Latest / Bloomberg Intelligence / Algebris' Gallo Sees Weak UK Recovery, Even If 'Remain'(Audio)

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Algebris' Gallo Sees Weak UK Recovery, Even If 'Remain'(Audio) · Bloomberg Intelligence

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  Speaker 1: Broadcasting live to New York Bloomberg eleven, Rio to Washington,
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  Speaker 1: with pim Fox. Two days to the big Brexit vote.
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  Speaker 1: Will the United Kingdom vote to leave the European Union?
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  Speaker 1: The polls suggests that the vote will be heading towards
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  Speaker 1: remain stay in the EU. Nevertheless, markets and central banks
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  Speaker 1: around the world remain on high alert. PIM and We're
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  Speaker 1: gonna go to look now not just at what the
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  Speaker 1: vote means on Friday, but but the longer term consequences
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  Speaker 1: will be Yes, We've got Alberto Galla, portfolio manager ahead
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  Speaker 1: of macro strategies at Algebra Investments. Right now, let's go
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  Speaker 1: to Charlie Pellet and the Bloomberg news room for a
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  Speaker 1: Stocks fluctuating right now the now. The SMP nez dank
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  Speaker 1: outlook for comments coming in testimony that we carried live
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  Speaker 1: drop there of one percent. Apple shares their climbing by
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  Speaker 1: one percent, leading tech shares higher. Now, what about the
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  Speaker 1: big picture in terms of the economy. Peter Orzag is
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  Speaker 1: managing director at Lazard and former direct sure of the
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  Speaker 1: Office of Management and Budget. He's also a Bloomberg View columnist. Well,
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  Speaker 1: here's the thing. The economy is kind of math to
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  Speaker 1: use a technical term. It's not great, it's not terrible.
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  Speaker 1: And the problem is with growth rates that are you know,
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  Speaker 1: one and a half to two percent. Uh, you can
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  Speaker 1: have really bad offensibly really bad numbers that are close
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  Speaker 1: to zero, much more likely than if we were growing
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  Speaker 1: at three, when a bad number would then be, you know,
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  Speaker 1: a one and a half percent rate. So one of
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  Speaker 1: the dimensions here is that we're kind of skirting effectively.
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  Speaker 1: higher smp ops seven now to two thousand ninety, a
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  Speaker 1: gain of four tenths of one percent. I'm Charlie Peloton.
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  Speaker 1: That's of Bloomberg Business Flash. This is Taking Stock with
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  Speaker 1: Kathleen Hayes and Pim Fox on Bloomberg Radio. Two days
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  Speaker 1: to go until the United Kingdom votes on whether or
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  Speaker 1: not to stay or go, whether or not to leave
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  Speaker 1: the European Union. This is the famous Brexit vote. In fact,
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  Speaker 1: today the polls getting very close again between the remains
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  Speaker 1: and the Brexits. Those in the latest i G Servation
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  Speaker 1: poll in the UK put the remain vote at and
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  Speaker 1: leave with forty four percent. The last few days the
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  Speaker 1: polls had swung more in the direction of Remain. We
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  Speaker 1: are now going to take an in depth look at
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  Speaker 1: where this vote is, where it's heading, and what it
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  Speaker 1: means for the UK, for the European Union and the
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  Speaker 1: markets with our Alberto Gallo, not only author of the
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  Speaker 1: Silver Bullet, a great read on the markets around the world,
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  Speaker 1: he is portfolio manager and head of macro Strategies at
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  Speaker 1: Algebra's Investments. Alberto, welcome and congratulations on your new role.
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  Speaker 1: Thanks to me Hi so we're all watching the polls
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  Speaker 1: uh and you know, the base case we have is
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  Speaker 1: that there's gonna be a small victory for main but
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  Speaker 1: obviously the swings can be the last minute wings can
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  Speaker 1: be very large, as we have learned from past referendums
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  Speaker 1: here in the UK, So belt is there a macro
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  Speaker 1: credit trade to be put on in anticipation of what
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  Speaker 1: you describe. Look, the most people have gone on the sideline,
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  Speaker 1: so there's a lot of cash and portfolios. So if
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  Speaker 1: there is a remain obviously you're going to have a
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  Speaker 1: rally in stocks, and you're probably gonna have a bit
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  Speaker 1: more rally and sterling towards one and a half one
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  Speaker 1: point five versus the dollar. But we also want to
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  Speaker 1: have some hedges because even though it's a low probability,
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  Speaker 1: you know, less than fifty percent, it's still very possible
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  Speaker 1: that you have a leave vote and that could unleash
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  Speaker 1: a series of political consequences. It would it would make
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  Speaker 1: for periphery risks come back. So Greece Portugal, you know,
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  Speaker 1: look relatively weak fundamentally, and also especially in case of
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  Speaker 1: Brexit and and on, these government balls would would go
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  Speaker 1: up and yield by at least one percent. UH in case,
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  Speaker 1: but if not more so, we're you know, we're cautiously
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  Speaker 1: optimistic here, but we're still keeping some hedges, particularly Greece
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  Speaker 1: and Portual in particular, looks like the weak link in
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  Speaker 1: the thirty three. It's kept in the ECB Quantity Division
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  Speaker 1: program only by one rating agency. Well, of course, I
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  Speaker 1: think that the broader fear for central banks, and of
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  Speaker 1: course the European Central Bank has made it clear that
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  Speaker 1: it's ready to take steps, and in fact there's the
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  Speaker 1: six currency swap arrangement is in play apparently, so there
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  Speaker 1: could be big steps to support the pound if the
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  Speaker 1: vote is to leave and the pound gets hammered. Uh,
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  Speaker 1: you call the relationship between you can eat you a
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  Speaker 1: troubled love story. You note that the UK has already
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  Speaker 1: had but four opt outs if they go Alberto. This
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  Speaker 1: is not just they leave tomorrow. This takes a while.
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  Speaker 1: What does that mean for financial markets? If if Britain votes,
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  Speaker 1: if there's a two year period of complete uncertainty, during
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  Speaker 1: which there would be negotiations around the exit, which needs
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  Speaker 1: to be voted by EU member countries. During this period, Also,
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  Speaker 1: the UK will have to negotiate freight agreements with over
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  Speaker 1: a hundred countries on its own. Uh and UM, you
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  Speaker 1: have really two scenarios here, a good friendly exit where
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  Speaker 1: the UK would be allowed and on some leeway by
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  Speaker 1: the EU, but also bad exit where Germany could and
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  Speaker 1: France could toughen the rules also withdraw some banks from
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  Speaker 1: London that d c B could not allow clearing of
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  Speaker 1: euro government bonds in London for example, in some other restrictions,
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  Speaker 1: and all of this could mean a big loss for
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  Speaker 1: the UK economy. This is the most likely scenario if
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  Speaker 1: Leave gets voted, that you have a slow downing growth.
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  Speaker 1: I also have to say all these all this comes
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  Speaker 1: into a situation where the UK recovery is already is
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  Speaker 1: already slowing down. There's been a lot of spending in
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  Speaker 1: the first years of the of the Commeron Osborne government.
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  Speaker 1: But after election, Uh, there needs to be in after
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  Speaker 1: fifteen we're looking at austerity. We're looking at cuts and spending.
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  Speaker 1: We're looking at higher taxes and slow down in housing prices.
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  Speaker 1: So the UK has a twin deficit, very high deficit.
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  Speaker 1: It relies on capital coming to the UK is a
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  Speaker 1: safe and the more entertainly you introduced, the more votes,
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  Speaker 1: the more uncertain situation is. The less capital is going
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  Speaker 1: to come here and and and this is going to
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  Speaker 1: really affect the UK economy negatively. So you know, a
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  Speaker 1: live vote is really bad. Even without a lead vote,
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  Speaker 1: wild remain stilled, recovery is going to be weak. Albert Ill,
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  Speaker 1: just give you about thirty seconds here morning, if you
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  Speaker 1: could tell us sovereign credits, government bonds around the world
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  Speaker 1: that you favor for investors. Okay, I think that, um,
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  Speaker 1: we're gonna be in a in a que infinity low
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  Speaker 1: yield environment for a long time. You know, treasury is
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  Speaker 1: will go lower, inflation is nor where it should be.
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  Speaker 1: I think Greece is on a past recovery. It's going
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  Speaker 1: to be volatile during the vote here in the UK
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  Speaker 1: as as a sort of proxy rich country, but I
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  Speaker 1: think Greece is recovering, and Spain as well. It has
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  Speaker 1: elections next weekend, but I think it's gonna be a
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  Speaker 1: better vote and they will be able to form a government.
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  Speaker 1: Thank you very much for spending time with us. Alberto Gallop,
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  Speaker 1: his portfolio manager and head of a macro Strategies at
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  Speaker 1: Algebra's Investments, based in London, speaking about the Brexit vote,
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  Speaker 1: which takes place this Thursday, June the twenty three, we'll
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  Speaker 1: find out whether the United Kingdom will remain united with
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  Speaker 1: Europe or whether it will vote to leave. You're listening
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