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Tobacco Giants Philip Morris, Altria To Reunite · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Panel Podcast. I'm Paul swing you,
0:05
Speaker 1: along with my co host Lisa Brahma wits. Each day
0:07
Speaker 1: we bring you the most noteworthy and useful interviews for
0:10
Speaker 1: you and your money, whether at the grocery store or
0:12
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: at Bloomberg dot com. Time to check in with Bloomberg Opinion.
0:22
Speaker 1: We're joined by opinion columnist Tara la Chapelle. She covers deals,
0:26
Speaker 1: telecomm and media for Bloomberg Opinion. She joins us here
0:28
Speaker 1: on our Bloomberg Interacted Brokers studio, and we're here to
0:31
Speaker 1: talk about this merger Philip mars is and talks to
0:33
Speaker 1: reunite with Altria UH in an all stock deal. So, Tara,
0:39
Speaker 1: is you know what's the rationale for be behind putting
0:43
Speaker 1: these companies back together after years of them being apart. So,
0:47
Speaker 1: as we know, fewer people are smoking, especially in the US,
0:50
Speaker 1: and both of these companies have been working on remaking
0:52
Speaker 1: their images in recent years. If you go to either
0:54
Speaker 1: of their websites right now, you will be hard pressed
0:57
Speaker 1: to find any mention of cigarettes. Of Marlborough anything like that.
1:00
Speaker 1: It's all about reduced risk smoking and quote smoke free
1:03
Speaker 1: products which are on the Philip Morris side of products
1:07
Speaker 1: called I Coast. It's I q O S and that is.
1:15
Speaker 1: And it's funny because it looks like it would be
1:16
Speaker 1: an anagram for something, but the companies say it isn't.
1:19
Speaker 1: Some people have uh interpreted to me, um, I quit
1:22
Speaker 1: ordinary smoking, but they say there's really no meaning behind it.
1:24
Speaker 1: So I Coast is this product that Philip Morris, which
1:28
Speaker 1: is in the international markets, launched it there. It heats
1:31
Speaker 1: tobacco instead of burning it, so they kind of market
1:33
Speaker 1: it is something a little bit safer than cigarettes, but
1:36
Speaker 1: that's disputable of course. Um next month they are going
1:39
Speaker 1: to be launching that in the US market, starting in Atlanta,
1:41
Speaker 1: and for the US business all Tria gets to market
1:45
Speaker 1: that product here. So I think the goal is to
1:48
Speaker 1: join forces, unite their cash flow around these smoke free
1:51
Speaker 1: products to try to combat the sort of uh shrinking
1:56
Speaker 1: rates of smoking here and push more people to these
1:59
Speaker 1: newer products that they have of I am actually looking
2:01
Speaker 1: at the websites now and they look like hospital webs exactly. Genuinely,
2:05
Speaker 1: it's all about not smoking, designing a smoke free future,
2:10
Speaker 1: reducing risk, expanding choice. Who are we How long will
2:14
Speaker 1: P M I be in the cigarette business, whether the
2:16
Speaker 1: state of health? I mean, really, what do these companies
2:19
Speaker 1: actually sell? You be hard pressed to find cigarettes here.
2:23
Speaker 1: So I guess that the question is, is the idea
2:25
Speaker 1: that they have reduced their liability to such a degree
2:28
Speaker 1: when it comes to a political front that they're not
2:30
Speaker 1: going to be extra big targets if they joined forces.
2:34
Speaker 1: I think so. And I think also just the growth.
2:36
Speaker 1: I mean obviously, like of their operating income comes from cigarettes.
2:39
Speaker 1: Still it's still the huge driver of their businesses, but
2:42
Speaker 1: that is slowly shrinking. Their stock prices are no longer
2:46
Speaker 1: the tough one that they once were. So I think
2:48
Speaker 1: what we're seeing is they realize that the growth markets
2:51
Speaker 1: are these vaping products, the cigarettes like Jewel, despite the
2:54
Speaker 1: controversies around that and also pot Uh they've invested in
2:58
Speaker 1: marijuana companies. So I think what they're doing is if
3:00
Speaker 1: they unite forces, you know, they have that power of
3:02
Speaker 1: scale and they can kind of keep pushing these products
3:05
Speaker 1: and and kind of monopolize that market. If you keep
3:08
Speaker 1: going on the website. Corporate responsibility progress Report Health effects
3:13
Speaker 1: of smoking, you know, talking about uh, you know, supporting
3:17
Speaker 1: twenty one is the legal aged purchase to bacque products.
3:19
Speaker 1: These genuinely look like advocacy against smoking websites, yet they
3:24
Speaker 1: still sell billions of cigarettes from yes, exactly, like outside
3:30
Speaker 1: of the US, are there still growth markets for smoking?
3:34
Speaker 1: I think so. But I think the bigger thing is
3:36
Speaker 1: not looking at just traditional smoking, but looking at these
3:39
Speaker 1: newer products like the est eggs and and like these
3:42
Speaker 1: heating sticks that they're selling, like icos um, And I
3:45
Speaker 1: think that's where that sort of they're you know, they're
3:47
Speaker 1: calling it the innovation for the market, and I think
3:49
Speaker 1: that's where the focus is right now and when investors
3:51
Speaker 1: have been looking to hear more from them on But again,
3:53
Speaker 1: those are such a small portion of the business in
3:56
Speaker 1: terms of their financials that it's not really helping their
3:59
Speaker 1: stock prices right now. Putting them together might do a
4:01
Speaker 1: little bit to kind of re excite investors to these companies.
4:04
Speaker 1: Let's talk pot. How does this sort of increase their
4:08
Speaker 1: position when it comes to uh, making marijuana products more
4:13
Speaker 1: mainstream and is this on their agenda? I think so.
4:16
Speaker 1: I mean, obviously, right now, marijuana is legalizing Canada, and
4:19
Speaker 1: that's a relatively small market versus the US. But I
4:21
Speaker 1: think all of these companies that have invested in these
4:24
Speaker 1: Canadian pot producers, such as Constellation Brands, which is a
4:28
Speaker 1: US boost congomerate, and then Altria going after Chronos, I
4:31
Speaker 1: think that those investments were made with an eye toward
4:35
Speaker 1: the US market, and I think they see it as
4:37
Speaker 1: eventually it's going to become legal federally. And obviously, what
4:40
Speaker 1: industry is more powerful when it comes to sort of
4:43
Speaker 1: lobbying the US government, it's the cigarette industry. So I
4:47
Speaker 1: think that they see themselves as in a position, even
4:49
Speaker 1: though they're kind of the slow movers in it, to
4:51
Speaker 1: get into into marijuana and turn that into sort of
4:54
Speaker 1: their growth avenue. Are they Are they waiting for federal
4:57
Speaker 1: US legislation because I know we've got a dozen or
4:59
Speaker 1: so states of legalized marijuana. Are I think waiting for
5:01
Speaker 1: federal Yeah? I think you need federal because otherwise it's
5:05
Speaker 1: just not a big enough market for them to really pursue.
5:07
Speaker 1: But they are obviously looking into It's something they've studied
5:10
Speaker 1: for decades, we know, even quietly behind the scenes, So
5:13
Speaker 1: it's definitely something they're interested in, but not until is
5:16
Speaker 1: it federal legal for them to really make a business
5:18
Speaker 1: push this time. Is this deal going to go through?
5:20
Speaker 1: I think so yeah. I mean I've been writing about
5:22
Speaker 1: this deal happening for years and it never did. And
5:25
Speaker 1: I think it makes sense. I they think it was
5:27
Speaker 1: only a matter of time, and with the launch of
5:29
Speaker 1: I coos next month, it seems like they're really serious.
5:32
Speaker 1: Sara La Chapelle, thank you so much for being with us.
5:34
Speaker 1: As always. Charla Chapelle as deals, telecom and media columnist
5:37
Speaker 1: for Bloomberg Opinion. Read her columns and all the other
5:40
Speaker 1: columnists columns on Bloomberg dot Com, Slash Opinion or O
5:45
Speaker 1: P I n Go on the Bloomberg. I am going
5:48
Speaker 1: to have a lot of fun for using these websites
5:50
Speaker 1: to even have the same colors, and there are hospital colors.
5:53
Speaker 1: I'm really looking at this sort of you know, sort
5:55
Speaker 1: of darker blue and the red and the just everything
6:01
Speaker 1: about it. It feels so healthy, It feels so healthy.
6:04
Speaker 1: I mean, these are absolutely you know, they would be
6:06
Speaker 1: they would be hospital websites if they weren't advertising cigarettes.
6:25
Speaker 1: Joining us right now is Jack Divine, former chief of
6:28
Speaker 1: CIA's worldwide operations and founding partner and president of the
6:32
Speaker 1: ark And Group. Jack, thanks so much for being with
6:35
Speaker 1: us again. I'm not sure where to start, but let's
6:37
Speaker 1: start with a Ran. Um. You know, we just had
6:40
Speaker 1: the G seven wrap up. What is your sense of
6:43
Speaker 1: kind of where we are with a RAN right now?
6:46
Speaker 1: It seems to be one of the issues on the
6:48
Speaker 1: front burner right This is a one of those issues
6:52
Speaker 1: that have troubled me all along. How do we deal
6:54
Speaker 1: with Iran? I think somehow we get along and maybe
6:58
Speaker 1: we won't get a break with North Korea, but Ron
7:00
Speaker 1: is really a contentious issue and we could have end
7:03
Speaker 1: up with some sort of military conflict. I'm not saying war.
7:05
Speaker 1: I don't think that will happen. What do you have?
7:08
Speaker 1: Are two really lunch and strong positions now in the
7:12
Speaker 1: Iranian government, and they're very good negotiators, as you know, Uh,
7:16
Speaker 1: we tend to underestimate foreigners and their ability to do
7:19
Speaker 1: negotiations in the art of the deal, which is true
7:21
Speaker 1: with North Korea as well. They've been negotiating and I
7:24
Speaker 1: think they did a really good job last time. So
7:27
Speaker 1: to go to the table right now, um, I think
7:32
Speaker 1: it's going to be hard for them. Um. They are
7:35
Speaker 1: in their latest messages saying you have to lift the
7:38
Speaker 1: sanctions now Trump, There's no ways Trump is going to
7:41
Speaker 1: raise the take away the sanctions. It's just not going
7:44
Speaker 1: to happen. So the positions are sort of recalculate trend.
7:49
Speaker 1: Strong positions that both side for domestic reasons and as
7:53
Speaker 1: well as national security interests can't find big, big concessions. However,
8:00
Speaker 1: as a footnote, I do think there's there. It is
8:05
Speaker 1: wise to try and bring leaders together if you can,
8:08
Speaker 1: sometimes you get a breakthrough. So up when the U
8:10
Speaker 1: N Session takes place, I wouldn't be surprised if there
8:14
Speaker 1: is a sidebar discussion despite all the strong posturing that
8:19
Speaker 1: that won't happen with Andrump. All right, I just sort
8:23
Speaker 1: of taking a step back. Do you think that we
8:25
Speaker 1: are in a more dangerous or less dangerous place than
8:28
Speaker 1: we were a year ago when you were writing your
8:30
Speaker 1: summer intelligence report, Then well, I think we're in a
8:34
Speaker 1: more dangerous place because I think the Iranian situation has
8:38
Speaker 1: become increasingly more desperate economically. Uh, they've made military gestures
8:44
Speaker 1: shooting down drones. In fact, one of the key developments
8:47
Speaker 1: for the year for me is the fact that the
8:50
Speaker 1: President Trump did not take a stronger action when the
8:54
Speaker 1: drone was shot down. Why because I think there's some
8:57
Speaker 1: very strong, howckey sentiments in the Trump administration, Uh to
9:03
Speaker 1: have uh to push the runtings as hard as you can.
9:06
Speaker 1: That showed more temperance and more probably possibilities, if you will,
9:12
Speaker 1: by not doing that, despite the pressure from elements into
9:15
Speaker 1: his administration. So um, I think he would like to
9:20
Speaker 1: have an arrangement with the Iranians. I just don't see
9:23
Speaker 1: how you get to a deal that works for both sides.
9:27
Speaker 1: He's easily. Are you concerned that the Americans seem to
9:32
Speaker 1: be going about this alone without some of the other
9:36
Speaker 1: European countries that are signatories to the original deal. Well,
9:40
Speaker 1: I think it's always better to have everybody with you.
9:44
Speaker 1: Having said that, sometimes you get everybody with you if
9:46
Speaker 1: you take the lowest common denomen or fees. Once we
9:50
Speaker 1: decided to tear up the deal, and as I said,
9:53
Speaker 1: it wasn't thrilled with the deal, but I thought it
9:54
Speaker 1: was an okay deal, I probably would have recommended against it. Well,
9:59
Speaker 1: once you tear up, then to get back to the table, uh,
10:03
Speaker 1: you know, if you're gonna it's really impossible for trumping
10:07
Speaker 1: me back with the same arrangement. There has to be
10:09
Speaker 1: a new deal, so uh, the Europeans on the other side,
10:13
Speaker 1: if it need to make accommodations with the US. It's
10:16
Speaker 1: such an We're such an important part of everyone's game
10:19
Speaker 1: plan that they're trying to do workarounds with Iran and
10:23
Speaker 1: that's not working out so well in Iranni and oil
10:26
Speaker 1: production is still very low. Internally, economic problems are quite severe.
10:31
Speaker 1: There's a lot to be said for putting his maximum
10:33
Speaker 1: pressure on Iran to get to the table. Don't put
10:36
Speaker 1: maximum pressure to have a regime change because that doesn't
10:40
Speaker 1: seem to be in the cards and you do not
10:42
Speaker 1: know what will happen when and uprising occurs. Let's just
10:46
Speaker 1: flip up a little bit and head to China, because
10:49
Speaker 1: certainly we talk every day about US China trade discussions, tradespats, tweets, etcetera.
10:55
Speaker 1: How worried are you that the situation will escalate beyond
10:59
Speaker 1: trade to something more military? There? I give that low prospects.
11:04
Speaker 1: I mean, I'm not anticipating the military uh clash between
11:09
Speaker 1: the US and the Chinese and the foreseeable future. Okay,
11:14
Speaker 1: that we will have a Cold War tense relationships with them.
11:20
Speaker 1: It seems like we're heading more and more in that
11:23
Speaker 1: that direction. I do think it's hard to find places
11:27
Speaker 1: where there's common agreement, but on China there is a
11:30
Speaker 1: sense of we really need to do something about China.
11:34
Speaker 1: How you go about it is open to dispute. I
11:37
Speaker 1: don't see it getting anywhere near a military confrontation. I
11:41
Speaker 1: think that Chinese have long range goals to some degree
11:45
Speaker 1: in terms of their military might. They're meeting those goals.
11:48
Speaker 1: I don't see where there's bones of contention, as in
11:51
Speaker 1: the case of Iran with the Straits of or Motes,
11:56
Speaker 1: we we are going to have opportunities to shoot at
11:59
Speaker 1: each other, Okay, we're in the case of the Chinese,
12:02
Speaker 1: I don't see that happening. And we're both major powers today.
12:05
Speaker 1: They have nuclear weapons, so I think the prospects are
12:08
Speaker 1: really pretty low. It's more in your area, especially economic conditions,
12:13
Speaker 1: that I think represent the greatest challenge to the relationship.
12:17
Speaker 1: Do you think that the U S should have pulled
12:19
Speaker 1: out of the Transportacific Partnership the t p P and
12:22
Speaker 1: and kind of again once again going and alone and
12:24
Speaker 1: discussions UH with China, or did we have more leverage
12:27
Speaker 1: being part of that group. Yeah. Again, I tend to
12:30
Speaker 1: line line up in the direction of keeping these things together.
12:34
Speaker 1: But all of them were flawed. The randeal was flawed,
12:38
Speaker 1: the the trade agreement was flawed. So you keep working
12:42
Speaker 1: the issues at a certain point. For example, with the
12:46
Speaker 1: Russians on the the nuclear arms arrangement, that was so
12:51
Speaker 1: dead that you eventually have to walk away from it.
12:53
Speaker 1: I don't think that was true. In the other cases,
12:55
Speaker 1: you keep working with them. I do think multilateral approaches
13:01
Speaker 1: thing are the best. However, I do see that we've
13:06
Speaker 1: drifted into a soft multilateral Someone has to take charge
13:10
Speaker 1: with a stronger multilateral thing. Will Trump prevail and bring
13:14
Speaker 1: the others to his side? That's the That's the question
13:16
Speaker 1: for me. Jack Devine, thank you so much for being
13:19
Speaker 1: with us. As always, we really appreciate you being here.
13:21
Speaker 1: Jack Divine, founding partner and president of the Arkan Group,
13:25
Speaker 1: former chief of CIA's worldwide operations, joining us here in
13:29
Speaker 1: our Blomberg Active Broker studios. Well, the rising trade tensions
13:49
Speaker 1: between the US and China are clearly royaling financial markets
13:53
Speaker 1: around the globe, and that includes investing directly in China itself.
13:57
Speaker 1: To get the latest. We welcome our next guest, Brendan A. Hearne,
14:00
Speaker 1: Chief Investment Officer of Crane Chairs. H Crane Chairs is
14:03
Speaker 1: based in New York City. Brendan, thanks so much for
14:05
Speaker 1: joining us. So again, we've seen, you know, the ups
14:08
Speaker 1: and downs of the trade tensions and the tweets kind
14:11
Speaker 1: of whips all markets. What about you know, the folks
14:14
Speaker 1: that actually are investing in China. What are we seeing
14:17
Speaker 1: in that activity? So the first forms nice for the
14:20
Speaker 1: opportunity to connect Paul Um. You know, I think day
14:24
Speaker 1: to day we become somewhat you almost have to become
14:26
Speaker 1: immune to some of the things that you can't control,
14:28
Speaker 1: if it's tweets or media headlines. Ultimately, the fundamentals China
14:33
Speaker 1: has been slowing for a number of years, but but
14:36
Speaker 1: it's it's it's really trading um high growth with high
14:41
Speaker 1: leverage for slower, healthier growth. And we're seeing that on
14:45
Speaker 1: on the corporate earning side as well. We're where corporate
14:47
Speaker 1: earnings were in really the meat of of corporate earning
14:50
Speaker 1: season for Hong Kong Us and mainland listed companies and
14:53
Speaker 1: the results have been surprisingly strong. So so we maintain
14:56
Speaker 1: our optimism is growth in China truly healthy at this point,
15:00
Speaker 1: given the fact that the PBOC has engaged or I
15:04
Speaker 1: should say re engaged in a releveraging of the economy, well,
15:09
Speaker 1: I think you know what what the PBOC is attempting
15:13
Speaker 1: to do is is really goes back to this thesis
15:15
Speaker 1: of a tale of to China, is that part of
15:17
Speaker 1: China doesn't need necessarily need lower interest rates, and yet
15:21
Speaker 1: there are parts of the economy that do need help.
15:23
Speaker 1: If it's your export driven manufacturing um at the same
15:27
Speaker 1: time that the consumption story is alive and well, um
15:31
Speaker 1: in a broad braced interest rate cut, you know basically
15:34
Speaker 1: could fuel bubble in in that that consumption. But but
15:38
Speaker 1: I think that you need to get help to the
15:39
Speaker 1: parts of the economy that are struggling under the weight
15:42
Speaker 1: of the trade war. So Brendon happens. You know, the
15:46
Speaker 1: unrest we're seeing in Hong Kong, it it doesn't seem
15:48
Speaker 1: to be going away. The demonstrators continue to you know,
15:51
Speaker 1: weekend after weekend, Uh come out into into the streets.
15:55
Speaker 1: What are you hearing from investors as to gees? That
15:57
Speaker 1: just adds another level of uncertainty in that part of
15:59
Speaker 1: the world. It maybe you know, I might sit on
16:01
Speaker 1: the sidelines as it released allocating more capital. There certainly
16:05
Speaker 1: investors setiment around Hong Kong. If you one looks at
16:08
Speaker 1: the Hang Sang has been very very depressed. Uh, certainly,
16:12
Speaker 1: you know, it does appear that it's very unlikely you'll
16:15
Speaker 1: see a military type intervention. Um. I suspect Carrie Lamb
16:21
Speaker 1: will be removed at some stage. That the populace in
16:25
Speaker 1: Hong Kong has become um very disenfranchised to her leadership.
16:31
Speaker 1: But I do think the hope is that if you
16:33
Speaker 1: just leave it alone, it will go away. But it
16:35
Speaker 1: teems to be quite persistent, and certainly the local populace
16:39
Speaker 1: is worried just about how is China going to react?
16:43
Speaker 1: But I think they maintain the hands off approach as
16:45
Speaker 1: we've seen thus far. Brandon, at what point in a
16:48
Speaker 1: potential escalation of the trade skirmish between the US and China,
16:52
Speaker 1: would you grow more bearish on China? Well, I think
16:57
Speaker 1: a lot of the pessimism has already been built in
16:59
Speaker 1: least if one looks at the pe ratios for both
17:02
Speaker 1: mainland China as well as Hong Kong or US listed companies,
17:06
Speaker 1: the valuations are about as pessimistic as I've seen them unfortunately,
17:11
Speaker 1: so I think a lot of that is built in.
17:12
Speaker 1: I think I think the bigger worry, if you step
17:15
Speaker 1: back and say big picture, would be that this is
17:17
Speaker 1: China being pushed into some sort of enemy role. That's
17:21
Speaker 1: something for those who do business there. I don't see that,
17:24
Speaker 1: I don't ever feel that, but increasingly, you know, China's
17:27
Speaker 1: being put on that pedestal. I think I think that's
17:29
Speaker 1: the big worry. So Brendan, what are you see in
17:32
Speaker 1: terms of the fund that flows into say like China
17:35
Speaker 1: E t F and things like that, are people Are
17:36
Speaker 1: you seeing it slow down or are people still engaged?
17:41
Speaker 1: We're definitely Uh. The US China et F industry is
17:46
Speaker 1: getting outflows. We've seen we actually had the largest China
17:50
Speaker 1: E t F here in the US lost a hundred
17:52
Speaker 1: million dollars overnight. At the same time, we did have
17:55
Speaker 1: MSCIS inclusion last night where we had um net uh
18:00
Speaker 1: one point five seven billion dollars of foreign buying in
18:04
Speaker 1: Chinese a share. So so the E t F s
18:06
Speaker 1: are react. The China E t s are seeing outflows.
18:09
Speaker 1: At the same time because of the m s c
18:10
Speaker 1: I inclusion, we are getting inflows in that regard, How
18:14
Speaker 1: does the u N factor in here? We are seeing
18:17
Speaker 1: a pretty significant depreciation in the u N, crossing the
18:20
Speaker 1: seven per dollar threshold and then going beyond. How bunch
18:24
Speaker 1: of an issue is that going to be both in
18:27
Speaker 1: terms of companies repaying their dollar debt as well as
18:29
Speaker 1: their ability to sort of compete internationally. The the un
18:34
Speaker 1: depreciation has been somewhat mild, I mean relative to the
18:38
Speaker 1: e m f X. It's it's in line, what what
18:40
Speaker 1: what what we've seen um At the same time, I
18:43
Speaker 1: think it's very different than August, where I've got some
18:46
Speaker 1: wrinkles on my forehead from from that particular, a month
18:49
Speaker 1: where you had a very unexpected decline because because people
18:53
Speaker 1: kind of expect, you know, one, you have a very
18:55
Speaker 1: strong dollar at the same time you have China is slowing,
18:59
Speaker 1: So some some weakness is expected in the REAMBI as
19:02
Speaker 1: long as in a controlled manner, I think we're okay.
19:05
Speaker 1: Thank you so much for being with us. Brendan Hern,
19:07
Speaker 1: chief investment officer at Crane Shares. Let's talk about a
19:24
Speaker 1: particularly risky segment of the market, Argentina. We can look
19:28
Speaker 1: in at bonds where the implied yields are currently fifty
19:31
Speaker 1: five on short dated notes. Kind of shocking and investors
19:36
Speaker 1: are flocking to the nation to check it all out.
19:40
Speaker 1: But let's talk about what the prospects of default, recovery
19:43
Speaker 1: and actual yield is. Damian sass Our, chief Emerging Markets
19:46
Speaker 1: credit strategist joining us here in our Bloomberg inter Active
19:49
Speaker 1: Broker Studios. So whether Argentina, what is the bull case
19:53
Speaker 1: and what is the bear case? Goodness, Okay, well the
19:55
Speaker 1: bull cases we hear something good out of at Buenos
19:58
Speaker 1: Arts today. We have Aljandra War, owner of the IMF,
20:00
Speaker 1: visiting this week and his contingent is going to decide
20:03
Speaker 1: when they're not to make a five point four billion
20:05
Speaker 1: dollar disbursement next month. That would be the third dispersement
20:08
Speaker 1: of the i m F loan. If we get good
20:10
Speaker 1: news there and the i m F doesn't hold that back,
20:12
Speaker 1: that would definitely give some comfort to markets. We have
20:14
Speaker 1: seen the pace of stabilizes it around fifty five. But
20:17
Speaker 1: that's the short term bullish case. The bearrish cases obviously
20:21
Speaker 1: that boats are fernandez Um is indeed elected and sort
20:24
Speaker 1: of goes off the rails. And basically, I mean we
20:26
Speaker 1: were talking about possible debt, restructuring, government control over grain prices.
20:30
Speaker 1: We're talking about multiple FX regimes locally. UM, that would
20:33
Speaker 1: all be very very bad. But look, Fernandez is on
20:36
Speaker 1: the tape this week, UM saying he stands by the
20:40
Speaker 1: I m F mandate. Um, they both stand for the
20:42
Speaker 1: same thing. And so far as Argentina's concerned, economic growth,
20:45
Speaker 1: lower unemployment, UM, lower debt and so forth, and so look,
20:49
Speaker 1: you know, you know there is some reason to be optimistic.
20:51
Speaker 1: I know our friends at Morgan Stanley are UM, they
20:53
Speaker 1: actually moved Argentina from underweight to market weight this week.
20:57
Speaker 1: They think at call it forty cents on the dollar,
20:59
Speaker 1: that UM there, the Argentine dollar dead is actually a
21:02
Speaker 1: buy here. UM. But you know, from the stress investors
21:05
Speaker 1: that I've talked to, and those are really the only
21:06
Speaker 1: ones that are going to go near that paper at
21:08
Speaker 1: current levels, you know, they'd want to see it coming
21:10
Speaker 1: a little bit more down into the thirties. So you know,
21:12
Speaker 1: the verdict is still add us to whether or not
21:14
Speaker 1: it's a buy yet. But UM, certainly, you know we
21:16
Speaker 1: need to see more news uh from the I m
21:18
Speaker 1: F in order to really discern that has the trouble.
21:21
Speaker 1: We've seen in Argentina. Is that had been a little
21:23
Speaker 1: bit of contagion around Latin America or is it kind
21:25
Speaker 1: of confined to that country. Well, you know, it's that's interesting.
21:28
Speaker 1: I mean, contagion is it takes many different forms. So
21:31
Speaker 1: if it's if it's real economy, real risk contagion, where
21:33
Speaker 1: you see something on the order of, you know, early
21:35
Speaker 1: last year, when you know all of emerging markets sort
21:37
Speaker 1: of caved. I don't think we're going to see that
21:40
Speaker 1: this time. Position is not nearly as heavy, it's not
21:42
Speaker 1: nearly as concentrated as it once where. But we've seen
21:44
Speaker 1: some really big losses from from some very UM venerable
21:47
Speaker 1: portfolio managers over the past month with the with the
21:50
Speaker 1: the client in the RG pace, so including our friends
21:53
Speaker 1: at Franklin Templeton, and so we wrote to that this morning. Look,
21:56
Speaker 1: the risk of contagion would be more of I think
21:59
Speaker 1: it'd be more are isolated to e M dollar credit,
22:02
Speaker 1: specifically high yield credit, because let's be clear, if people
22:05
Speaker 1: don't want to sell arg debt at current levels because
22:07
Speaker 1: they still believe in the fundamental theme, they probably wind
22:11
Speaker 1: up selling other high yield emerging market sovereign debt. So
22:14
Speaker 1: you know, we pointed out some bonds that are potentially
22:17
Speaker 1: suffering from concentration risk. Um wa, wait just stop right there.
22:20
Speaker 1: I want to just accentuate at this point because this
22:22
Speaker 1: is actually incredibly important. The idea that you have these
22:25
Speaker 1: very big investors who had very big positions in Argentina
22:29
Speaker 1: and now are facing what do you do with the
22:31
Speaker 1: fact that the assets have fallen out of bed, prices
22:34
Speaker 1: have gone down? Do you sell or do you sell
22:36
Speaker 1: other bonds? And you're saying that they are likely to
22:39
Speaker 1: sell other bonds rather than take actual losses on all
22:42
Speaker 1: of the Argentinian debt right now? Correct, Well, it depends
22:45
Speaker 1: on supply demand dematic dynamics. And what I would say
22:48
Speaker 1: is it depends on redemptions because look, hasn't stopped and
22:50
Speaker 1: some of the guys that f T are still very
22:52
Speaker 1: widely regarded and people were completely on board with his
22:55
Speaker 1: concentration in Argentina when this happened. So does that mean
22:57
Speaker 1: the redemptions from clients, from investors and it's funder going
23:00
Speaker 1: to come through? We're not quite sure. But if they do,
23:04
Speaker 1: what's hasn't stuff to do. Is he gonna capitulate and
23:07
Speaker 1: start selling RG debt or is he going to sell
23:09
Speaker 1: other debt that's in his portfolio that may not have
23:12
Speaker 1: come off as significantly. I I wouldn't. I don't know so,
23:16
Speaker 1: I mean, but it's not all doom and gloom down there.
23:18
Speaker 1: Chile has actually been a pretty good success story for
23:22
Speaker 1: EM investors. What's driving that performance, Well, it's going to
23:24
Speaker 1: be copper prices in Chile and most and same same
23:26
Speaker 1: goes for Peru for the most part. But you know,
23:28
Speaker 1: I mean, look, Chili's come off a bit. I mean
23:30
Speaker 1: the real risk now, I mean, I mean Paul is
23:32
Speaker 1: is Brazil. Um. If you see some of the things
23:34
Speaker 1: that are going on with the fires in the Amazon
23:36
Speaker 1: and the way Boltonaro is openly rejected dollar aid package
23:41
Speaker 1: from from the G seven. Just this weekend. He's actually
23:44
Speaker 1: gotten in a little bit of a spat with He
23:47
Speaker 1: turned it down because he was insulted. But he thinks
23:50
Speaker 1: he was insulted by mccron. Correct. He felt that the
23:52
Speaker 1: Europeans were basically treating Brazil as a colony again, you know,
23:56
Speaker 1: so he took that very personally, or at least that's
23:58
Speaker 1: the way the news. The news has kind of interpreted that.
24:01
Speaker 1: I think the real the real thing is all of
24:03
Speaker 1: a sudden, this became a Facebook spat over, you know,
24:06
Speaker 1: first ladies between Macron and Bolsonaro. I don't know how
24:08
Speaker 1: that mass aside so quickly, but but that's where that went.
24:11
Speaker 1: I mean, look, just in terms of Brazil, just by
24:14
Speaker 1: the way, I can't believe that you're saying this was
24:16
Speaker 1: a straight face and you are that this is We're
24:19
Speaker 1: talking about a Facebook spat over the wives of two
24:22
Speaker 1: leaders of nations, and that's what bond markets are watching.
24:25
Speaker 1: I mean, look, you have to understand. The Amazon rainforest
24:28
Speaker 1: is a huge I mean it's I mean it's it's
24:30
Speaker 1: it's the biggest rainforest on the planet. It's a huge
24:32
Speaker 1: source of oxygen for all of us. And you know,
24:35
Speaker 1: fires are bt three percent. You're there seventy seven thousand
24:37
Speaker 1: fires raging because ranchers and loggers and farmers are trying
24:41
Speaker 1: to clear land so they can raise more cattle, or
24:44
Speaker 1: at least that's what you know, uh prevailing thought would
24:46
Speaker 1: have you believe. And look, Bosonar is doing very little
24:49
Speaker 1: about that. His disapproval ratings now off the back of this,
24:53
Speaker 1: that's not very good for for him and for the country.
24:56
Speaker 1: Cart So emerging markets investors like they don't have enough
24:58
Speaker 1: to worry about, and now I have to worry about facebooks,
25:00
Speaker 1: beats and Amazon fires. Damien Sasare, thanks so much for
25:04
Speaker 1: joining us. Damien is chief Emerging Markets credit strategist for
25:06
Speaker 1: Bloomberg Intelligence, joining us here in our Bloomberg eleven three
25:09
Speaker 1: oh studios, he covers all things emerging markets. Thanks for
25:12
Speaker 1: listening to the Bloomberg P and L podcast. You can
25:14
Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever
25:17
Speaker 1: podcast platform you prefer. Paul Sweeney, I'm on Twitter at
25:21
Speaker 1: pt Sweeney. I'm Lisa abram Woyit's I'm on Twitter at
25:23
Speaker 1: Lisa abram Woyits one before the podcast. You can always
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Speaker 1: catch us worldwide. I'm Bloomberg Radio