Latest / Bloomberg Intelligence / Other Countries Are Going To have To Learn To Deal With President Trump : Jack Devine

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Other Countries Are Going To have To Learn To Deal With President Trump : Jack Devine · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Today
• 0:32
  Speaker 1: is all about trade. President Trump announced saying tariffs on
• 0:36
  Speaker 1: fifty billion dollars of imports to the US from China.
• 0:40
  Speaker 1: China saying that it will retaliate. Moody's putting out a
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  Speaker 1: note just now saying that because the US tariffs and
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  Speaker 1: China are restricted to a relatively small range of high
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  Speaker 1: tech products, we don't expect them to meaningfully impact US inflation. However,
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  Speaker 1: individual U S sectors ranging from agricultural to aerospace vulnerable
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  Speaker 1: to retaliation by from China. For more, we want to
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  Speaker 1: bring in Andrew Mata. He's been covering this all very closely.
• 1:07
  Speaker 1: He's global trade and economy reporter for Bloomberg News. Andrew,
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  Speaker 1: thank you so much for joining me on this very
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  Speaker 1: busy morning for you. I'm sure. Um. Let's just start
• 1:15
  Speaker 1: with what we know so far about what President Trump
• 1:19
  Speaker 1: is targeting with these latest round of tariff's. Yeah, so
• 1:24
  Speaker 1: he has kind of refined the list that they've put
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  Speaker 1: out in April. Um. They've removed some pharmaceutical products. We're
• 1:31
  Speaker 1: actually still going through the list of frankly, there's there's
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  Speaker 1: a lot of products in there, but it looks like
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  Speaker 1: they've removed some pharmaceutical products, they removed some consumer goods,
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  Speaker 1: and they refined the list a little bit to focus
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  Speaker 1: on China. China's Made in China plan. This is a
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  Speaker 1: plan that they have to dominate certain technologies around the world. Okay.
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  Speaker 1: Uh So, basically what Moody's was saying, with a lot
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  Speaker 1: of analysts that we've spoken to have been saying is
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  Speaker 1: that this is a pretty narrow slice of products. So
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  Speaker 1: the interriffs wouldn't necessarily have a broad impact on the U.
• 2:08
  Speaker 1: S economy or frankly, the Chinese economy. But the concern
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  Speaker 1: is what the retaliation is going to be. Is that
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  Speaker 1: an accurate kind of assessment of how people are viewing
• 2:16
  Speaker 1: this right now? Yeah, I think that's occurred, and in fact,
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  Speaker 1: that's the view of the International Monetary Fund, that's the
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  Speaker 1: view of our economists here at Bloomberg Economics. I mean,
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  Speaker 1: if you just do the math on the back of
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  Speaker 1: an envelope, you've got fifty billion in tariffs. That's ten
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  Speaker 1: percent of total US imports from China. You know, so
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  Speaker 1: the direct economic hit is probably fairly modest. Now, what
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  Speaker 1: the I M F and others say is, uh, you know,
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  Speaker 1: this could be problematic if we start to get in
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  Speaker 1: a situation where this hurts business confidence, where this hurts
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  Speaker 1: consumer confidence, and the upsurge in the upswing in investment
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  Speaker 1: and consumer spending that we've seen in recent years starts
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  Speaker 1: to take a hit. Okay. Also of concern is what
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  Speaker 1: the retaliation is going to look like by China. Of course,
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  Speaker 1: China just came out with those disappointing retail sales data,
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  Speaker 1: so this isn't coming at a great time for that country,
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  Speaker 1: and they're expecting to target the farm sector, right. Yeah,
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  Speaker 1: So China again said today that it will respond with
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  Speaker 1: equal scale, equal intensity. Um, they will put tears on
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  Speaker 1: a range of American goods, everything from soybeans to chemical
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  Speaker 1: products to airplanes. So that should have an impact on
• 3:37
  Speaker 1: American companies for sure. Um. You know, we'll see if
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  Speaker 1: how much of an impact it actually has on the
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  Speaker 1: Chinese economy. Again, you're talking about the second biggest economy
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  Speaker 1: in the world, so it's a direct economic hit. It
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  Speaker 1: should be fairly muted. But you know, one major takeaway
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  Speaker 1: that that that I took from today's announcement was the
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  Speaker 1: present saidative d retaliates the US will ramp up even further.
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  Speaker 1: Uh So that's exactly the type of tit for tat
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  Speaker 1: cycle that economists worry about. I'm startabling to understand the
• 4:13
  Speaker 1: backstory here because we heard some discussion that trade talks
• 4:17
  Speaker 1: were progressing well between the US and China. Uh. Then
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  Speaker 1: there was the qualcom an XP announcement earlier today, which
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  Speaker 1: seemed to be a softening of the ties. I mean,
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  Speaker 1: it seems like things were moving toward a more conciliatory approach,
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  Speaker 1: and then and then this comes out. I mean, do
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  Speaker 1: have a sense of what sort of the strategy is here,
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  Speaker 1: what the backstory is. Yeah. I think that there's two
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  Speaker 1: camps within the administration. I mean, there's a camp within
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  Speaker 1: any administration that's relatively pro market. Uh. These people tend
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  Speaker 1: to be free traders. I'm thinking of people like Stephen
• 4:52
  Speaker 1: Manusian and Larry Cudlow, they tend to be a little
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  Speaker 1: more transactional. I mean, I think that they were trying
• 4:57
  Speaker 1: to head this off with some type of quick deal,
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  Speaker 1: you know, trying to potentially buys more energy, buys more sleybeans. Uh,
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  Speaker 1: you know, throws in approval of the n XP deal.
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  Speaker 1: Uh us uh, goes a little lighter on on ZT
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  Speaker 1: and then we all go home. Um. But but I
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  Speaker 1: think that there are people within the administration. I would
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  Speaker 1: put Ambassador Lightheizer in that camp. I would put certainly
• 5:20
  Speaker 1: Peter Navarre in that camp who want deeper structural changes
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  Speaker 1: to the Chinese economy. And and and and of course
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  Speaker 1: the president himself wants a reduction in the overall trade deficity.
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  Speaker 1: If that is the goal, this, uh, this isn't going
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  Speaker 1: to end anytime soon. Yeah. And frankly, this this does
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  Speaker 1: raise a lot of questions for what it does to
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  Speaker 1: Chinese China's economy, especially given the fact that we are
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  Speaker 1: seeing some signs of it slowing down. Hey, before I
• 5:43
  Speaker 1: let you go, I do want to get a sense
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  Speaker 1: of what's going on with NAFTA. What's the latest there. Wow. Well, NAFTA,
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  Speaker 1: I would say, is on the back burner right now. Um.
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  Speaker 1: You know, officials from all three countries were kind of
• 5:58
  Speaker 1: working around the clock a few weeks ago to try
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  Speaker 1: to get a deal um and the deadline really was
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  Speaker 1: to try to get it done in a timely manner
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  Speaker 1: so that they could get it through this Congress. I
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  Speaker 1: think that that deadline has either passed or or will
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  Speaker 1: pass very shortly. And U, so talks have kind of
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  Speaker 1: gone in the deep freeze. I mean, the X factor
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  Speaker 1: really is, you know, does a present just decided to
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  Speaker 1: withdraw at some point? Yeah, Andrewmeda, thank you so much
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  Speaker 1: for joining me. It's a very busy day to day
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  Speaker 1: on the trade front. I'm sure you have your day
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  Speaker 1: filled out. Andrewmeda at Global Trade and Economy reporter for
• 6:33
  Speaker 1: Bloomberg News, joining us from Washington, d C. Emerging market
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  Speaker 1: currencies are really taking it on the chin today. They
• 6:53
  Speaker 1: are down according to the ms c I Index of
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  Speaker 1: EM Currencies, they are down the most since November two teen.
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  Speaker 1: Joining me now to talk about this, Paul McNamara. He's
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  Speaker 1: investment director for Emerging Markets at GAM, which oversees eleven
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  Speaker 1: billion dollars in developing world assets, and he joins us
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  Speaker 1: from London. Paul, thank you so much. For joining. I mean,
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  Speaker 1: this is really an important topic and you have decades
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  Speaker 1: of experience dealing with it, so you are the person
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  Speaker 1: what's going on? Why? Why are why are these currencies
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  Speaker 1: absolutely falling out of bed today? They're actually behaving pretty
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  Speaker 1: much as as President suggests. I mean, as a rule
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  Speaker 1: of time, you know, if the dollar rises one percent
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  Speaker 1: against the majors, so say the d X Y the
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  Speaker 1: Federal reserves trade weighted basket, if it goes up one
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  Speaker 1: percent against that, it goes up about one and a
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  Speaker 1: half percent against EM on average. And that's pretty much
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  Speaker 1: exactly what's happened this year that when the dollar was
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  Speaker 1: weak for sort of January February, EM did very well.
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  Speaker 1: Then the dollars snapped back and emerging markets came off
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  Speaker 1: sort of out of proportion with the developed markets. But
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  Speaker 1: there's there's nothing really new going on here. I mean,
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  Speaker 1: EM currencies are really be something only to own when
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  Speaker 1: when the dollar is weak, and a strong dollar has always,
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  Speaker 1: you know, for decades, as you say, has been a
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  Speaker 1: problem for e m f X. All right, So, as
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  Speaker 1: an investor in developing markets and in the credit in particular,
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  Speaker 1: how do you maneuver around this? You know, if this
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  Speaker 1: is going to be the trend, the norm for even
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  Speaker 1: a couple of weeks or even a couple of months,
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  Speaker 1: it could decimate credit investments, regardless of of sort of
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  Speaker 1: your view one um and the actual fundamental Uh, it could.
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  Speaker 1: I mean the first thing to do is to look
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  Speaker 1: at countries who are trying to service for foreign debt
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  Speaker 1: out of local currency revenue, and the most the most
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  Speaker 1: glaring example of that, I think is Turkey, which which
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  Speaker 1: is when we've been concerned about for a while. I mean,
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  Speaker 1: the two currencies hit hardest this year. I've been Turkey
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  Speaker 1: and Argentina, which are the two which are which are
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  Speaker 1: running external deficits. And I think that's really where you
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  Speaker 1: want to be worried. I mean, I m fundamentals now
• 8:58
  Speaker 1: are actually much better shape than they were in two
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  Speaker 1: thousand and thirteen. So our our instinct is really more
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  Speaker 1: to knuckle down, kind of keep our heads down for
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  Speaker 1: a bit, because you know, there's a couple of markets
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  Speaker 1: I think Russia and Brazil in particular, which stand out
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  Speaker 1: that if we get a little bit of stability on
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  Speaker 1: the dollar, we think could snap back quite strongly. But
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  Speaker 1: I think you know, we'd be still quite cautious about
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  Speaker 1: places like Turkey, you and a lot of other people.
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  Speaker 1: I think people are absolutely swing Turkey and Argentina. Are
• 9:25
  Speaker 1: you actively buying anyone right now? I mean we've actively
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  Speaker 1: been adding long duration in Brazil because what we've seen
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  Speaker 1: there is a big steepening of the curves for the
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  Speaker 1: back end there, I think looks very interesting. We've also
• 9:35
  Speaker 1: been dipping a toe into Argentina. I mean, the trouble
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  Speaker 1: with Argentina is it's not a terribly liquid market, you know,
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  Speaker 1: and and if you once you're in, it's quite it
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  Speaker 1: can be quite difficult to get out. But I think,
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  Speaker 1: you know, unlike Turkey, I think the problems in Argentina
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  Speaker 1: look fixable. So to the extent that we we we've
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  Speaker 1: we're trying to catch the falling knife. We'd rather do
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  Speaker 1: it in Argentina than Turkey. Have you been buying the
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  Speaker 1: hundred year bonds? No, We've been buying local currency paper
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  Speaker 1: because I was interested in you know, Argentina managed to
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  Speaker 1: buy managed to sell bonds with maturities of one hundred
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  Speaker 1: years last year, and everyone said, this is a terrible idea,
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  Speaker 1: this is absolutely going to be a losing trade. And
• 10:15
  Speaker 1: sure enough, here I'm looking at the dollar price of
• 10:18
  Speaker 1: these bonds that were sold at parts on the dollar.
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  Speaker 1: You know, absolutely crushed. But I have to wonder, you know,
• 10:24
  Speaker 1: at what point do you give up? At what point
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  Speaker 1: do you say, you know what, this ship is moving
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  Speaker 1: too fast for me to really to catch a knife.
• 10:32
  Speaker 1: I mean, you know, one of the things about em
• 10:34
  Speaker 1: is that you know that this kind of counts as
• 10:36
  Speaker 1: routine turbulence. I mean, it's not often we get a
• 10:38
  Speaker 1: year go by without, you know, sort of something that
• 10:41
  Speaker 1: requires a strong stomach to get through. I mean, you know,
• 10:44
  Speaker 1: even in even in the Great bond bond rally, currency
• 10:47
  Speaker 1: rally before the global financial crisis, you had, you know,
• 10:50
  Speaker 1: you had outbreaks like two thousand and six which were
• 10:52
  Speaker 1: very similar to this UM. I think, you know, we
• 10:55
  Speaker 1: put our faith in fundamental unfashionable as that sounds, and
• 10:59
  Speaker 1: that you know that there are enough countries which which
• 11:00
  Speaker 1: which don't look to us to have these very deep
• 11:03
  Speaker 1: seated problems. And that's unlike two thousand and thirteen when
• 11:06
  Speaker 1: you had the Fragile five, you had current account deficits
• 11:08
  Speaker 1: all over the place. You know, I think you know,
• 11:11
  Speaker 1: anybody goes into a m you have to be ready
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  Speaker 1: to ride out a bit of turbulence, although it's not
• 11:18
  Speaker 1: always it's not always easy. Well, but at what point
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  Speaker 1: is does turbulence shift into something more serious? More and
• 11:26
  Speaker 1: more with contagion I think, I mean, contagion isn't something real,
• 11:32
  Speaker 1: to be honest. I mean usually if you look at say,
• 11:35
  Speaker 1: you know, the classic example, which was Asia, they all
• 11:39
  Speaker 1: went down because they all had the same problem, which
• 11:41
  Speaker 1: was too much especially short term foreign currency borrowing serviced
• 11:45
  Speaker 1: out of usually property investments. You know, so all the
• 11:49
  Speaker 1: countries which have the same problem, you know it suffered
• 11:51
  Speaker 1: the same suffered the same outcome. I mean this time,
• 11:54
  Speaker 1: like I said, it's really only Turkey we see is
• 11:58
  Speaker 1: as a crisis candidate. When we're we're staring very clear
• 12:01
  Speaker 1: of Turkey across the rest. You know, if you don't
• 12:03
  Speaker 1: see fundamental problems, I think you kind of have to
• 12:05
  Speaker 1: grit your teeth and stay involved. Twenty seconds. Are you
• 12:08
  Speaker 1: worried about e t f s? Of course, Well that
• 12:12
  Speaker 1: you know they're they're cheaper than the funds we offer.
• 12:14
  Speaker 1: We're out performing them. I think we'll worry more when
• 12:16
  Speaker 1: we see an e t F that does better than
• 12:18
  Speaker 1: our funds. Paul McNamara Thank you so much for being
• 12:21
  Speaker 1: with me. A very important topic today. Paul McNamara is
• 12:24
  Speaker 1: Investment director for Emerging Markets at GAM UK, overseeing about
• 12:28
  Speaker 1: eleven billion dollars in developing world assets. Joining me from London.
• 12:47
  Speaker 1: A lot of cross currents right now in the debt markets.
• 12:50
  Speaker 1: There's a big question is it time to go long
• 12:53
  Speaker 1: risk given how tight spreads are in a lot of
• 12:56
  Speaker 1: the corporate credit market and given the fact that companies
• 12:59
  Speaker 1: are levering up, or is it time to back away
• 13:02
  Speaker 1: even though the good times could keep rolling for a
• 13:04
  Speaker 1: while longer? Here to answer that question, Greg Hahn, President
• 13:07
  Speaker 1: and Chief investment Officer at Winthrop Capital Management in New York. Greg,
• 13:12
  Speaker 1: thank you so much for being with me. You've been
• 13:15
  Speaker 1: in the dept markets for a very long time. You've
• 13:17
  Speaker 1: seen a lot of different cycles. There are concerns that
• 13:21
  Speaker 1: we are heading towards the peak of this credit cycle,
• 13:25
  Speaker 1: given the fact that we are seeing a record pace
• 13:27
  Speaker 1: of M and A globally and we are seeing leverage
• 13:30
  Speaker 1: ratios take up on some of the loans that we've
• 13:33
  Speaker 1: seen issued. Are you worried about the end of the
• 13:35
  Speaker 1: credit cycle and that it's imminent so we're not worried
• 13:40
  Speaker 1: we're seeing opportunity. Uh the I would tell you though,
• 13:44
  Speaker 1: that we are seeing signs that the credit cycle is
• 13:46
  Speaker 1: starting to shift. And we would also add deer list
• 13:49
  Speaker 1: the increase in bankruptcy. So the bankruptcy councils showed a
• 13:53
  Speaker 1: spike class February UM and anecdotally, as we talked to
• 13:57
  Speaker 1: bankruptcy councils around the country, they're seeing a pick up
• 13:59
  Speaker 1: an activity um and it's covering all sectors, including real estate.
• 14:03
  Speaker 1: So that's anecdotal, but with spread wider right now, especially
• 14:07
  Speaker 1: on the investment grade site since February, we're seeing wonderful
• 14:09
  Speaker 1: opportunities in the bond market. All right, So where are
• 14:11
  Speaker 1: you seeing the opportunity specifically? So we like we like banks,
• 14:16
  Speaker 1: some of these banks that are forced to build their
• 14:19
  Speaker 1: capital ratios, like Wells Fargo and Deutsche Bank. That helps
• 14:22
  Speaker 1: bond holders. All that does is so that's that's the
• 14:25
  Speaker 1: capital level underneath the bond piece of it, and we
• 14:29
  Speaker 1: like that. Okay. One thing that you noted in the
• 14:32
  Speaker 1: research piece that you sent over was that you like
• 14:34
  Speaker 1: triple B rated corporate bonds. This is the lowest rated
• 14:39
  Speaker 1: tier of investment grade debt and Frankly, it has been
• 14:42
  Speaker 1: pinpointed by the likes of PIMCO and Western Asset Management
• 14:45
  Speaker 1: as being uh, kind of harboring quite a bit of
• 14:48
  Speaker 1: risk nowadays, more so than usual. Why do you like it?
• 14:52
  Speaker 1: Even though these are the companies that are arguably levering
• 14:55
  Speaker 1: up the most. So we have to be careful to
• 14:59
  Speaker 1: not ain't the whole in the whole sector with the
• 15:02
  Speaker 1: same brush. There are parts of the triple B sector
• 15:05
  Speaker 1: that we think make a lot of sense. There's industrials
• 15:07
  Speaker 1: defense that are wonderful companies that are well run. But
• 15:11
  Speaker 1: when you look at some of the specialty finance, if
• 15:13
  Speaker 1: you look at the real sector, some of the reeds
• 15:15
  Speaker 1: are going to feel some pressure and we see some
• 15:17
  Speaker 1: downgrades in that area as well. But again we've seen
• 15:20
  Speaker 1: we've seen triple B spreads widen out much further than
• 15:23
  Speaker 1: a the single A spread over the last year, and
• 15:27
  Speaker 1: there's opportunity we're being compensated for that risk right now.
• 15:30
  Speaker 1: That's really interesting. And that's actually uh somewhat of a
• 15:32
  Speaker 1: controversial and uh and and uh kind of against the
• 15:36
  Speaker 1: market kind of bet right now. Yeah, market still market
• 15:41
  Speaker 1: still moving straight lines. So uh, these are positional and
• 15:45
  Speaker 1: so with we expect as the summer comes through, volatility
• 15:48
  Speaker 1: is going to come down. With volatility coming down, we'll
• 15:52
  Speaker 1: see some spread contractions. We're expecting that we're knock on wood.
• 15:56
  Speaker 1: We're expecting a little bit quieter summer than we saw
• 15:58
  Speaker 1: in the beginning. And what support in that is the
• 16:00
  Speaker 1: new issue calendar starting to slow. So when we had
• 16:03
  Speaker 1: new issuance, which is supporting a lot of stock buy backs,
• 16:06
  Speaker 1: I'll give you that we're seeing a lot of stock
• 16:08
  Speaker 1: buy backs, UM, but uh, Corporate America is a lot
• 16:12
  Speaker 1: savvy or at managing their capital structure right now. And
• 16:16
  Speaker 1: and we we think that the triple B sector offers
• 16:19
  Speaker 1: some value. So you started by by saying that you
• 16:22
  Speaker 1: are seeing signs are getting towards the end of the
• 16:24
  Speaker 1: credit cycle. Um, where does the biggest risk lie If
• 16:28
  Speaker 1: that is the case, Well, this it always happens that
• 16:33
  Speaker 1: we'll see it in UM subprime lending. The banks are
• 16:36
  Speaker 1: taking money. For the most part, we're seeing banks reduced
• 16:39
  Speaker 1: their loan loss reserves UM, and that's helping to support
• 16:43
  Speaker 1: bank earnings. But when the cycle turns, we don't have
• 16:47
  Speaker 1: that cushion in the banking sector. So that's one area
• 16:49
  Speaker 1: that we're seeing right now where there's some some concern.
• 16:53
  Speaker 1: Al Right, so you like bank debt, but you are
• 16:55
  Speaker 1: concerned the banks are reducing the subprime market. It's that
• 17:00
  Speaker 1: subprime auto, you know, it's it's really you're you're seeing
• 17:03
  Speaker 1: it come through in the consumer sector. The consumers looking
• 17:06
  Speaker 1: really good right now, but it's a consumer balance. She
• 17:09
  Speaker 1: looks good, the job market solid, there's a lot of
• 17:11
  Speaker 1: good things happening, and we would expect that it's going
• 17:15
  Speaker 1: to flow through some of the statistics and we're going
• 17:17
  Speaker 1: to see that consumption increased. People are going to go
• 17:20
  Speaker 1: out and take on loans to go buy cars or
• 17:22
  Speaker 1: lease cars, and it's gonna put pressure. It's not going
• 17:25
  Speaker 1: to happen immediately, but the trend is gonna We're not
• 17:28
  Speaker 1: going to move in the straight line. It is gonna
• 17:30
  Speaker 1: shift heading into the end of the year. We would
• 17:33
  Speaker 1: not we wouldn't be surprised to see a slowdown in
• 17:37
  Speaker 1: the second half or the mid mid part of two. Yeah.
• 17:41
  Speaker 1: So with respect to the backdrop of interest rates, you
• 17:45
  Speaker 1: know that the federalserve is getting more hawkish. Do you
• 17:47
  Speaker 1: expect the tenure yield to climateially? I mean, how much
• 17:50
  Speaker 1: are you sort of hanging your market view on the
• 17:54
  Speaker 1: idea of higher tenure yields. Right, So this is this
• 17:57
  Speaker 1: is the interesting part because remember we're still in the
• 18:00
  Speaker 1: huge experiment. We've got a four and a half trillion
• 18:02
  Speaker 1: dollar bond portfolio on our central banks balance seat, and
• 18:06
  Speaker 1: we're pushing short term interest rates up, talking about tightening.
• 18:09
  Speaker 1: Yet interest rates are still near historic blows and we're
• 18:12
  Speaker 1: getting relieved. So investors are coming back into the market
• 18:14
  Speaker 1: and saying, I can finally earn a rate of return
• 18:17
  Speaker 1: on my short term bond portfolio. Um, so we see
• 18:20
  Speaker 1: we're looking at the ten year Treasury in a range
• 18:23
  Speaker 1: of three to three thirty five going into the end
• 18:26
  Speaker 1: of the year. And the risk, the biggest risk, is
• 18:29
  Speaker 1: that the Federal Reserve actually inverts the yield curve, pushes
• 18:32
  Speaker 1: short term interest rates higher than long term interest rates.
• 18:36
  Speaker 1: And initially we started the year thinking that they weren't
• 18:39
  Speaker 1: going to do that, and we're they're going to push
• 18:41
  Speaker 1: to the edge and not not continue. But we think
• 18:44
  Speaker 1: we think that they actually will continue. So one thing
• 18:47
  Speaker 1: that I'm curious about is how people are viewing uh
• 18:50
  Speaker 1: sort of stocks and versus bonds right now, and if
• 18:53
  Speaker 1: people are risk on and thinking that the U. S
• 18:56
  Speaker 1: economy has another bump up to go before the turning
• 19:00
  Speaker 1: of the credit cycle, why wouldn't you just go into
• 19:03
  Speaker 1: equities rather than well lower rated ponds. So the equity market,
• 19:10
  Speaker 1: in our view of the equity market is it's got.
• 19:13
  Speaker 1: This has been a long rally and it's it's late stage.
• 19:16
  Speaker 1: So the penalty for missing earnings right now is pretty severe.
• 19:18
  Speaker 1: And we've seen that in retail with with L Brand's,
• 19:22
  Speaker 1: Dollar General, Walmart. We've seen it in some of the tech,
• 19:26
  Speaker 1: So it's in several industries. When a company doesn't hit expectations,
• 19:30
  Speaker 1: you'll see stock go down seven to ten trading. That's
• 19:34
  Speaker 1: that's that's stressful. So what are you buying in the
• 19:38
  Speaker 1: equity market? So, and we still like there's some tech
• 19:43
  Speaker 1: large cap tech that we like, like Microsoft that we
• 19:47
  Speaker 1: UM we've been adding to. We still like Walmart, even
• 19:50
  Speaker 1: though UM the last earnings released was a little controversial.
• 19:55
  Speaker 1: UM we've been added to that. We're adding the salesforce,
• 19:57
  Speaker 1: so we're we're across the board on our blended strategy.
• 20:00
  Speaker 1: Greg Han, thank you so much for being with me.
• 20:02
  Speaker 1: Greg Han, President and chief investment Officer at Winthrop Capital
• 20:06
  Speaker 1: Management in New York. Definitely a controversial call there. With
• 20:10
  Speaker 1: respect to the Triple B bonds, the lowest rated UH
• 20:14
  Speaker 1: tier of investment grade bonds has seen a huge surge
• 20:17
  Speaker 1: and outstanding UH. The outstanding is almost tripled since two
• 20:21
  Speaker 1: thousand and ten. At the same time, his point is
• 20:24
  Speaker 1: well taken that there are specific companies that are in
• 20:28
  Speaker 1: solid shape and that are in that bucket. When it
• 20:43
  Speaker 1: comes to international relations, it can be tough to parse
• 20:46
  Speaker 1: out what you need to pay attention to from the noise. Here.
• 20:50
  Speaker 1: To help us do that is Jack Divine. I'm very
• 20:52
  Speaker 1: pleased to say he's founding partner and president of the
• 20:55
  Speaker 1: ark And Group, also a member of the Council of
• 20:57
  Speaker 1: Foreign Relations and former acting Director of the CIA S
• 21:02
  Speaker 1: Operations outside the US. Jack, thank you so much for
• 21:06
  Speaker 1: joining me today. You put out your latest intelligence report,
• 21:10
  Speaker 1: and I was interested to know just taking a step back.
• 21:13
  Speaker 1: In a previous interview, we talked about how the biggest
• 21:16
  Speaker 1: risk was probably North Korea. What is it now? Has
• 21:19
  Speaker 1: it changed? I think it has changed. I think the
• 21:23
  Speaker 1: summit has put at least temporarily on the hold. I mean,
• 21:26
  Speaker 1: I think the there was momentum moving towards UH. Frankly
• 21:31
  Speaker 1: looked at a certain point as if we might end
• 21:33
  Speaker 1: up having to take some military actions. So I think
• 21:36
  Speaker 1: we're on hold on that side of it, and the
• 21:39
  Speaker 1: real work, the real work begins. The place I'm I
• 21:43
  Speaker 1: would keep an eye on is Iran. Now, you know,
• 21:45
  Speaker 1: we bounced back and forth, but I would say even
• 21:49
  Speaker 1: as early as the seventies when I remember meeting one
• 21:51
  Speaker 1: of the directors for a meeting and he was saying
• 21:54
  Speaker 1: that the number one target, one, number one problem is
• 21:57
  Speaker 1: North Korea. And when President and Trump met President Obama
• 22:01
  Speaker 1: for the transition, number one problem with North Korea. So
• 22:04
  Speaker 1: it's always been up near the very top. So in
• 22:08
  Speaker 1: those states, he didn't have nuclear weapons, so it was
• 22:10
  Speaker 1: even more of a problem in the last couple of years.
• 22:13
  Speaker 1: So I think I think we're at least step earlier
• 22:16
  Speaker 1: in a good spot. Okay, So then if the focus
• 22:18
  Speaker 1: is shifting to Iran as the likely hotspot, what's the
• 22:22
  Speaker 1: real issue here? The Iran deal is all but dead
• 22:24
  Speaker 1: at this point. What do you expect will happen going forward? Well,
• 22:30
  Speaker 1: I think this is my problem in understanding the IRANDEA.
• 22:34
  Speaker 1: What's the if you walk away from the deal, what
• 22:36
  Speaker 1: happens next? What's our what's our next move? How does
• 22:39
  Speaker 1: this play out? And I think there's two schools of
• 22:41
  Speaker 1: thought here. One is the regime is so fragile that
• 22:46
  Speaker 1: if we are able to keep the heat on, it
• 22:49
  Speaker 1: will be an internal regime change. I'm of the other school,
• 22:53
  Speaker 1: which is, we have consistently overestimated how much uh tension
• 23:01
  Speaker 1: there is a society and how much pain then we
• 23:05
  Speaker 1: underestimate and how much pain a society can go through.
• 23:08
  Speaker 1: I mean, you look at Venezuela today or North Korea.
• 23:11
  Speaker 1: The Iranians live better than either of those countries. But um,
• 23:16
  Speaker 1: my point is, uh, if we're looking for regime change
• 23:20
  Speaker 1: by walking away, and that's the end of the play,
• 23:23
  Speaker 1: I think we're in a in a poor position because
• 23:27
  Speaker 1: I think the Europeans are looking for a way around.
• 23:29
  Speaker 1: I think they're going to be frustrated and finding that.
• 23:32
  Speaker 1: I think the Chinese and Russians are going to try
• 23:34
  Speaker 1: to find ways to provide sustenance. So the deal may
• 23:40
  Speaker 1: stay uh stay aflow, but I in a very disorganized way,
• 23:47
  Speaker 1: no way that any of us would recognize it as
• 23:49
  Speaker 1: being meaningful. So what happens? I mean, if it doesn't
• 23:53
  Speaker 1: work out and the economy starts to go south and
• 23:56
  Speaker 1: they're not getting the benefits, then I would expect the
• 23:58
  Speaker 1: Iranians to return to the developing a nuclear weapon and
• 24:01
  Speaker 1: what is our game plan that day? And that is
• 24:03
  Speaker 1: not clear to me. There's a school thought to think,
• 24:06
  Speaker 1: you know, you punch them in the nose and get
• 24:08
  Speaker 1: their attention. I That's not the way I think things
• 24:11
  Speaker 1: get done. If you do that, you have to have
• 24:13
  Speaker 1: a plan. What they're going to what are they going
• 24:15
  Speaker 1: to do? What are you gonna do next? And I
• 24:16
  Speaker 1: think we're there's a vacuum and discussion about what's the
• 24:20
  Speaker 1: next move here? So why am enthusiastic about I think
• 24:25
  Speaker 1: the dolomits in North Korea? Um, I'm not. I'm not
• 24:28
  Speaker 1: happy the way things are going on around. You know.
• 24:31
  Speaker 1: One thing that I'm struggling with personally is when I
• 24:33
  Speaker 1: see all the headlines about uh, you know, for example,
• 24:36
  Speaker 1: out of G seven, I'm President Trump and the relations
• 24:39
  Speaker 1: with long long standing allies of the US. How important
• 24:43
  Speaker 1: is it that there has been a breakdown of trust
• 24:45
  Speaker 1: to communication between the allies. This is an interesting point.
• 24:49
  Speaker 1: You and I touched on it a long time ago,
• 24:51
  Speaker 1: and that is I think when we look at the
• 24:55
  Speaker 1: alliance um and much of the static recent it is
• 25:00
  Speaker 1: about how the Alliance is going to fall apart, and
• 25:02
  Speaker 1: it's disastered and so on, and the truth of the
• 25:04
  Speaker 1: matter is, uh, you know, the G seven is not
• 25:08
  Speaker 1: going to become the G six. They're not gonna be
• 25:10
  Speaker 1: We are such a big player in this that my
• 25:14
  Speaker 1: guests as they walked out of the room and each
• 25:16
  Speaker 1: of them said to themselves, Hey, how do we cut
• 25:17
  Speaker 1: a deal with this demistration? You know? And then the
• 25:21
  Speaker 1: same thing on on Korea said, oh, the South Koreans
• 25:24
  Speaker 1: weren't fully briefed, and it's like, well, where do you
• 25:27
  Speaker 1: think the South Koreans to go go? They well, so
• 25:31
  Speaker 1: I think we blow this out of proportion. What is emerging, though,
• 25:35
  Speaker 1: which I think is a really interesting point for me,
• 25:38
  Speaker 1: is there is a way that countries are going to
• 25:40
  Speaker 1: have to learn to deal with Trump, and they're on
• 25:42
  Speaker 1: a steep learning curve, and that is you're never going
• 25:44
  Speaker 1: to be per permanently in an endearing friend. You're gonna
• 25:48
  Speaker 1: be a friend as long as everything's working fine, and
• 25:51
  Speaker 1: then if not, he's going to treat you as if
• 25:53
  Speaker 1: you're not a friend. So we've been accustomed for twenty
• 25:56
  Speaker 1: years of some kombala where we try and get together.
• 26:01
  Speaker 1: So it is the real shake up, but it is
• 26:03
  Speaker 1: not going to change the ingredients. You know, the Europeans
• 26:06
  Speaker 1: are not going to go into arms the Russians, and
• 26:09
  Speaker 1: you know the Japanese are not going to go in
• 26:11
  Speaker 1: arms with the Chinese. I mean just parameters to this right,
• 26:16
  Speaker 1: We're overstating it, Jack Devine, thank you so much for
• 26:19
  Speaker 1: being with me today. Always wonderful getting your insights. Jack Devine,
• 26:22
  Speaker 1: founding partner and president of the Arkan Group, also a
• 26:25
  Speaker 1: member of the Council of Foreign Relations, and the former
• 26:29
  Speaker 1: acting director of the c I A s x US Operations.
• 26:35
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 26:38
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 26:42
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 26:46
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa
• 26:49
  Speaker 1: Abramoit's one before the podcast. You can always catch us
• 26:53
  Speaker 1: worldwide on Bloomberg Radio.