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Less-Liquid Credit Markets Are Pushing Traders to CDX: · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penil podcast and Paul Sweeney, along
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  Speaker 1: with my co host Lisa Brahma, each day we bring
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  Speaker 1: you the most noteworthy and useful interviews for you and
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  Speaker 1: Find a Bloomberg Penil podcast on Apple podcast or wherever
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  Speaker 1: you listen to podcasts, as well as at Bloomberg dot com.
• 0:21
  Speaker 1: Earlier today, UBS CEO Sergio er Maati sounded the alarm
• 0:25
  Speaker 1: on fresh monetary easing, just as European policymakers appear poised
• 0:29
  Speaker 1: to deliver yet another helping of stimulus to the markets
• 0:33
  Speaker 1: that are expecting them. He was speaking with Bloomberg Television
• 0:36
  Speaker 1: asked whether he is concerned that we may be headed
• 0:38
  Speaker 1: towards bubble territory. Take a listen. Well, you know, I
• 0:41
  Speaker 1: think that you can see in the second in the
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  Speaker 1: second quarter, yes, asset prices went top, but it's not
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  Speaker 1: really correlated with investor sentiment and which is in my
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  Speaker 1: point of view, of course, a very dangerous development. And
• 0:57
  Speaker 1: the only good things is that we observe is that
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  Speaker 1: hash balances with clients is very high. Uh. What they
• 1:03
  Speaker 1: say is that they are willing to step into the
• 1:05
  Speaker 1: market if there is a major correction. But you know,
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  Speaker 1: hasset levels at such high level are are not necessarily
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  Speaker 1: correlated with investor sentiments. So this raises a question, are
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  Speaker 1: we seeing bubbles starting to form joining us now? Mike Buchanan,
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  Speaker 1: Deputy Chief investment Officer at Western Asset Management Co. Which
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  Speaker 1: oversees about four dred and thirty billion dollars and focuses
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  Speaker 1: on fixed income investing. Mike, you have decades of experience
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  Speaker 1: dating back to focused on credit markets. Do you see
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  Speaker 1: excesses starting to form that are looking a little bubble ishous? Um?
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  Speaker 1: You know, I think when you look at the developed
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  Speaker 1: credit markets, UM, we're not yet seeing those telltale signs
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  Speaker 1: that that signal an end in the cycle or even
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  Speaker 1: the you know kind of the the approaching doom and
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  Speaker 1: turning point in the cycle. Obviously, performance UM and just
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  Speaker 1: the longevity of this rally UM does make you anxious.
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  Speaker 1: It makes you nervous. But when we look at you know,
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  Speaker 1: a lot of the metrics that we try to track,
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  Speaker 1: the signal you know, what is this market going to
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  Speaker 1: look like fundamentally six months from now, a year from now,
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  Speaker 1: We're not really seeing a lot of evidence that suggesting UM,
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  Speaker 1: you know, bubble like territory. So, Mike, as we think
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  Speaker 1: about if not bubble like territory, just kind of maybe
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  Speaker 1: going the other way a little bit. I'm just thinking
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  Speaker 1: about the global economic outlook. UM. Europe continues to be
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  Speaker 1: very unsettled, with some real weakness developing even in Germany
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  Speaker 1: and Brexit probably not going to be helpful. They're China
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  Speaker 1: slowing but still very positive, and even the US slowing
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  Speaker 1: a little bit. So as you think about the US market,
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  Speaker 1: given some of our big trading partners, is recession in
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  Speaker 1: your outlook for maybe the back half of it's not? UM,
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  Speaker 1: we actually think that UM, we're in a in a
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  Speaker 1: little bit when you think of all these fixed income
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  Speaker 1: spread sectors and you think about the global economy, we're
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  Speaker 1: in somewhat of an ideal situation UM in that growth
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  Speaker 1: is slow UM yet positive, and even in Europe, where
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  Speaker 1: UM there are some real challenges. Obviously you've got the
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  Speaker 1: e c B providing a lot of accommodation to keep
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  Speaker 1: things moving along. And we would argue that expectations are
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  Speaker 1: so low in Europe that you're likely to see some
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  Speaker 1: improvement just based on very very low expectations. So the
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  Speaker 1: idea of a very slow growth economic backdrop with an
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  Speaker 1: inflation outlook UM that is certainly challenged UM in terms
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  Speaker 1: of achieving most central bank targets that should keep rates
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  Speaker 1: pinned at these very or relatively low levels UM. And
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  Speaker 1: then the flip side is, you know, I think you
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  Speaker 1: look at a lot of the fundamentals in these spread
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  Speaker 1: sectors and they look reasonably healthy to us. So uh
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  Speaker 1: we we we think that that the market can continue
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  Speaker 1: in the direction that it's been more recently, where it's
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  Speaker 1: you know, not dramatic performance from here, but more of
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  Speaker 1: a carry trade. And that's really the strategies that we
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  Speaker 1: have echoed throughout our fixed income portfolios. So if it's
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  Speaker 1: a carry trade, that means you want to go to
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  Speaker 1: the assets that have the biggest carry. I'm looking right
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  Speaker 1: now at how your bonds returning ten percent so far
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  Speaker 1: year to date, even if they don't deliver that much more,
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  Speaker 1: it's a pretty good year. Are you saying to people
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  Speaker 1: buy high yield by emerging markets. Yeah, I think you've
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  Speaker 1: got to be careful about UM where you're getting your carry,
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  Speaker 1: And certainly this isn't a time to be greedy with
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  Speaker 1: the carry trade. We think you can. UM, there's certainly
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  Speaker 1: parts of those markets that you mentioned that are that
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  Speaker 1: are still appealing. UM. I would say with with high yield,
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  Speaker 1: our focus really has been on individual issue or selection.
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  Speaker 1: We still think there's some you know, even if the
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  Speaker 1: markets yielding now inside of six percent, we're still finding
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  Speaker 1: in that sort of five and a half six and
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  Speaker 1: a half percent range, some pretty good opportunities that fundamentally
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  Speaker 1: and are moving in the right direction, they have the
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  Speaker 1: right trajectory. UM in emerging markets, UH, probably being a
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  Speaker 1: little more selective there, we think just emerging market rates
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  Speaker 1: in general are one of the better opportunities, so you
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  Speaker 1: can even hedge out the currency risk by local bonds
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  Speaker 1: and take advantage of We think it's it's more of
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  Speaker 1: a secular trend. If you think about what's happened in
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  Speaker 1: developing markets UM with inflation where it is, with the
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  Speaker 1: trend in real rates going lower, UM, emerging market local
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  Speaker 1: still looks pretty compelling. So we think there's opportunity there.
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  Speaker 1: When you talk about specific credit selection, I'm struck by
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  Speaker 1: volumes in the higher bond market, how much trading there is,
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  Speaker 1: and it's actually fallen so far. You're to date to
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  Speaker 1: the lowest, and I'm wondering how difficult is it for
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  Speaker 1: you to execute some of your company specific views. Yeah,
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  Speaker 1: that's a that's a great observation and I think it's accurate.
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  Speaker 1: I mean, liquidity, uh, and trading is definitely you know,
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  Speaker 1: is it is it the summer, There's probably some contribution
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  Speaker 1: coming from that. It's been a good year. UM. You know,
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  Speaker 1: the volumes have definitely slowed down, UM, but it is
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  Speaker 1: still I mean, we we ran run a very big
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  Speaker 1: investment grade book, a very big high old book and
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  Speaker 1: loan book, and we are still able to effectuate the
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  Speaker 1: trades that we need to. UM. A little more challenging
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  Speaker 1: for our traders, takes a little more patients, UM, but
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  Speaker 1: we're still getting the things done that that we need to.
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  Speaker 1: But I think you just got to be a little
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  Speaker 1: more careful and have a little more forethought and how
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  Speaker 1: you want to execute those and and be patient. UM.
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  Speaker 1: I also think the idea that you can headge your
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  Speaker 1: portfolio with UM not only c d X, which is
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  Speaker 1: the portfolio product for these markets, but also options on
• 6:45
  Speaker 1: cd X. Those markets have become extremely liquid. Those allow
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  Speaker 1: us to take risk off and put risk on opportunistically
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  Speaker 1: without having to execute in cash bonds all the time. So, Mike,
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  Speaker 1: just real quickly, I'm looking at your third quarter global outlook.
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  Speaker 1: You've got this great graphic here about relative value by region.
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  Speaker 1: Where globally are you seeing the best value right now? Well,
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  Speaker 1: I think you know, hinted at one of these, but
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  Speaker 1: but outside of developed markets, in the emerging markets, UM,
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  Speaker 1: we think that's an attractive area for US. We've we've
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  Speaker 1: been bullish there. Specifically, I would say Indonesia, Russia, Brazil, UM, Mexico,
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  Speaker 1: those are probably are you know, top picks within emerging markets.
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  Speaker 1: And again what we would say is just taking advantage
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  Speaker 1: of high local rates. There is something that UM we
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  Speaker 1: think is is a is a really attractive risk reward relationship. UM.
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  Speaker 1: I think broadly staying in the US, where the economy
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  Speaker 1: is is a little healthier. UM, you've got interest rate policy,
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  Speaker 1: you've got uh the central bank policy that is clearly
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  Speaker 1: pivoted towards a more dovish stance. UM. So we think
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  Speaker 1: that's an area where we're going to have a US
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  Speaker 1: biased portfolio. Mike, Thanks so thank you so much. Mike Buchanan,
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  Speaker 1: Deputy Chief Investment Officer for Western Asset Management. We appreciate
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  Speaker 1: you coming on. Based in Pasadena, California. They are really
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  Speaker 1: one of the big the experts on the fixed income markets. Well,
• 8:27
  Speaker 1: tomorrow's special counsel, Robert Mueller, will testify before to congressional committees.
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  Speaker 1: The question I think on most people's minds is will
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  Speaker 1: he have any new information that was not contained in
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  Speaker 1: the his report? To give us a sense of what
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  Speaker 1: we might see tomorrow, we welcome Michael Zelden, Michael's former
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  Speaker 1: federal prosecutor and was actually Robert Mueller's former special assistant
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  Speaker 1: at the Department of Justice, and Michael is currently a
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  Speaker 1: c and and legal analysts based on Washington, d C. Michael,
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  Speaker 1: thanks so much for joining us again. You were Robert
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  Speaker 1: Mueller's special assistant at the Department of Justice, know him well.
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  Speaker 1: Do you expect him to disclose any new material information tomorrow? Well,
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  Speaker 1: new is the keyword, because first, no, in a simple answer,
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  Speaker 1: because I think he has said plainly that he's going
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  Speaker 1: to stick to the report. But new, yes, in the
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  Speaker 1: sense that I don't believe many people have read his report,
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  Speaker 1: so it will be new to them if they tune in,
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  Speaker 1: So the information will be that information which has already
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  Speaker 1: been put out there, but because most people haven't read it,
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  Speaker 1: I think it'll be new news to them. And that's
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  Speaker 1: the hope I think of the committee and having him
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  Speaker 1: testify orally too, if you will watch the movie rather
• 9:42
  Speaker 1: than read the books. Well, Michael, there's some controversy this
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  Speaker 1: morning with Democrats pushing back in a Department of Justice
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  Speaker 1: recommendation to Bob Mueller to stick to the script, to
• 9:51
  Speaker 1: stick to what's in the report. But this comes as
• 9:54
  Speaker 1: Uhbert Mueller actually asked them for guidance. Why would he
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  Speaker 1: do that? Well, in the report word itself, before it
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  Speaker 1: was released, there was information that was blacked out redacted
• 10:06
  Speaker 1: is the word, and that involved ongoing cases cases of
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  Speaker 1: personal individuals, privacy rights, and some executive privilege related materials.
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  Speaker 1: And so what Mueller said is, we worked out a
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  Speaker 1: deal in terms of transmitting this report between the Justice
• 10:25
  Speaker 1: Department and Congress around these things, these redactions. Do you
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  Speaker 1: want me to stick to that or am I free
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  Speaker 1: to go beyond that which has been previously redacted? And
• 10:36
  Speaker 1: the Justpartment said, no, stick to our previous agreement. The
• 10:39
  Speaker 1: stuff that has been redacted should remain redacted. And you
• 10:43
  Speaker 1: shouldn't testify to it. So I think that's what the
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  Speaker 1: essence of that letter was. So, Michael, if under questioning
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  Speaker 1: tomorrow Mr Mueller's asked questions that are not included in
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  Speaker 1: the report, maybe outside the purview of the actual report,
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  Speaker 1: but he does know the answer, is he just going
• 10:58
  Speaker 1: to plead the fifth or just say I can't comment. Well,
• 11:02
  Speaker 1: he's free to speak to whatever he knows. He is
• 11:07
  Speaker 1: not a d J employee, and as long as it
• 11:10
  Speaker 1: does not involve privacy protected, executive privilege or ongoing investigation matters,
• 11:17
  Speaker 1: he's free to offer his opinion. So, for example, in
• 11:20
  Speaker 1: a silly hypothetical, if they asked him, Bob, what is
• 11:23
  Speaker 1: your favorite color that's not in the report, He's free
• 11:26
  Speaker 1: to say whatever his favorite color is. But if they
• 11:30
  Speaker 1: ask him, what is your opinion on whether or not
• 11:35
  Speaker 1: you would have indicted the president but for the Office
• 11:38
  Speaker 1: of Legal Counsel opinion that's not exactly in the report.
• 11:42
  Speaker 1: That's something he has knowledge of, and he is free
• 11:45
  Speaker 1: to answer that. I don't think he will, but Justice
• 11:49
  Speaker 1: forman cannot prevent him from offering his opinion about what
• 11:53
  Speaker 1: is in his report. Michael, have you read the report?
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  Speaker 1: Of course, yes, okay, So what do you think is
• 11:59
  Speaker 1: the most shocking or sensational aspect that you think the
• 12:04
  Speaker 1: Democrats should home in on that perhaps people aren't as
• 12:08
  Speaker 1: aware of. Well, the fact there are two parts of
• 12:11
  Speaker 1: the port of course, there's the intelligence version, Volume one,
• 12:16
  Speaker 1: and that talks about collusion and conspiracy. And in that
• 12:20
  Speaker 1: what I think Adam Schiff and the Democrats on the
• 12:23
  Speaker 1: House Intelligence Committee want to get out is that even
• 12:27
  Speaker 1: though Mueller found no evidence of criminal conspiracy, he did
• 12:32
  Speaker 1: find a very willing Trump White campaign to receive help
• 12:39
  Speaker 1: from foreign countries. I think that's what the Democrats want
• 12:43
  Speaker 1: to get out. On the intelligence side. The Republicans want
• 12:46
  Speaker 1: to push back and say, yes, but there was no
• 12:48
  Speaker 1: criminal conspiracy hence no collusion. On the House Judiciary side.
• 12:53
  Speaker 1: Volume two, Mueller's, you know, sort of in under pound
• 12:57
  Speaker 1: guerilla line in the report is is if I could
• 13:01
  Speaker 1: have exonerated the president of criminal wrongdoing, I would have
• 13:05
  Speaker 1: done so. But I couldn't. And I think what the
• 13:08
  Speaker 1: Democrats want to drive home is why couldn't you? What
• 13:12
  Speaker 1: was it? What behavior did Trump engage in that you
• 13:16
  Speaker 1: felt could implicate criminal behavior? And have him go through
• 13:21
  Speaker 1: the report almost section by section where the report indicates
• 13:27
  Speaker 1: that Trump told McGann to fire Mueller, where Trump told
• 13:31
  Speaker 1: Sessions to tell Mueller not to investigate Trump. Those sort
• 13:36
  Speaker 1: of things are that which the Democrats want to drive
• 13:40
  Speaker 1: home UM as important as it is to their to
• 13:44
  Speaker 1: their message. The Republicans want to again push back and
• 13:47
  Speaker 1: say yes but no, no criminal behavior. And bar and Rosenstein,
• 13:54
  Speaker 1: the deputy Turney General and Attorney general at the time,
• 13:58
  Speaker 1: UM found no criminal offense. So, Michael, from a legal perspective,
• 14:03
  Speaker 1: do you think anything can come out of the hearing
• 14:06
  Speaker 1: tomorrow that could advance UM those in Congress that want
• 14:10
  Speaker 1: to move forward with impeachment. Well, it depends on how
• 14:15
  Speaker 1: well Mueller tells the story that he has written down.
• 14:19
  Speaker 1: His story in his report is really rather compelling with
• 14:24
  Speaker 1: respect to the obstructive acts or the attempted obstructive acts
• 14:29
  Speaker 1: that he found Trump to have engaged in. If he
• 14:33
  Speaker 1: can tell that story coherently in in movie like UM Dialogue,
• 14:39
  Speaker 1: and people hear it for the first time, they may
• 14:41
  Speaker 1: have an oh my moment in their appreciation of what
• 14:46
  Speaker 1: it is that Mueller found in his report. If he's
• 14:49
  Speaker 1: very legalistic and and and not a very compelling witness,
• 14:53
  Speaker 1: and sticks very much to yes and no answers. I
• 14:57
  Speaker 1: don't think this advances the ball in any way, which
• 15:00
  Speaker 1: it seems like it might be his tact based on
• 15:03
  Speaker 1: his reluctance, right, I mean, why is he so reluctant
• 15:07
  Speaker 1: to testify. He's a reluctant human being. You know, all
• 15:10
  Speaker 1: the years that I worked with him, what we used
• 15:13
  Speaker 1: to say about Bob all the time was he was
• 15:15
  Speaker 1: first and foremost a marine. He would asked questions, he
• 15:19
  Speaker 1: gave answers to those questions. He didn't elaborate, he didn't
• 15:23
  Speaker 1: offer opinions. And that's the way he if you watch
• 15:26
  Speaker 1: his testimony over the years when he was in the
• 15:29
  Speaker 1: FBI and otherwise, he is a very reluctant witness. He
• 15:34
  Speaker 1: is very different than Jim Comey, who talks, you know,
• 15:39
  Speaker 1: quite fluent, fluently with the media. That's not Bob. And
• 15:43
  Speaker 1: so I think that you'll find here that same reticent
• 15:47
  Speaker 1: personality coming through in the testimony. The only exception to that,
• 15:52
  Speaker 1: potentially is if the Republicans started attacking his integrity or
• 15:57
  Speaker 1: the integrity of his team. The angry Democrats mantra that
• 16:02
  Speaker 1: we hear a lot. He may take offense at that
• 16:05
  Speaker 1: and there you may see some you know, emotion. Yeah,
• 16:10
  Speaker 1: Michael Zelden, thank you so much for being with us.
• 16:12
  Speaker 1: Very illuminating. Michael Zelden, former federal prosecutor as well as
• 16:16
  Speaker 1: Robert Mueller's former special assistant while at the Department of Justice,
• 16:20
  Speaker 1: currently a CNN legal analysts, joining us from Washington, d C.
• 16:25
  Speaker 1: We will be taking those hearings tomorrow throughout the day
• 16:29
  Speaker 1: as we hear what Robert Mueller has to say and
• 16:32
  Speaker 1: what the Democrats and Republicans how they try to frame
• 16:35
  Speaker 1: the report. We're getting a slew of economic data throughout
• 16:49
  Speaker 1: the week from nations around the world. In the US,
• 16:53
  Speaker 1: we got today US previously owned home sales, and we're
• 16:56
  Speaker 1: gonna get of course, the GDP numbers on Friday. Joining
• 16:59
  Speaker 1: us here to talk about what we can expect and
• 17:02
  Speaker 1: how to understand what we're getting in terms of some
• 17:05
  Speaker 1: of these economic data points, Constance Hunter, we are so
• 17:07
  Speaker 1: glad to have you here with us in our Bloomberg
• 17:09
  Speaker 1: inter Active Broker Studios. Constants is chief Economistic KPMG. So
• 17:14
  Speaker 1: let's start with the data that we have, which is
• 17:16
  Speaker 1: the previously owned home sales which declined more than expected
• 17:20
  Speaker 1: in June, where are we in terms of the US
• 17:23
  Speaker 1: housing market. So to set the stage, we've actually had
• 17:27
  Speaker 1: five quarters of negative real estate investment, and uh, that
• 17:32
  Speaker 1: is usually a sign that your expansion is coming to
• 17:36
  Speaker 1: an end. It's one of the many signals that economists
• 17:39
  Speaker 1: look at when they think is an inflation coming? Right,
• 17:42
  Speaker 1: And obviously the one that people know about most is
• 17:45
  Speaker 1: the yield curve in version, But this is another one
• 17:47
  Speaker 1: that economists have in their arsenal. And so it's a
• 17:51
  Speaker 1: puzzle because usually it is it's a leading indicator. Jobs
• 17:55
  Speaker 1: are a concurrent indicator. But we've seen such a robust
• 17:58
  Speaker 1: jobs market that it is a puzzle. And and so
• 18:03
  Speaker 1: if we look at other factors around housing, right we
• 18:05
  Speaker 1: look at the affordability index. It's long term average is four.
• 18:09
  Speaker 1: We're above a hundred and fifty. So it's a puzzle.
• 18:12
  Speaker 1: And I think the puzzle comes down to supply and
• 18:16
  Speaker 1: enough um lower priced homes that it actually makes it
• 18:21
  Speaker 1: possible for first time homebuyers to join the market. Now,
• 18:23
  Speaker 1: we did see an uptick in first time homebuyers, it
• 18:26
  Speaker 1: went from thirty two percent. But but this this sluggish
• 18:30
  Speaker 1: housing market is a bit of a puzzle, and I
• 18:32
  Speaker 1: think it's one of the factors, even though Powell hasn't
• 18:36
  Speaker 1: cited it. I think it is one of the factors
• 18:37
  Speaker 1: in the back of the minds of economists at the
• 18:40
  Speaker 1: Federal Reserve System thinking about doesn't make sense to have
• 18:43
  Speaker 1: this insurance rate cut. So let's let's go there. Since
• 18:46
  Speaker 1: we're having to fed on the feet meeting. Um, you know,
• 18:49
  Speaker 1: kind of question of an insurance cut or preemptive cut.
• 18:52
  Speaker 1: Give us your thoughts about that. Is it are they
• 18:54
  Speaker 1: is it effective? What's the cost associated with that? All
• 18:57
  Speaker 1: all that kind of thing. Well, yeah, and Paul, you
• 18:59
  Speaker 1: bring up a good point, what is the cost? So
• 19:01
  Speaker 1: insurance is really good to have, but we all know
• 19:03
  Speaker 1: it's not free, right, So there is a cost um,
• 19:07
  Speaker 1: and especially the closer we are to the zero lower bound,
• 19:10
  Speaker 1: that cost goes up, right because there if they they
• 19:14
  Speaker 1: they have so much arsenal, and if they're using it
• 19:16
  Speaker 1: up now and it doesn't work, then they have less
• 19:19
  Speaker 1: arsenal to use later. But if we look back, so
• 19:22
  Speaker 1: there's two UH parallel situations from the nineties. So the
• 19:26
  Speaker 1: first is from UH nineteen four and ninety four. The
• 19:32
  Speaker 1: FED heights in November seventy five basis points in the
• 19:34
  Speaker 1: market wasn't expecting that. They weren't sure if we were
• 19:37
  Speaker 1: gonna get twenty five or fifty. Greenspan surprised with a
• 19:39
  Speaker 1: seventy five basis point rate increase, and if you recall
• 19:43
  Speaker 1: a mirror four weeks later, we started to have the
• 19:46
  Speaker 1: Tequila crisis at the end of nineteen four that bled
• 19:49
  Speaker 1: into n We ended up bailing out the Mexican because
• 19:53
  Speaker 1: of the Mexican bond crisis and sorry, thank you for
• 19:56
  Speaker 1: for everybody for for those everybody got threw up their
• 19:59
  Speaker 1: hands into the part. They probably did that too. So
• 20:06
  Speaker 1: the FED did some preemptive cuts or some insurance cuts
• 20:09
  Speaker 1: because it was external turbulence, uh, and it worked. Then
• 20:14
  Speaker 1: fast forward to we've had the Asian financial crisis that
• 20:18
  Speaker 1: sort of bled into the Russian default and devaluation, which
• 20:23
  Speaker 1: caused a bunch of purchasing of off the run treasuries,
• 20:27
  Speaker 1: which was not what long term capital management had planned for.
• 20:32
  Speaker 1: And so in conjunction with with the long term capital
• 20:35
  Speaker 1: management liquidity squeeze, the FED did another set of almost
• 20:39
  Speaker 1: a hundred basis points over the course of a year
• 20:41
  Speaker 1: preemptive cuts, and that allowed us to continue the expansion
• 20:45
  Speaker 1: to two thousand and one and right now, what we're
• 20:46
  Speaker 1: seeing is if you look at different indicators like the
• 20:50
  Speaker 1: yield curve that you talked about, it seems like markets
• 20:53
  Speaker 1: believe that the Federal Reserve will effectively stave off a
• 20:56
  Speaker 1: near term recession with the expected three rate us UH
• 21:00
  Speaker 1: that is currently being priced into the market. Do you
• 21:02
  Speaker 1: agree with that, Yeah, and economists broadly agree with that.
• 21:05
  Speaker 1: So the National Association for Business Economics NAME did a
• 21:08
  Speaker 1: survey UH recently and the percentage of people who expect
• 21:12
  Speaker 1: a recession has great in the second half of this year,
• 21:15
  Speaker 1: has greatly diminished from about twelve and then in the
• 21:19
  Speaker 1: first half of it's diminished, and so now people are
• 21:22
  Speaker 1: betting on second half of So people don't think we're
• 21:25
  Speaker 1: going to avoid a recession altogether, or at least that's
• 21:28
  Speaker 1: not what the most recent NAME survey shows, but they
• 21:31
  Speaker 1: do think it's going to prolong the expansion, and of
• 21:35
  Speaker 1: course that is that is, you know, consistent with the
• 21:38
  Speaker 1: Fed's mandate right try to get maximum employment and full
• 21:42
  Speaker 1: full GDP as long as possible. How concerned are you
• 21:45
  Speaker 1: about manufacturing globally continues to be sluggish, certainly versus the consumer.
• 21:51
  Speaker 1: When is that going to become a real problem for
• 21:53
  Speaker 1: where the US. For per se, well, I think it's
• 21:56
  Speaker 1: already somewhat of a problem for US in that UM
• 22:00
  Speaker 1: we're seeing the manufacture of the regional FED manufacturing indicries
• 22:03
  Speaker 1: more or less b be somewhat weak UM with somewhat
• 22:07
  Speaker 1: mixed in the in the latest that have come out.
• 22:09
  Speaker 1: But but globally that manufacturing cycle is really important and
• 22:13
  Speaker 1: it bleeds over into services. But if you see what
• 22:15
  Speaker 1: GETA Gopinath talked about this morning when the IMF released
• 22:18
  Speaker 1: its report, they have a whole chapter on this diversion
• 22:20
  Speaker 1: between UH, the services economy and the trade economy, and
• 22:25
  Speaker 1: we see that divergent also divergence also in price indusease. Right,
• 22:29
  Speaker 1: so the services prices are well in line with UM,
• 22:33
  Speaker 1: the Fed's goal of two percent, they're out or above
• 22:35
  Speaker 1: two percent, whereas it's good prices that are really dragging
• 22:38
  Speaker 1: down the overall index. So this is a dichotomy that
• 22:41
  Speaker 1: UM has so far hasn't affected the broad economy, but
• 22:45
  Speaker 1: certainly has the potential to bleed into the broader economy. Constanta,
• 22:49
  Speaker 1: thank you so much for joining us. Constance is a
• 22:51
  Speaker 1: chief economist for KPMG based here in New York City,
• 22:54
  Speaker 1: joining us in our Bloomberg Interactive Broker studio. One thing.
• 22:58
  Speaker 1: I'm just I'm still thinking about the housing market. I'm
• 23:01
  Speaker 1: just buy sell um. I'm an owner, so that I
• 23:07
  Speaker 1: do have invested interest full disclosure. But I do have
• 23:11
  Speaker 1: to wonder how much the weakness is due to a
• 23:14
  Speaker 1: lack of foreign investment in the United States. Are falling
• 23:16
  Speaker 1: investment from the from Europe and China? I don't know.
• 23:20
  Speaker 1: I just I mean, certainly in big cities, well, certainly
• 23:22
  Speaker 1: New York City. I mean, a lot of these mega
• 23:25
  Speaker 1: high rises that we see in mid midtown have been
• 23:27
  Speaker 1: you know, occupied primarily primarily by overseas customers, and so
• 23:32
  Speaker 1: it's just been propping up the high end of the market.
• 23:34
  Speaker 1: So I'm not sure if it's your side of the market,
• 23:36
  Speaker 1: don't know. Probably you're right, You're totally down there. This
• 23:40
  Speaker 1: is Bloomberg earlier today, Boris Johnson, the public face of
• 23:57
  Speaker 1: the Brexit campaign. One of the content has to succeed
• 24:00
  Speaker 1: Theresa May is British Prime Minister, maybe taking the country
• 24:05
  Speaker 1: closer to a no deal brexit. That's according to Moody's.
• 24:08
  Speaker 1: We want to get some insight from our Bloomberg opinion columnists.
• 24:11
  Speaker 1: Terra's Raphael joining us now from London, Bloomberg opinion editor
• 24:14
  Speaker 1: covering European politics and economics. Uh sores, what first do
• 24:19
  Speaker 1: you expect Boris Johnson to do when it comes to
• 24:22
  Speaker 1: Brexity has but I think a hundred days right to
• 24:25
  Speaker 1: come to some sort of uh determination and plan. Yeah.
• 24:28
  Speaker 1: So Boris has run a campaign that is very different
• 24:33
  Speaker 1: from the stance at Theresa May took on Brexit. So
• 24:36
  Speaker 1: whereas May originally threatened to leave without a deal if
• 24:40
  Speaker 1: she couldn't get a good deal, the threat was never credible.
• 24:42
  Speaker 1: Britain was not prepared. Boris has made clear from the
• 24:45
  Speaker 1: outset that a no deal exit is you know, not
• 24:49
  Speaker 1: only something he's willing to do, but something actually thinks
• 24:52
  Speaker 1: wouldn't be as disastrous for Britain as pretty much every
• 24:56
  Speaker 1: series economic analysis suggests it would be. So I think
• 25:00
  Speaker 1: of the first thing he's going to try to do is, uh,
• 25:03
  Speaker 1: he'll have to appoint a cabinet, and then he's going
• 25:05
  Speaker 1: to try to meet with EU leaders and see if
• 25:09
  Speaker 1: he can get some traction there, and and I would
• 25:12
  Speaker 1: expect him to have an early meeting in Ireland because
• 25:15
  Speaker 1: the key to this this whole thing is obviously the
• 25:17
  Speaker 1: Irish border issue. So tres, do you think he can
• 25:20
  Speaker 1: get the support for a no deal brexit. It seems
• 25:22
  Speaker 1: like the arguments are pretty consistent across many party lines
• 25:26
  Speaker 1: that it would in fact be very catastrophic for the UK. Yeah,
• 25:30
  Speaker 1: I mean, I guess that's two questions. Can he get
• 25:32
  Speaker 1: the support for it in Parliament? The answer to that
• 25:35
  Speaker 1: is is an emphatic no. Parliament is voted many times
• 25:39
  Speaker 1: against an odeal. They are still trying to prevent him
• 25:42
  Speaker 1: from uh, you know, from fulfilling that pledge. But the
• 25:46
  Speaker 1: other questions can he do it anyhow? And can he
• 25:49
  Speaker 1: win enough backing in public opinion to make the threat
• 25:53
  Speaker 1: seem credible? Um? And I think that's something EU leaders
• 25:56
  Speaker 1: are going to watch very closely. If it looks like Boris,
• 25:59
  Speaker 1: who is uh you know, let's face at a very skilled,
• 26:02
  Speaker 1: convincing communicator, can can convince the British public at large
• 26:07
  Speaker 1: that he has a plan, that it's credible that the
• 26:09
  Speaker 1: fears of an odeal brex that are not are you know,
• 26:12
  Speaker 1: are are somehow exaggerated, then EU leaders may may start
• 26:16
  Speaker 1: worrying that that's where he's going to take things and
• 26:18
  Speaker 1: if there is to be an early election, which many
• 26:21
  Speaker 1: think is quite likely, that he will lead the Conservatives
• 26:25
  Speaker 1: to victory. And then I think we start to see
• 26:27
  Speaker 1: some movement from the EU side, although the room, it
• 26:29
  Speaker 1: must be said, is very very small. I'm struggling. Just
• 26:33
  Speaker 1: let's take a step back. So Boris Johnson resigned at
• 26:37
  Speaker 1: one point. He is a very colorful character. He has
• 26:40
  Speaker 1: led a number of populist movements. How much popular support
• 26:44
  Speaker 1: does he have as he rises to be the Prime
• 26:47
  Speaker 1: Minister of UK. Well, here's the interesting thing about Boris
• 26:51
  Speaker 1: Johnson and public opinion. Um So, if there was a
• 26:55
  Speaker 1: commerce poll recently and when asked between the two Conservative
• 26:59
  Speaker 1: part the leadership candidates, which one would do better at
• 27:03
  Speaker 1: managing the economy? The answer came out Jeremy Hunt. Which
• 27:07
  Speaker 1: one would make a better prime minister? The answer came out,
• 27:09
  Speaker 1: Jeremy Hunt. Which one would be better at UH dealing
• 27:14
  Speaker 1: with foreign leaders? The answer came out Jeremy Hunt. When
• 27:16
  Speaker 1: you ask which one has a better chance of delivering Brexit,
• 27:20
  Speaker 1: it was Boris Johnson. Tax cuts, it's Boris Johnson. So
• 27:23
  Speaker 1: in a way, Johnson is the one that people UH
• 27:27
  Speaker 1: turned to UH for, you know, in a way, a
• 27:30
  Speaker 1: sort of ideological satisfaction. But I think opinion UH can
• 27:34
  Speaker 1: be very fickle when it comes to him, and if
• 27:36
  Speaker 1: he's the trust levels are low people you know that
• 27:39
  Speaker 1: the the pole after pole shows people don't trust him.
• 27:42
  Speaker 1: So I think if he breaches you know, the trust
• 27:45
  Speaker 1: that's been put on in him by the Conservative Party
• 27:47
  Speaker 1: early on, we could see a vote of no confidence
• 27:50
  Speaker 1: in Parliament. We could see another backlash. But you know,
• 27:54
  Speaker 1: he is uniquely skilled in appealing to the public and
• 28:00
  Speaker 1: I think that's the sort of X factor about Johnson
• 28:03
  Speaker 1: that's really hard to just dismiss. So treas if there
• 28:06
  Speaker 1: is if this impasse kind of results in another general
• 28:09
  Speaker 1: election in the near term, is that to any one
• 28:12
  Speaker 1: side benefit? You think, Well, I don't think it's to
• 28:15
  Speaker 1: Jeremy Corbyn Labor Party leaders benefit. Right now, his party is,
• 28:20
  Speaker 1: you know, has been adrift on Brexit UH, beset by
• 28:24
  Speaker 1: all sorts of internal wrangling, not not least and and
• 28:27
  Speaker 1: latest over anti Semitism UM. So I think the Labor
• 28:31
  Speaker 1: Party is now going to want to avoid UM an
• 28:34
  Speaker 1: early election. Be very interesting to see how the Liberal
• 28:37
  Speaker 1: Democrats take that they have a new leader, Joe Swinson,
• 28:40
  Speaker 1: very young dynamic UH leader and they have picked up
• 28:44
  Speaker 1: UH points in the polls after the European elections with
• 28:47
  Speaker 1: a very solid pro remain UH platform. So you know,
• 28:52
  Speaker 1: Boris may like his chances, but I think only if
• 28:55
  Speaker 1: he can get Britain out of the EU. I think
• 28:57
  Speaker 1: he would take a giant risk going to UH an
• 29:00
  Speaker 1: early election before he's delivered Brexit. Tores Raphael, thank you
• 29:04
  Speaker 1: so much. Tres As Bloomberg Opinion editor covering European politics economics,
• 29:08
  Speaker 1: joining us from the London bureau. You can read more
• 29:10
  Speaker 1: on this and other stories from Bloomberg Opinion at Bloomberg
• 29:13
  Speaker 1: dot com, Slash Opinion and of course on the terminal
• 29:16
  Speaker 1: by typing o p I n go for Bloomberg Opinion.
• 29:20
  Speaker 1: Some of our best work I think coming out of
• 29:22
  Speaker 1: Bloomberg News from great analysis. But it just this is
• 29:25
  Speaker 1: interesting to see, you know, with bar Boris Johnson, presumably
• 29:28
  Speaker 1: tomorrow will be named Prime minister. Um, you know what
• 29:32
  Speaker 1: is in his toolbox that he thinks he can get
• 29:34
  Speaker 1: this deal done that maybe Teresa May did did not?
• 29:37
  Speaker 1: Is it just his personality? Well? Is it just this
• 29:39
  Speaker 1: chaos theory, this idea that he will come in and
• 29:42
  Speaker 1: he'll say I will take a no deal brexit and
• 29:44
  Speaker 1: that's fine by me because that was not fine, uh
• 29:47
  Speaker 1: with with Teresa May. And so you would that threat
• 29:50
  Speaker 1: be enough for the E or will you not care?
• 29:52
  Speaker 1: They say all right, go ahead exactly. Just looking at
• 29:55
  Speaker 1: pounds sterling right here. Weaker on the day at one
• 29:58
  Speaker 1: point to four or four seven down slightly. Thanks for
• 30:03
  Speaker 1: listening to the Bloomberg pen L podcast. You can subscribe
• 30:05
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• 30:08
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• 30:11
  Speaker 1: pt Sweeney. I'm Lisa abram Woy. It's I'm on Twitter
• 30:14
  Speaker 1: at Lisa abram boits one before the podcast, you can
• 30:16
  Speaker 1: always catch us worldwide. I'm Bloomberg Radio