Latest / Bloomberg Intelligence / Credit Crunch, M&A Deals, and Turkey's Election (Podcast)

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Credit Crunch, M&A Deals, and Turkey's Election (Podcast) · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast.
• 0:02
  Speaker 2: I'm Paul Sweeney alongside my co host Matt Miller.
• 0:05
  Speaker 3: Every business day we bring you interviews from CEOs, market pros,
• 0:09
  Speaker 3: and Bloomberg experts, along with essential market moving news.
• 0:14
  Speaker 2: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
• 0:17
  Speaker 2: you listen to podcasts, and at Bloomberg dot com slash podcast.
• 0:21
  Speaker 4: Guess who all else is reading that late night credit
• 0:23
  Speaker 4: Crunch stuff. Bloomberg Intelligence Chief European credit strategist Mahish Bima Lingam,
• 0:29
  Speaker 4: and Amelia Pollard, a reporter with Bloomberg News, join us
• 0:32
  Speaker 4: in zoom and in studio. Paul Sweeney was here, he'd
• 0:35
  Speaker 4: give you guys a gold star at least to you
• 0:37
  Speaker 4: Amelia for coming in in studio, so we thank you both.
• 0:39
  Speaker 4: Let's start with you, Amelia, talk to us about this story.
• 0:43
  Speaker 4: Just how dire is it or is this something that's
• 0:46
  Speaker 4: kind of fading when you talk about just the credit
• 0:49
  Speaker 4: crunch narrative.
• 0:50
  Speaker 5: Yeah, thanks for having me. That really remains to be seen.
• 0:53
  Speaker 5: But in the last twenty four hours there were at
• 0:56
  Speaker 5: least seven major bankruptcies and we're still trying to get
• 1:00
  Speaker 5: a sense of you know, is that the most in
• 1:02
  Speaker 5: you know, a twenty four hour time span, and it
• 1:04
  Speaker 5: seems to be the case that it's the most within
• 1:08
  Speaker 5: that short amount of time. Ever we think ever, I mean,
• 1:11
  Speaker 5: we're still we're still crunching the numbers right now. But
• 1:14
  Speaker 5: I think that this this sort of thing really signals
• 1:17
  Speaker 5: that maybe this is the beginning of potentially a big
• 1:20
  Speaker 5: wave and the thing that we're seeing right now. So
• 1:22
  Speaker 5: some of the some of the companies that filed the
• 1:23
  Speaker 5: last twenty four hours, they're known as a zombie companies,
• 1:27
  Speaker 5: like they really shouldn't have maybe even lasted this long.
• 1:30
  Speaker 5: So we're starting to see some of the unhealthier companies
• 1:33
  Speaker 5: start to file now. But the real question will be
• 1:36
  Speaker 5: later this year, will there be healthier companies that no
• 1:39
  Speaker 5: one saw coming starting to file. So I think that's
• 1:41
  Speaker 5: what experts are looking.
• 1:42
  Speaker 6: For, my hatch.
• 1:43
  Speaker 7: I'm wondering if you can talk about the European side
• 1:45
  Speaker 7: of this, because Europe is no stranger to zombie companies,
• 1:49
  Speaker 7: and so at what point do you see this credit
• 1:52
  Speaker 7: crunch start to bring some of these companies over the edge?
• 1:57
  Speaker 8: Oh hi, guys, thank you for having me over. The
• 2:00
  Speaker 8: thing is there's a bit of a contrast between the
• 2:03
  Speaker 8: US and Europe. I mean even traditionally, Right in the US,
• 2:07
  Speaker 8: it is pretty easy for many companies to come to
• 2:10
  Speaker 8: the bond markets, borrow and then go to Delaware when needed. Right,
• 2:15
  Speaker 8: it is not that easy one to come to the
• 2:17
  Speaker 8: bond markets in Europe because generally some of the smaller
• 2:21
  Speaker 8: riskier ones are probably funded out of bank balance sheets.
• 2:25
  Speaker 8: The bond markets are not as large and as free
• 2:28
  Speaker 8: flowing as in the US. That's part one and part two.
• 2:31
  Speaker 8: You don't go to Delaware here. Given that how fragmented
• 2:35
  Speaker 8: the legal framework is, companies generally don't go bankrupt that easily,
• 2:40
  Speaker 8: so you tend not to see as many defaults except
• 2:44
  Speaker 8: in the you know, two thousand and two, two and
• 2:46
  Speaker 8: three tech crisis. But after that you can see that
• 2:49
  Speaker 8: in every peak, the Eurozone default rate tends to be
• 2:52
  Speaker 8: much smaller. So right now, if you ask me that question,
• 2:56
  Speaker 8: have we seen any Domino s falling this year? We've
• 3:00
  Speaker 8: only seen two companies in the bond markets hetter default.
• 3:05
  Speaker 8: One company is food Cobon con the other is Prey
• 3:08
  Speaker 8: good Glass. Both are you know, non copon payment and
• 3:12
  Speaker 8: small companies. You know, one of them is three thirty
• 3:14
  Speaker 8: million and the other is three fifty million. So have
• 3:16
  Speaker 8: we seen like a flood.
• 3:18
  Speaker 9: No.
• 3:19
  Speaker 7: It's interesting because we were sitting there. We were talking
• 3:21
  Speaker 7: a little earlier about Merger Monday, and part of Merger
• 3:23
  Speaker 7: Monday has been a lot of these big traditional private
• 3:27
  Speaker 7: asset managers buying other credit firms. The idea here was
• 3:30
  Speaker 7: with the banking crisis that some of these private credit
• 3:34
  Speaker 7: firms could fill in the void. But you're seeing some
• 3:36
  Speaker 7: of these firms have actually been exposed to some of
• 3:38
  Speaker 7: these bankrupt companies. Weren't they. You're seeing TPG had some
• 3:41
  Speaker 7: exposure what to vice media? Does that kind of make
• 3:46
  Speaker 7: them nervous to step in further when they're seeing so
• 3:50
  Speaker 7: much trouble here among some of these companies that have
• 3:53
  Speaker 7: clearly fallen to bankruptcy.
• 3:57
  Speaker 5: Yeah, you know, I think that it's all an equation
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  Speaker 5: here of you know, how many companies will you have
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  Speaker 5: exposure to that might go belly up? And so I
• 4:05
  Speaker 5: think that, you know, I'm not sure the case for TPG,
• 4:07
  Speaker 5: but other private credit firms might see. You know, this
• 4:09
  Speaker 5: is just the cost of doing business right now, you know,
• 4:11
  Speaker 5: in this kind of risky environment, bankrupt, Yeah, firms will
• 4:14
  Speaker 5: go bankrupt. I think the bet is hopefully enough don't
• 4:18
  Speaker 5: to make the you know, the investment worth it. I
• 4:21
  Speaker 5: do think that I want to say earlier that right
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  Speaker 5: now we're seeing the fastest pace of filing since two
• 4:27
  Speaker 5: thousand and nine. And if that ramps up to you know,
• 4:30
  Speaker 5: kind of match two thousand and nine, or even really
• 4:33
  Speaker 5: push push even higher, then that might be a problem
• 4:35
  Speaker 5: for companies where you know, the ratio is just so
• 4:38
  Speaker 5: great that maybe we'll see private lenders pull back. But
• 4:41
  Speaker 5: so far, all we're seeing is that they're pushing further
• 4:44
  Speaker 5: into the investments.
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  Speaker 4: Hey, let's put some numbers on this here. We know
• 4:48
  Speaker 4: you're European credit strategies, but of course I'm sure you're
• 4:51
  Speaker 4: watching the markets around the world. One of the big
• 4:54
  Speaker 4: kind of complaints when it comes to credit, or at
• 4:56
  Speaker 4: least the lack thereof of a visible crime, is that, hey, look, spreads, yields,
• 5:02
  Speaker 4: they're not at these recessionary levels of previous crunches. And
• 5:06
  Speaker 4: I think you can say that on both sides of
• 5:08
  Speaker 4: the Atlantic, what numbers, what levels are you waiting for
• 5:12
  Speaker 4: to say, Okay, guys, this is it. This is such
• 5:14
  Speaker 4: dramatic drap that we were all ready for.
• 5:16
  Speaker 8: Yeah, So I mean you're asking about market pricing, so
• 5:20
  Speaker 8: let's talk about that. So we track what is the
• 5:25
  Speaker 8: stress ratio and what is the distress ratio in the
• 5:29
  Speaker 8: bond markets, because you know, you go, you go, you
• 5:31
  Speaker 8: have the pricing for the entire universe of the index.
• 5:35
  Speaker 8: And if you look at that, the stress ratio is
• 5:37
  Speaker 8: about follow and half percent. When I say stress, it
• 5:40
  Speaker 8: is price under eighty and if you look at distress
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  Speaker 8: price under sixty, it's only four percent. So you will
• 5:49
  Speaker 8: get defaults only from those four percent basically. And if
• 5:54
  Speaker 8: you look at his historically, you know, if you look
• 5:57
  Speaker 8: at distress ratio a year before much do how many
• 6:01
  Speaker 8: of them actually default? Probably about one third, one fourth.
• 6:05
  Speaker 8: I really can't see an index default rate more than
• 6:08
  Speaker 8: one to one and a half percent here in eurobond markets,
• 6:12
  Speaker 8: bond markets, let's be very specific. It could be on
• 6:15
  Speaker 8: bank balance sheet, yes, which is why if you look
• 6:18
  Speaker 8: at the ECB, lending standards very tight. Similarly, not as
• 6:23
  Speaker 8: bad as the Fed Loan Officer Survey. The FAT Loan
• 6:26
  Speaker 8: Officer Survey is showing, you know, forty six percent of
• 6:29
  Speaker 8: all banks have tightened their standards for next quarter. The
• 6:34
  Speaker 8: Eurozone one is that around if I'm not wrong twenty
• 6:40
  Speaker 8: twenty seven. But you can also look at financial conditions. Right,
• 6:44
  Speaker 8: If you look at financial conditions in Europe, it is
• 6:47
  Speaker 8: as tight as in the Eurozone crisis, four and a
• 6:49
  Speaker 8: half standard deviations tight. The only period in entire European
• 6:54
  Speaker 8: history that things have been tighter is in the Great
• 6:56
  Speaker 8: Financial Crisis. Yes, financial conditions are thigh, but we don't
• 7:02
  Speaker 8: have enough candidates. You know, we've actually gone, We've actually
• 7:06
  Speaker 8: gone name by name, and I can only see four
• 7:09
  Speaker 8: Dodgy credits which are probably the next dominance to fall,
• 7:13
  Speaker 8: and the four of them are on for about five
• 7:14
  Speaker 8: point two billion, two big credits there.
• 7:18
  Speaker 7: And Adlath speaking of things to look ahead for in
• 7:23
  Speaker 7: about a minute here, Amelia, you know, we're looking at
• 7:26
  Speaker 7: a host of companies that are kind of on the
• 7:29
  Speaker 7: brink here. And by the way, there is a newsletter
• 7:31
  Speaker 7: that Bloomberg writes called The Brank comes out every Tuesday.
• 7:35
  Speaker 7: Keep an eye at up for it. But Emilia also
• 7:37
  Speaker 7: writes the America's Distressed Watch Today, and you can subscribe
• 7:41
  Speaker 7: to that as well. What are we looking forward to
• 7:43
  Speaker 7: that is kind of you know seetering here.
• 7:45
  Speaker 5: Yeah, you know, I think one theme that I've been
• 7:47
  Speaker 5: tracking is that a lot of the companies that did
• 7:50
  Speaker 5: kind of controversial debt deals last year or even twenty
• 7:53
  Speaker 5: twenty twenty twenty one liability management transactions, they're starting to
• 7:58
  Speaker 5: find that, you know, whether it be litigation or just
• 8:01
  Speaker 5: taking on too much debt in the era of easy
• 8:03
  Speaker 5: money is kind of like having a reckoning right now.
• 8:05
  Speaker 5: So I think that other companies that have these sorts
• 8:08
  Speaker 5: of transactions under their belt in Korra is one for instance.
• 8:12
  Speaker 5: So that's been what we've been looking for.
• 8:14
  Speaker 4: Next certainly something we're going to be keeping an eye on.
• 8:17
  Speaker 4: Amelia Hollard of our credit team. We think you as always,
• 8:20
  Speaker 4: of course, alongside Mahesh Bi Malingam, chief European credit strategist
• 8:23
  Speaker 4: with Bloomberg Intelligence.
• 8:26
  Speaker 10: You're listening to the Team Cancer Live program Bloomberg Markets
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• 8:40
  Speaker 4: There's been such a volume of news in the em
• 8:44
  Speaker 4: world today. You have Argentina, you have Turkey, you have Thailand,
• 8:48
  Speaker 4: you have South Africa. They are all moving, their currencies
• 8:51
  Speaker 4: are moving in a really big way. But I think
• 8:53
  Speaker 4: the highlight out of all of them is Turkey, and
• 8:56
  Speaker 4: I think there's I mean a presidential election going on
• 8:59
  Speaker 4: there of challenging a ruler orcus be a president who
• 9:04
  Speaker 4: has been there for almost two decades now, I think,
• 9:08
  Speaker 4: and winning at the at the moment by a really
• 9:12
  Speaker 4: tiny margin. So let's talk a little bit about how
• 9:15
  Speaker 4: that all plays out into these markets here, Nick Stad Millard,
• 9:19
  Speaker 4: Am I saying that right?
• 9:20
  Speaker 9: Doc Miller?
• 9:21
  Speaker 4: Stop, Okay, I'm gonna I'm just gonna call you Nick.
• 9:25
  Speaker 4: That works, Yeah, it does. A head of global product
• 9:28
  Speaker 4: over at Medley Advisors, talk to us about why this
• 9:31
  Speaker 4: is such a significant election. Just give our international audience
• 9:34
  Speaker 4: some context here.
• 9:36
  Speaker 11: Sure, well, as you said, President Ardowan's AKP party has
• 9:40
  Speaker 11: been in power for almost just two decades right now.
• 9:44
  Speaker 11: And you know, frankly, Ardwan just wins election after election,
• 9:48
  Speaker 11: sometimes they're a bit close, but he's been able to
• 9:51
  Speaker 11: consolidate power. He transformed the country into a presidential as system,
• 9:55
  Speaker 11: giving him as the president considerably more power under their
• 9:58
  Speaker 11: previous parliamentary system. And this is the first time that
• 10:02
  Speaker 11: the opposition was really able to put on a united front.
• 10:05
  Speaker 11: So six of the major opposition parties came together to
• 10:09
  Speaker 11: form a coalition and they got the tacit participation of
• 10:13
  Speaker 11: the pro Kurdish HDP party to bring this united push.
• 10:17
  Speaker 11: And several of the polls as recently as last week
• 10:19
  Speaker 11: we're showing that the opposition candidate Kamal Coilich Darolo could
• 10:23
  Speaker 11: win and maybe even get the fifty percent to win
• 10:25
  Speaker 11: in the first round. So Erdowan really beat expectations of
• 10:29
  Speaker 11: a lot of commentators.
• 10:31
  Speaker 4: But at the end of the day, the expectation, I mean,
• 10:33
  Speaker 4: the margin with which he's winning at the moment is
• 10:37
  Speaker 4: still quite slim, and I think the slim ist it's
• 10:39
  Speaker 4: been in well since he started kind of being president.
• 10:44
  Speaker 4: At the end of the day, where's that coming from?
• 10:46
  Speaker 9: Though?
• 10:46
  Speaker 4: Where are the concerns? How much of this is a
• 10:48
  Speaker 4: reflection of the government relief post earthquake as opposed to
• 10:52
  Speaker 4: simply a demographic change.
• 10:55
  Speaker 11: Yeah, So a couple of things. One is Aerdowan's insistent
• 10:59
  Speaker 11: on insistent on unorthodox economic policies. He has this belief
• 11:04
  Speaker 11: that inflation is caused by interest rates, rather than interest
• 11:07
  Speaker 11: rates being the cure for higher inflation. They've spent a
• 11:11
  Speaker 11: lot of money, there's been a lot of allegations of
• 11:13
  Speaker 11: misspending and corruption over the years as Airdiwan in his
• 11:16
  Speaker 11: inner circle have accumulated power. There was also a lot
• 11:20
  Speaker 11: of criticism of the government's handling of the earthquake in
• 11:24
  Speaker 11: terms of disaster relief and getting to affected citizens quickly.
• 11:28
  Speaker 11: So given all that macro backdrop, in most countries, when
• 11:32
  Speaker 11: the economy performs poorly and you have rampant inflation and
• 11:35
  Speaker 11: a plummeting currency, that's usually very bad for the incumbent.
• 11:39
  Speaker 11: So I think the fact that Aarduwan was actually able
• 11:41
  Speaker 11: to best his opponent, even if he came up short
• 11:43
  Speaker 11: of that fifty and even if it was pretty close
• 11:46
  Speaker 11: about four and a half percent, I think that shows
• 11:50
  Speaker 11: Ardiwe's mastery as a politician in Turkey and his understanding
• 11:53
  Speaker 11: of how to energize his base.
• 11:55
  Speaker 7: So now the market read through. You know, we were
• 11:58
  Speaker 7: talking just at the beginning of this segment about how
• 12:01
  Speaker 7: Turkey's not the only emerging market here where there are
• 12:03
  Speaker 7: a lot of things to watch. So how do you
• 12:06
  Speaker 7: think about what's happening in Turkey and what it means
• 12:08
  Speaker 7: for financial assets?
• 12:10
  Speaker 11: Sure, well, unfortunately Turkey has become almost uninvestable for a
• 12:15
  Speaker 11: lot of international hedge funds and asset managers. Because the
• 12:18
  Speaker 11: currency is very heavily controlled, it's not very liquid, and
• 12:22
  Speaker 11: because of various measures they have that suppress bond yields.
• 12:25
  Speaker 11: In the domestic market, that's not interesting. So the only
• 12:29
  Speaker 11: market really where foreigners are heavily participating still is in
• 12:33
  Speaker 11: the hard currency bond market. And I think if there
• 12:36
  Speaker 11: is a spillover from what's going on in Turkey into
• 12:38
  Speaker 11: the rest of the emerging market complex, it'll be there.
• 12:42
  Speaker 11: There are about sixty five or seventy billion dollars of
• 12:45
  Speaker 11: foreign holdings of these hard currency bonds. If Ardowan keeps
• 12:50
  Speaker 11: his economic policies of currency intervention depleting the central banks
• 12:54
  Speaker 11: FX reserves, there's a real risk that they could have
• 12:57
  Speaker 11: a currency or a balance of payments crisis in the
• 12:59
  Speaker 11: next year because it's just not sustainable.
• 13:01
  Speaker 7: How deep is that spillover, Is it just for Turkish
• 13:04
  Speaker 7: assets or does it spillover meaningfully into other emerging market assets.
• 13:09
  Speaker 11: Well, when you take the global context right now, which
• 13:11
  Speaker 11: is high interest rates globally, you know signs of tightening
• 13:16
  Speaker 11: credit conditions in the US and Europe, and then you
• 13:18
  Speaker 11: add a large emerging market potentially you know, defaulting or
• 13:22
  Speaker 11: at least getting into serious distress conditions. It could have
• 13:26
  Speaker 11: a serious effect because when you have one off event
• 13:30
  Speaker 11: like that, emerging markets asset managers, you know, the big
• 13:33
  Speaker 11: asset managers and players, tend to de risk their portfolios
• 13:36
  Speaker 11: a bit, which tightens credit conditions for all these other
• 13:39
  Speaker 11: emerging markets. When you have this period of high interest
• 13:42
  Speaker 11: rates in the US dollar already, that can start to reverberate.
• 13:46
  Speaker 11: I don't think it's enough to create a global EM crisis,
• 13:49
  Speaker 11: but it could certainly exacerbate some already existing tensions there well.
• 13:53
  Speaker 4: Speaking of global EM crisis, one of the I remember
• 13:56
  Speaker 4: key takeaways in last year's Spring meetings was the IMS
• 14:00
  Speaker 4: Spring Meetings was from Crystillelina Gorgeva, and she had specifically said,
• 14:04
  Speaker 4: look in terms of a credit crunch, and this is
• 14:07
  Speaker 4: before the banking turmoil and the FED tightening of it all.
• 14:10
  Speaker 4: One of the things she was concerned about was some
• 14:11
  Speaker 4: sort of sovereign debt crisis, not in the developed world,
• 14:14
  Speaker 4: but in the EM world specifically as a function of
• 14:17
  Speaker 4: kind of monetary policy. But also the massive altility you
• 14:21
  Speaker 4: saw on commodities off the back of the war in
• 14:23
  Speaker 4: Ukraine to what extent is Turkey kind of a microcosm
• 14:29
  Speaker 4: of that story. The idea here that Monterey policy and commodities,
• 14:33
  Speaker 4: as Turkey is crucial to the grain deal story. How
• 14:37
  Speaker 4: much of that is idiosyncratic to Turkey as opposed to
• 14:40
  Speaker 4: more of a function of the broader em story.
• 14:44
  Speaker 11: Well, the short answer is a little bit of both.
• 14:46
  Speaker 11: On the one hand, most of the large ems, the Brazils,
• 14:49
  Speaker 11: the Mexicos, and the South Africas, have got away from
• 14:52
  Speaker 11: what's called the original sin of emerging markets debt, which
• 14:55
  Speaker 11: is when you continually borrow in hard currency because it's
• 14:58
  Speaker 11: a lower interest rate, usually so you save on your
• 15:01
  Speaker 11: interest rate bill, but then you're subject to your currency risk. Turkey,
• 15:05
  Speaker 11: because it's suppressed lira interest rates and bond yields, really
• 15:11
  Speaker 11: all the foreign funding they get has to come pretty
• 15:13
  Speaker 11: much in hard currency format, not in lira borrowing. But
• 15:16
  Speaker 11: on the other hand, a big difference between Turkey and
• 15:19
  Speaker 11: a lot of these other countries, particularly in Sub Saharan
• 15:21
  Speaker 11: Africa that are having extreme distress and debt, is that
• 15:25
  Speaker 11: most of those countries are commodities exporters, either copper, some
• 15:29
  Speaker 11: sort of metal, or oil, whereas Turkey is actually on
• 15:33
  Speaker 11: the opposite side of that trade, So you know, it's
• 15:35
  Speaker 11: commodity prices go down, the commodity price producers get squeezed
• 15:39
  Speaker 11: and tend to have debt problems. Turkey is a major
• 15:42
  Speaker 11: oil and gas importer, so it's actually the surge in
• 15:45
  Speaker 11: oil and gas prices that we saw last year that's
• 15:47
  Speaker 11: contributing to their very heavy current account deficit.
• 15:50
  Speaker 7: Speaking of I think that this is kind of an
• 15:52
  Speaker 7: underappreciated look at markets here. We talk about currencies kind
• 15:56
  Speaker 7: of as an absolute, We look at where they're going,
• 16:00
  Speaker 7: how they're trading. But you brought up something else that
• 16:02
  Speaker 7: people seem to be watching a lot more closely than
• 16:04
  Speaker 7: in the past, which is trade flows. How much are
• 16:07
  Speaker 7: you actually watching that relative to just kind of the
• 16:10
  Speaker 7: general pricing of commodities when you're looking at the countries
• 16:13
  Speaker 7: that they're exposed to, you mean.
• 16:16
  Speaker 11: In Turkey specifically or just more.
• 16:18
  Speaker 7: General more broadly at this point.
• 16:20
  Speaker 11: Yeah, Well, one of the interesting things that we see
• 16:24
  Speaker 11: is one a lot of these emerging market economies, particularly
• 16:29
  Speaker 11: in Latin America and Sub Saharan Africa, are very heavily
• 16:32
  Speaker 11: dependent on commodities prices. But then you have a lot
• 16:36
  Speaker 11: of countries that are very heavily dependent on export growth,
• 16:40
  Speaker 11: particularly in East Asia. So you have Korea, Taiwan, Singapore, Malaysia.
• 16:46
  Speaker 11: They're all manufacturing and exporting, particularly on semiconductors, and as
• 16:51
  Speaker 11: we see growth in the US slowing down, that's really
• 16:54
  Speaker 11: starting to affect them. Mexico is another one where the
• 16:57
  Speaker 11: bulk of their export engine is manufacturing and export into
• 17:01
  Speaker 11: the US. So the old saying when the US sneezes,
• 17:04
  Speaker 11: the rest of the world catches a cold. That can
• 17:07
  Speaker 11: be true even for the emerging markets that are not
• 17:09
  Speaker 11: dependent on commodities but are still dependent on US and
• 17:12
  Speaker 11: develop market demand.
• 17:15
  Speaker 4: Nick Schott Miller, head of Global product over at Medley Advisors,
• 17:18
  Speaker 4: we thank you as always.
• 17:19
  Speaker 9: AF.
• 17:20
  Speaker 10: You're listening to the tape Cancer Live program Bloomberg Markets
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  Speaker 9: And the Bloomberg Business App.
• 17:30
  Speaker 10: You can also listen live on Amazon Alexa from our
• 17:32
  Speaker 10: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
• 17:39
  Speaker 4: This news out of Activision and Microsoft now getting EU approval.
• 17:45
  Speaker 4: The irony I think is so telling here is that
• 17:49
  Speaker 4: on the one hand, When the UK rejected this deal,
• 17:53
  Speaker 4: they said it was because of kind of obviously competitive
• 17:57
  Speaker 4: reasons around the cloud gaming space. The EU is saying, well, actually,
• 18:01
  Speaker 4: this solves a lot of the issues in the cloud
• 18:05
  Speaker 4: gaming space. So two different takes, two different regulatory bodies.
• 18:08
  Speaker 7: I am excited to see what our next guest has
• 18:10
  Speaker 7: to say about this, but before her way in about
• 18:13
  Speaker 7: the deal itself, it also sets some really interesting tones
• 18:18
  Speaker 7: on how the UK versus EU deals with corporations business policy,
• 18:23
  Speaker 7: large scale mergers.
• 18:25
  Speaker 4: And wasn't this the big issue anyway? The idea of
• 18:27
  Speaker 4: that European tech regulation was kind of the biggest risk
• 18:31
  Speaker 4: for tech when President Trump and President Biden, both who
• 18:34
  Speaker 4: have been very hard on tech, haven't exactly had been
• 18:38
  Speaker 4: as severe as their counterparts across the Atlantic. Let's get
• 18:42
  Speaker 4: a little bit more information this time from a true
• 18:45
  Speaker 4: experts onally and I over here just giving our opinions,
• 18:48
  Speaker 4: but I guarantee you our next guest really knows what
• 18:50
  Speaker 4: she's talking about. Jennifer Ree, our senior litigation analyst for
• 18:54
  Speaker 4: anti trust over at Bloomberg Intelligence. Jen thank you as
• 18:57
  Speaker 4: always for joining your thoughts on this development.
• 19:02
  Speaker 12: Well thanks for having me, you know, I think Actually
• 19:05
  Speaker 12: it's not very surprising because I think the EU the
• 19:08
  Speaker 12: Commission actually has been dropping hints for a while that
• 19:11
  Speaker 12: they made view this deal different from the UK and
• 19:14
  Speaker 12: the US, And you know, I think the thing is here,
• 19:18
  Speaker 12: you were talking about cloud gaming and the future of
• 19:20
  Speaker 12: cloud gaming, and there were differences in opinion between the
• 19:24
  Speaker 12: UK and US and the European Commission on what that
• 19:27
  Speaker 12: future is and how quickly it's going to come about.
• 19:30
  Speaker 12: And I think that it just shows that these merger
• 19:33
  Speaker 12: decisions are difficult because they are predictive, and in particular,
• 19:37
  Speaker 12: they're predictive when you're talking about you know, technology and
• 19:41
  Speaker 12: markets that move really quickly and kind of morphine change
• 19:44
  Speaker 12: very very quickly in ways that nobody's that are difficult
• 19:47
  Speaker 12: to predict. And I think it's perhaps not surprising that
• 19:51
  Speaker 12: two different regulators sort of looked at the same information
• 19:53
  Speaker 12: and came out a bit differently on that. And it's
• 19:58
  Speaker 12: really all about that, you know, where you think cloud
• 20:00
  Speaker 12: gaming is going to go and whether you think Microsoft
• 20:03
  Speaker 12: owning Activisions content is going to be able to dominate
• 20:06
  Speaker 12: that market and push out other potential cloud providers, and
• 20:11
  Speaker 12: the two commissions just saw it differently.
• 20:14
  Speaker 7: I have a bit of a dumb question here. Given
• 20:16
  Speaker 7: the size of Activism, it's Activision itself. Why does it matter, Basically,
• 20:23
  Speaker 7: if Activision is part of Microsoft or standalone. Given how
• 20:26
  Speaker 7: large Activision has been in the gaming industry, you would
• 20:30
  Speaker 7: think that you would just kind of be worried about
• 20:31
  Speaker 7: Activision's competitive dynamic as a standalone company.
• 20:36
  Speaker 12: You know, it's a really good question, and the issue
• 20:39
  Speaker 12: is that the way the markets were defined, at least
• 20:43
  Speaker 12: by the US regulator and generally by the UK, is
• 20:46
  Speaker 12: sort of more narrowly. They were looking at specific Activision
• 20:49
  Speaker 12: games and games by other companies that create content that
• 20:52
  Speaker 12: they call triple A, so it's really big budget games,
• 20:55
  Speaker 12: a lot of money and resources are put into them.
• 20:57
  Speaker 12: They're expected to be very popular, like Call of Do,
• 21:00
  Speaker 12: And when you narrow the market that way, it makes
• 21:03
  Speaker 12: Activision more important in the gaming content market than it
• 21:07
  Speaker 12: otherwise would be if you look across the spectrum of
• 21:09
  Speaker 12: all potential games that could be played on the device,
• 21:12
  Speaker 12: and they sort of saw Call of Duty as must
• 21:16
  Speaker 12: have content. And so the issue is that if Microsoft
• 21:19
  Speaker 12: has this must have content in its hands, because it's
• 21:22
  Speaker 12: also very strong in distribution, whether that's through console or
• 21:25
  Speaker 12: whether it's through the cloud or a cloud subscription service
• 21:29
  Speaker 12: that it would have this ability because people want call
• 21:32
  Speaker 12: of duty and will switch over to Microsoft, that it
• 21:35
  Speaker 12: has this ability to block out other potential cloud rivals,
• 21:39
  Speaker 12: the ones that exist today and the ones that might
• 21:41
  Speaker 12: be up and coming, and that's what the US and
• 21:43
  Speaker 12: the UK agencies are trying to prevent. So it really
• 21:47
  Speaker 12: has more to do with Microsoft's strength in the cloud.
• 21:50
  Speaker 7: So when you look at the difference in how the
• 21:53
  Speaker 7: EU VERSUS UK is handling this issue, what does this
• 21:57
  Speaker 7: mean for the deal itself?
• 22:00
  Speaker 12: You know, I actually think it really is only to
• 22:03
  Speaker 12: the extent it might be helpful. It's slight, it's incremental
• 22:06
  Speaker 12: because they still the companies still have a really high
• 22:09
  Speaker 12: standard they're going to have to meet in their appeal,
• 22:11
  Speaker 12: which as far as I can tell is they're still
• 22:14
  Speaker 12: going forward with it in the UK. For that decision,
• 22:17
  Speaker 12: I'll talk about the US in a second, because it
• 22:20
  Speaker 12: really they have to prove that what the regulator did
• 22:22
  Speaker 12: is completely and totally irrational, not just that maybe it's
• 22:26
  Speaker 12: bad judgment or somebody else would look at the same
• 22:28
  Speaker 12: facts and think differently, but that it's just way out
• 22:32
  Speaker 12: of whack, has no rationality at all, and that's a
• 22:35
  Speaker 12: really high standard to meet. And while the European Commission's
• 22:39
  Speaker 12: decision might be a factor that's considered in that, it
• 22:45
  Speaker 12: still is a really high standard to meet where you're
• 22:47
  Speaker 12: doing something that's predictive and reasonable minds could differ because
• 22:50
  Speaker 12: it is predictive and no one has a crystal ball.
• 22:53
  Speaker 12: I think in the US the companies actually have a
• 22:55
  Speaker 12: pretty good shot at prevailing in court. The standard is lower.
• 22:58
  Speaker 12: It's a little bit easier to overturn a Federal Trade
• 23:01
  Speaker 12: Commission decision in the US than it is to overturn
• 23:04
  Speaker 12: a CMA decision in the UK, and I think the
• 23:07
  Speaker 12: companies have a good shot there. So it really is
• 23:08
  Speaker 12: all about the UK here in terms of the success
• 23:11
  Speaker 12: of the deal.
• 23:13
  Speaker 4: What could change with the UK though, I mean, what
• 23:15
  Speaker 4: does this kind of timeline look like and does this
• 23:18
  Speaker 4: at all have any bearing on how the US legal
• 23:22
  Speaker 4: system approaches this deal.
• 23:25
  Speaker 12: So in the UK the timing is still unclear. There
• 23:28
  Speaker 12: was actually a hearing on last Friday in a private
• 23:32
  Speaker 12: lawsuit trying to block this deal. That happens once in
• 23:34
  Speaker 12: a while, they're not particularly impactful. I don't expect that
• 23:37
  Speaker 12: to have any impact here, But the lawyers for Microsoft
• 23:41
  Speaker 12: were asked about timing and they said, look, we're working
• 23:43
  Speaker 12: really hard right now with the UK to come up
• 23:46
  Speaker 12: with a date to argue the appeal, and we don't
• 23:49
  Speaker 12: really know what the timeline looks like yet, so that's
• 23:52
  Speaker 12: kind of still an unknown. I do understand though, it
• 23:55
  Speaker 12: can take a lot of time because an appellate tribunal
• 23:58
  Speaker 12: can say, well, we don't but instead of reversing the
• 24:01
  Speaker 12: decision or coming out with their own decision, they can
• 24:03
  Speaker 12: turn it back to the CMA, And if they turn
• 24:06
  Speaker 12: it back to the CMA, then it kind of starts
• 24:09
  Speaker 12: things over, so it could take some time. In the US.
• 24:12
  Speaker 12: Right now, they are slated to go to trial August. Second,
• 24:16
  Speaker 12: I think the timing there would probably be we should
• 24:19
  Speaker 12: expect a decision in the first quarter of twenty twenty four.
• 24:23
  Speaker 12: And as I said, I do think the companies have
• 24:25
  Speaker 12: a pretty good shot at prevailing, and that's before an
• 24:31
  Speaker 12: administrative law judge. Now, the FTC can appeal that, and
• 24:36
  Speaker 12: the immediate appeal from the administrative law judge is to
• 24:39
  Speaker 12: the commissioners themselves, who voted to sue the deal, So
• 24:43
  Speaker 12: the commissioners could then reverse the ALJ if the ALJ
• 24:46
  Speaker 12: comes out in favor of the companies, and at that
• 24:49
  Speaker 12: point the companies would have the option of appealing to
• 24:51
  Speaker 12: the federal courts. But we are talking about a pretty
• 24:54
  Speaker 12: long timeline here, well into twenty twenty four.
• 24:57
  Speaker 4: It's certainly something we're going to keep an eye on
• 24:59
  Speaker 4: and come back to you, Jennifer Ree, for your annalysis.
• 25:02
  Speaker 4: We think you has always seen your litigation analysts and
• 25:04
  Speaker 4: over antitrust over at Bloomberg Intelligence.
• 25:08
  Speaker 9: You're listening to the team.
• 25:10
  Speaker 10: Can's a live program Bloomberg Markets weekdays at ten am
• 25:13
  Speaker 10: Eastern on Bloomberg dot com, the iHeartRadio app and the
• 25:17
  Speaker 10: Bloomberg Business app, or listen on demand wherever you get
• 25:20
  Speaker 10: your podcasts.
• 25:23
  Speaker 4: Today has been a really exciting day for the markets.
• 25:25
  Speaker 4: Maybe not on the macro front, but on the micro
• 25:26
  Speaker 4: front for sure. Because Jen, it is merger Monday. You
• 25:30
  Speaker 4: are starting to see some of those deals come out,
• 25:32
  Speaker 4: specifically in the commodity space, thirty eight billion dollars worth
• 25:36
  Speaker 4: both about nineteen billion each. We've got one Oak acquiring
• 25:40
  Speaker 4: Magellan Midstream Partners, which are not exactly household names, but
• 25:45
  Speaker 4: it's a really big deal for a commodity's nerd like
• 25:47
  Speaker 4: me who really keeps eye of those pipelines like this
• 25:50
  Speaker 4: is these are the pipelines. These are two companies that
• 25:52
  Speaker 4: make pipelines that transport natural gas. And in the war,
• 25:56
  Speaker 4: in the aftermath of the war in Ukraine, the US
• 25:59
  Speaker 4: is exporting a lot of natural gas too, likes of
• 26:01
  Speaker 4: Europe to Asia, et cetera. So this is a really
• 26:04
  Speaker 4: interesting combo because it would now make them compete with
• 26:07
  Speaker 4: kind of the big guys in natural gas. The other
• 26:09
  Speaker 4: one numont a gold name acquiring New Crest Mining again
• 26:13
  Speaker 4: another nineteen billion dollar deal.
• 26:16
  Speaker 6: So lots of action, lots of action, and we have
• 26:18
  Speaker 6: lots of questions for the guests that are coming up.
• 26:21
  Speaker 4: Oh a ton, and we actually have a perfect, perfect
• 26:24
  Speaker 4: roundtable here to join. Let's start with Bloomberg Intelligence's equity
• 26:28
  Speaker 4: research analyst Talent Custer. He's starting to us to talk
• 26:31
  Speaker 4: about the one Oak deal, and you know we're going
• 26:33
  Speaker 4: to merge into that story a Jacob Loring, North American
• 26:36
  Speaker 4: mining reporter for Bloomberg News as well. Look, these are
• 26:39
  Speaker 4: two of our finests. They're going to talk to us
• 26:41
  Speaker 4: about this commodity space. Talent, I want to start with
• 26:43
  Speaker 4: you on this one Oak deal. I don't particularly follow
• 26:47
  Speaker 4: the pipeline space often, but when I read the reporting
• 26:50
  Speaker 4: on this that this was going to help them compete
• 26:52
  Speaker 4: with the likes of Williams or Kinder Morgan, it really
• 26:55
  Speaker 4: piqued my interest. How big of a deal is this?
• 26:57
  Speaker 4: Put this into perspective for our audience.
• 27:00
  Speaker 13: It is a big deal. It was surprising. I don't
• 27:02
  Speaker 13: know if it in terms of you know, scope and scale,
• 27:06
  Speaker 13: it makes them bigger, but in terms of natural gas
• 27:09
  Speaker 13: it doesn't really do that because one Oak focused on
• 27:12
  Speaker 13: natural gas and Engl's Magellan focuses on crude oil and
• 27:16
  Speaker 13: refined products, you know, like diesel and gasoline. So it
• 27:21
  Speaker 13: wasn't It's an odd fit. I caught me off card
• 27:24
  Speaker 13: I thought, you know, one Oak could be in the
• 27:27
  Speaker 13: business to make an acquisition, but I was thinking more
• 27:30
  Speaker 13: a gas or ngl asset primarily focused in Texas or Oklahoma.
• 27:36
  Speaker 6: But I guess is this forgive my ignorance here, but
• 27:38
  Speaker 6: is this basically at the bottom of it an electrification play.
• 27:42
  Speaker 6: So we've got that's the move that the world is
• 27:45
  Speaker 6: sort of heading towards, and so it makes a lot
• 27:47
  Speaker 6: of sense for anyone who's got pipes doing anything to
• 27:50
  Speaker 6: kind of join forces.
• 27:53
  Speaker 13: I don't necessarily think it's it's that an electrification play.
• 27:57
  Speaker 13: I think that, you know, it can help them, you know,
• 28:00
  Speaker 13: it gives them another avenue maybe getting into renewable diesel,
• 28:04
  Speaker 13: renewable natural, renewable gasoline, sustainable jet fuel, things like that.
• 28:10
  Speaker 13: It can help them. It provides more infrastructure and assets
• 28:14
  Speaker 13: to maybe move in that direction. But I don't think
• 28:15
  Speaker 13: that's that's what this is. I think, you know, one
• 28:19
  Speaker 13: Oak is focused in the Bachan, which is a mature play.
• 28:22
  Speaker 13: It's not as prolific as the Permian, for example, It's
• 28:27
  Speaker 13: further away from hubs. So you know, they were looking
• 28:29
  Speaker 13: at at, you know, a low growth in the longer term,
• 28:33
  Speaker 13: and Magellan itself was looking at a longer term given
• 28:36
  Speaker 13: the business that they're in. But because of the regulatory backdrop,
• 28:42
  Speaker 13: you know, we've seen acquisitions over the past couple of years.
• 28:44
  Speaker 13: This is a way to grow, you know, inorganically.
• 28:49
  Speaker 4: All right, Jacob, your turn to shine here. Let's talk
• 28:52
  Speaker 4: about this other deal. Nineteen billion dollars Numont acquiring New Crest.
• 28:57
  Speaker 4: This is a really big deal. The last time I
• 28:58
  Speaker 4: think there was a the acquisition of this kind was
• 29:01
  Speaker 4: back in twenty nineteen when Newmont took over gold Core.
• 29:05
  Speaker 4: What's the appeal here? What does Newcrest have that Numont wants?
• 29:09
  Speaker 2: Well, I mean, it's trunks as a gold deal, but
• 29:13
  Speaker 2: if you sort of read between the lines, it's there's
• 29:15
  Speaker 2: part of it that also reads like a copper deal.
• 29:18
  Speaker 2: Newcrest has access to a whole bunch of copper, which
• 29:20
  Speaker 2: obviously is very highly coveted. Right now. There's a looming
• 29:23
  Speaker 2: shortage of copper, and you know, as the world tries
• 29:26
  Speaker 2: to sort of, you know, transition to a more to
• 29:28
  Speaker 2: a greener edge, you know, there's more demand, especially amongst
• 29:32
  Speaker 2: mining companies for copper, and so we're starting to see
• 29:34
  Speaker 2: some gold companies kind of make a bit of a
• 29:36
  Speaker 2: foray into that area. And that's kind of what's happening here.
• 29:40
  Speaker 2: I mean, there are several reasons that Numont has outlined
• 29:43
  Speaker 2: for this deal, but one of the big ones that
• 29:45
  Speaker 2: sort of strikes me is the fact that Newcrest, amongst
• 29:49
  Speaker 2: the gold miners, has a fair amount of copper and
• 29:52
  Speaker 2: the minds and fairly early stages of their life. And
• 29:55
  Speaker 2: I think Numont's making a bit of a play here
• 29:57
  Speaker 2: to say, you know, we're not just a gold company.
• 29:59
  Speaker 2: We're all, you know, trying to be part of a
• 30:02
  Speaker 2: you know, a bit of a false appeal transition, and
• 30:05
  Speaker 2: so we're you know, we're looking for copper too.
• 30:08
  Speaker 6: But I guess Numont is nevertheless a gold company, And
• 30:11
  Speaker 6: I wonder what your take is on the prospects for
• 30:13
  Speaker 6: regulatory approval of this, because you've got a gold joint
• 30:16
  Speaker 6: that's going to get even bigger.
• 30:19
  Speaker 2: Yeah, I mean, I think for them, it seems like
• 30:21
  Speaker 2: it should be fairly straight forward. You generally have seen
• 30:24
  Speaker 2: these gold deals go through and it's not clear that
• 30:28
  Speaker 2: there is sort of anyone else who's going to try
• 30:30
  Speaker 2: to make a move for it. I mean, it'll take
• 30:32
  Speaker 2: some time based as they expect that the deal will
• 30:34
  Speaker 2: close by by the fourth quarter of this year, so
• 30:38
  Speaker 2: they have to get regulatory approval I think in Australia, Canada, Papa,
• 30:41
  Speaker 2: New Guinea, possibly another place. So it takes a bit
• 30:44
  Speaker 2: of work. But there's nothing to suggest at this point
• 30:47
  Speaker 2: that there's you know, there's something that's going to get
• 30:49
  Speaker 2: in this way.
• 30:51
  Speaker 4: So tell let's let's bring you back in here and
• 30:54
  Speaker 4: talk just about kind of the sixty thousand foot view.
• 30:57
  Speaker 4: When I think M and A I think that, look,
• 31:01
  Speaker 4: this is either a good like an expansionary thing. It
• 31:04
  Speaker 4: usually happens at the beginning of expansionary cycles because a
• 31:06
  Speaker 4: lot of people are sitting on either cash or or
• 31:10
  Speaker 4: looking to kind of invest further. Or it is a
• 31:13
  Speaker 4: recessionary take in that you know, these companies are squeezed
• 31:16
  Speaker 4: for cash and need to consolidate. Which one is this.
• 31:22
  Speaker 1: It?
• 31:23
  Speaker 13: You know, it might be a mix of both. You know,
• 31:25
  Speaker 13: what I was getting at earlier is that with midstream,
• 31:28
  Speaker 13: it's you know, it's interesting in that, you know, the
• 31:32
  Speaker 13: regulatory backdrop is is so challenging. It's tough to build infrastructure.
• 31:35
  Speaker 13: It's tough for these companies to grow, to sention new
• 31:39
  Speaker 13: projects and expand their asset based. So one of the
• 31:42
  Speaker 13: ways that they've been doing it is via acquisitions. Most
• 31:48
  Speaker 13: of what we've seen is you know, bolt on acquisitions,
• 31:51
  Speaker 13: smaller ones to you know, reinforce their their strengths. Obviously,
• 31:56
  Speaker 13: there's been a couple corporate you know, larger corporate deals,
• 32:00
  Speaker 13: but this one was a surprise. I think more of
• 32:02
  Speaker 13: an outlier. I don't necessarily think we're going to see
• 32:05
  Speaker 13: a wave of extremely large combinations like this, but I
• 32:10
  Speaker 13: do expect to continue seeing M and A because it's
• 32:13
  Speaker 13: just a it's a solid strategy for some of these
• 32:15
  Speaker 13: companies to grow and cut COFs.
• 32:19
  Speaker 6: What do you think of the terms of this deal?
• 32:21
  Speaker 6: Do you have a sense that there might be a
• 32:22
  Speaker 6: bit of overpaying in this.
• 32:26
  Speaker 13: I did. The premium was steep. There's tax implications because
• 32:29
  Speaker 13: of the MLP structure of Magellan and the way they negotiated.
• 32:35
  Speaker 13: I get the impression that they wanted to make sure
• 32:37
  Speaker 13: that there was a big enough premium to cover that.
• 32:39
  Speaker 13: But you know, it was at twenty two percent premium
• 32:42
  Speaker 13: over what Magellan's unit price was trading at. So I
• 32:44
  Speaker 13: think the premium was you know, the price was relatively steep.
• 32:49
  Speaker 4: So that is the story on the One Oaks deal, Jacob,
• 32:52
  Speaker 4: I want to give you the last word here. When
• 32:55
  Speaker 4: you're looking at kind of metals coverage and the metals
• 32:58
  Speaker 4: deals the metal framework, what's interesting to me is the
• 33:01
  Speaker 4: timing of this Newmont deal. Specifically we covered One Oak
• 33:05
  Speaker 4: just with Talent. With the Newmont deal, it's happening with
• 33:08
  Speaker 4: gold prices at near record highs. How do you square that.
• 33:15
  Speaker 2: We're seeing there there's more investor interest in gold right
• 33:18
  Speaker 2: now for all the obvious economic reasons at the same time.
• 33:21
  Speaker 2: You know, Neumont has been looking at new Crest for
• 33:24
  Speaker 2: quite a while. I think they launched this deal in Seguary.
• 33:29
  Speaker 2: But Newcrest has always been sort of number one on
• 33:32
  Speaker 2: their corporate development team's list, as you know, the companies
• 33:36
  Speaker 2: they wanted to fold into there there and we had
• 33:38
  Speaker 2: heard from our reporting that they previously looked at companies
• 33:41
  Speaker 2: like Kinross, but for a while this has been the
• 33:43
  Speaker 2: top one on their wish list. And I mean the
• 33:45
  Speaker 2: catalysts really, you know, separate from the gold price is
• 33:48
  Speaker 2: the fact that you know, last November decemberish, the CEO
• 33:51
  Speaker 2: of New Crest resigned somewhat unexpectedly, and Newmont finally saw
• 33:57
  Speaker 2: this opening to sort of swoop in and they figured,
• 33:59
  Speaker 2: you know, in that sense, you know, it was the
• 34:02
  Speaker 2: right time. So you know, then we saw it changes
• 34:04
  Speaker 2: with the gold price and which we've add sort of
• 34:07
  Speaker 2: any interesting sort of wrinkle to this. But you know
• 34:09
  Speaker 2: that said, I think it's actually pretty unrelated.
• 34:13
  Speaker 4: Well, Jacob Lorink of Bloomberg News and Talent Custer, can
• 34:17
  Speaker 4: we research analyst over at Bloomberg Intelligence, We thank you
• 34:19
  Speaker 4: as always. Of course, as we speak, we'll look at
• 34:21
  Speaker 4: the one Oak share price down about nine percent. Pretty
• 34:25
  Speaker 4: natural arbitrage that you see with any kind of acquirer
• 34:29
  Speaker 4: and deal. We'll see how the investors respond to it
• 34:32
  Speaker 4: when we start to get more information from those shareholders.
• 34:34
  Speaker 4: And of course we are looking at Numont as well.
• 34:37
  Speaker 4: ANYM is the ticker there, those shares hire by one
• 34:39
  Speaker 4: and a half percent.
• 34:41
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• 34:44
  Speaker 10: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
• 34:48
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• 34:50
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• 34:51
  Speaker 10: You can also listen live on Amazon Alexa from our
• 34:54
  Speaker 10: flagship New York station. Just say Alexa play Bloomberg eleven thirty, Jennifer.
• 35:00
  Speaker 14: If you know this.
• 35:01
  Speaker 4: Bailey and I sit next to each other back on
• 35:03
  Speaker 4: the stocks team, back in the back in our intern
• 35:05
  Speaker 4: my intern days, Bailey was a.
• 35:07
  Speaker 6: Full fledged adult, but like oh times, it really was.
• 35:11
  Speaker 1: Yeah.
• 35:11
  Speaker 4: I've been very lucky with with my my desk neighbors
• 35:15
  Speaker 4: at Bloomberg. They've they've treated me treated me well. So
• 35:19
  Speaker 4: for that, I'm gonna trade one desk neighbor to another.
• 35:22
  Speaker 4: Bailey Lipshoalz. We thank you, as always for your market
• 35:24
  Speaker 4: to reports. Like I said, as promised, my second dest neighbor,
• 35:28
  Speaker 4: John authurs Uh, the star of Bloomberg opinion. Every once
• 35:33
  Speaker 4: in a while he crazes us with his presence.
• 35:35
  Speaker 1: Thank you, I have seeing you in ages. Thank you.
• 35:37
  Speaker 1: That is saying this really isn't good enough. I need
• 35:41
  Speaker 1: to introduce myself as a geriatric gen X who catches
• 35:45
  Speaker 1: up with TikTok when his kids showed them their TikTok.
• 35:50
  Speaker 1: You know what, that's another that's another stage on the
• 35:52
  Speaker 1: evolutionary At least.
• 35:54
  Speaker 4: You're staying up to date in some way, right. I mean,
• 35:56
  Speaker 4: some people don't even know what TikTok is.
• 35:58
  Speaker 6: I mean I depend on my niece for all of
• 36:00
  Speaker 6: these things.
• 36:00
  Speaker 1: There you go.
• 36:01
  Speaker 4: You got to get your information where you can, and the.
• 36:04
  Speaker 1: Chinese government depends on TikTok to know what my kids
• 36:07
  Speaker 1: are getting up to with their social plans. There's probably
• 36:09
  Speaker 1: somebody there who knows more about their hopes of dating
• 36:14
  Speaker 1: or whatever than I do. But actually there's probably quite
• 36:16
  Speaker 1: a lot of people who know more about their dating
• 36:18
  Speaker 1: aspirations than I do. Anyway, this is probably not what
• 36:20
  Speaker 1: you want to say.
• 36:21
  Speaker 4: That's not but you know what, always excited to hear
• 36:23
  Speaker 4: your thoughts on that subject, but I do want to
• 36:25
  Speaker 4: hear about the debt ceiling first though, because look, we've
• 36:28
  Speaker 4: been talking about this for what it's been going on
• 36:30
  Speaker 4: for like a month now, and it feels like we
• 36:32
  Speaker 4: are kind of getting closer and closer to this X
• 36:35
  Speaker 4: date in early June, and yet here we are with
• 36:38
  Speaker 4: the market is not doing a whole lot. First it was,
• 36:40
  Speaker 4: you know, let's panic, let's buy defensives, let's hop at
• 36:43
  Speaker 4: the dollar and treasuries and all that jazz.
• 36:46
  Speaker 14: What happened?
• 36:47
  Speaker 1: It's it's very difficult to tell. If you look at
• 36:50
  Speaker 1: the markets that are absolutely most directly affected, they have
• 36:54
  Speaker 1: actually been more affected than in previous debt seeing incidents.
• 36:58
  Speaker 1: So if you look at T bills that come due
• 37:02
  Speaker 1: before and after when people currently expect the X state
• 37:06
  Speaker 1: to be, the gap between them is very wide indeed now,
• 37:10
  Speaker 1: and to an extent that we didn't see during the
• 37:12
  Speaker 1: first really big fight over this, which is twenty eleven.
• 37:17
  Speaker 1: I think a lot of people have simply done the
• 37:21
  Speaker 1: game theory and said, this is a chicken game. Somebody
• 37:26
  Speaker 1: always swerves, We're not actually going to get a default.
• 37:31
  Speaker 1: I think they're probably well, I would bet a lot
• 37:35
  Speaker 1: that that's ultimately correct. But it's very strange that the
• 37:42
  Speaker 1: stock market has been impacted as little as it has,
• 37:46
  Speaker 1: given the fact that those who are most interested in
• 37:49
  Speaker 1: this do care, and given that the political risks I think,
• 37:54
  Speaker 1: particularly after President Trump in the CNN town hall last
• 37:57
  Speaker 1: week basically did he sort of give House Republicans permission
• 38:02
  Speaker 1: to press ahead. He almost made it politically difficult for
• 38:05
  Speaker 1: them not to. And that really does mean that the
• 38:10
  Speaker 1: chances of brinkmanship going too far on political level certainly
• 38:15
  Speaker 1: looks stronger now than they did even in twenty eleven.
• 38:17
  Speaker 1: This is not the tea Party. This is something different.
• 38:21
  Speaker 6: I mean, would you take this as almost a litmus
• 38:24
  Speaker 6: test of Trump's influence in the Congress.
• 38:32
  Speaker 1: That's an interesting way to look at it. Yes, I
• 38:34
  Speaker 1: think it probably is at this point because he's made
• 38:39
  Speaker 1: his position as security cats where us on abortion one
• 38:44
  Speaker 1: wouldn't be so clear. Given he's got very good, very strong,
• 38:51
  Speaker 1: feral political instinct. It surprises me a little that he's
• 38:54
  Speaker 1: as confident that Republicans can avoid political blame for a default,
• 39:01
  Speaker 1: given that the previous it goes back to New Gingrich
• 39:04
  Speaker 1: and try to shut down the governments against Clinton I mean,
• 39:07
  Speaker 1: every time some variation on this theme has happened, the
• 39:11
  Speaker 1: Republicans have lost politically without exception. So it surprises me
• 39:17
  Speaker 1: he's as confident as he is that this is a
• 39:21
  Speaker 1: winning issue for the Republicans while obviously being nervous that
• 39:26
  Speaker 1: the balance on abortion has now switched quite dangerously away
• 39:29
  Speaker 1: from the Republicans. I don't really We now know that
• 39:32
  Speaker 1: he's got much better political judgment, political antenning than I
• 39:35
  Speaker 1: have or the most of us have. But that's a
• 39:38
  Speaker 1: surprising judgment. I do not think the Republicans want to
• 39:42
  Speaker 1: go to the country after a default. It's just not good.
• 39:46
  Speaker 14: Does the idea of a default though?
• 39:47
  Speaker 4: I mean, look, even if we do get an agreement
• 39:49
  Speaker 4: at the end of the day, still from what I understand,
• 39:51
  Speaker 4: kicking the can down the road to just March of
• 39:53
  Speaker 4: next year. I think the deputy director of the National
• 39:55
  Speaker 4: Economic Council had said, Look, this is not a long
• 39:59
  Speaker 4: term solution, John, What does a long term solution look like.
• 40:02
  Speaker 1: I think a long term solution would involve two things.
• 40:06
  Speaker 1: One is actually going away with the debt limit in
• 40:09
  Speaker 1: some way. This is not the way it was meant
• 40:11
  Speaker 1: to work. The arguments being made about the fourteenth Amendment.
• 40:15
  Speaker 1: You know that you can't the nation cannot renee on
• 40:18
  Speaker 1: debts that it's taken out do seem to me there
• 40:23
  Speaker 1: is at least a sensible case that the debt sealing
• 40:25
  Speaker 1: runs counter to that, So you need to come up
• 40:28
  Speaker 1: with some grand settlements to do away with that. And
• 40:32
  Speaker 1: then I think, again delving back into political and financial history,
• 40:38
  Speaker 1: in the nineteen eighties, you had the Graham Rudman automatic
• 40:42
  Speaker 1: budget stabilizers, which didn't last all that long and weren't
• 40:46
  Speaker 1: necessarily terribly effective. But the idea that once a budget,
• 40:52
  Speaker 1: once the deficit goes beyond a certain level, a certain
• 40:56
  Speaker 1: degree of cuts becomes mandatory and you tie the hands
• 41:02
  Speaker 1: of the negotiators, and some variation on that probably is needed,
• 41:12
  Speaker 1: and depending on exactly how the mechanics of it work out,
• 41:17
  Speaker 1: that that might be a workable way. You just need
• 41:21
  Speaker 1: to look at what's been happening in France in the
• 41:22
  Speaker 1: last few weeks. You know, Attacking entitlements, which means paying
• 41:28
  Speaker 1: people less in their pension than they have saved up
• 41:31
  Speaker 1: for and been till they're going to get, is not
• 41:34
  Speaker 1: something you want to do.
• 41:36
  Speaker 6: But I guess I take your point on what needs
• 41:39
  Speaker 6: to happen in order for us to get out of
• 41:41
  Speaker 6: this sort of endless cankicking situation. But that will require,
• 41:46
  Speaker 6: in my assessment, an enormous amount of bipartisan.
• 41:50
  Speaker 1: Political will which doesn't exist.
• 41:51
  Speaker 6: Which does not exist. So we have lots of cans
• 41:54
  Speaker 6: ahead of us down many roads for many years to come.
• 41:56
  Speaker 1: Yeah, And Graham Rudman was indeed often referred to as
• 41:59
  Speaker 1: Gramm rud and Hollings because the two Republican senators did
• 42:03
  Speaker 1: have a democratic seenmeter Rix Hollings to go along with them. Yes,
• 42:06
  Speaker 1: and the idea of you know, I don't know a
• 42:10
  Speaker 1: Cruz Wholly, I don't know which democratic semeter. Can you
• 42:15
  Speaker 1: imagine putting their name on onto something with those two,
• 42:19
  Speaker 1: it is a little hard to imagine.
• 42:21
  Speaker 4: The mind bargles, what does this contingency plan look like? John,
• 42:24
  Speaker 4: What happens if we hit that debt ceiling? What is
• 42:26
  Speaker 4: kind of the doomsday scenario?
• 42:30
  Speaker 1: Well, the doomsday scenarios that we really do default and
• 42:35
  Speaker 1: if that happens, then things get very interesting indeed, in
• 42:39
  Speaker 1: global in global markets, because arguably one of the greatest
• 42:44
  Speaker 1: issues of the last fifteen twenty years has been the
• 42:49
  Speaker 1: lack the reducing supply of risk free assets. Okay, no, actress,
• 42:56
  Speaker 1: it is truly risk free, but for the purposes of
• 42:59
  Speaker 1: financial argument, financial calculations. Some are you know, Fanny Maine,
• 43:03
  Speaker 1: Freddie macare no longer in their peripheral. Eurozone debt is
• 43:07
  Speaker 1: no longer in there. There are barely any triple A
• 43:09
  Speaker 1: corporates anymore, even if you manage to resolve it fairly quickly.
• 43:15
  Speaker 1: The shock, the crisis level shock of a default, followed
• 43:21
  Speaker 1: by the adjustment that would be required now that everybody
• 43:24
  Speaker 1: knows that not even treasuries are risk free. I I
• 43:31
  Speaker 1: do not know exactly what would happen. What I do
• 43:34
  Speaker 1: know is that I don't want to find out.
• 43:36
  Speaker 4: For her, a doomsday scenario for sure is the saving
• 43:41
  Speaker 4: grace and all of this the dollar It could be
• 43:46
  Speaker 4: Oh my gosh, John Arthur's and the dollar.
• 43:51
  Speaker 1: And the dollar smile, Yes, this is this is crit
• 43:54
  Speaker 1: learned an awful lot about the Bretton Woods Agreement during
• 43:57
  Speaker 1: her those long years spent having to sit next to
• 44:01
  Speaker 1: next to me at the desk.
• 44:03
  Speaker 4: It's true some people are told, you know, fun stories
• 44:06
  Speaker 4: about their families or whatever. John Author's told me about
• 44:08
  Speaker 4: Breton what's that case.
• 44:11
  Speaker 1: John Mayni Okay, So it's possible as it stands at
• 44:18
  Speaker 1: the moment, what happened in twenty eleven was one of
• 44:21
  Speaker 1: the great counter intuitive market responses of all time, which
• 44:25
  Speaker 1: was in response to the debt scening having been as
• 44:31
  Speaker 1: problematic as it was. You know that for a few
• 44:34
  Speaker 1: hours they didn't manage to doing in the middle of
• 44:36
  Speaker 1: the night, they didn't manage to raise the scening and
• 44:39
  Speaker 1: so on. People were terrified and they ran for the
• 44:43
  Speaker 1: shelter of treasuries. And you seem conceivably to be having
• 44:50
  Speaker 1: something similar at the moment that people that the dollar
• 44:53
  Speaker 1: has actually ticked up again quite noticeably in the last
• 44:57
  Speaker 1: week or two. Nothing you could have your hats on
• 45:00
  Speaker 1: too much just yet, but it's possible that people will
• 45:04
  Speaker 1: still even if this probably is the US regard the
• 45:08
  Speaker 1: US and the dollar as this as the shelter.
• 45:11
  Speaker 4: Well, certainly a bit that has been coming through in
• 45:13
  Speaker 4: the last few weeks. Twelve twenty eight on the Bloomberg
• 45:14
  Speaker 4: Dollar inn Nex one oh two on d XY, folks,
• 45:18
  Speaker 4: we are going to be covering that head to toe.
• 45:20
  Speaker 4: John Author's over at Bloomberg Opinion. We thank you as always.
• 45:24
  Speaker 10: You're listening to the tape. Catch our live program Bloomberg
• 45:27
  Speaker 10: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 45:30
  Speaker 10: tune in app, Bloomberg dot Com, and.
• 45:32
  Speaker 9: The Bloomberg Business App.
• 45:34
  Speaker 10: You can also listen live on Amazon Alexa from our
• 45:36
  Speaker 10: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
• 45:43
  Speaker 4: Well, let's bring in a true expert, Jennifer Lee, Managing
• 45:46
  Speaker 4: Director and senior economist over at BMO Capital Market and
• 45:49
  Speaker 4: a true friend to the show. Jennifer, the same concept,
• 45:54
  Speaker 4: your thoughts on the same concept here, but let's connect
• 45:56
  Speaker 4: the dots to what extent is this debt ceiling debate
• 46:00
  Speaker 4: and the changes being made to address it inflationary?
• 46:05
  Speaker 14: Well, hither, thank you very much for having me on
• 46:07
  Speaker 14: the show today. You know what it.
• 46:10
  Speaker 15: I don't I have to question, you know, how much
• 46:12
  Speaker 15: more spending do we need?
• 46:14
  Speaker 14: You know?
• 46:14
  Speaker 15: And just hearing your previous guest, it's kind of, you know,
• 46:16
  Speaker 15: his comments on the debt ceiling and what could happen
• 46:19
  Speaker 15: if they do default. You know, it's kind of freaking
• 46:21
  Speaker 15: me out a little bit, you know, And and and
• 46:23
  Speaker 15: and truly, I mean, we already have a strong, still
• 46:26
  Speaker 15: moving an economy that's still growing inflation that's already inflationary.
• 46:31
  Speaker 15: So you know, we need to start tailoring back all
• 46:34
  Speaker 15: this all this spending right now before it's too late.
• 46:39
  Speaker 15: So that's I think that those are the two the
• 46:41
  Speaker 15: to the points here. I mean, it's not as if
• 46:43
  Speaker 15: we are struggling with very low inflation and we need to,
• 46:46
  Speaker 15: you know, to spice things up a little bit. Things
• 46:48
  Speaker 15: are already quite spiced up enough, and I think we
• 46:50
  Speaker 15: need to just start tailing back that spending.
• 46:52
  Speaker 6: I guess if you're a central banker, though, you're in
• 46:55
  Speaker 6: such a tight situation because on the one hand, you've
• 46:57
  Speaker 6: got this persistent inflation pressure, but you've got some cracks
• 47:01
  Speaker 6: in the labor market and the economic slowdown. I mean,
• 47:04
  Speaker 6: how can a central bank manage this ifout having to
• 47:08
  Speaker 6: make a move in rates?
• 47:10
  Speaker 15: I guess with with kid gloves really. I mean, like,
• 47:12
  Speaker 15: I think, at the end of the day, we have
• 47:13
  Speaker 15: to hopefully assume that that someone's gonna pull back and
• 47:16
  Speaker 15: that cooler heads will prevail and you know, we won't
• 47:19
  Speaker 15: see the US default. But in the meantime, you know,
• 47:22
  Speaker 15: central bankers, you know, globe not only only for the FED,
• 47:24
  Speaker 15: but around the world, everyone has to sort of keep
• 47:27
  Speaker 15: their eye on that inflation, theary ball, and that's what
• 47:28
  Speaker 15: everyone is doing these days. You know, we're all getting
• 47:31
  Speaker 15: back towards that our most countries are heading back toward
• 47:34
  Speaker 15: that two percent target, some faster than others, but you know,
• 47:37
  Speaker 15: so everyone is sort of employing different ways of getting
• 47:39
  Speaker 15: getting to that point.
• 47:41
  Speaker 14: You know, over the past few weeks, we've had, you know.
• 47:43
  Speaker 15: The Federal Reserve of hinting at a pause, not exactly
• 47:45
  Speaker 15: coming out and saying that they're that they're done, but
• 47:47
  Speaker 15: certainly hinting at it. The Baker Canada has paused for
• 47:50
  Speaker 15: a couple months in a row. The RBA teased with
• 47:52
  Speaker 15: one pause and went back raising rates again. ECB is
• 47:56
  Speaker 15: still going a whole hog on the on the rate
• 47:57
  Speaker 15: hike front, and so is the Bank of England, and
• 47:59
  Speaker 15: that's because they need to bring inflation back down to
• 48:02
  Speaker 15: two percent. You know, come sorry to say this, but
• 48:05
  Speaker 15: come hell or high water, they've got they've got to do.
• 48:07
  Speaker 15: They've got a job to do, and this is what
• 48:08
  Speaker 15: they're trying to do.
• 48:09
  Speaker 6: Is the difference in between Europe and the US, one
• 48:12
  Speaker 6: of concerned about high inflation rates getting entrenched with higher
• 48:16
  Speaker 6: wage bargaining deals.
• 48:18
  Speaker 14: Yes, for sure.
• 48:19
  Speaker 15: So that's uh, you know, we're not seeing as much
• 48:20
  Speaker 15: of a wage price spiral here in the US, but
• 48:22
  Speaker 15: in Europe, you know, there is that potential for some
• 48:25
  Speaker 15: even though the central bankers have said that that's they're
• 48:27
  Speaker 15: not seeing too much of it. But we see that
• 48:29
  Speaker 15: with in terms of like the strikes, I mean, we
• 48:31
  Speaker 15: already know that the labor market is super tight, and
• 48:34
  Speaker 15: the workers know that, and you know, some of them
• 48:36
  Speaker 15: have gone for years without you know, a new contract.
• 48:38
  Speaker 15: So this is the prime opportunity to you know, to
• 48:41
  Speaker 15: make their voices heard and to get what they want.
• 48:43
  Speaker 15: And we're starting to see the strikes you know, playing
• 48:45
  Speaker 15: out across across much of Europe. And now with the
• 48:48
  Speaker 15: summer approaching tourist season, you know, you don't want, you know,
• 48:51
  Speaker 15: want the to see all the strikes happening again at
• 48:53
  Speaker 15: the at the airports like we did last year. So
• 48:56
  Speaker 15: that is you know, that's part of the whole narrative
• 48:59
  Speaker 15: as well.
• 49:00
  Speaker 4: When you're comparing the likes of the US versus say
• 49:04
  Speaker 4: the ECB or even the Bank of Canada, the Bank
• 49:07
  Speaker 4: of England, et cetera, it feels like, whereas the US
• 49:11
  Speaker 4: is approaching the end of their tightening cycle, the easy
• 49:16
  Speaker 4: BE and definitely the BO. We say, look, we still
• 49:18
  Speaker 4: have a little bit more work to do. To what
• 49:21
  Speaker 4: extent is those or are those diverging paths I'm trying
• 49:25
  Speaker 4: to find the right grammar here are those diverging paths
• 49:28
  Speaker 4: a problem?
• 49:31
  Speaker 14: A problem in terms of maybe for the currency.
• 49:33
  Speaker 15: I guess if the if the ECB continues to raise rates,
• 49:36
  Speaker 15: and so is the Bank of England, if that could
• 49:38
  Speaker 15: lift or strengthen their currency somewhat, and also that would
• 49:41
  Speaker 15: also help inflation, that would help the inflation story. But
• 49:44
  Speaker 15: the Bank of England is certainly one with you know,
• 49:46
  Speaker 15: quite you know, quite a problem right now because they
• 49:49
  Speaker 15: still have you know, over ten percent headline inflation and
• 49:54
  Speaker 15: they barely started turning the corner even with energy prices down,
• 49:57
  Speaker 15: whereas everyone else has has turned the corner and it's
• 49:59
  Speaker 15: heading back. So again, the easy B is still facing
• 50:02
  Speaker 15: record high, record high or close to record high core CPI,
• 50:07
  Speaker 15: and every single almost every single central banker or governing
• 50:11
  Speaker 15: council member has been even more hawkish than the other.
• 50:14
  Speaker 15: It seems, you know, some we have been producing in
• 50:17
  Speaker 15: a junior hike in July hike and a couple of
• 50:20
  Speaker 15: them have started hinting out a September hike, which is
• 50:22
  Speaker 15: like so far in the yonder. I think it's too
• 50:25
  Speaker 15: early to talk about that, but the is shuws sort
• 50:28
  Speaker 15: of like that mindset that they are ready to do
• 50:29
  Speaker 15: what it takes and willing to do what it takes
• 50:31
  Speaker 15: to get inflation back down to two percent.
• 50:33
  Speaker 6: Because one thing I wonder though, is I mean, I'm
• 50:35
  Speaker 6: interested in this idea you have about September being so
• 50:38
  Speaker 6: far away, because you know, we're seeing signs of inflation
• 50:41
  Speaker 6: pressure easing, but that could reverse very easily. And one
• 50:45
  Speaker 6: thing I'm really looking at is food inflation, because we're
• 50:48
  Speaker 6: wondering what's going to be happening with, for example, the
• 50:51
  Speaker 6: grain shipment agreements coming out of Ukraine. That's a source
• 50:54
  Speaker 6: potentially of enormous pressure on food price inflation. And then
• 50:57
  Speaker 6: you know, to be sure, central bankers will tell you
• 51:00
  Speaker 6: food prices are transitory, but it makes for a pretty
• 51:03
  Speaker 6: nasty headline number at some points, and it's going to
• 51:05
  Speaker 6: be quite hard for a central bank to be easing
• 51:08
  Speaker 6: if that's what they're seeing is a transitory high inflation rate.
• 51:11
  Speaker 14: Oh for sure.
• 51:12
  Speaker 15: I mean, like the Bank of England just last week
• 51:14
  Speaker 15: they were talking about food prices. They soared, you know,
• 51:17
  Speaker 15: over nineteen percent year every year. And that's interesting because
• 51:21
  Speaker 15: the fact that the UK imports about half of its food.
• 51:23
  Speaker 15: But this is the thing that that's the actual component
• 51:25
  Speaker 15: that the bank was talking about, because they said that
• 51:27
  Speaker 15: it takes up so much of you know, of it's
• 51:29
  Speaker 15: such a of a stanilient point of a consumer, of
• 51:31
  Speaker 15: the consumer spending basket that it does help shape their
• 51:34
  Speaker 15: inflation expectations. So even though food prices, you know, are
• 51:37
  Speaker 15: a super volatile and that's why we take food and
• 51:40
  Speaker 15: energy out of the headline and get the core measure,
• 51:42
  Speaker 15: it still plays a big role in how consumers think
• 51:47
  Speaker 15: about inflation going forward. And and that's you know, I
• 51:50
  Speaker 15: think there was another ECB survey as well last week
• 51:52
  Speaker 15: that showed inflation expectations climbing for the next over the
• 51:55
  Speaker 15: next three years. So all of this, you know, even
• 51:57
  Speaker 15: though energy prices have come down, which you know, we
• 51:59
  Speaker 15: are all for, food prices is still very much of
• 52:02
  Speaker 15: a volatile component and we could see some sharp upward
• 52:06
  Speaker 15: pressure from those from that key component in coming months.
• 52:09
  Speaker 4: And I would argue shelter to some extent as well,
• 52:11
  Speaker 4: that kind of bubble that I think a lot of
• 52:13
  Speaker 4: people expected to pop by now hasn't, even though we
• 52:16
  Speaker 4: are about a year a year and some after the
• 52:19
  Speaker 4: FED has started their tightening cycle. Jennifer, are you at
• 52:22
  Speaker 4: all worried about some sort of double peak and inflation?
• 52:25
  Speaker 4: Maybe not now, but one or two years from now.
• 52:29
  Speaker 15: You know, I haven't thought of a double peak, but
• 52:32
  Speaker 15: now that I think about it, no, not not quite yet.
• 52:34
  Speaker 15: Maybe not hitting those same highs that we saw last summer,
• 52:37
  Speaker 15: but you know we are still I mean, housing prices
• 52:40
  Speaker 15: have come down, and it takes some time before deshally
• 52:42
  Speaker 15: show up in the in the in the big you
• 52:45
  Speaker 15: know CPI components, and that's why the FED, you know,
• 52:48
  Speaker 15: in making this a lot more complicated, especially for me
• 52:50
  Speaker 15: because I'm losing track of all the different components. But
• 52:53
  Speaker 15: you know, back in the day, we will look at
• 52:54
  Speaker 15: just total. We will look at core when you strip
• 52:56
  Speaker 15: out ex food and energy, and now we're stripping it
• 52:59
  Speaker 15: down between like goods in services and within services you're
• 53:02
  Speaker 15: stripping it down. You're taking out housing, and now you're
• 53:04
  Speaker 15: looking at that super core measure. So you know, this
• 53:06
  Speaker 15: shows how it's not just the headline, it's not just
• 53:09
  Speaker 15: the core measure, but the FED is looking at almost
• 53:11
  Speaker 15: every single component to make sure it's coming back down
• 53:13
  Speaker 15: to where it wants to be before it starts it
• 53:16
  Speaker 15: starts talking about cutting rates or at least stopping at
• 53:18
  Speaker 15: least it's going to stop pulling back on that or
• 53:20
  Speaker 15: pushing the whole hawkish narrative.
• 53:23
  Speaker 4: And it's interesting when you compare that to what you're
• 53:25
  Speaker 4: seeing around the world, because maybe maybe not a fear
• 53:28
  Speaker 4: in the US, but certainly an uptick that you've seen
• 53:30
  Speaker 4: at least in the core data and in say Spanish
• 53:34
  Speaker 4: data or French data as well. Jennifer Lee, a senior
• 53:36
  Speaker 4: commist managing director over at BMO Capital Markets. We thank
• 53:39
  Speaker 4: you as always for your time and your insight. Jennifer
• 53:43
  Speaker 4: Ryan my co host here. There's a lot of scary
• 53:46
  Speaker 4: things out there. I mean, today's conversation has been very doomsday.
• 53:50
  Speaker 6: It's been very doomsday amidst a flat market.
• 53:52
  Speaker 4: I know where financial journalists spare us. This is what
• 53:57
  Speaker 4: we were hired to do, inflict fear in the hearts
• 54:00
  Speaker 4: of our listeners. Just kidding. Look, the market seems to
• 54:04
  Speaker 4: be to uphold or hold fairly well, even in the
• 54:08
  Speaker 4: face of a lot of these and I think that
• 54:09
  Speaker 4: speaks to the strength of these markets, the strength of
• 54:11
  Speaker 4: the American consumer. So there is a bowl argument to
• 54:14
  Speaker 4: be made here, but certainly something that we're going to
• 54:17
  Speaker 4: keep an eye on as things develop.
• 54:19
  Speaker 10: You're listening to the tape catch are live program Bloomberg
• 54:22
  Speaker 10: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 54:25
  Speaker 10: tune in app, Bloomberg dot Com.
• 54:27
  Speaker 9: And the Bloomberg Business app.
• 54:29
  Speaker 10: You can also listen live on Amazon Alexa from our
• 54:32
  Speaker 10: flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
• 54:39
  Speaker 6: Our next guest is here to talk about artificial intelligence.
• 54:43
  Speaker 6: Yan Slodgi, the founder of toggle AI, and toggle ai
• 54:47
  Speaker 6: uses generative AI, which is the hot hot thing these days,
• 54:51
  Speaker 6: to provide hedge fund style analytics that predicts price movements
• 54:55
  Speaker 6: and thirty five thousand securities. Did I get that right?
• 54:59
  Speaker 9: You did?
• 54:59
  Speaker 16: Yes, Thank you for having me.
• 55:01
  Speaker 6: So tell us a little bit more about toggle AI.
• 55:04
  Speaker 6: Why should we use it?
• 55:06
  Speaker 16: So toagle AI was created with the specific purpose of
• 55:09
  Speaker 16: helping investors at hedge funds, investment banks, institutional investors at
• 55:13
  Speaker 16: large to just get better insights from their data. And
• 55:16
  Speaker 16: so we felt like as a background in Hedgehund investing
• 55:20
  Speaker 16: ourselves that we really lack the infrastructure to make that
• 55:24
  Speaker 16: more efficient. There's a lot of data available, but really
• 55:27
  Speaker 16: not enough tools to help you get the value from
• 55:30
  Speaker 16: it that exists and is locked in there.
• 55:32
  Speaker 6: So you've been using generator of AI for years, but
• 55:36
  Speaker 6: how does your tech compare to the secret sauce in
• 55:39
  Speaker 6: the new tech that's captured the public imagination since we
• 55:43
  Speaker 6: all learned about chat gibt last year.
• 55:45
  Speaker 16: Yeah, great question. So I would say the most important
• 55:49
  Speaker 16: step forward from our point of view as a kind
• 55:52
  Speaker 16: of intelligent financial analytics platform is the fact that these
• 55:55
  Speaker 16: large language models have for the first time enabled two
• 55:59
  Speaker 16: way communicate. So prior to that, our reliance on language
• 56:02
  Speaker 16: models was primarily to articulate the analysis that the AI
• 56:07
  Speaker 16: would have done across all of these different assets. What
• 56:10
  Speaker 16: you're now able to do is ask follow up questions.
• 56:14
  Speaker 16: So if I highlight an interesting relationship for you, what
• 56:17
  Speaker 16: you were then able to do is say, Okay, here's
• 56:21
  Speaker 16: my question that would like to dig a little bit deeper.
• 56:24
  Speaker 16: That's now possible.
• 56:25
  Speaker 6: I guess one question I have for you, though I
• 56:27
  Speaker 6: have many questions, but this is the first question I'm
• 56:29
  Speaker 6: going to hit you with the one thing that we
• 56:32
  Speaker 6: see across every company that reports earnings that we follow
• 56:36
  Speaker 6: is everyone's got something to say about AI. Everyone's falling
• 56:40
  Speaker 6: over themselves to figure out a way to use it.
• 56:42
  Speaker 6: So you market yourselves as giving traders and hedge funds
• 56:46
  Speaker 6: and opportunity a leg up. But if everyone starts using AI,
• 56:50
  Speaker 6: is in everyone going to start having the same advantage.
• 56:53
  Speaker 16: Yeah, again, you went right to the heart of the matter.
• 56:57
  Speaker 16: I would say the large language models here are really
• 57:01
  Speaker 16: used mostly as an intermediary between the user and then
• 57:06
  Speaker 16: the analytics that the models help you use, So not
• 57:10
  Speaker 16: everybody will have access to the same analytics. In other words,
• 57:13
  Speaker 16: the answers and the analysis that you get through toggle
• 57:17
  Speaker 16: AI are reliant on a whole suite of analytics that
• 57:20
  Speaker 16: we have spent a large number of years developing. And
• 57:24
  Speaker 16: so just having access to chat GPT isn't enough to
• 57:27
  Speaker 16: now create a competitor to toggle.
• 57:30
  Speaker 6: But you bring up chat GPT and then it is
• 57:33
  Speaker 6: unfortunately famously productive of some very curious answers. It will
• 57:37
  Speaker 6: tell a user that he is in love with you,
• 57:40
  Speaker 6: or tell a user you know, some very strange answers
• 57:44
  Speaker 6: that suggest that the reliability issue still needs quite a
• 57:48
  Speaker 6: bit of work to be sorted out. And do you
• 57:50
  Speaker 6: face the same difficulties with your own technology or is
• 57:53
  Speaker 6: that something different that you're using.
• 57:56
  Speaker 16: So the question of hallucinations obviously looms very large in
• 58:01
  Speaker 16: finance because getting the right answer is often extremely important
• 58:06
  Speaker 16: and can involve quite a lot of money, and so
• 58:09
  Speaker 16: people really want to make sure that what they're seeing
• 58:11
  Speaker 16: is correct. The way we address this challenge is by
• 58:14
  Speaker 16: having a much more narrowly specialized large language model that
• 58:18
  Speaker 16: effectively is only able to get answers and source analysis
• 58:23
  Speaker 16: from the tools that we have plugged into it and
• 58:26
  Speaker 16: from the data that we have sourced and controlled, and
• 58:29
  Speaker 16: so it is much less pron in fact, in our case,
• 58:33
  Speaker 16: almost never to giving you the wrong answer like what
• 58:37
  Speaker 16: you might see with chad GPT.
• 58:38
  Speaker 6: Interesting, so you spoke a little bit at the beginning
• 58:40
  Speaker 6: about the types of clients that you've got. Are you
• 58:43
  Speaker 6: looking to expand into different bank trading divisions for example?
• 58:47
  Speaker 16: Absolutely? I mean, you know this is we've been around
• 58:50
  Speaker 16: for just around three years, so we're definitely still growing,
• 58:53
  Speaker 16: growing very fast. I think what has happened with chad
• 58:57
  Speaker 16: GPT and what has really helped us in that respect
• 59:00
  Speaker 16: is that the interest in the technology and the interest
• 59:04
  Speaker 16: in thinking through how it might impact an individual institution
• 59:08
  Speaker 16: has absolutely exploded. And so even if for no other
• 59:11
  Speaker 16: reason than curiosity, people will often take a meeting with
• 59:15
  Speaker 16: us to say, Okay, let's see what this can do.
• 59:18
  Speaker 6: And I guess what hurdles are you encountering when dealing
• 59:21
  Speaker 6: with potential new customers. And the thing I have in
• 59:23
  Speaker 6: mind here is, you know, when chat Gipt came out,
• 59:26
  Speaker 6: there was this great mania for people to find their
• 59:28
  Speaker 6: use cases for it, and then it wasn't too long
• 59:31
  Speaker 6: until we had banks saying, hang on a minute, I
• 59:34
  Speaker 6: don't think this is something that I want to license
• 59:36
  Speaker 6: to the rest of the company, and we're going to
• 59:37
  Speaker 6: put some serious restrictions on using it.
• 59:40
  Speaker 16: Yeah, So again I would say that compared to I
• 59:42
  Speaker 16: think what chad Gipt has done has spawned a lot
• 59:46
  Speaker 16: of interest in this technology and the ability to have
• 59:50
  Speaker 16: communication with the machine. But I think if you are
• 59:52
  Speaker 16: a banking institution, what you're really looking at, and that's
• 59:56
  Speaker 16: the use case that we rely on, is to leverage
• 59:59
  Speaker 16: this technologlogy as an improvement on the user experience. So
• 1:00:04
  Speaker 16: you're not saying, oh, I'm going to use chad GPT
• 1:00:07
  Speaker 16: to help me in my day to day workflow. You're
• 1:00:09
  Speaker 16: using the underlying technology to say, users who prior to
• 1:00:13
  Speaker 16: that might have been reluctant to use an analytical tool
• 1:00:17
  Speaker 16: because it involved drop down menus and buttons and so on,
• 1:00:20
  Speaker 16: are now able to verbalize what they would like to
• 1:00:22
  Speaker 16: get done, and then the system takes that, empowers the
• 1:00:26
  Speaker 16: appropriate analytical widget, and then gives you the answer. I
• 1:00:30
  Speaker 16: think that dramatically lowers the bar to using data for
• 1:00:35
  Speaker 16: your decisions that I think will have implications for sure
• 1:00:38
  Speaker 16: in finance, but probably anywhere where data analytics is generally
• 1:00:42
  Speaker 16: a big industry.
• 1:00:43
  Speaker 6: Does your pitch to potential customers include the idea that
• 1:00:47
  Speaker 6: you could potentially provide them with some inefficiencies i e.
• 1:00:50
  Speaker 6: That they could replace some staff with your systems.
• 1:00:54
  Speaker 16: We don't center the pitch around basically replacing the staff,
• 1:00:58
  Speaker 16: but I think what we do generally highlight for them
• 1:01:01
  Speaker 16: is that it can really turbocharge the workflow of the
• 1:01:04
  Speaker 16: staff that they have. Giving you an example, a number
• 1:01:07
  Speaker 16: of banking institutions, for example, will have quite a lot
• 1:01:10
  Speaker 16: of data locked in written documents, so they produce a
• 1:01:13
  Speaker 16: lot of research. Dot research gets stored in some kind
• 1:01:16
  Speaker 16: of online repository, it becomes very difficult to find. Where
• 1:01:21
  Speaker 16: large language models can be very good is identifying those documents,
• 1:01:24
  Speaker 16: getting the data for you all in seconds, which other
• 1:01:28
  Speaker 16: prior to that might have taken hours. So again, it's
• 1:01:30
  Speaker 16: about making somebody a lot more productive, not necessarily replacing them.
• 1:01:36
  Speaker 10: Got it.
• 1:01:36
  Speaker 4: Yon so Logy, CEO and founder of toggle Ai. It's
• 1:01:40
  Speaker 4: been using generated AI to provide hedge fund style analytics.
• 1:01:43
  Speaker 4: It is kind of exciting to predict price movements thirty
• 1:01:46
  Speaker 4: five thousand securities.
• 1:01:47
  Speaker 14: But it's not just.
• 1:01:47
  Speaker 4: Stocks, commodities, fixed income. It's all about it, folks. Check
• 1:01:50
  Speaker 4: it out. Yon Soology joining us right here in the
• 1:01:53
  Speaker 4: Interactive Broker Studio. We thank you as always for your time.
• 1:01:56
  Speaker 6: Jen.
• 1:01:57
  Speaker 4: This is an area that has exploded, and for it
• 1:02:00
  Speaker 4: to kind of get into financial services is new.
• 1:02:03
  Speaker 6: It is it is new. I mean, I'm not going
• 1:02:06
  Speaker 6: to comment on the vast realms of technology that financial
• 1:02:09
  Speaker 6: services companies use because that would keep us here all day,
• 1:02:12
  Speaker 6: but it's definitely a hot topic on earnings calls.
• 1:02:17
  Speaker 3: Thanks for listening to the Bloomberg Markets podcast. You can
• 1:02:21
  Speaker 3: subscribe and listen to interviews at Apple Podcasts. Or whatever
• 1:02:24
  Speaker 3: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
• 1:02:28
  Speaker 3: at Matt Miller nineteen seventy three. And I'm Faull Sweeney.
• 1:02:32
  Speaker 1: I'm on Twitter at pt Sweeney.
• 1:02:33
  Speaker 2: Before the podcast, you can always catch us worldwide at
• 1:02:36
  Speaker 2: Bloomberg Radio