some research on this and
• 13:50
  Speaker 1: found the only one instance of the f c C
• 13:52
  Speaker 1: and d o J disagreeing on ultimate outcome, and this
• 13:55
  Speaker 1: was in the nineteen seventies, So you're thirty years before
• 13:58
  Speaker 1: my time, before your time, Paulics exactly. So you're you're
• 14:01
  Speaker 1: right on that this is really strange. Um, it's not.
• 14:05
  Speaker 1: It remains to be seen what happens here to It
• 14:07
  Speaker 1: just may be that the d o J needs a
• 14:09
  Speaker 1: little bit more than what the companies have offered up
• 14:11
  Speaker 1: to the FCC. And I think it's actually not surprising
• 14:14
  Speaker 1: because you know, Sprint and T Mobile have offered to
• 14:16
  Speaker 1: divest one of sprints prepaid brands, and they have two
• 14:21
  Speaker 1: brands now. The other brand, Virgin Mobile, is very small
• 14:23
  Speaker 1: compared to Boost Mobile, but still the d o J
• 14:26
  Speaker 1: would want them to divest their entire twelve percent share,
• 14:29
  Speaker 1: and they're not offering to do that. So it may
• 14:31
  Speaker 1: be that they just need to divest both brands, or
• 14:33
  Speaker 1: it may be that they need to divest more and
• 14:36
  Speaker 1: not just the brands. In other words, satellites more business
• 14:39
  Speaker 1: assets than what they've offered up to the FCC. So
• 14:41
  Speaker 1: I think they may still have some room here to
• 14:43
  Speaker 1: bargain with the Department of Justice. Well, certainly that's what
• 14:46
  Speaker 1: the markets are betting on, because we're not seeing enough
• 14:48
  Speaker 1: of a sell off in Sprint shares, which are down
• 14:51
  Speaker 1: about two percent today following the game yesterday, and you're
• 14:54
  Speaker 1: not seeing enough of a decline in the bonds of
• 14:56
  Speaker 1: Sprint either to sort of represent the markets are writing
• 14:59
  Speaker 1: off this deal. I mean, still it is being baked in.
• 15:01
  Speaker 1: I'm trying to understand what could have happened. Don't the
• 15:04
  Speaker 1: d o j uh and it doesn't do the DJ
• 15:08
  Speaker 1: and FCC speak to each other. Yeah, they've been communicating
• 15:11
  Speaker 1: the whole time, you know, during the year long investigation,
• 15:13
  Speaker 1: and they've said publicly that they've been coordinating and communicating.
• 15:17
  Speaker 1: So so the dual message yesterday was a little bit odd.
• 15:21
  Speaker 1: It's hard to say what is happening there. But the
• 15:23
  Speaker 1: FCC clearly wanted to come out with their decision. They
• 15:25
  Speaker 1: were ready, They had extra time. Their their clock doesn't
• 15:28
  Speaker 1: run until early June, so they didn't have to say
• 15:30
  Speaker 1: anything when they did, and the Department of Justice may
• 15:33
  Speaker 1: have been reacting to what they were seeing in the news.
• 15:35
  Speaker 1: An immediate reaction by many that well, it's a given
• 15:38
  Speaker 1: that the Department of Justice now is going to clear
• 15:40
  Speaker 1: and maybe they just wanted to make the point look
• 15:42
  Speaker 1: not so fast. We do our own independent investigation, we
• 15:45
  Speaker 1: have a different standard, and in fact we may need more.
• 15:47
  Speaker 1: And in my I'm not surprised by it, because I
• 15:50
  Speaker 1: do actually think based on their standards, they do need more.
• 15:54
  Speaker 1: You know, when when they accept a divestitor to remedy
• 15:56
  Speaker 1: a deal, they need to replace all of the competition
• 15:59
  Speaker 1: lost virtue of the merger. Twelve percent is being absorbed
• 16:02
  Speaker 1: in this prepaid market, That entire twelve percent needs to
• 16:05
  Speaker 1: go to a new competitor, and that isn't what's Britain
• 16:07
  Speaker 1: Tea Mobile have offered up the FCC. Now. This is
• 16:10
  Speaker 1: just on the prepaid side. It could also be that
• 16:12
  Speaker 1: the Department of Justice has some issues on the post
• 16:14
  Speaker 1: paid side, So the market's reaction may also be a
• 16:18
  Speaker 1: little bit too optimistic in that it's unclear to me
• 16:21
  Speaker 1: whether they are resolved on the post paid side. The
• 16:24
  Speaker 1: numbers don't look quite as bad there in terms of
• 16:26
  Speaker 1: the market share combined, which is at about and the
• 16:29
  Speaker 1: concentration numbers. And it's in that area that they're going
• 16:32
  Speaker 1: to look at the pro competitive consumer benefits that could
• 16:35
  Speaker 1: come from this and balance that against some potential harm.
• 16:38
  Speaker 1: But it's not a given that the d o J
• 16:39
  Speaker 1: is over the hump there either. It's interesting that you
• 16:42
  Speaker 1: know this. When the President Trump and Republican administration came
• 16:45
  Speaker 1: into power, the expectation was, Okay, let's do M and
• 16:48
  Speaker 1: A deals. The d o J is not gonna be
• 16:49
  Speaker 1: a problem. But they were very, very tough on A
• 16:51
  Speaker 1: T and T Time Warner. The appear to be taking
• 16:53
  Speaker 1: a pretty strong stance here. What do you think is
• 16:55
  Speaker 1: going on? You know, the the A T and T
• 16:59
  Speaker 1: Time Warner deal. That was a big surprise, and I
• 17:01
  Speaker 1: think it took a lot of people, particularly in the
• 17:03
  Speaker 1: antitrust community, by surprise when that happened. And I think
• 17:06
  Speaker 1: some of it just may simply be the fact that
• 17:08
  Speaker 1: there was a lot of press about the fact that
• 17:11
  Speaker 1: this new Republican administration would be so easy on mergers.
• 17:14
  Speaker 1: And you know the fact is that if you go
• 17:16
  Speaker 1: back in history and you look at statistics, the difference
• 17:19
  Speaker 1: between Democratic administrations and Republican administrations and merger enforcement is
• 17:23
  Speaker 1: it really only incremental? It really isn't as big as
• 17:26
  Speaker 1: I think the reaction was when Donald Trump was elected
• 17:29
  Speaker 1: and started to put the point his own people. You know,
• 17:32
  Speaker 1: the difference tends to be in pursuing monopolistic conduct and
• 17:35
  Speaker 1: things like that, and the Republicans do tend to look
• 17:38
  Speaker 1: at efficiencies and give efficiencies a little more weight, let's say,
• 17:41
  Speaker 1: than the Democrats. But it really is only an incremental difference.
• 17:44
  Speaker 1: So I think the aggressiveness should have been expected in
• 17:48
  Speaker 1: this age of these great big mergers and consolidated industries. Yes,
• 17:52
  Speaker 1: still though a real head scratcher in terms of the
• 17:55
  Speaker 1: dual messaging yesterday from the d o J and the FCC.
• 17:58
  Speaker 1: Jennifer Ree, thank you very much much, really illuminating. Jennifer
• 18:01
  Speaker 1: Rea's senior litigation analyst for Bloomberg Intelligence. Well, we are
• 18:07
  Speaker 1: ten plus years into this financial psycho, We've got the
• 18:10
  Speaker 1: Fed on the sidelines, and financial markets quite frankly, this
• 18:13
  Speaker 1: year performed exceptionally well despite the near term volatility. To
• 18:17
  Speaker 1: get a sense of where we go from here, Pleased
• 18:20
  Speaker 1: to welcome our next guest, Christiana Mamani, chief investment officer
• 18:23
  Speaker 1: and had a fixed income for Oppenheimer Funds, and Peter Straktowski,
• 18:27
  Speaker 1: portfolio manager for Oppenheimer Funds. They joined us on our
• 18:29
  Speaker 1: Bloomberg Interactive Broker Studio and to point out that Christian
• 18:33
  Speaker 1: and Peter recently celebrated their ten year anniversary of the
• 18:36
  Speaker 1: firm's investment grade Debt Team, which manages over six point
• 18:39
  Speaker 1: six billion dollars primarily investment grade assets. So these folks
• 18:42
  Speaker 1: have been doing this for a while. So Chrystial, let's
• 18:46
  Speaker 1: start with you, um the rising trade tensions. How are
• 18:49
  Speaker 1: you positioning the portfolio for what might be a prolonged
• 18:54
  Speaker 1: heightened sense of trade concerns? Well, so, the first thing
• 18:57
  Speaker 1: with respect to trade tensions to the fact that it's
• 19:00
  Speaker 1: not a good outcome for anyone, despite what Trump or
• 19:04
  Speaker 1: President She may be saying. It's bad for China, it's
• 19:07
  Speaker 1: bad for the US. But I think what we need
• 19:09
  Speaker 1: to focus on is the magnitude of that badness, if
• 19:12
  Speaker 1: you will. So it's uh, it shaves off roughly half
• 19:16
  Speaker 1: a percent from U S GDP and probably slightly more
• 19:19
  Speaker 1: than that from the Chinese GDP. Uh, So it's a
• 19:24
  Speaker 1: it's not a good outcome, but it's a manageable outcome,
• 19:26
  Speaker 1: and I think our expectation is as a result of this,
• 19:30
  Speaker 1: the likelihood of FED easing increases in and the likelihood
• 19:35
  Speaker 1: of the Chinese policymakers trying to stimulate their economy to
• 19:40
  Speaker 1: help help support that economy is probably increasing as well.
• 19:44
  Speaker 1: So it's not a good outcome, but it's not the
• 19:47
  Speaker 1: end of the world. After the D rating that took
• 19:50
  Speaker 1: place last week, our expectations still that markets go higher
• 19:53
  Speaker 1: and global equities is still the place to be. But
• 19:55
  Speaker 1: that's what I was going to say, is that it
• 19:57
  Speaker 1: sounds like this is a perfect environment for risk acids
• 20:00
  Speaker 1: because it sounds like from what you're saying, there's gonna
• 20:03
  Speaker 1: be more stimulus and FED easing, and certainly we have
• 20:08
  Speaker 1: the ECB and others also moving into an easy stance. Peter,
• 20:12
  Speaker 1: I'm just running from the fixed income standpoint, from investment
• 20:14
  Speaker 1: great debt standpoint, which area of the market looks most
• 20:17
  Speaker 1: attractive attractive given that backdrop. Okay, So I think, UH,
• 20:23
  Speaker 1: despite what you hear or read somewhere else, I think
• 20:25
  Speaker 1: that the US corporate sector UH still offers decent value
• 20:29
  Speaker 1: over treasuries on average, that spreads on the trip will
• 20:32
  Speaker 1: be rated. Bonds are hunting fifty basis points over a
• 20:36
  Speaker 1: course of five to seven years. So that's that's still
• 20:38
  Speaker 1: decent value with low holatility. And we're still in the
• 20:41
  Speaker 1: credit cycle. Uh, as far as you know, we we
• 20:44
  Speaker 1: tend to look six to twelve months. Are I think
• 20:46
  Speaker 1: over the next three years the FED doesn't move where
• 20:48
  Speaker 1: FED is very cautious. Credit cycle is going to continue.
• 20:51
  Speaker 1: In corporate Dad will do well and sam with asset
• 20:53
  Speaker 1: backs because the US consumer is doing very well. Balance
• 20:56
  Speaker 1: sheets at at households are strong, and that will continue
• 21:00
  Speaker 1: to perform very well. So, Christian, are you of the
• 21:02
  Speaker 1: opinion like when Lisa and I look on the Blommer
• 21:05
  Speaker 1: terminals roughly eight odds of a rate cut by the
• 21:08
  Speaker 1: end of the year. Is that kind of where you
• 21:10
  Speaker 1: think rates are going in that timeframe? Well, so, I
• 21:13
  Speaker 1: think the markets have kind of gotten little ahead of themselves.
• 21:17
  Speaker 1: So I think while the data today is soft, our
• 21:20
  Speaker 1: expectations still that in the back half of the year
• 21:22
  Speaker 1: data probably uh that improves and as a result, the
• 21:26
  Speaker 1: FED probably doesn't cut rates this year. Having said that,
• 21:30
  Speaker 1: if there's any bit of give on the economy, the
• 21:33
  Speaker 1: FED is probably going to be far more proactive because
• 21:37
  Speaker 1: it's really worried about the trade issues, and uh, their
• 21:41
  Speaker 1: reaction function with respect to the moment they see the
• 21:45
  Speaker 1: weakness to how they're going to react is going to
• 21:47
  Speaker 1: be much shorter with trade than anything else that we
• 21:50
  Speaker 1: have faced off late. One thing I'm struggling to understand
• 21:53
  Speaker 1: is what are some potential surprises that could upend this
• 21:57
  Speaker 1: thesis Because recently we've seen others buying into it, We've
• 22:01
  Speaker 1: seen money going into investment grade bond funds. It's been
• 22:04
  Speaker 1: a sweet spot of sorts over the past a month
• 22:07
  Speaker 1: or so. What's the risk to this view? Peter? So,
• 22:11
  Speaker 1: the first and foremost risk to any bond portfolio is
• 22:14
  Speaker 1: higher interest rates. But I think given the current regime
• 22:17
  Speaker 1: and the fact that the FED actually paused because we
• 22:20
  Speaker 1: don't really see any price pressures, I think the Fed
• 22:23
  Speaker 1: is going to continue to stay on on the sideline
• 22:25
  Speaker 1: and be very watchful, and I think that risk is eliminated.
• 22:28
  Speaker 1: The other risk is volatibly coming back into the market
• 22:31
  Speaker 1: from some unforeseen source where there's large draw on on
• 22:35
  Speaker 1: on debt because people want to buy equities. For that,
• 22:38
  Speaker 1: equities would have to sell out, So I don't really
• 22:40
  Speaker 1: see it anytime soon. So, but Christna, I guess that
• 22:43
  Speaker 1: it raises a question is the FED more in control here?
• 22:46
  Speaker 1: Is the FED more important or is it the e
• 22:48
  Speaker 1: c B and the b O J And the fact
• 22:50
  Speaker 1: that the amount of negative yielding debt has surged to
• 22:53
  Speaker 1: a new post high. Well, so I think the FED
• 22:57
  Speaker 1: was the most important central bank for I'm a pivot
• 23:00
  Speaker 1: standpoint in two thousand, two thousand eighteen because they were
• 23:05
  Speaker 1: the furthest along on the tightening cycle. So them pulling
• 23:09
  Speaker 1: back I think was very very important on a go
• 23:12
  Speaker 1: forward basis. FED is a is in it for a ride. Effectively,
• 23:16
  Speaker 1: they don't control anything. They're basically going to be reacting
• 23:19
  Speaker 1: to whatever happens in the marketplace. People who are central
• 23:23
  Speaker 1: banks that can actually be far more proactive as to
• 23:27
  Speaker 1: reactive is probably ECB and Bank of Japan. FED is
• 23:31
  Speaker 1: at the end of the day the most important central bank,
• 23:34
  Speaker 1: but right now it's not in control of anything, not
• 23:37
  Speaker 1: in control of anything. That's reassuring, Uh, Peter, give us
• 23:41
  Speaker 1: a sense within the investment grade space kind of where
• 23:43
  Speaker 1: you guys are um seeing value today versus maybe some others. Okay,
• 23:48
  Speaker 1: Like so I mentioned before, Uh, good quality corporate debt
• 23:52
  Speaker 1: not necessarily single a rated but still investment great. Uh,
• 23:56
  Speaker 1: good asset bags their industry sectors, I mean, are you
• 24:00
  Speaker 1: tis true? But I mean I'm looking at financials, health, healthcare,
• 24:04
  Speaker 1: those types other sectors. Are you like? Sure, as regulated
• 24:07
  Speaker 1: as the financial companies are today, there is always a
• 24:10
  Speaker 1: good value post on nine. Okay, No, that is not
• 24:18
  Speaker 1: a US company. I know they operate here, but that
• 24:20
  Speaker 1: is not a US company. Uh. But the main thing
• 24:25
  Speaker 1: is that there's good that it's been picked over. You
• 24:28
  Speaker 1: have to be very careful at this point in the
• 24:30
  Speaker 1: credit cycle, but doesn't mean there aren't any deals to
• 24:33
  Speaker 1: be gotten Christmas. Since you're here and you oversee all
• 24:36
  Speaker 1: fixed income, what about how yelled at this point? Well, so,
• 24:39
  Speaker 1: I think how you represents good value. It's not as
• 24:43
  Speaker 1: good value as it was let's say three or four
• 24:46
  Speaker 1: months ago, but still still pretty good value. I think
• 24:49
  Speaker 1: the question you have to ask yourself is how are
• 24:52
  Speaker 1: you going to source income in this environment where overall
• 24:56
  Speaker 1: policy rates and nintenior treasury rates are relatively low? And
• 24:59
  Speaker 1: for that you'll have to take meaningful amount of risk
• 25:02
  Speaker 1: because otherwise you'll be you know too and change percentage
• 25:05
  Speaker 1: the maximum amount of yield that you can generate, and
• 25:08
  Speaker 1: you need four percent five percent, what are you gonna do?
• 25:10
  Speaker 1: High yield is one, loans is another. And emerging market
• 25:13
  Speaker 1: local currency debt I think is still still good value.
• 25:17
  Speaker 1: You know, because think about it from a global perspective,
• 25:20
  Speaker 1: there are two certainties. Inflation on a global basis is
• 25:24
  Speaker 1: still going down, and emerging market real yields are still
• 25:30
  Speaker 1: meaningfully higher than what you can find on the on
• 25:33
  Speaker 1: the developed market. So that is over the next two
• 25:35
  Speaker 1: or three five years, real yields and emerging markets are
• 25:38
  Speaker 1: going down. Uh and uh I. I think the overall
• 25:42
  Speaker 1: nominal rates and emerging markets are probably going down as well,
• 25:45
  Speaker 1: So it's a good environment for emerging market debt. Christian Money,
• 25:49
  Speaker 1: chief investment officer and head of fixed to come at
• 25:51
  Speaker 1: an Oppeniver and Have Funds, and Peter Stokowski, portfolio manager
• 25:55
  Speaker 1: also at Oppenheimer Funds, joining us here in our Bloomberg
• 25:57
  Speaker 1: Interactive Broker Studios, thank you so much celebrating their tenure
• 26:00
  Speaker 1: anniversary of the firm's investment grade debt TIVA. They help
• 26:04
  Speaker 1: oversee or they do oversee, the Oppenheimer Total Return Bond Fund.
• 26:09
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast,
• 26:11
  Speaker 1: you can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 26:15
  Speaker 1: or whatever podcast platform you prefer. I'm Pim Fox. I'm
• 26:19
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 26:23
  Speaker 1: It's one before the podcast. You can always catch us
• 26:26
  Speaker 1: worldwide on Bloomberg Radio