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Whistle-Blower Complaint, Climate Change, & Bond Market · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you.
• 0:05
  Speaker 1: Along with my co host Lisa Brahma Waits. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
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  Speaker 1: you and your money, whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
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  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. If you're looking for an exciting
• 0:21
  Speaker 1: roller coaster, don't look in markets right now. They have
• 0:24
  Speaker 1: been pretty much range bound for a while and not
• 0:26
  Speaker 1: really moving much in one direction or another. Despite any
• 0:29
  Speaker 1: political drama in Washington, despite concerns about unrest in the
• 0:33
  Speaker 1: Middle East, you get a whole host of existential kind
• 0:36
  Speaker 1: of concerns that people are simply shrugging off. Joining us
• 0:39
  Speaker 1: here to discuss what is the path ahead. Then, Karen
• 0:42
  Speaker 1: pay she's head of Equities at Fiduciary Trust Company, joining
• 0:45
  Speaker 1: us here in our interactive broker studios. So, Karen, I'm
• 0:48
  Speaker 1: wondering you're saying that, you know, a couple of months
• 0:50
  Speaker 1: ago you started repositioning client portfolios to be a little
• 0:53
  Speaker 1: more defensive. Are you guys doing anything right now? I mean,
• 0:57
  Speaker 1: are you sort of taking any any approach to to
• 0:59
  Speaker 1: shift things around. You're just sort of watching this and
• 1:01
  Speaker 1: saying let's go home early. Right. So, I think that
• 1:06
  Speaker 1: you know, we have seen the market in a range
• 1:09
  Speaker 1: bound UM situation because you've got low rates that are
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  Speaker 1: supporting the markets on the downside, but you also have
• 1:15
  Speaker 1: UM the potential of any positive changes that could sort
• 1:19
  Speaker 1: of maybe perhaps break the market on the upside. UM.
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  Speaker 1: But you know, when we're looking at the market, we're
• 1:25
  Speaker 1: really looking at fundamentals, and what the fundamental tell us
• 1:29
  Speaker 1: is that we're in an economy that has been slowing
• 1:32
  Speaker 1: down and we've seen earnings UM decelerate in terms of
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  Speaker 1: growth UM. And therefore, we started repositioning our portfolios a
• 1:40
  Speaker 1: couple of months ago to be a little bit more
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  Speaker 1: defensive from an as allocation standpoint UM, as well as
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  Speaker 1: kind of within equities, repositioning to UM take some profits
• 1:50
  Speaker 1: in the market, recognizing that the s MPs up for
• 1:54
  Speaker 1: the year valuations are UM not cheap, they're actually you know,
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  Speaker 1: relative on the high side, and so you know, we
• 2:02
  Speaker 1: just think that it would be prudent and smart to
• 2:06
  Speaker 1: just take some profits and we UM have you know,
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  Speaker 1: really looked at UM quality as a factor in our investing,
• 2:14
  Speaker 1: and UM we have you know, looked for more defensive characteristics,
• 2:19
  Speaker 1: but that doesn't necessarily mean paying up for bond proxies,
• 2:24
  Speaker 1: doesn't necessarily mean that we're going to chase things in
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  Speaker 1: the market that might be driven by some of the
• 2:29
  Speaker 1: macro factors. You know, utilities, for example up for the year. UM.
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  Speaker 1: Consumer stables also up very nicely, but valuations are very
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  Speaker 1: rich in those areas. So, Karen, what are some of
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  Speaker 1: these sectors that you're looking at here, Given that we
• 2:47
  Speaker 1: are kind of late in the cycle, we need to
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  Speaker 1: get a little bit more defensive. Yeah, So, UM, I
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  Speaker 1: do think that it comes down a lot to UM
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  Speaker 1: the individual securities and how our managers are also selecting
• 3:01
  Speaker 1: UM those securities within portfolios. From a sector standpoint, we're
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  Speaker 1: mostly neutral at this point. We have been UM. We've
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  Speaker 1: had a cyclical bias and our portfolios and a growth
• 3:12
  Speaker 1: bias and our portfolios for some time. UM. We've seen that,
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  Speaker 1: you know, we've seen that reward it really well by
• 3:18
  Speaker 1: the markets. UM, But at this point, you know, we're
• 3:22
  Speaker 1: much more neutral le positioned, and we're taking a notch
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  Speaker 1: down in terms of the cyclicality and our portfolio. We
• 3:29
  Speaker 1: took down, for example, our overweight to technology a couple
• 3:32
  Speaker 1: of months ago, just in recognition of you know, the
• 3:36
  Speaker 1: strong gains this year and profit taking. Yeah, profit taking.
• 3:39
  Speaker 1: So I'm trying to figure out what it would take
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  Speaker 1: for you to change the allocation to shift things around
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  Speaker 1: from here. So we do think that if there is
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  Speaker 1: positive development, a positive deal on trade, that that would
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  Speaker 1: make us become a little bit more UM encouraged. But
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  Speaker 1: I think that we do still have this view UM
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  Speaker 1: that any prog ress on trade would take some time
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  Speaker 1: to translate into fundamentals. We think that trade uncertainty has
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  Speaker 1: impacted business confidence. It may you know, at some point
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  Speaker 1: impact consumer confidence because we've seen some signs of UM
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  Speaker 1: you know, companies raising prices to offset some of the
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  Speaker 1: trade costs. So we we do think that UM, if
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  Speaker 1: we do get some positive news, the markets probably would
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  Speaker 1: perhaps get a relief rally, but it may not be
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  Speaker 1: sustainable and we would need to reset. What I'm looking
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  Speaker 1: for is really much better UM risk reward in the market,
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  Speaker 1: much more attractive valuations and UM equities. So do you
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  Speaker 1: think that the next leg is up? Potentially UM in
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  Speaker 1: the It may occur in a short run, but we're
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  Speaker 1: not really expecting anything concrete to happen on the trade front.
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  Speaker 1: We're not making a bed on that. So we would
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  Speaker 1: UM advise investors at this point to actually position portfolios
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  Speaker 1: to be a little bit more defensive and cautious, really
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  Speaker 1: look at managing risk in the portfolios. So on the
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  Speaker 1: earnings front, there's really not a story there either. Looks
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  Speaker 1: like earning growth is very flattish in the foreseeable future. UM.
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  Speaker 1: So I mean, as are there sectors when we talk
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  Speaker 1: about defensive sectors, I think utilities and reads and things
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  Speaker 1: like that in consumer stables. But my understanding is they're
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  Speaker 1: not cheap right right, So that for for that reason,
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  Speaker 1: we're also finding it very difficult to sort of find
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  Speaker 1: a lot of attractive things to buy in the marketplace UM.
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  Speaker 1: And therefore we've actually raised some cash and portfolios UM.
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  Speaker 1: But what I would say is that from an earning standpoint,
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  Speaker 1: we don't see a lot of UM earnings growth, and
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  Speaker 1: fact consensus still has twenty at about plus ten percent growth.
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  Speaker 1: We are a bit UM more skeptical about that. When
• 5:46
  Speaker 1: you look through the earnings, we see that UM companies
• 5:50
  Speaker 1: that are more geared to domestic revenues have fair much better.
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  Speaker 1: So if you look at second quarter reporter earnings, UM,
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  Speaker 1: companies that have greater than fifty pc of revenues coming
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  Speaker 1: from the US actually posted five percent growth, whereas companies
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  Speaker 1: that had greater than fifty international revenues posted an eleven
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  Speaker 1: percent decline. So there's the whole trade issue, the whole
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  Speaker 1: uncertainty issue, which is likely to play out. I think
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  Speaker 1: if you look at the consensus earnings for the remainder
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  Speaker 1: of the year. Karen pay thanks so much for joining us.
• 6:21
  Speaker 1: Karen's head of equities at Fiduciary Trust Company, joining us
• 6:24
  Speaker 1: here in our Bloomberg Interactive Broker Studios. We appreciate her
• 6:28
  Speaker 1: thoughts on the equity markets. Time to check in with
• 6:46
  Speaker 1: Bloomberg Opinion. We're joined by opinion columnists Noah Feldman. No
• 6:50
  Speaker 1: one's a professor of law at Harvard University. He's located
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  Speaker 1: in Boston, Massachusetts. No, thanks so much for joining us. Well,
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  Speaker 1: what a day we had yesterday on Capitol Hill with
• 7:01
  Speaker 1: the testimony. It appears that the impeachment proceedings will in
• 7:06
  Speaker 1: fact proceed. What is your thought on kind of where
• 7:08
  Speaker 1: we are right now? We're at an extraordinary moment in
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  Speaker 1: which we actually know a huge amount about the details
• 7:17
  Speaker 1: of the allegations, and in which we have a roadmap
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  Speaker 1: for what we can still need to know. And I
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  Speaker 1: think it's a high probability that we will find out
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  Speaker 1: all of those details. So in a sense, we're in
• 7:27
  Speaker 1: a very different position than we were, say when the
• 7:29
  Speaker 1: Mulla Report came out, when we had been waiting, waiting,
• 7:32
  Speaker 1: waiting for a long long time, and we got a
• 7:34
  Speaker 1: multiple hundred page document we had to make sense of it. Here,
• 7:36
  Speaker 1: we've got a really brief, four or five page document
• 7:40
  Speaker 1: with really clear and specific allegations and a clear roadmap
• 7:43
  Speaker 1: of what comes next. Do you expect President Trump to
• 7:45
  Speaker 1: get impeached? I think the odds are pretty high right
• 7:50
  Speaker 1: now that the House will impeach him, though the odds
• 7:53
  Speaker 1: still don't look that high the Senate would remove him. Um,
• 7:56
  Speaker 1: you know, the Democrats could still turn back at some
• 8:00
  Speaker 1: point if somehow Trump were able to provide some kind
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  Speaker 1: of innocent explanation beyond what he said thus far for
• 8:08
  Speaker 1: his conversation with the President of Ukraine. But unless he can,
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  Speaker 1: I think essentially all of the Democrats who said they
• 8:14
  Speaker 1: support the impeachment inquiry have said that if these allegations
• 8:18
  Speaker 1: are true, they represent an abuse of power that merit's impeachment.
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  Speaker 1: And I think it's very probable that these allegations will
• 8:25
  Speaker 1: be seen to be true by Democrats at the end
• 8:27
  Speaker 1: of the inquiry. So what's the tipping point for Republicans.
• 8:31
  Speaker 1: I think the tipping point for Republicans is whether there
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  Speaker 1: it is plausible to believe Trump's denials. So far this
• 8:38
  Speaker 1: time we have not heard the kind of legalistic justification
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  Speaker 1: that we heard the last time during the Mother investigation,
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  Speaker 1: in which the President would say, well, I'm allowed to
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  Speaker 1: uh say anything I want to a foreign official, including
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  Speaker 1: attacking my political opponents. Instead, he said, oh, the call
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  Speaker 1: was created. Was business as as normal? You know. The
• 8:59
  Speaker 1: question is how plausible will Republicans find that if Republicans
• 9:02
  Speaker 1: cross the line and believe they see a quid pro coo,
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  Speaker 1: I think this is really the tipping point. If there's
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  Speaker 1: definitive proof that there was a tradeoff that the President
• 9:10
  Speaker 1: was offering the president of Ukraine to unfreeze the aid
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  Speaker 1: that he had just frozen in exchange for investigation of
• 9:17
  Speaker 1: Joe Biden and of and of his son, then I
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  Speaker 1: think that many Republicans would be forced into the other side,
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  Speaker 1: but it's not at all, though there will be definitive
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  Speaker 1: proof of that. What there is now is a lot
• 9:27
  Speaker 1: of very strong evidence that suggests that, but there's no
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  Speaker 1: truly smoking gun in the sense that there's no tape
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  Speaker 1: so far of either Trump or of President Zelinski saying
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  Speaker 1: explicitly this is a tradeoff. So, Professor, there's calls for
• 9:46
  Speaker 1: potentially a special counsel needed to investigate Rudy Giuliani and
• 9:52
  Speaker 1: William bar the United States Department of Justice Attorney General.
• 9:55
  Speaker 1: What are your thoughts there. I published such a call
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  Speaker 1: this morning in Bloomberg Opinion, so I'm I'm on board
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  Speaker 1: with that. I think the bottom line is the whistle
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  Speaker 1: blowers complaint alleges conduct to interfere with the US election,
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  Speaker 1: which could well have violated criminal statutes, and Rudi Giuliani
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  Speaker 1: will not be the target of the investigation by the House.
• 10:14
  Speaker 1: They will be investigating properly the President United States. Rudi
• 10:16
  Speaker 1: Juglani is a private citizen and there is enough evidence
• 10:20
  Speaker 1: in the whistle blower complained to make it credible that
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  Speaker 1: he may have committed crimes, so he needs to be investigated,
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  Speaker 1: and the reason it needs to be a special counsel
• 10:26
  Speaker 1: is not only that it's an investigation connected to the president,
• 10:29
  Speaker 1: but also that the whistle blowers specifically named Attorney General
• 10:32
  Speaker 1: William Barr and specifically said that it appears that's the
• 10:35
  Speaker 1: whistle blowers language that bar was involved. Now, Bart, to
• 10:38
  Speaker 1: be fair, has issued a denial of that. But you
• 10:41
  Speaker 1: can't say I'm accused of a crime, but I'm not
• 10:44
  Speaker 1: guilty of it, so I'm not recusing myself. That's not
• 10:46
  Speaker 1: how recusal works. If you have been incredibly connected by
• 10:50
  Speaker 1: the President of the United States. In his call to
• 10:53
  Speaker 1: the president of Ukraine, he repeatedly invoked Attorney General bar
• 10:56
  Speaker 1: So if you incredibly connected the conduct that may well
• 10:59
  Speaker 1: have been criminal, you can't supervise the investigation full stop.
• 11:02
  Speaker 1: So bar has to recuse himself and a special counsel
• 11:05
  Speaker 1: is needed. Left, but not least, there's a question of
• 11:07
  Speaker 1: a potential cover up of this phone call in the
• 11:10
  Speaker 1: White House. The whistleblower alleges concretely that this transcript of
• 11:15
  Speaker 1: this call was suppressed and then it was put into
• 11:17
  Speaker 1: a different database and more classified database than it would
• 11:20
  Speaker 1: ordinarily have been put into. Those are steps that need
• 11:22
  Speaker 1: to be investigated to determine whether they were part of
• 11:24
  Speaker 1: a criminal cover up or obstruction of justice, And that
• 11:27
  Speaker 1: too will involve an investigation into what was going on
• 11:29
  Speaker 1: in the White House, possibly behind by the President's advice,
• 11:32
  Speaker 1: possibly not, And a special Council needs to look at
• 11:34
  Speaker 1: that too. I just want to add, we don't want
• 11:36
  Speaker 1: to wait until the Special Council reports for the House
• 11:38
  Speaker 1: to be able to go forward. That would not make sense.
• 11:40
  Speaker 1: The House can simultaneously go far with its own inquiry
• 11:43
  Speaker 1: into the president's conduct. Is there an historical period to
• 11:47
  Speaker 1: which this period is analogous? Not really, because you know,
• 11:52
  Speaker 1: during the long slow Mother investigation, I was interested in
• 11:56
  Speaker 1: the question of whether the whole thing was more like
• 11:58
  Speaker 1: the historical investigation of Richard Nixon or more like the
• 12:02
  Speaker 1: investigation of Bill Clinton. In other words, was it studying
• 12:05
  Speaker 1: with a real crime at the back of it, or
• 12:07
  Speaker 1: was it something that in the end would come up
• 12:10
  Speaker 1: with a rather small or or minimalistic allegation. And you know,
• 12:14
  Speaker 1: I think it turned out on the whole to be
• 12:16
  Speaker 1: slightly more like the Clinton case. But what's going on
• 12:19
  Speaker 1: now is, after the long, long slow drum roll of
• 12:23
  Speaker 1: the Mother investigation, we suddenly have this short, sharp, you know,
• 12:27
  Speaker 1: symbol sound of the allegations around this phone call, and
• 12:32
  Speaker 1: we haven't in the past had a kind of aftershock
• 12:35
  Speaker 1: of a long investigation in the same way. So that
• 12:37
  Speaker 1: we're on we're on uncharted territory here. Noah Feldman, thank
• 12:40
  Speaker 1: you so much for being with us. Noah Feldman, Professor
• 12:43
  Speaker 1: of Law at Harvard University. Also Bloomberg Opinion Calumness. You
• 12:46
  Speaker 1: can find all of his columns and everyone else's who
• 12:49
  Speaker 1: writes for a Bloomberg Opinion at O P I N
• 12:52
  Speaker 1: GO on the Bloomberg Terminal or Bloomberg dot com slash Opinion. Well,
• 13:14
  Speaker 1: as we heard from the Bloomberg Global Business Form this week,
• 13:17
  Speaker 1: chief executive officers certainly have plenty on their plate. They
• 13:20
  Speaker 1: have trade uncertainty slowing global growth, and then continue geopolitical
• 13:26
  Speaker 1: risk in the marketplace. To get a sense of what
• 13:28
  Speaker 1: CEOs are thinking about going forward, we welcome Regina Mayor.
• 13:31
  Speaker 1: Regina is a global sector head for Energy and Natural
• 13:34
  Speaker 1: Resources for KPMG. She joins us on the phone from Houston, Texas. Regina,
• 13:39
  Speaker 1: thanks so much for joining us. Well, we're maybe the
• 13:41
  Speaker 1: key takeaways from KPMG CEO outlook the key takeaway was
• 13:48
  Speaker 1: that CEO's name climate change as the number one risk
• 13:51
  Speaker 1: to organizational growth. This is the first time in the
• 13:54
  Speaker 1: five year history of doing the survey that climate change
• 13:58
  Speaker 1: topped the charts of the risks, ahead of technology, disruption
• 14:01
  Speaker 1: or cyber or territorialism. Seventy fully three quarters of them
• 14:07
  Speaker 1: say their growth will depend on their ability to navigate
• 14:10
  Speaker 1: the shift to a low carbon economy. Are these ceo
• 14:14
  Speaker 1: is all industries or are they focused in one specific one.
• 14:18
  Speaker 1: It was O s across eleven industries, so quite striking
• 14:23
  Speaker 1: for a climate change to be the number one for
• 14:26
  Speaker 1: the first time in the history of our survey. I
• 14:27
  Speaker 1: mean it's been climbing steadily. Has it like been close
• 14:30
  Speaker 1: number two for a long time and it's just sort
• 14:32
  Speaker 1: of edged ahead, or has there been a notable upsurge
• 14:35
  Speaker 1: in the amount of concern around climate change. It's a
• 14:38
  Speaker 1: notable up surge. It was four last year and it
• 14:42
  Speaker 1: vaulted from four to number one. I think it's consistent
• 14:45
  Speaker 1: with what you've seen in New York around the UN
• 14:47
  Speaker 1: Climate Summit and the level of energy and enthusiasm that's building.
• 14:51
  Speaker 1: It's not a nice to have, it's a requirement now.
• 14:55
  Speaker 1: So Regina, is this perceived, Is this really focusing on
• 14:57
  Speaker 1: energy carbon footprint? What are some the underpinnings of their uh,
• 15:02
  Speaker 1: the issues about climate change. I think there's quite a
• 15:05
  Speaker 1: quite a few things that are going on. Number One,
• 15:07
  Speaker 1: they're getting a lot of pressure externally, their communities, their employees,
• 15:11
  Speaker 1: their investors, the E s G component of the investment
• 15:15
  Speaker 1: proportion is driving a lot of this need for change.
• 15:18
  Speaker 1: But they're also saying, I think there's not a lot
• 15:22
  Speaker 1: of climate science deniers anymore, particularly even in the energy space.
• 15:27
  Speaker 1: While we do realize we need fossil fuels to continue
• 15:29
  Speaker 1: to drive the wealth that we have globally, we also
• 15:33
  Speaker 1: know we have a dual challenge in that we have
• 15:35
  Speaker 1: to figure out how to reduce the carbon footprint. They're
• 15:37
  Speaker 1: seeing multiple strategies. Some are focusing more on renewables and
• 15:41
  Speaker 1: a totally green footprint. Others are focusing on carbon capture
• 15:44
  Speaker 1: and how do we capture and remove the carbon that's
• 15:47
  Speaker 1: in the atmosphere today. But everyone's talking about the need
• 15:50
  Speaker 1: to do something. So let's shift gears a little bit
• 15:52
  Speaker 1: to just sort of business climate and sentiment. Part of
• 15:55
  Speaker 1: the survey showed that of energy CEOs are confident about
• 16:00
  Speaker 1: their businesses growth prospects, but sixty feel the same about
• 16:04
  Speaker 1: the global economy. Is that sort of consistent uh feeling
• 16:08
  Speaker 1: across the sectors or is that isolated to energy. No,
• 16:12
  Speaker 1: it's consistent feeling across the sectors. But I do think
• 16:14
  Speaker 1: it's a stark disconnect because last year's survey showed that
• 16:17
  Speaker 1: that number was a lot closer together. We were exuberant
• 16:20
  Speaker 1: about the global economy and exuberant about our own company's prospects.
• 16:25
  Speaker 1: So there is either this sense of the growing unease
• 16:28
  Speaker 1: about what's happening geo politically, that folks worry about the
• 16:32
  Speaker 1: strength of the global economy, but they still I mean,
• 16:36
  Speaker 1: that's a that's this amazing percentage to feel really confident
• 16:39
  Speaker 1: about your own company's growth. So either there's more fundamental
• 16:43
  Speaker 1: strength in the global economy underpinned by these uh these sentiments,
• 16:48
  Speaker 1: or it could be made perhaps a little bit of
• 16:50
  Speaker 1: irrational exuberance on the part of the individual CEO. So Regina,
• 16:54
  Speaker 1: one of the things that Lisa and I hear often
• 16:56
  Speaker 1: as we speak to corporate executives is the need to
• 16:59
  Speaker 1: find there and the challenge to finding properly trained employees.
• 17:04
  Speaker 1: As economy continues to become more technical and more digital. Um,
• 17:09
  Speaker 1: what is your survey telling you on that front? Yeah,
• 17:12
  Speaker 1: thanks for that. I think one of the stark points
• 17:14
  Speaker 1: for me too is that of the energy CEO of
• 17:17
  Speaker 1: now taking this life slowly, leading their own technology strategy
• 17:24
  Speaker 1: for their organization and plan to upscale their employees and
• 17:28
  Speaker 1: new digital capabilities. So there is this belief that it's
• 17:32
  Speaker 1: not just about finding new employees, it's about reskilling the
• 17:35
  Speaker 1: base that you have because the world around them is
• 17:38
  Speaker 1: changing and it's at all levels. It's a multi generational push.
• 17:42
  Speaker 1: You know, those of us that are that are older
• 17:43
  Speaker 1: and perhaps less tech savvy, we have to figure out
• 17:46
  Speaker 1: how to use these new tools to make our jobs
• 17:48
  Speaker 1: more effective and the company more effective, as well as
• 17:51
  Speaker 1: being relative to the digital natives that are entering the
• 17:54
  Speaker 1: workforce in droves Regina. I want to just take a
• 17:57
  Speaker 1: step back, taking a look at the entire report and
• 18:00
  Speaker 1: mood that you sort of felt being created by all
• 18:03
  Speaker 1: of these chief executive officers right now in markets, every
• 18:07
  Speaker 1: investor comes in here or most of them anyway, say
• 18:10
  Speaker 1: it's clear global growth is slowing, the U S economy
• 18:13
  Speaker 1: is slowing down. We're getting cautious is that cautious feeling
• 18:18
  Speaker 1: being reflected by the actual plans of these CEOs. I mean,
• 18:22
  Speaker 1: is this something that can be confirmed in corporate America,
• 18:26
  Speaker 1: you are seeing more judicious capital allocation and budget management
• 18:30
  Speaker 1: as a as a result and as a response. And
• 18:33
  Speaker 1: then one of the other themes that I think came
• 18:35
  Speaker 1: across was the need to be agile because the global
• 18:39
  Speaker 1: signals are changing so rapidly and from one day to
• 18:42
  Speaker 1: the next, we're not entirely sure what our commodity price
• 18:45
  Speaker 1: environments are going to look like, what our share price
• 18:47
  Speaker 1: looks like, what our investors and employees need from us.
• 18:50
  Speaker 1: So we're need to be agile to make different decisions
• 18:53
  Speaker 1: and to respond to the signals as they're rapidly changing.
• 18:57
  Speaker 1: I think that was the key that came out in
• 18:59
  Speaker 1: response to the environment that you just described, um that
• 19:02
  Speaker 1: you need to be agile because you have to change
• 19:04
  Speaker 1: your responses pretty quickly in today's world. So, Regina, one
• 19:08
  Speaker 1: of the things that's really driving financial markets really over
• 19:11
  Speaker 1: the last year plus has been the ups and downs
• 19:14
  Speaker 1: of any uncertainty surrounding global trade and trade tensions dween
• 19:18
  Speaker 1: the US and China. Any feedback from your survey about
• 19:20
  Speaker 1: how CEOs are thinking about that risk. It's definitely a
• 19:25
  Speaker 1: very strong risk that's playing in and for our sector
• 19:28
  Speaker 1: and energy. It has a major impact, right. It is
• 19:31
  Speaker 1: showing that there is concerned globally about demand UH in
• 19:35
  Speaker 1: particular from India and China, and the geopolitics with the
• 19:38
  Speaker 1: tariffs and the trade war do not help that. So
• 19:41
  Speaker 1: you know, my clients focus a lot on the commodity price,
• 19:44
  Speaker 1: and the commodity price is depressed because of a lot
• 19:47
  Speaker 1: of the concerns about future demand and future growth prospects.
• 19:51
  Speaker 1: That's where we see in our industry the trade wars,
• 19:54
  Speaker 1: the uncertainty on tariff having a very real and immediate impact.
• 19:59
  Speaker 1: Regina Ma, thank you so much for joining us today.
• 20:01
  Speaker 1: Regina Mayor's Global sector headed for Energy and Natural Resources
• 20:05
  Speaker 1: at KPMG. Talking about that CEO outlook showing that climate
• 20:11
  Speaker 1: change topped all concerns for the first time in history.
• 20:31
  Speaker 1: Let's shift gears and focus on the credit markets, because
• 20:34
  Speaker 1: what we'd have seen this month a rally. It's been
• 20:37
  Speaker 1: the first week since August we've actually seen HIL bonds
• 20:39
  Speaker 1: lose value and you are seeing investors becoming more discerning.
• 20:43
  Speaker 1: Joining us now, Michael Temple, director of corporate credit focused
• 20:46
  Speaker 1: on the US for a MOONDI pioneer. Uh, Michael, thank
• 20:50
  Speaker 1: you so much for being with us. I want to
• 20:52
  Speaker 1: just start there. We are seeing some pushback by investors.
• 20:56
  Speaker 1: What's your takeaway from that, high, Lisa UM, Well, you know,
• 21:02
  Speaker 1: this is sort of typical types of signs that you
• 21:05
  Speaker 1: get when you're sort of reaching the end of the
• 21:07
  Speaker 1: credit cycle. UM. And we don't know how long the
• 21:10
  Speaker 1: credit cycle is going to continue to last, but you know,
• 21:13
  Speaker 1: some of these companies, particularly the triple C rated companies
• 21:17
  Speaker 1: that are trying to get access to the capital markets
• 21:19
  Speaker 1: and refinance UM are finding it's a little tough going.
• 21:24
  Speaker 1: So why is that just simply because again where we
• 21:28
  Speaker 1: are in the cycle, or is there something specific in
• 21:32
  Speaker 1: the bond market per se? No, I think it's it's
• 21:36
  Speaker 1: it's more about the cycle. I mean, if you look
• 21:38
  Speaker 1: at high yield and even investment grade corporate credit performance
• 21:42
  Speaker 1: this year, it's actually been very strong. But what's been
• 21:45
  Speaker 1: interesting is that UM, the strongest part of that return,
• 21:49
  Speaker 1: particularly in high yield, has been in the higher quality
• 21:52
  Speaker 1: parts of the market, so the double B parts of
• 21:54
  Speaker 1: the market. Now, part of that is because you've seen
• 21:57
  Speaker 1: this dramatic rally in the underlying UM part of the structure,
• 22:02
  Speaker 1: that is the treasury structure. But corporate credit spreads in
• 22:06
  Speaker 1: the higher quality part of the hyal market have done
• 22:09
  Speaker 1: really really well. And and the the areas of the
• 22:12
  Speaker 1: market that have been struggling struggling a little bit more
• 22:15
  Speaker 1: has been the lower quality parts of the credit market
• 22:19
  Speaker 1: UM and in particular areas in the energy market. And
• 22:22
  Speaker 1: so from that standpoint, I think what we're seeing is
• 22:25
  Speaker 1: despite the fact that um uh, you know, overall yields
• 22:29
  Speaker 1: have compressed, the really lower credit quality parts of the
• 22:34
  Speaker 1: market are kind of struggling to get access to capital.
• 22:38
  Speaker 1: So at this point in the credit cycle, and given
• 22:40
  Speaker 1: the fact that we have seen the performance of higher
• 22:43
  Speaker 1: rated credit, are you positioning for that to continue well?
• 22:49
  Speaker 1: At this stage, we think there's a lot of values
• 22:51
  Speaker 1: still in the kind of single B part of the market,
• 22:54
  Speaker 1: so we would call it kind of the middle tier
• 22:56
  Speaker 1: part of the market. UM, we are very underweight the
• 22:59
  Speaker 1: triple see side of the market right now. I think
• 23:02
  Speaker 1: we're um concerned about um, you know, the potential for
• 23:07
  Speaker 1: ID syncratic credit risk exposure. We're not yet seeing it
• 23:11
  Speaker 1: on a total sectoral basis other than an energy as
• 23:14
  Speaker 1: I mentioned UM, but yes, we're sort of continuing to
• 23:19
  Speaker 1: focus on the double B and single B part of
• 23:21
  Speaker 1: the hyl market right now. So, Michael, given that we are,
• 23:24
  Speaker 1: you know, late into a cycle, you know, ten plus
• 23:27
  Speaker 1: years into this economic cycle, what's this what's your take
• 23:31
  Speaker 1: on credit quality out there? Are you're seeing any real
• 23:33
  Speaker 1: pressures or strains in your portfolio in terms of credit quality? Well,
• 23:38
  Speaker 1: you know, it's interesting, about six months ago, everybody was
• 23:41
  Speaker 1: talking about the significant increase in the amount of triple
• 23:44
  Speaker 1: B credit UH exposure in the index UM, and there
• 23:50
  Speaker 1: was the view, I believe that UM, particularly triple B
• 23:55
  Speaker 1: issued creditors, we're going to have to really pay attention
• 23:58
  Speaker 1: to their overall credit quality and begin to reduce debt
• 24:02
  Speaker 1: because of the concerns and the warnings that people were
• 24:05
  Speaker 1: putting out about this significant bulbs, and the concern was
• 24:08
  Speaker 1: you're going to see a lot of these credits fall
• 24:11
  Speaker 1: down into high yield. Well six months later, you really
• 24:13
  Speaker 1: haven't seen it, and I think the fears of that
• 24:16
  Speaker 1: have really receded. But the reality is is that these
• 24:19
  Speaker 1: companies by and large really haven't delivered. They have not
• 24:23
  Speaker 1: reduced any of the UH there is, the risk associated
• 24:28
  Speaker 1: with these credits really hasn't reduced anymore, UM, and I
• 24:32
  Speaker 1: think at some point UM people investors are once more
• 24:35
  Speaker 1: going to start to focus on that area of the market.
• 24:37
  Speaker 1: So we're being very selective in the in the triple
• 24:40
  Speaker 1: BE part of the market, UM, avoiding those areas where
• 24:43
  Speaker 1: we think there may be some specul pressure. UM. Beverage
• 24:47
  Speaker 1: kind of comes to mind. UM. In the high yield market,
• 24:50
  Speaker 1: we're actually seeing an increase in overall credit quality as
• 24:54
  Speaker 1: more and more investors and issuers are sort of focusing
• 24:56
  Speaker 1: on the double B part of the market. So here's
• 24:59
  Speaker 1: the thing gonna make a sort of contrary argument, Michael.
• 25:02
  Speaker 1: I mean, for let's say triple seas to outperform going forward,
• 25:06
  Speaker 1: everyone's saying they're so cautious, and everyone's saying that we're
• 25:08
  Speaker 1: getting towards the end of the cycle, and so it's
• 25:10
  Speaker 1: important to move up in corporate credit UH credit worthiness.
• 25:14
  Speaker 1: And yet there's a wall of cash coming from overseas
• 25:17
  Speaker 1: in the face of negative yields, and that is continuing
• 25:21
  Speaker 1: and in some ways accelerating, and you have to wonder
• 25:24
  Speaker 1: at what point that just outweighs the fundamentals especially because
• 25:28
  Speaker 1: that will keep companies going for longer perhaps than they
• 25:31
  Speaker 1: should and avoid the sort of downdraft. That is a
• 25:35
  Speaker 1: great question, at least in a very interesting observation. UM,
• 25:38
  Speaker 1: we've thought about that as well, and so the question
• 25:41
  Speaker 1: really is, in a nutshell, do technicals end up trumping
• 25:45
  Speaker 1: fundamentals UM and much better? Yeah, well, and I do
• 25:51
  Speaker 1: think that there is a chance that that that that
• 25:54
  Speaker 1: that that does occur. So in particular, we're seeing significant
• 25:58
  Speaker 1: inflows UH into to UH investment grade corporates UH and
• 26:03
  Speaker 1: into in in less of a way, but we're still
• 26:07
  Speaker 1: seeing it as well into the highal market from investors
• 26:10
  Speaker 1: overseas who are just gasping for yield UM. And so
• 26:13
  Speaker 1: from that standpoint, I think, UM, we definitely could see
• 26:17
  Speaker 1: as we see further spread compression in double bees and
• 26:20
  Speaker 1: single bees, we could see um uh spread compression among
• 26:24
  Speaker 1: triple cs, which would then give access to some of
• 26:27
  Speaker 1: these triple C rated companies to refinance themselves. The alternative
• 26:31
  Speaker 1: view is though, that you get a bifurcation in the market,
• 26:34
  Speaker 1: and I think that's kind of what we're seeing. Despite
• 26:37
  Speaker 1: the quote unquote wall of money that we're seeing from
• 26:40
  Speaker 1: overseas we're still seeing some of these what we would
• 26:43
  Speaker 1: describe as um uh, you know, questionable business models actually
• 26:49
  Speaker 1: struggling to get funded. Uh. And so from that standpoint,
• 26:52
  Speaker 1: I think the jury still out. So Michael, I need
• 26:55
  Speaker 1: to duce my portfolio a little bit here as we
• 26:57
  Speaker 1: get towards your end. What sector should I be looking at? Well, again,
• 27:01
  Speaker 1: we think the the single B area of the corporate
• 27:04
  Speaker 1: credit market is still relatively attractive. And I say relatively
• 27:08
  Speaker 1: uh in in air quotes, because um, everything is is
• 27:12
  Speaker 1: trading rich right now on a historical basis. But if
• 27:16
  Speaker 1: you look at UM the single B part of the
• 27:18
  Speaker 1: HIGHL market, I think it's it's really sort of the
• 27:20
  Speaker 1: goldilocks right now for most investors. UM. You can avoid
• 27:25
  Speaker 1: certain sectors that you think might be under secular pressure.
• 27:28
  Speaker 1: UM and in general, many of these companies have been
• 27:31
  Speaker 1: spending a number of years upgrading the overall credit quality.
• 27:35
  Speaker 1: The average credit statistics in the HIEL market have continued
• 27:40
  Speaker 1: to improve. UM. This isn't direct contradiction to the investment
• 27:45
  Speaker 1: grade market. And some of course are more concerned about
• 27:47
  Speaker 1: the bank loan market on the deterioration of credit quality
• 27:50
  Speaker 1: that we're seeing there. But again, our view is um.
• 27:53
  Speaker 1: This is probably a as good a place as any
• 27:56
  Speaker 1: start putting your money. Michael Temple, thank you so much
• 27:59
  Speaker 1: for warning us. Michael's a director of corporate credit for
• 28:02
  Speaker 1: US and for the US and portfolio manager for a
• 28:04
  Speaker 1: Mundy Pioneer joining us on the phone. We appreciate his
• 28:07
  Speaker 1: thoughts on the credit markets. Thanks for listening to the
• 28:10
  Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
• 28:13
  Speaker 1: to interviews at Apple Podcasts or whatever podcast platform you prefer.
• 28:16
  Speaker 1: I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm
• 28:19
  Speaker 1: Lisa Abram Woyds. I'm on Twitter at Lisa Abram Woyds.
• 28:22
  Speaker 1: One Before the podcast, you can always catch us worldwide.
• 28:25
  Speaker 1: I'm Bloomberg Radio