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Why Fundamentals Are Driving Currency Investment: BBH's Thin · Bloomberg Intelligence

• 0:01
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Along
• 0:04
  Speaker 1: with my co host of Bonnie Quinn. Every business day
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  Speaker 1: we bring you interviews from CEOs, A market pros, and
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  Speaker 1: to podcasts, and on Bloomberg dot com. It is time
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  Speaker 1: now to get to our next guests. Currency guest, but
• 0:25
  Speaker 1: one of the best because he used to cover emerging
• 0:27
  Speaker 1: market currencies. Now he covers everything and he really just
• 0:29
  Speaker 1: knows everything about everything. Wentin of Brown Brothers Harmon. Thanks
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  Speaker 1: for joining us today. Hi FI always a picture. Thank
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  Speaker 1: you so when you know, I'd love to talk about
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  Speaker 1: emerging market currencies, but I do want to ask you
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  Speaker 1: first about this spot, which is really more than a spot.
• 0:44
  Speaker 1: I shouldn't call it a bat between the US and China.
• 0:46
  Speaker 1: It's pumping up again President Trump, you know, throwing in
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  Speaker 1: a threat. Perhaps it's too distract from other things. Perhaps
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  Speaker 1: it's for real, as they say, how are you reading it?
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  Speaker 1: And will it affect the dollar longer term? As you know,
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  Speaker 1: the markets have been struggling with the U S China
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  Speaker 1: struggle really for for several years now, right, it started
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  Speaker 1: off with the trade war, No certaint you know something
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  Speaker 1: I think even deeper and such structurally more profound. You
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  Speaker 1: I think, regardless of who the next president is, I
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  Speaker 1: think the US China relations have h well, you know,
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  Speaker 1: have changed um forever. I mean, if you look at
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  Speaker 1: the poles um voters in in the US cross party lines,
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  Speaker 1: both Democrats and Republicans all favor taking a tougher line
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  Speaker 1: against China, against the perceiving fractions, etcetera. So whether it's
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  Speaker 1: Mr Biden or whether this Mr Trump, um, you know,
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  Speaker 1: both administrations I think will continue on this tough line
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  Speaker 1: with China. Yeah. And what will that do to the
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  Speaker 1: US dollar? Because we definitely saw you know, big weakening
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  Speaker 1: in the dollar last week. It wasn't just on the
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  Speaker 1: China news, but you know it was ninety two and
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  Speaker 1: change on d x y. We've strengthened a little bit again.
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  Speaker 1: Will there be any the impact even if this continues? Well,
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  Speaker 1: what we saw back last year was, you know, during
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  Speaker 1: when the trade war erupted and really got tense, the
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  Speaker 1: dollars tend to strengthen, especially against emerging markets, right, because
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  Speaker 1: it's not just China, it's all the countries in sort
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  Speaker 1: of the wider China orbit. UM. You know, China imports UH, commodity,
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  Speaker 1: et cetera from other countries. So it's it's really you know,
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  Speaker 1: part of it, you know, sort of a big cog
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  Speaker 1: cog in the whole global trading regime. So to me,
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  Speaker 1: that's the risk UM that you know, a a UM,
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  Speaker 1: it's a prolonged or renewed tensions in the US China
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  Speaker 1: would a two things, probably boost the dollars for safe
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  Speaker 1: haven and most likely UM put down depression on equities.
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  Speaker 1: You know, we saw that last year. I think that's
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  Speaker 1: what dynamic would take place. Now what's interesting to me
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  Speaker 1: is that, you know, and Mr Trump is sort of
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  Speaker 1: kind of eased off that a little bit. UM. And
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  Speaker 1: but now I think, as you pointed out, you know,
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  Speaker 1: we're going into prime election season, and it seems you're
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  Speaker 1: trying to find some sort of message that's going to
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  Speaker 1: resonate with voters. UM myself personally, I look at the
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  Speaker 1: polls and and see that most voters at this point
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  Speaker 1: really we're most worried about the pandemic and the domestic economy.
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  Speaker 1: China seems a little bit lower on the list, and
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  Speaker 1: so also I do suspect this, this, this will not
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  Speaker 1: get that much traction. And Mr Trump me go on
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  Speaker 1: the next message. So, if we don't have to worry
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  Speaker 1: so much about the dollar, where are you looking around
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  Speaker 1: for value in currencies? We saw the g B P
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  Speaker 1: U S D weekend today a little bit sterling trading
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  Speaker 1: at one thirty twenty six, but it had been strengthening.
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  Speaker 1: So there's that. We have the Canadian dollar almost at
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  Speaker 1: one thirty two right now and the end below one
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  Speaker 1: oh six, so there's definitely movement out there when but
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  Speaker 1: where are you finding the most buying for your book? Literally? Yeah,
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  Speaker 1: So if I'm glad you brought that, because it's is
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  Speaker 1: something that myself and I think a few other analysts
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  Speaker 1: have been talking about that. You know, in the past
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  Speaker 1: you could talk about interest rate differentials as as a
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  Speaker 1: big driver for currencies, and that's just no longer the case.
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  Speaker 1: We've got zero of rates basic basically across developed markets
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  Speaker 1: and even in across many emerging markets. So instead of
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  Speaker 1: the carry and sort of intertect differentials, I think investors
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  Speaker 1: are focusing really purely on the fundamentals and and relative
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  Speaker 1: economic growth potential and differentials. So where does that put us? Well,
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  Speaker 1: you know, I've been as you probably know, I've been
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  Speaker 1: pretty negative on the dollar in two three just because
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  Speaker 1: you've really I think mishandled this virus. It's been much
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  Speaker 1: worse than it had to be, and I think the
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  Speaker 1: US economy has been underperforming. But what we're seeing around
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  Speaker 1: the world now is that those countries that started to
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  Speaker 1: reopen or having trouble right We're seeing problems in Italy, France, Germany,
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  Speaker 1: in Asia. So it's it's sort of almost a moving target,
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  Speaker 1: like who's what's what's looking worse right now? Um So,
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  Speaker 1: I remain negative on the US dollar in your term,
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  Speaker 1: We've got to get these virus numbers that control. Um
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  Speaker 1: you know, I think China is a good story they
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  Speaker 1: you know, of all these other countries around the world,
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  Speaker 1: it's it seems to be done the best in in
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  Speaker 1: really keeping the virus numbers down. So China, Emerging Asia,
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  Speaker 1: I think hold the best eye right now in terms
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  Speaker 1: of relative fundamentals and relative growth Latin Americans and is
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  Speaker 1: just like he has in the US. Just we're struggling
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  Speaker 1: with the virus, struggling to keep economic growth. Um So
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  Speaker 1: it's really I think for fundamental person like myself, you know,
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  Speaker 1: fundamentally focused investors and analysts, this is really where it
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  Speaker 1: becomes important. And I think that we really have to
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  Speaker 1: pay attention here. Yeah. So obviously we're in a coronavirus era,
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  Speaker 1: and so you're saying that until that era is over,
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  Speaker 1: you would look at certain countries very differently than you
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  Speaker 1: might if we were not on a coronavirus era, such
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  Speaker 1: as emerging Asia and parts of Latin America and not
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  Speaker 1: not all of Latin America. But does that mean, for example,
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  Speaker 1: that you would consider, you know, currencies where you wouldn't
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  Speaker 1: normally and I say normally pre pandemic and post pandemic
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  Speaker 1: invest Yes, I mean, I think what you know. I
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  Speaker 1: think that, for instance, we've always seen um emerging markets,
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  Speaker 1: a lot of high carey countries sort of Brazil, Turkey, um,
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  Speaker 1: South Africa. They tended to gain during risk on training.
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  Speaker 1: But now and again with basically zero rates, there's no
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  Speaker 1: Crishian there, there's no yield or carriage that attracts um
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  Speaker 1: UH invest in closes these countries, which to me have
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  Speaker 1: arguably amongst the worst fundamentals. So within the e M,
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  Speaker 1: it's it's fascinating to me that there's such a divergence
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  Speaker 1: in performance um even during this sort of risk on
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  Speaker 1: um environment we really saw in the last several months.
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  Speaker 1: So again I would just again caution investors to to
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  Speaker 1: really not buy things sort of wholesale that is, you know, look,
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  Speaker 1: look differentiate, look at the aversion fundamentals, you know, within
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  Speaker 1: asset classes, and that's that's that's very important to remember
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  Speaker 1: as you're going to Q four. Where do you like
• 6:52
  Speaker 1: in Emerging Asia? I think, um, Singapore, Korea, China. You know,
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  Speaker 1: they again these countries, you know, they're still struggling obviously
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  Speaker 1: to to maintain low virus numbers. They've done a fantastic
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  Speaker 1: job um and without having to shut down the economy
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  Speaker 1: as as as uh these day, as we have elsewhere
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  Speaker 1: in Europe and here in in North America. So Taiwan
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  Speaker 1: I would go in that as well. You know, again,
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  Speaker 1: the China story is solid and it's going to bring
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  Speaker 1: up a lot of these other other regional economies as well. Um.
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  Speaker 1: You know, it's it's not perfect. You know, China has
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  Speaker 1: its issues. You know, I think as you as we've
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  Speaker 1: been talking about this, this issue with the U S
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  Speaker 1: could flare up and could harm sentiment. But for now,
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  Speaker 1: I think investors are pretty comfortable with the China recovery story.
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  Speaker 1: You look at am I numbers and an export numbers
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  Speaker 1: China just as they lead the sort of the world
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  Speaker 1: downward during this coronavirus, leaving the world world upward in
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  Speaker 1: the recovery. And again it's I think we all have
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  Speaker 1: to focus on which countries have done the best in
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  Speaker 1: in limiting the pandemic impact. You know, another reason I'm
• 7:54
  Speaker 1: negative on the US is we still can't get another
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  Speaker 1: studless book past, and I think it's very crucial. And
• 8:00
  Speaker 1: you know, I would have thought we've had something in
• 8:02
  Speaker 1: the in the bank bank by now, but um, I mean,
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  Speaker 1: it's unreal that it's fifty six days to the election
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  Speaker 1: and we still have nothing. Very briefly starting, why is
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  Speaker 1: it not reacting more? Our investors not taking the possibility
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  Speaker 1: of a worse break sit seriously? Yeah, so what look
• 8:19
  Speaker 1: it did we have seen throwing U be the worst
• 8:24
  Speaker 1: performance today? And I think over the last week it's
• 8:26
  Speaker 1: pretty clear that that they're the odds of a no
• 8:30
  Speaker 1: deal Brexit are are rising their higher than I think
• 8:33
  Speaker 1: many has expected. Mr Johnson, you know, through our monkey
• 8:36
  Speaker 1: mentions and the works by saying he may just throw
• 8:38
  Speaker 1: out parts of you know, withdrawalogy, which is against I
• 8:41
  Speaker 1: I believe against international law. Uh So it's just to me,
• 8:45
  Speaker 1: it's a big mess. Um. I think what most people
• 8:47
  Speaker 1: are comfortable with. It's not going to be a huge
• 8:49
  Speaker 1: sort of um global can cast. I think most agents
• 8:54
  Speaker 1: have have sort of prepared for this um and and
• 8:57
  Speaker 1: so the impact will not be huge globally. But throwing
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  Speaker 1: it's pretty negative. Yeah, that's for sure. Win, thank you
• 9:04
  Speaker 1: so much. That's when thin of Brown Brothers Harriman so
• 9:07
  Speaker 1: much appreciated. That's a serious story that Greg Jared just
• 9:12
  Speaker 1: told us about JP Morgan issuing about two eighty thousand
• 9:16
  Speaker 1: loans in the p p P. Those loans told more
• 9:20
  Speaker 1: than twenty nine billion dollars with a b so. JP
• 9:23
  Speaker 1: Morgan was the top p p P lender in the
• 9:26
  Speaker 1: country according to SPA data. And if it's now looking
• 9:29
  Speaker 1: into instances, we don't know how many in which COVID
• 9:33
  Speaker 1: relief funds were misused by customers and as probing employees
• 9:37
  Speaker 1: involvement in the illegal activities, you can be sure we're
• 9:40
  Speaker 1: here a lot a lot more about that. All right,
• 9:43
  Speaker 1: let's bring in somebody who knows a lot about what's
• 9:45
  Speaker 1: going on in the NASDAC right now, and that is
• 9:47
  Speaker 1: David Garrity of laid Law and also bt Block. David,
• 9:51
  Speaker 1: thanks for joining. How concerned are you that now we're
• 9:54
  Speaker 1: you know, in the last three sessions or so, we're
• 9:57
  Speaker 1: at around about eight to nine percent drop for the deck. Yeah, Vanni.
• 10:03
  Speaker 1: In terms of looking at the price action that we
• 10:05
  Speaker 1: had going into the end of August, you certainly had
• 10:08
  Speaker 1: a asymptotic move to the upside by the likes of
• 10:12
  Speaker 1: Apple as well as Tesla going into their splits um.
• 10:15
  Speaker 1: Certainly we've had the news about the options market activity
• 10:19
  Speaker 1: that have been taking place. So to have the market
• 10:22
  Speaker 1: back now nine percent below its highs um as that
• 10:26
  Speaker 1: tends more volatile, we don't think we necessarily going to
• 10:30
  Speaker 1: be finished with this correction as of today. It may
• 10:33
  Speaker 1: have a little bit further to run. Are there stocks
• 10:36
  Speaker 1: that you would pile into right now though, even if
• 10:39
  Speaker 1: there is a little more to run, or would you
• 10:40
  Speaker 1: wait for another while? Or are we getting to the
• 10:44
  Speaker 1: stage where we'll see stocks correctly valued as opposed to
• 10:47
  Speaker 1: under valued. I think that your last point here in
• 10:50
  Speaker 1: terms of trying to get to a more correct valuation
• 10:53
  Speaker 1: is probably the most appropriate point. Um. We have to
• 10:57
  Speaker 1: take into account the fact the prospects for further fiscal stimulus,
• 11:02
  Speaker 1: at least prior to the election in November, are most
• 11:06
  Speaker 1: likely being put squarely on the sidelines. So there is
• 11:10
  Speaker 1: nothing that's going to be coming over the hill, so
• 11:12
  Speaker 1: to speak, in terms of further spending UH to support
• 11:15
  Speaker 1: the US economy, and certainly that has knock on effects
• 11:18
  Speaker 1: for the global economy. Um. And at the same time,
• 11:21
  Speaker 1: absent that support. The drumbeat of bad news in terms
• 11:25
  Speaker 1: of layoffs, whether it's coming from airlines, banks or other places,
• 11:28
  Speaker 1: is probably going to become more significant. And you know,
• 11:32
  Speaker 1: in the meanwhile, we always have the news about you know,
• 11:34
  Speaker 1: the second wave if you will, of coronavirus infections. So
• 11:37
  Speaker 1: you know, on balance, um, people were quite a brilliant
• 11:41
  Speaker 1: going into the late summer, and unfortunately fall brings along
• 11:45
  Speaker 1: with the cooler temperatures perhaps a cooler perspective, David. The
• 11:50
  Speaker 1: options activity that you were talking about, you know, religio
• 11:53
  Speaker 1: to soft bank and so on, How serious is that
• 11:55
  Speaker 1: for trading going forward? Will have any impact? Um? I
• 12:00
  Speaker 1: mean to the extent we don't know necessarily what were
• 12:04
  Speaker 1: what was the maturity or what was the term on
• 12:07
  Speaker 1: the options contracts that were involved, To the extent that
• 12:10
  Speaker 1: they appear to have been fairly significant relative to the
• 12:13
  Speaker 1: ramp up in the shares um, we would think that
• 12:16
  Speaker 1: the options contracts themselves were perhaps relatively short term, in
• 12:20
  Speaker 1: which case, um, you know, the impact of those contracts
• 12:24
  Speaker 1: should wash out fairly frequently. Nevertheless, it probably leaves us
• 12:28
  Speaker 1: in a position here where the month of September um
• 12:32
  Speaker 1: is going to be obviously ordered, started volatile, but it's
• 12:35
  Speaker 1: likely to continue to be so. And that more, it's
• 12:38
  Speaker 1: going to be the earning season that we start to
• 12:40
  Speaker 1: get announced in October for the third quarter of that
• 12:45
  Speaker 1: will serve to stabilize things and give a better prospect
• 12:47
  Speaker 1: in terms of where are the valuations reasonable in terms
• 12:50
  Speaker 1: of the prices in the market relative to the earnings
• 12:52
  Speaker 1: prospects of the companies involved. So, David, perfect news for you.
• 12:58
  Speaker 1: We just got the word that Apple is going to
• 13:00
  Speaker 1: hold an online event September where the company is expected
• 13:03
  Speaker 1: to unveil its latest iPhones and Apple Watches. It's going
• 13:06
  Speaker 1: to start at ten am Pacific time one pm Eastern.
• 13:10
  Speaker 1: What should we look forward to from Apple in this
• 13:12
  Speaker 1: round of innovation. Well, certainly the biggest thing to look
• 13:16
  Speaker 1: for from Apple is going to be the latest edition
• 13:19
  Speaker 1: of the iPhone, which is going to be engineered to
• 13:22
  Speaker 1: be using the five G wireless spectrum and in this
• 13:25
  Speaker 1: regard considered to be possibly a transformative product for Apple.
• 13:30
  Speaker 1: Certainly it's been an element that's been responsible for the
• 13:33
  Speaker 1: run up and the shares um probably over the last
• 13:36
  Speaker 1: three to four months. Maybe if you want to go
• 13:39
  Speaker 1: back further and look at the March lows so clearly
• 13:42
  Speaker 1: allowed the expectations they're already baked into the market. Um.
• 13:46
  Speaker 1: Nice to know that we're going to be getting something
• 13:48
  Speaker 1: to look forward to in the fifteen September um, and
• 13:51
  Speaker 1: we'll be looking for what the surprises are on the margin.
• 13:53
  Speaker 1: But the five G I phone is the big ticket.
• 13:56
  Speaker 1: So why put so much and for this on five
• 14:00
  Speaker 1: G when really you know there's a lot of the
• 14:02
  Speaker 1: country that is not going to be able to benefit
• 14:04
  Speaker 1: from that. I mean we're really only talking about the
• 14:06
  Speaker 1: major cities and not even all of those major cities
• 14:09
  Speaker 1: that have five G right now. No, it's true, um,
• 14:13
  Speaker 1: but if we look at what the services are that
• 14:16
  Speaker 1: can be facilitated as a result of having the speed
• 14:21
  Speaker 1: that five G will offer, it can be a substantially
• 14:25
  Speaker 1: different user experience. UM, and you have to look at
• 14:29
  Speaker 1: you know, what's going to be capable in terms of
• 14:31
  Speaker 1: providing more information by way of video at faster rates.
• 14:36
  Speaker 1: And arguably you may say it's the cities that have
• 14:39
  Speaker 1: most of the coverage right now, but UM absent COVID,
• 14:43
  Speaker 1: that's where most of the people or most of the
• 14:45
  Speaker 1: cell phone users tend to be UM. So you know,
• 14:49
  Speaker 1: looking at five G we're not so far out from
• 14:51
  Speaker 1: the deployment of five gene networks that this is something
• 14:54
  Speaker 1: of a product that comes out before there's really a
• 14:58
  Speaker 1: market for it. I think the timing on Apple support
• 15:00
  Speaker 1: is actually quite good. Yeah, indeed, because there will be
• 15:04
  Speaker 1: nothing like wanting a little bit of luxury or a
• 15:06
  Speaker 1: little something new to pep us up if coronavirus continues,
• 15:10
  Speaker 1: which as we know it will. David Garrity, thank you
• 15:13
  Speaker 1: so much for all of your intelligence today. David Garrity,
• 15:16
  Speaker 1: chief market strategist at laid Lawn Company and also beat
• 15:19
  Speaker 1: t block which is a blockchain and cryptocurrency company. It
• 15:27
  Speaker 1: is time now forms and we're opinion of that we're
• 15:29
  Speaker 1: going to actually across the pond. Sterling has been trading
• 15:33
  Speaker 1: today just a little bit on the idea that Boris
• 15:36
  Speaker 1: Johnson might be taking breaksit in a crazy direction. And
• 15:39
  Speaker 1: that is also the title of Terre's Raphael's latest bloombaring
• 15:43
  Speaker 1: opinion piece. So we welcome tores right now and once
• 15:46
  Speaker 1: again Sterling at one thirty thirty two week or by
• 15:49
  Speaker 1: one percent. What crazy direction are we talking about, Terres, Well,
• 15:54
  Speaker 1: there's there, there is crazy and crazier. Let's put it
• 15:58
  Speaker 1: that way. So john since ministers, his cabinet and then
• 16:03
  Speaker 1: the can downing streets, have been putting out the word
• 16:05
  Speaker 1: for some time now that he sees no deal with
• 16:09
  Speaker 1: the EU, no trade deal that sets out the future negotiations,
• 16:12
  Speaker 1: is actually preferable to compromising on the outstanding issues, including
• 16:17
  Speaker 1: the one of state aid now that carries all sorts
• 16:19
  Speaker 1: of implications because of the insertible trade, but the World
• 16:22
  Speaker 1: Trade Organization terms, which will carry of course economic costs
• 16:26
  Speaker 1: as we get trade Christians. The crazier part is the acknowledgement,
• 16:32
  Speaker 1: including by a government minister in the House of Commons today,
• 16:35
  Speaker 1: that the government plans to break its treaty obligation. This
• 16:39
  Speaker 1: is the treaty it fined with the EU only months ago, UH,
• 16:43
  Speaker 1: and the part of the treaty on the Northern Irish
• 16:46
  Speaker 1: Protocol that was intended to ensure that there's an open
• 16:50
  Speaker 1: border between the Northern Ireland and Ireland, and the government
• 16:53
  Speaker 1: is now saying it wants to pass legislation that would
• 16:57
  Speaker 1: override parts of that treaty. So all of this is
• 17:00
  Speaker 1: obviously caused much consternation uh from the EU side, though
• 17:05
  Speaker 1: there is at least, you know, some hope that it's
• 17:08
  Speaker 1: uh the kind of brinkmanship we've seen in the past
• 17:11
  Speaker 1: that tends to perceive the eleventh hour adminciations that tends
• 17:15
  Speaker 1: to procede some kind of a deal. So essentially Boris
• 17:18
  Speaker 1: Johnson might be trying to rewrite the Brexit divorce deal
• 17:22
  Speaker 1: that took so long to get signed last year with
• 17:25
  Speaker 1: the European Union, and he might also be baking international law.
• 17:28
  Speaker 1: If all of this goes ahead, why are markets not
• 17:31
  Speaker 1: taking this seriously seriously enough in the sense that's starting
• 17:34
  Speaker 1: as a little weaker but nothing is falling off a cliff.
• 17:39
  Speaker 1: I mean, I think for a couple of reasons. One,
• 17:42
  Speaker 1: there is a sense that that EU negotiations always UH
• 17:48
  Speaker 1: go through this sort of stage of falling apart before
• 17:52
  Speaker 1: they come together at the last minute. And that's what
• 17:54
  Speaker 1: we saw last year where Boris Johnson met with the
• 17:59
  Speaker 1: former Irish teacher Leo Rodka and did a deal um
• 18:03
  Speaker 1: on the Northern Island that that field um are paved
• 18:07
  Speaker 1: the way for the rest of the withdrawll agreement. So
• 18:08
  Speaker 1: there's some sense that this may be posturing, but you know,
• 18:13
  Speaker 1: there's also an understanding that they now had a significant
• 18:18
  Speaker 1: time to prepare for a no deal exit. Both sides
• 18:22
  Speaker 1: have been doing. So any deal that they would uh
• 18:25
  Speaker 1: conclude now is not going to be uh substantially better
• 18:30
  Speaker 1: in terms of trade than leaving without a deal. They
• 18:33
  Speaker 1: will get, you know, perhaps some relief on tariffs and quotas,
• 18:36
  Speaker 1: but we're not talking the kind of comprehensive free trade
• 18:39
  Speaker 1: agreement covering all areas of policy that was hoped for
• 18:44
  Speaker 1: in the beginning, and that's kind of priced in now.
• 18:47
  Speaker 1: These talks are going to go on and on and
• 18:49
  Speaker 1: on regardless of whether some kind of deal is reached
• 18:52
  Speaker 1: at the end of the year. Not only that, but
• 18:55
  Speaker 1: it sounds like there are two options for no deal.
• 18:57
  Speaker 1: One is just no deal, but fairly endye terms, and
• 19:00
  Speaker 1: the other is what seems to be happening, and that's
• 19:02
  Speaker 1: no deal in pretty acrimonious terms. Yeah, and I think
• 19:08
  Speaker 1: you know, from the point off, if you're going to
• 19:11
  Speaker 1: look at it from from from the market perspective, you
• 19:14
  Speaker 1: can have a no deal on acrimonious terms, but how
• 19:17
  Speaker 1: long can you really stay on those terms. Britain and
• 19:20
  Speaker 1: the EU are each other's major trading partner. They cooperate
• 19:25
  Speaker 1: on a whole rate, but issues from migration to counter terrorism, security, policing, um,
• 19:32
  Speaker 1: all sorts of uh, you know, all sorts of other issues,
• 19:35
  Speaker 1: and really they have to find some way through this.
• 19:38
  Speaker 1: So you know, whatever the mood music is now, uh,
• 19:42
  Speaker 1: we can expect that at some point cooler had to
• 19:44
  Speaker 1: prevail and some kind of return to ano those shaping
• 19:48
  Speaker 1: table would be expected. And I think that's that's sort
• 19:51
  Speaker 1: of a reasonable expectation. When that happens, and on what
• 19:54
  Speaker 1: terms is really hard to say. So as I read
• 19:57
  Speaker 1: Lauris Johnson's statement out of the ten Downings Weak yesterday,
• 20:00
  Speaker 1: and it appeared to be, you know, very optimistic and look,
• 20:05
  Speaker 1: if this all happens, it'll end up that we're you know,
• 20:07
  Speaker 1: essentially trading with Europe, like Australia trades with Europe for example,
• 20:11
  Speaker 1: but we'll also have completely you know, sovereign power and
• 20:16
  Speaker 1: control over what we decide to do and so on.
• 20:19
  Speaker 1: Is the tone too optimistic for what would happen in
• 20:23
  Speaker 1: a scenario where Britain was on the outside, like say Australia, Well,
• 20:28
  Speaker 1: I mean you might as well well have said, you know,
• 20:30
  Speaker 1: we'll trade with Europe the way um as someone said
• 20:33
  Speaker 1: Outer Mongolia will trade with her, because Australia doesn't have
• 20:36
  Speaker 1: a trade deal, and so that is just kind of
• 20:38
  Speaker 1: a soft way of saying, um, you know, we will
• 20:41
  Speaker 1: be completely on the outside. I think Johnson does want
• 20:45
  Speaker 1: some kind of a deal. It's clearly in Britain's economic
• 20:49
  Speaker 1: interests to have preferential trade terms. Politically, it will get
• 20:53
  Speaker 1: very very tricky with the momentum for independence in Scotland
• 20:59
  Speaker 1: if there's no deal at all, So I think his
• 21:01
  Speaker 1: preference would be to have a deal. At the same time,
• 21:03
  Speaker 1: the issue that's dividing them now, which is a state aid,
• 21:07
  Speaker 1: the the ability of governments to get subsidies, tax really
• 21:11
  Speaker 1: for other incentives to businesses. It is pretty existential for
• 21:14
  Speaker 1: this government because it's trying to reorient the British economy
• 21:17
  Speaker 1: after Brexit, to make it amenable to global trade deals,
• 21:21
  Speaker 1: to level up, as as Johnson likes to put it,
• 21:25
  Speaker 1: parts of the economy that has fallen behind, to try
• 21:27
  Speaker 1: to improve certain lagging productivity. And the only way, in
• 21:31
  Speaker 1: their view, they can do that is to have a
• 21:33
  Speaker 1: free rein when it comes to using taxpayer money to
• 21:37
  Speaker 1: help give a boost to investment in R and D
• 21:41
  Speaker 1: skills training in certain industries. And they're worried that the
• 21:43
  Speaker 1: EU is going to try to prevent that because the
• 21:47
  Speaker 1: EU will fear a distortion of competition. So the both
• 21:51
  Speaker 1: sides actually have a lot of to stake here. The
• 21:54
  Speaker 1: EU is trying to preserve the integrity of the Single
• 21:56
  Speaker 1: Market and prevent Britain from undercutting the new industries in
• 22:01
  Speaker 1: Britain wants to reap the benefits of Brexit and have
• 22:03
  Speaker 1: complete freedom over its rules. And uh, you know, there
• 22:07
  Speaker 1: is a deal to be done, no doubt, but it
• 22:09
  Speaker 1: will require political will on both sides. And the dangerous
• 22:12
  Speaker 1: that you know they've really um from the UK side,
• 22:16
  Speaker 1: they've sort of painted themselves into a corner because if
• 22:18
  Speaker 1: you you know, if they're if they're going to go
• 22:20
  Speaker 1: ahead with a plan to you know, literally abrogated international
• 22:24
  Speaker 1: treaty and then say they refused to compromise at all
• 22:27
  Speaker 1: of state. It's really hard to say. How I see
• 22:30
  Speaker 1: how the EU can move closely towards the UK position
• 22:33
  Speaker 1: and save a deal. And again, you know, we're talking
• 22:36
  Speaker 1: about a very tight time frame. Johnson's put a deadline
• 22:39
  Speaker 1: of October fifteen on it, and then on the Northern
• 22:42
  Speaker 1: Ireland Protocol. Ray is just very briefly because we're pretty
• 22:45
  Speaker 1: out of time. Hard border has been obviously ruled out,
• 22:48
  Speaker 1: but there would be some kind of order now, is
• 22:50
  Speaker 1: that what this means? Well, not necessarily. The articles that
• 22:54
  Speaker 1: talk just talking about um regards the impact of of
• 22:59
  Speaker 1: state aid for trade attract more than Ireland and the EU.
• 23:03
  Speaker 1: But I think abrogating the treaty does open reopen questions
• 23:08
  Speaker 1: about the border, So you know, one might follow the other.
• 23:11
  Speaker 1: It's not for certain, but it certainly it's an issue.
• 23:15
  Speaker 1: Terre's Raphael Bloomberg opinion columnists, thank you so much for
• 23:18
  Speaker 1: explaining all of this to us. As John author says,
• 23:21
  Speaker 1: the Empire strikes back. And in other news, sl Green
• 23:28
  Speaker 1: Realty preparing to cut the ribbon next week on one
• 23:30
  Speaker 1: Vanderbilt a thirteen billion dollar office tower above Grand Central
• 23:34
  Speaker 1: Terminal in New York. It's twenty years in the making.
• 23:37
  Speaker 1: But will it be rented now to the story of
• 23:41
  Speaker 1: the day. Really, it's the tale of the two electric
• 23:44
  Speaker 1: vehicle makers. Neither of them really profitable, but one of
• 23:49
  Speaker 1: them is actually turning out vehicles, and that's Tesla. Tesla
• 23:52
  Speaker 1: down sent right now. But Nicola that's trying to make
• 23:55
  Speaker 1: the badger in big numbers. Well it's higher because GM
• 23:59
  Speaker 1: is to get a two billion billion. That's with a
• 24:01
  Speaker 1: b dollar steak in Nicola. Let's bring in someone to
• 24:04
  Speaker 1: tell us a lot more about this. David Welsh is
• 24:06
  Speaker 1: Detroit bureaucy for Bloomberg News. David, just the initial questions
• 24:12
  Speaker 1: I want to ask surround the differences between Nicola and Tesla.
• 24:16
  Speaker 1: Is it a false comparison? Look right now it is.
• 24:22
  Speaker 1: You have a company that's worth almost nineteen billion dollars,
• 24:25
  Speaker 1: but they haven't sold any You do have a couple
• 24:30
  Speaker 1: of CEOs to these companies that like to get on
• 24:32
  Speaker 1: Twitter and and be very active there and be very
• 24:35
  Speaker 1: quotable and colorful. But after that the comparison kind of
• 24:39
  Speaker 1: fall short. That's not to see Nikola doesn't have some technology, um,
• 24:43
  Speaker 1: but they don't even have a model for sale yet.
• 24:46
  Speaker 1: They're still in the process of developing those and getting
• 24:48
  Speaker 1: plants up and running. And really this deal sort of
• 24:51
  Speaker 1: underscores and even bigger difference between Tesla from its early
• 24:55
  Speaker 1: days and Nicola today, and that is with this partnership
• 24:59
  Speaker 1: with GM, they're actually using GMS utric vehicle battery and
• 25:03
  Speaker 1: GM's fuel cell system, which is generally developed with Honda.
• 25:07
  Speaker 1: Tesla developed its own battery pack that everybody else in
• 25:10
  Speaker 1: the industry said couldn't work, wouldn't have great quality, but
• 25:13
  Speaker 1: it did work, and it did that pretty good quality,
• 25:15
  Speaker 1: so they didn't need to use anybody else's technology. Early on,
• 25:19
  Speaker 1: Dime More of Germany and Toyota Corp. HAID invested in Tesla,
• 25:23
  Speaker 1: but they were still using Tesla's own battery pack. This
• 25:26
  Speaker 1: is different here, So it does make a lot of
• 25:28
  Speaker 1: people question what does Nicola bring the GM in terms
• 25:32
  Speaker 1: of technology or is it basically a brand name of
• 25:34
  Speaker 1: pickup truck concept and some sales down the line, and
• 25:37
  Speaker 1: that that appears to be what it is. That's pretty insane.
• 25:40
  Speaker 1: So the story is General Motors is giving two billion
• 25:44
  Speaker 1: dollars to Nikola. It gets a two billion dollar equity
• 25:46
  Speaker 1: stake for that and even ownership of Nicola. Nicola says
• 25:50
  Speaker 1: it's the saving over four billion dollars in battery and
• 25:52
  Speaker 1: power train costs, and GM says it's going to receive
• 25:56
  Speaker 1: in excess of four billion dollars of benefits. Where did
• 25:58
  Speaker 1: I get that four billion dollar figure? So, first of all,
• 26:02
  Speaker 1: GM is not even putting cash in the two billion
• 26:04
  Speaker 1: dollar UH state that they're getting is simply by giving
• 26:07
  Speaker 1: Nicola and their battery and their fuel cell technology. So
• 26:10
  Speaker 1: with then no cash deal for GM and therefore much
• 26:13
  Speaker 1: less risk the same things everybody's talking about. And we'll
• 26:17
  Speaker 1: take a brief walk back here to my days of
• 26:19
  Speaker 1: covering M and A deals. It's sort of assuming a
• 26:22
  Speaker 1: certain amount of sales and here's how much we will
• 26:24
  Speaker 1: save on battery development and fuel cell development and building stories.
• 26:29
  Speaker 1: Nicola doesn't have to build an electric vehicle factory. Now
• 26:32
  Speaker 1: they'll use GMS. It's really by joining forces, but it's
• 26:36
  Speaker 1: based on a bunch of assumptions that X number of
• 26:39
  Speaker 1: vehicles will sell and would have cost each company a
• 26:42
  Speaker 1: certain amount of money had they gone on their own.
• 26:44
  Speaker 1: But now they're joining forces and combining things, and they'll
• 26:46
  Speaker 1: get all kinds of savings. You know, I'm not sure
• 26:49
  Speaker 1: we'll see four billion peeled out of General Motors UH
• 26:52
  Speaker 1: costs and down to the bottom line. But it's sort
• 26:55
  Speaker 1: of a future projection here, so I've always looked at
• 26:58
  Speaker 1: through a little bit suspiciously. But see what happens in
• 27:00
  Speaker 1: the future. So what does it say about GM that
• 27:04
  Speaker 1: it's looking for a new concept like that? Why does
• 27:08
  Speaker 1: it need it now? And when might the badger is
• 27:12
  Speaker 1: sort of becoming off GM assembly lines or even you know,
• 27:15
  Speaker 1: Nicola Tesla lines, the Nicola lines. They're saying the second
• 27:20
  Speaker 1: half of two, so at least six months after GM's
• 27:25
  Speaker 1: Hummer pickup truck comes out. So if if Nicola's vehicles sell,
• 27:29
  Speaker 1: GM gets two things out of it, they will be
• 27:31
  Speaker 1: selling a basic work pickup truck, very different from the
• 27:35
  Speaker 1: Hummer pickup truck that GM is planning. So that's more
• 27:38
  Speaker 1: of a lifestyle vehicle, almost kind of a luxury vehicle.
• 27:41
  Speaker 1: Hummer is not the kind of brand for people for
• 27:44
  Speaker 1: contractors who are loading it up with pipes and two
• 27:48
  Speaker 1: by fours and that sort of thing. This is the
• 27:50
  Speaker 1: kind of truck that tows a boat or is just
• 27:52
  Speaker 1: driven around town. So the Nicola truck would give GM
• 27:55
  Speaker 1: a crack. It's selling something more of a regular work truck.
• 27:58
  Speaker 1: And then on a few also the side of things,
• 28:00
  Speaker 1: what GM give because there's much more concrete, is the
• 28:03
  Speaker 1: Class seven and eight pickup truck. These are the big
• 28:05
  Speaker 1: over the road or rags for hauling free. GM doesn't
• 28:08
  Speaker 1: really have anything there and this is their way to
• 28:10
  Speaker 1: get into that game. And fuel cells are a pretty
• 28:13
  Speaker 1: good way to power those trucks because batteries weighs so much.
• 28:16
  Speaker 1: You're you're just cutting away how much Frede you can
• 28:18
  Speaker 1: holof You did it with electric power, now you're doing
• 28:20
  Speaker 1: the hydrogen power. So GM gets into a new market
• 28:23
  Speaker 1: if it works, if it doesn't work, GM has not
• 28:25
  Speaker 1: put any cash in UM and and and so you
• 28:29
  Speaker 1: know that there's not a lot of monetary respire GM here.
• 28:32
  Speaker 1: So Nika is up. You might understand that. But is
• 28:35
  Speaker 1: it understandable that Tesla is down today? Uh? Yeah, in
• 28:43
  Speaker 1: in a big way. It is because a lot of investors.
• 28:46
  Speaker 1: Tesla is going to be welcomed into the SMP five hundred,
• 28:49
  Speaker 1: and that means you have seen a lot of passive
• 28:51
  Speaker 1: money through SMP five STP index bonds coming in as
• 28:56
  Speaker 1: opposed to you know, the heavy cohort of re Tell
• 29:00
  Speaker 1: investors and some institutions that are in Tesla that didn't happen.
• 29:04
  Speaker 1: And it has to implications. One that's just you know,
• 29:07
  Speaker 1: pure fact, you're not going to have all this potential
• 29:09
  Speaker 1: new money coming into the stock. And too, there is
• 29:13
  Speaker 1: some talk out there that um Testa's earnings, well, I
• 29:17
  Speaker 1: have been profitable several quarters in a row. Now, it's
• 29:20
  Speaker 1: not a great quality of earnings. They often lose money
• 29:23
  Speaker 1: on the core vehicle business and make enough money selling
• 29:25
  Speaker 1: regulatory electric vehicle credits to the gas burning many car manufacturers,
• 29:31
  Speaker 1: and and that overshadows the losses and end up turning
• 29:33
  Speaker 1: a profit. David, we absolutely there, But thank you so
• 29:36
  Speaker 1: much for explaining all of that to us. Much much appreciated,
• 29:39
  Speaker 1: David Welch there in Detroit. Thanks for listening to the
• 29:42
  Speaker 1: Boomberg Markets podcast. You can subscribe and listen to interviews
• 29:46
  Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. I'm
• 29:50
  Speaker 1: Bonnie Quinn, I'm on Twitter at Bonnie Quinn. And Paul
• 29:53
  Speaker 1: Sweeney I'm on Twitter at pt Sweeney. Before the podcast,
• 29:56
  Speaker 1: you can always catch us worldwide at Bloomberg Radio. Huh
• 30:00
  Speaker 1: uh uh u.