1
00:00:00,800 --> 00:00:04,040
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

2
00:00:04,040 --> 00:00:06,920
Speaker 1: my co host Matt Miller. Every business day we bring

3
00:00:06,960 --> 00:00:11,520
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

4
00:00:11,520 --> 00:00:15,600
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

5
00:00:15,600 --> 00:00:18,439
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

6
00:00:18,480 --> 00:00:23,120
Speaker 1: at Bloomberg dot com slash podcast. Big big day in Frankfurt, Germany.

7
00:00:23,200 --> 00:00:27,640
Speaker 1: Tay and for Europe, uh, the ECB raising its benchmark

8
00:00:27,720 --> 00:00:30,840
Speaker 1: R fifty basis points. So no longer negative interest rates

9
00:00:30,880 --> 00:00:34,520
Speaker 1: in Europe. That's big. Um boy, it's been a long

10
00:00:34,680 --> 00:00:38,080
Speaker 1: long time exactly. I'm looking at the euro here trading

11
00:00:38,159 --> 00:00:39,880
Speaker 1: up just a little bit. But let's dig into it

12
00:00:39,920 --> 00:00:41,080
Speaker 1: a little bit. We can do that with me. Have

13
00:00:41,120 --> 00:00:46,680
Speaker 1: a cousin Euro Area economists for Bloomberg Economics, Geneva Zerk

14
00:00:46,800 --> 00:00:50,320
Speaker 1: somewhere over there in Switzerland. Um, pretty cool, Mayva. Thanks

15
00:00:50,320 --> 00:00:53,080
Speaker 1: so much for joining us here. Busy, busy day for

16
00:00:53,200 --> 00:00:56,520
Speaker 1: Christine Lagarde. What are your takeaways from what we've seen

17
00:00:56,600 --> 00:01:01,240
Speaker 1: and heard so far this uh today in Europe? Kay? Thanks?

18
00:01:01,400 --> 00:01:04,000
Speaker 1: So yeah, it's a big thing. Indeed, this fifty basis

19
00:01:04,080 --> 00:01:08,119
Speaker 1: points to bigger HIGs than we were expecting having plans

20
00:01:08,120 --> 00:01:12,600
Speaker 1: because the judge that their TPI, their transmission protection instrument,

21
00:01:12,800 --> 00:01:16,920
Speaker 1: was told enough to allow a bigger move to tame inflation,

22
00:01:17,000 --> 00:01:19,559
Speaker 1: which is again surprised on the web side in June

23
00:01:19,560 --> 00:01:22,640
Speaker 1: after they published their latest forecast. So the big focus

24
00:01:22,680 --> 00:01:25,120
Speaker 1: at the moment in the area and at East is

25
00:01:25,280 --> 00:01:29,240
Speaker 1: really on current inflation and trying to get handled on

26
00:01:29,360 --> 00:01:33,280
Speaker 1: this regnant place inflation pressures. Now the big question is

27
00:01:33,280 --> 00:01:36,720
Speaker 1: how good will be the anti fragmantation to these tp

28
00:01:36,880 --> 00:01:39,720
Speaker 1: I uh, it's good that they've agreed on something, but

29
00:01:39,840 --> 00:01:44,360
Speaker 1: of course it is all steel subject to really the

30
00:01:44,360 --> 00:01:47,560
Speaker 1: discretion of the governing counties or some parts of it,

31
00:01:47,680 --> 00:01:51,400
Speaker 1: in particular as taking the fiscal sustainability of the government

32
00:01:51,600 --> 00:01:53,640
Speaker 1: or the country, the surf reign that would need to

33
00:01:53,680 --> 00:01:57,559
Speaker 1: receive the support, and also deciding when to activate when

34
00:01:58,040 --> 00:02:01,400
Speaker 1: the increasing spread on warm kids which would be subject

35
00:02:01,400 --> 00:02:04,120
Speaker 1: to discrestion. And we are not sure how and when

36
00:02:04,240 --> 00:02:06,600
Speaker 1: they can be activated. And I would say that a

37
00:02:06,640 --> 00:02:10,079
Speaker 1: political crisis in Italy probably doesn't think figure on the

38
00:02:10,160 --> 00:02:14,840
Speaker 1: list of rational or rehaysms why they could activateing wait,

39
00:02:14,880 --> 00:02:18,840
Speaker 1: why we we always maybe it's like a NonStop constant

40
00:02:18,840 --> 00:02:21,640
Speaker 1: political crisis in Italy that should always figure into every

41
00:02:21,639 --> 00:02:28,360
Speaker 1: central bankers list. So, as Christine god said during the briefing,

42
00:02:28,760 --> 00:02:32,120
Speaker 1: this is really to address unwarranted market fact notation that

43
00:02:32,280 --> 00:02:37,440
Speaker 1: is not country specific, so some sort of his conversion mechanism, uh,

44
00:02:37,680 --> 00:02:40,080
Speaker 1: which he said that they already have a mechanism. They

45
00:02:40,120 --> 00:02:43,600
Speaker 1: already have a tool it's called OMT to adviss country

46
00:02:43,680 --> 00:02:47,720
Speaker 1: specific predomination is So that's really if it's a political

47
00:02:47,800 --> 00:02:50,880
Speaker 1: crisis in theory, it would be difficult for the governing

48
00:02:50,960 --> 00:02:54,160
Speaker 1: country to activate the tool. So we see how that happens.

49
00:02:54,200 --> 00:02:56,959
Speaker 1: But they have defined the criteria. It's quite it's still

50
00:02:56,960 --> 00:02:59,480
Speaker 1: a relative debate. As I said, a lot of discussion.

51
00:02:59,520 --> 00:03:02,560
Speaker 1: We would you know, um pretty GUPTO was just in

52
00:03:02,760 --> 00:03:06,680
Speaker 1: here talking about the possibility of another sovereign debt crisis

53
00:03:06,720 --> 00:03:08,480
Speaker 1: because of the blo out and spreads. I think we're

54
00:03:08,520 --> 00:03:13,400
Speaker 1: probably well, we're currently pretty pretty pretty safe in that respect,

55
00:03:13,440 --> 00:03:16,600
Speaker 1: but we could get there. That's the trajectory. Is this

56
00:03:16,800 --> 00:03:21,880
Speaker 1: ECB equipped to deal with that kind of thing? It's

57
00:03:22,120 --> 00:03:24,680
Speaker 1: it's one more tool than they didn't have before. It's

58
00:03:24,760 --> 00:03:27,680
Speaker 1: just much more difficult than it was when they first

59
00:03:27,720 --> 00:03:30,079
Speaker 1: launched to empty and when they first because at that

60
00:03:30,120 --> 00:03:32,040
Speaker 1: time it was easy for them to buy a lot

61
00:03:32,080 --> 00:03:34,399
Speaker 1: of government debt because it was serving at the same

62
00:03:34,440 --> 00:03:39,080
Speaker 1: time the support like the monetary podity direction to increase

63
00:03:39,160 --> 00:03:43,320
Speaker 1: in fation on the market fragmentation aspects. So it's much

64
00:03:43,320 --> 00:03:46,440
Speaker 1: more challenging now. It's good that they are in producing

65
00:03:46,440 --> 00:03:49,880
Speaker 1: a new a new tool, but it will it will

66
00:03:49,960 --> 00:03:52,160
Speaker 1: still be subject to a lot of debates on the government.

67
00:03:52,440 --> 00:03:54,440
Speaker 1: But they could have raised rates much. They could have

68
00:03:54,520 --> 00:03:57,680
Speaker 1: raised rates a long time ago. And I realized that,

69
00:03:57,800 --> 00:04:02,119
Speaker 1: you know, um, the FED also out inflation to get

70
00:04:02,160 --> 00:04:05,000
Speaker 1: ahead of it, and and so did um the Bank

71
00:04:05,040 --> 00:04:09,720
Speaker 1: of England. You used to advise Her Majesty's Treasury there.

72
00:04:10,680 --> 00:04:14,000
Speaker 1: Why why is the ECB, you know, the last to

73
00:04:14,120 --> 00:04:18,400
Speaker 1: raise Why why didn't they act sooner? They had a

74
00:04:18,440 --> 00:04:22,000
Speaker 1: different inflation problems. They still have a different inflation problem. Uh,

75
00:04:22,320 --> 00:04:24,640
Speaker 1: most of the inflation in et needs to due to

76
00:04:25,120 --> 00:04:28,640
Speaker 1: energy and food crisis, so out of their control to

77
00:04:28,839 --> 00:04:31,760
Speaker 1: a large extent. It's also that actually we've seen a

78
00:04:31,760 --> 00:04:36,120
Speaker 1: lot of stating in market conditions at the market rates

79
00:04:36,120 --> 00:04:40,200
Speaker 1: for your area, actually more so than in the US,

80
00:04:40,400 --> 00:04:44,919
Speaker 1: at least initially, um, just without changing the rates. So

81
00:04:45,080 --> 00:04:46,919
Speaker 1: they have already. There has been already a lot of

82
00:04:46,920 --> 00:04:50,120
Speaker 1: stating they didn't pace sooner because they had to exhibit

83
00:04:50,160 --> 00:04:53,400
Speaker 1: the asset purchases. Um, they had to make sure actually

84
00:04:53,480 --> 00:04:56,480
Speaker 1: they had the high schools in place. But it doesn't

85
00:04:56,520 --> 00:04:59,200
Speaker 1: mean that they are. They don't need to do as

86
00:04:59,279 --> 00:05:03,960
Speaker 1: much as the just said. All right, maybe thank you

87
00:05:03,960 --> 00:05:06,040
Speaker 1: so much for joining us. May have a cousin euro

88
00:05:06,160 --> 00:05:12,719
Speaker 1: Area economist for Bloomberg Economics. I want to bring our

89
00:05:12,800 --> 00:05:15,920
Speaker 1: good friend, Ed Price. He's a senior fellow, a former bidtish,

90
00:05:16,000 --> 00:05:18,559
Speaker 1: a trade official, senior fellow at n y U. Lots

91
00:05:18,600 --> 00:05:20,760
Speaker 1: going on in Europe. We've been covering it all day.

92
00:05:20,800 --> 00:05:23,279
Speaker 1: Matt's been up since the before the crack of dawn.

93
00:05:23,400 --> 00:05:26,240
Speaker 1: Lot's going on with the e c B. Let's start there.

94
00:05:26,240 --> 00:05:31,920
Speaker 1: ECB raising their benchmarks, connected all connected, fifty basis points um.

95
00:05:32,160 --> 00:05:36,679
Speaker 1: That's in the face of slowing European economic growth, energy crises.

96
00:05:36,920 --> 00:05:39,360
Speaker 1: There are so many cross currents for our friends over

97
00:05:39,400 --> 00:05:42,080
Speaker 1: in Europe. I think that's right. And um, you know

98
00:05:42,440 --> 00:05:44,560
Speaker 1: what does the ECB want to do? It kind of

99
00:05:44,560 --> 00:05:47,080
Speaker 1: wants to do two things. It wants to kill inflation

100
00:05:47,320 --> 00:05:50,400
Speaker 1: and it wants to not kill the European economy. Right,

101
00:05:50,440 --> 00:05:52,159
Speaker 1: so if you if you say, well, look, you know,

102
00:05:52,320 --> 00:05:54,600
Speaker 1: fifty is quite a lot. It's not enough if you

103
00:05:54,640 --> 00:05:58,160
Speaker 1: want to stop inflation. And again we talked about this

104
00:05:58,200 --> 00:05:59,880
Speaker 1: a lot, but I don't know what you do, like

105
00:06:00,000 --> 00:06:02,080
Speaker 1: what is the answer to that? But fifty also can't

106
00:06:02,120 --> 00:06:05,599
Speaker 1: kill an economy, right, they they're just fifty basis points.

107
00:06:05,720 --> 00:06:09,520
Speaker 1: That's now, Let's remember they're very very low. There's still

108
00:06:09,560 --> 00:06:12,120
Speaker 1: below whatever our star it is, whatever you think it is,

109
00:06:12,200 --> 00:06:14,440
Speaker 1: it's definitely more than fifty, right, it's definitely one fifty.

110
00:06:14,480 --> 00:06:16,160
Speaker 1: I mean I would personally say there's no such thing

111
00:06:16,200 --> 00:06:19,680
Speaker 1: as our star because you've got that m just our

112
00:06:19,720 --> 00:06:22,600
Speaker 1: star the natural rate of interest right, So like yeah, right,

113
00:06:22,600 --> 00:06:25,360
Speaker 1: so like this is this is one of the more

114
00:06:25,440 --> 00:06:29,480
Speaker 1: voodoo aspects of economy. But it's basically whatever your guess is,

115
00:06:29,600 --> 00:06:32,120
Speaker 1: and it's probably better equipped to make a guess than

116
00:06:32,160 --> 00:06:35,960
Speaker 1: you or I at a level of level of interest

117
00:06:36,080 --> 00:06:39,560
Speaker 1: rates that is not enough to not high enough to

118
00:06:39,600 --> 00:06:42,680
Speaker 1: slow the economy, but not low enough to spur it forward.

119
00:06:42,720 --> 00:06:45,560
Speaker 1: So just neutral. Yeah, And you're like, you know, you're

120
00:06:45,560 --> 00:06:47,840
Speaker 1: doing things like searching for what the output gap is,

121
00:06:47,880 --> 00:06:50,440
Speaker 1: and you've got your army of economists, and it's a guess.

122
00:06:50,560 --> 00:06:53,000
Speaker 1: And I'd go further than let's say it probably doesn't exist,

123
00:06:53,120 --> 00:06:56,200
Speaker 1: because if you want to look after financial markets, whatever

124
00:06:56,240 --> 00:06:58,240
Speaker 1: our star is, it's probably quite low. And then if

125
00:06:58,279 --> 00:07:00,640
Speaker 1: you want to look after inflation get rid of that problem,

126
00:07:00,680 --> 00:07:03,680
Speaker 1: it's probably higher. Um. So there's probably no such thing

127
00:07:03,720 --> 00:07:05,359
Speaker 1: as all start. I'm going to look at my Twitter

128
00:07:05,440 --> 00:07:09,720
Speaker 1: later to see what happens to me after saying that. Um. Right,

129
00:07:09,760 --> 00:07:12,640
Speaker 1: so here here in the States, fed trum of Powell

130
00:07:12,720 --> 00:07:17,200
Speaker 1: raises rates sevent five basis points. It's a New York, Kuai, California,

131
00:07:17,280 --> 00:07:22,480
Speaker 1: doesn't really matter um vs VI those different states. But

132
00:07:22,560 --> 00:07:24,800
Speaker 1: it's not the same thing in the East New York,

133
00:07:25,280 --> 00:07:28,040
Speaker 1: Hawaii and California. I'll make a ton of money. Yes,

134
00:07:28,400 --> 00:07:30,160
Speaker 1: how about our good friend. Maybe maybe it matters to

135
00:07:30,200 --> 00:07:32,200
Speaker 1: the states that take all of our money all of

136
00:07:32,200 --> 00:07:36,680
Speaker 1: our money. So let's bring that analogy to Europe and Italy.

137
00:07:37,040 --> 00:07:41,040
Speaker 1: So talk to us about how, you know how what

138
00:07:41,040 --> 00:07:43,840
Speaker 1: it's the what Christine the Guard has to balance when

139
00:07:43,880 --> 00:07:49,040
Speaker 1: she's in this rate moving scenario when you have different countries,

140
00:07:49,120 --> 00:07:53,240
Speaker 1: different economic development. So it's a really good point. So okay,

141
00:07:53,280 --> 00:07:56,520
Speaker 1: so borrowing costs You're right, in the US don't matter

142
00:07:56,640 --> 00:08:00,280
Speaker 1: as much as in the your area, and they don't

143
00:08:00,280 --> 00:08:02,400
Speaker 1: matter as much because the spread in the area between

144
00:08:02,560 --> 00:08:04,760
Speaker 1: you know, Tenia borring costs in Italy and Germany is

145
00:08:04,800 --> 00:08:07,440
Speaker 1: as we've said before, essentially an indicator of whether the

146
00:08:07,520 --> 00:08:11,600
Speaker 1: Euro can exist. So the e CBS obviously sitting there thinking,

147
00:08:12,360 --> 00:08:16,200
Speaker 1: we don't want to introduce a an X upper bound

148
00:08:16,400 --> 00:08:18,920
Speaker 1: for Italy, at which point it won't be able to

149
00:08:19,000 --> 00:08:20,760
Speaker 1: function as a government, won't be able to function as

150
00:08:20,800 --> 00:08:22,720
Speaker 1: a state, and we'll have to leave the Euro Area

151
00:08:23,480 --> 00:08:26,520
Speaker 1: because that would be extremely bad. So, by the way,

152
00:08:26,560 --> 00:08:28,520
Speaker 1: you've also got this threat that Russia is going to

153
00:08:28,560 --> 00:08:30,960
Speaker 1: cut off the gas, and you know, there's projections that

154
00:08:31,040 --> 00:08:33,160
Speaker 1: Italy would have a five percent contraction and so on.

155
00:08:33,679 --> 00:08:36,120
Speaker 1: So I think the CBS thinking about these really deep

156
00:08:36,280 --> 00:08:40,000
Speaker 1: structural currency related issues at the same time as in

157
00:08:40,160 --> 00:08:42,599
Speaker 1: public and on the surface of things, talking in the

158
00:08:42,720 --> 00:08:46,800
Speaker 1: normal language of macroeconomics, and it's so tough to deal

159
00:08:46,840 --> 00:08:49,720
Speaker 1: with the gas issues at the same time as they're

160
00:08:49,760 --> 00:08:54,440
Speaker 1: dealing with their persistent lack of a government. Again, they've

161
00:08:54,480 --> 00:08:57,559
Speaker 1: had sixty seven governments and seventy five years. Is that

162
00:08:57,600 --> 00:09:01,760
Speaker 1: the number? Good Lord it's nuts. So but that's just

163
00:09:01,920 --> 00:09:04,800
Speaker 1: how it is in Italy, and frankly, the ECB should

164
00:09:04,840 --> 00:09:08,240
Speaker 1: be prepared for that, um, you know, because it happens

165
00:09:08,280 --> 00:09:11,640
Speaker 1: so often. But it's a very difficult time to see

166
00:09:11,679 --> 00:09:15,200
Speaker 1: spreads widen, and I wonder how far the spread could

167
00:09:15,280 --> 00:09:19,920
Speaker 1: go before it causes, um, a sovereign debt crisis. The

168
00:09:20,000 --> 00:09:22,480
Speaker 1: last one we saw was pretty difficult. That took Mario

169
00:09:22,600 --> 00:09:25,280
Speaker 1: drag to get out of. He's kicking off this one.

170
00:09:25,400 --> 00:09:27,440
Speaker 1: He's kicking off this one. That's very good. You need

171
00:09:27,480 --> 00:09:30,440
Speaker 1: that on a T shirt. Um, whatever, it doesn't take. Yeah,

172
00:09:30,480 --> 00:09:32,199
Speaker 1: I mean, I think the problem is that we don't know.

173
00:09:32,360 --> 00:09:35,080
Speaker 1: But we don't know what that level is. We've been

174
00:09:35,120 --> 00:09:38,040
Speaker 1: obsessed for years as policy makers and economists with this

175
00:09:38,160 --> 00:09:41,920
Speaker 1: thing called the lower bound, which apparently zero. It's not

176
00:09:42,080 --> 00:09:45,280
Speaker 1: wink wink, but apparently zero. Right. Um, But then there's

177
00:09:45,280 --> 00:09:47,600
Speaker 1: there's obviously to your point, that there's this upper bound

178
00:09:47,720 --> 00:09:51,239
Speaker 1: somewhere at which at which point sovereigns and and presumably

179
00:09:51,640 --> 00:09:53,800
Speaker 1: corporates and others are going to hit the wall. So

180
00:09:53,960 --> 00:09:57,640
Speaker 1: we don't know. Um, could be three hundred, fifty, could

181
00:09:57,720 --> 00:10:01,000
Speaker 1: be four hundred, It could be But then of course

182
00:10:01,000 --> 00:10:03,480
Speaker 1: the only way to find out is to get there, right,

183
00:10:03,600 --> 00:10:05,400
Speaker 1: So do you really want to get there? No? And

184
00:10:05,520 --> 00:10:09,080
Speaker 1: that and that's something that's that's my question is if

185
00:10:09,360 --> 00:10:12,400
Speaker 1: we have another crisis, or maybe I say, when we

186
00:10:12,480 --> 00:10:17,040
Speaker 1: have another euro crisis, does that push the European Union

187
00:10:17,240 --> 00:10:19,800
Speaker 1: towards a breakup as it looked like was going to

188
00:10:19,840 --> 00:10:21,599
Speaker 1: happen in two thousand eleven, or does it bring the

189
00:10:21,640 --> 00:10:24,160
Speaker 1: European Union closer together? Did they say enough of this?

190
00:10:24,720 --> 00:10:26,320
Speaker 1: You are to what paulse when he said about how

191
00:10:26,360 --> 00:10:28,640
Speaker 1: the USA hands it, Let's do it like that and

192
00:10:28,760 --> 00:10:31,520
Speaker 1: federalize everything. I think we are. I think you're absolutely

193
00:10:31,600 --> 00:10:34,360
Speaker 1: right federalized. I think that right now we're in the

194
00:10:34,559 --> 00:10:37,559
Speaker 1: articles of confederation stage. If you're making the analogy with

195
00:10:37,600 --> 00:10:40,720
Speaker 1: the US, and my money is on the European Union

196
00:10:40,760 --> 00:10:44,480
Speaker 1: in your area becoming the same thing, getting serious, getting

197
00:10:44,520 --> 00:10:48,440
Speaker 1: that German money into some sort of fiscal mechanism whatever

198
00:10:48,520 --> 00:10:50,920
Speaker 1: it is. Um And by the way, there are a

199
00:10:50,960 --> 00:10:53,079
Speaker 1: lot of indicators that this is kind of happening due

200
00:10:53,120 --> 00:10:55,280
Speaker 1: to external pressures anyway. I mean, we said last time

201
00:10:55,280 --> 00:10:57,760
Speaker 1: I was on the Germans are rearming. That's incredible. So

202
00:10:58,080 --> 00:11:01,319
Speaker 1: my my suggestion to you is that within ten years

203
00:11:01,360 --> 00:11:03,559
Speaker 1: we'll see the United States of Europe de facto, if

204
00:11:03,600 --> 00:11:05,880
Speaker 1: not the jury, if they put together a bill of rights.

205
00:11:06,000 --> 00:11:08,040
Speaker 1: They got to be careful when writing the Second Amendment.

206
00:11:08,200 --> 00:11:12,040
Speaker 1: You watch your punctuation, try and make yourself clear. What

207
00:11:12,280 --> 00:11:16,920
Speaker 1: do you mean, right, A well regulated militia, Right, I mean,

208
00:11:16,960 --> 00:11:19,200
Speaker 1: there's aspects of the Second Amendment that are pretty awesome.

209
00:11:19,240 --> 00:11:21,120
Speaker 1: Come on, so maybe we should we should send them

210
00:11:21,120 --> 00:11:25,000
Speaker 1: over a suggested draft with a fewer commas, maybe real

211
00:11:25,120 --> 00:11:27,599
Speaker 1: quicked the UK? I know it's hot over there. I

212
00:11:27,640 --> 00:11:29,640
Speaker 1: know the folks are you know, really dealing with that.

213
00:11:29,760 --> 00:11:32,280
Speaker 1: But just from an economic perspective, how are things in

214
00:11:32,280 --> 00:11:34,480
Speaker 1: the UK these days? Well, I mean, if you if

215
00:11:34,520 --> 00:11:38,280
Speaker 1: you look at some of the projections, three GDP growth

216
00:11:38,360 --> 00:11:41,440
Speaker 1: goes down to zero, so you guys know about finance,

217
00:11:41,600 --> 00:11:44,199
Speaker 1: zero is a bad number. So there's definitely some sort

218
00:11:44,240 --> 00:11:46,320
Speaker 1: of head winds going on there. But look, I'm hopeful

219
00:11:46,400 --> 00:11:48,800
Speaker 1: that there's going to be a period of structural reform

220
00:11:49,080 --> 00:11:51,319
Speaker 1: and that Britain will essentially do what it did in

221
00:11:51,360 --> 00:11:53,880
Speaker 1: the eighties under Thatcher and go through some sort of

222
00:11:54,000 --> 00:11:57,959
Speaker 1: self inflicted shock but then come out, you know, past

223
00:11:58,000 --> 00:12:00,360
Speaker 1: the curve ahead of the curve on globalization as a result.

224
00:12:00,840 --> 00:12:02,439
Speaker 1: Um so we'll have to see. I don't know, but

225
00:12:02,920 --> 00:12:06,920
Speaker 1: the headline is bad, but medium term good, alright, good stuff.

226
00:12:06,960 --> 00:12:08,760
Speaker 1: I mean, lots of news coming out of Europe. We've

227
00:12:08,800 --> 00:12:12,000
Speaker 1: been uh trying to stay on top of it today

228
00:12:12,040 --> 00:12:14,599
Speaker 1: at Price senior fellow at n y U and a

229
00:12:14,679 --> 00:12:17,800
Speaker 1: former British trade of Fisher. We love getting his thoughts

230
00:12:17,920 --> 00:12:20,839
Speaker 1: on economics, particularly coming out of Europe, coming out of

231
00:12:20,880 --> 00:12:23,640
Speaker 1: the UK and again today the e C B uh,

232
00:12:24,200 --> 00:12:25,920
Speaker 1: you know, being a little bit surprised in the market

233
00:12:25,960 --> 00:12:29,079
Speaker 1: a little bit clearly with a fifty point increase in

234
00:12:29,320 --> 00:12:34,000
Speaker 1: their base borrowing rate uh FED coming up July. That's

235
00:12:34,040 --> 00:12:36,160
Speaker 1: kind of where all eyes are now as we think

236
00:12:36,160 --> 00:12:38,599
Speaker 1: about these markets and where rates are going visa v

237
00:12:39,040 --> 00:12:46,440
Speaker 1: this economy, this this Bloomberg. All right, we got rates rising.

238
00:12:46,640 --> 00:12:49,600
Speaker 1: We've had a brutal first half of the year across

239
00:12:49,679 --> 00:12:52,920
Speaker 1: the fixed income specter spectrum, and that includes high yield.

240
00:12:53,120 --> 00:12:55,360
Speaker 1: And we talked high yield. We talk Ken Monahan, co

241
00:12:55,520 --> 00:12:58,440
Speaker 1: director of high Yield at a munday US. He joins

242
00:12:58,559 --> 00:13:01,320
Speaker 1: us in our Bloomberg Interact a broker studio. Ken, thanks

243
00:13:01,360 --> 00:13:06,480
Speaker 1: so much for joining us. Declining corporate bond index first

244
00:13:06,559 --> 00:13:08,520
Speaker 1: half of the year. We've never seen that, have we.

245
00:13:08,880 --> 00:13:11,360
Speaker 1: You know, it's been a miserable, miserable year thus far

246
00:13:11,440 --> 00:13:13,679
Speaker 1: in ext income And it's not just how yield but

247
00:13:13,720 --> 00:13:16,600
Speaker 1: how you'll certainly take it on the chin. So uh,

248
00:13:17,280 --> 00:13:20,319
Speaker 1: If from an equities perspective, and obviously Paul and I

249
00:13:20,440 --> 00:13:22,360
Speaker 1: have grown up kind of plain ventil equities, I would

250
00:13:22,440 --> 00:13:24,960
Speaker 1: say that's time to go in there and buy. I mean,

251
00:13:25,000 --> 00:13:28,959
Speaker 1: there is legit blood in the streets, to paraphrase possibly

252
00:13:29,040 --> 00:13:33,920
Speaker 1: Benjamin Graham. Um, is that not the case for everybody else? Well?

253
00:13:33,960 --> 00:13:36,120
Speaker 1: I I think it is, and it's gonna be at

254
00:13:36,200 --> 00:13:38,040
Speaker 1: some point. But I think right now what people are

255
00:13:38,120 --> 00:13:41,000
Speaker 1: concerned about is is the FED gonna tip us over

256
00:13:41,120 --> 00:13:43,719
Speaker 1: into a recession or we're gonna eke this through with

257
00:13:43,840 --> 00:13:46,959
Speaker 1: the maybe modest growth that probably is subpar. And I

258
00:13:47,000 --> 00:13:49,920
Speaker 1: think that that's the big question. If we go into recession,

259
00:13:49,960 --> 00:13:52,240
Speaker 1: people are concerned that spreads will back out further and

260
00:13:52,440 --> 00:13:55,360
Speaker 1: bond prizes will drop further. If we don't, then maybe

261
00:13:55,559 --> 00:13:59,040
Speaker 1: it's an attractive by right now. All right, So if

262
00:13:59,120 --> 00:14:02,280
Speaker 1: we wanted to dip bar tow in the high yield space,

263
00:14:02,640 --> 00:14:04,400
Speaker 1: I still have a specter that I might have a

264
00:14:04,520 --> 00:14:08,079
Speaker 1: recession sometimes in my investment outlook of the next couple

265
00:14:08,120 --> 00:14:10,720
Speaker 1: of years. So does that suggests that I really try

266
00:14:10,800 --> 00:14:13,800
Speaker 1: to just focus on the highest quality or do I

267
00:14:13,840 --> 00:14:16,280
Speaker 1: still try to reach for some better yield. You know,

268
00:14:16,360 --> 00:14:18,319
Speaker 1: it's interesting if you look, Paul, at the beginning of

269
00:14:18,440 --> 00:14:22,960
Speaker 1: this year, when people's major concern with rates duration was

270
00:14:23,080 --> 00:14:26,440
Speaker 1: driving the market, so double bees underperformed and single bees

271
00:14:26,440 --> 00:14:29,520
Speaker 1: and triple c's outperformed. That shifted in May when it

272
00:14:29,600 --> 00:14:34,040
Speaker 1: became clear that the concerns about inflation were more significant

273
00:14:34,080 --> 00:14:35,760
Speaker 1: and the Fed really had to get its act together.

274
00:14:36,160 --> 00:14:38,360
Speaker 1: Then we started to see double bees fade and single

275
00:14:38,440 --> 00:14:40,920
Speaker 1: bees and triple c is underperformed. And that's where we

276
00:14:41,000 --> 00:14:42,840
Speaker 1: are right now. Single bees are a little under the

277
00:14:42,880 --> 00:14:45,840
Speaker 1: double b sector. We would suggest you're probably pretty safe

278
00:14:45,880 --> 00:14:48,640
Speaker 1: and most double bees right now. If you type in

279
00:14:48,800 --> 00:14:54,000
Speaker 1: D I S go and then UM, you click the

280
00:14:54,040 --> 00:14:58,240
Speaker 1: button historical charts instead of just the spaghetti of numbers

281
00:14:58,280 --> 00:15:00,920
Speaker 1: that you see there UM number of distress bonds traded

282
00:15:01,040 --> 00:15:04,000
Speaker 1: distress issuers. We've spiked up again, not as high as

283
00:15:04,080 --> 00:15:07,560
Speaker 1: we were in March of UM. But where are we going?

284
00:15:08,400 --> 00:15:10,480
Speaker 1: Where are we going on? This chart. Well, I think

285
00:15:10,560 --> 00:15:12,920
Speaker 1: from our perspective, the good news is if we have

286
00:15:13,040 --> 00:15:15,600
Speaker 1: a recession, it's likely to be a pretty mild one.

287
00:15:15,640 --> 00:15:17,440
Speaker 1: And and I'm not sure we're going to have a recession,

288
00:15:17,720 --> 00:15:19,520
Speaker 1: but you know, there are some out there suggesting that

289
00:15:19,600 --> 00:15:22,880
Speaker 1: defaults could hit ten percent by twenty four, which is

290
00:15:22,960 --> 00:15:25,240
Speaker 1: like a great financial crisis level. Correct. And I think

291
00:15:25,280 --> 00:15:27,480
Speaker 1: that's a ridiculous number if you're looking at it from

292
00:15:27,520 --> 00:15:29,640
Speaker 1: a bottom up basis, and you're looking at the individual

293
00:15:29,720 --> 00:15:31,880
Speaker 1: sectors and trying to figure out what's going to hit

294
00:15:31,960 --> 00:15:33,760
Speaker 1: the fan. It's kind of hard to get to that

295
00:15:33,920 --> 00:15:36,520
Speaker 1: kind of number when you do look at uh, look

296
00:15:36,560 --> 00:15:38,520
Speaker 1: at it from bottoms up and and and study the

297
00:15:38,560 --> 00:15:40,840
Speaker 1: individual sectors. What do you like? Well, I think you

298
00:15:40,880 --> 00:15:43,000
Speaker 1: know that there are sectors out there that are pretty safe.

299
00:15:43,080 --> 00:15:46,360
Speaker 1: Cable is largely safe. We would suggest that you've got

300
00:15:46,440 --> 00:15:49,920
Speaker 1: sectors money, the healthcare sector is safe. Um, we would

301
00:15:49,960 --> 00:15:53,160
Speaker 1: suggest that much of telecom is pretty safe. And energy,

302
00:15:53,320 --> 00:15:56,360
Speaker 1: which has really been you know, a big bankruptcy candidate,

303
00:15:56,480 --> 00:15:59,040
Speaker 1: and in previous years particularly, a lot of them got

304
00:15:59,120 --> 00:16:02,240
Speaker 1: pulled down in each twenty that's obviously got the winded.

305
00:16:02,240 --> 00:16:04,480
Speaker 1: It's back right now. Is a T T A high

306
00:16:04,520 --> 00:16:08,720
Speaker 1: yield spiritus at investment grade. Well I noticed the A T. Yeah, hard,

307
00:16:08,840 --> 00:16:11,400
Speaker 1: but it's it's still investment grade. And they've been very

308
00:16:11,520 --> 00:16:14,440
Speaker 1: protective of that investment grade rating because they've got a

309
00:16:14,480 --> 00:16:16,080
Speaker 1: lot of financing to do, because I know they took

310
00:16:16,120 --> 00:16:18,160
Speaker 1: their free cash flow down a couple of billion dollars

311
00:16:18,240 --> 00:16:20,480
Speaker 1: their outlook and I'm just I'm just reaching out to

312
00:16:20,600 --> 00:16:23,240
Speaker 1: some you know, bond and als saying how bad is this?

313
00:16:23,600 --> 00:16:25,480
Speaker 1: Is this for A T T? But it certainly was unexpected.

314
00:16:25,560 --> 00:16:27,520
Speaker 1: That's the type of thing when you think about telecommon cable.

315
00:16:27,800 --> 00:16:31,000
Speaker 1: They're good free cash flow stories until they're not because

316
00:16:31,000 --> 00:16:32,880
Speaker 1: there's a lot of operating leverage there right there is.

317
00:16:32,960 --> 00:16:34,600
Speaker 1: And I think but I think we've been we've been

318
00:16:34,640 --> 00:16:36,800
Speaker 1: thinking that they're going to maintain that investment grade rating.

319
00:16:37,400 --> 00:16:40,080
Speaker 1: I gotta talk with my colleagues post todays, obviously, but

320
00:16:40,360 --> 00:16:42,200
Speaker 1: I think that our our our thought with that would

321
00:16:42,240 --> 00:16:44,560
Speaker 1: remain the same. Yeah, boy, A T and T big

322
00:16:44,640 --> 00:16:47,320
Speaker 1: big news out of their stocks down a big. Ken Monahan,

323
00:16:47,760 --> 00:16:49,600
Speaker 1: thanks so much for joining us. Ken Monahan's a co

324
00:16:49,800 --> 00:16:54,080
Speaker 1: director of High Yield for a Mundi US and like me,

325
00:16:54,280 --> 00:16:57,960
Speaker 1: a former UH player at Solomon Brothers. Where you are

326
00:16:58,000 --> 00:17:01,000
Speaker 1: Solomon Brothers alumni along with some other guy. Yeah, yeah,

327
00:17:01,160 --> 00:17:02,760
Speaker 1: is he's sitting right over there. I think he's sitting

328
00:17:02,880 --> 00:17:06,639
Speaker 1: right over there in the good seats. So we appreciate it.

329
00:17:11,040 --> 00:17:12,920
Speaker 1: All right, Let's check in with Barry red Holt's post

330
00:17:13,000 --> 00:17:16,680
Speaker 1: of Masters in Business, uh Chairman and chief investment Officer

331
00:17:16,760 --> 00:17:19,720
Speaker 1: Red Holts Wealth Management. Barry, let's start with if you

332
00:17:19,720 --> 00:17:22,720
Speaker 1: don't mind Europe, we've kind of had a European focused today,

333
00:17:22,800 --> 00:17:27,840
Speaker 1: the ECB, Mario draggy stepping down. Um, we've got you know,

334
00:17:28,119 --> 00:17:30,960
Speaker 1: gas coming back on or not so coming back on,

335
00:17:31,200 --> 00:17:34,800
Speaker 1: lots of issues coming out of Europe today. As a

336
00:17:34,920 --> 00:17:37,639
Speaker 1: fund manager here in the US, how do you kind

337
00:17:37,680 --> 00:17:41,600
Speaker 1: of put that into perspective? Well, I'm excited. I'm excited

338
00:17:41,600 --> 00:17:45,800
Speaker 1: about the euro parody and do some traveling overseas with

339
00:17:45,920 --> 00:17:50,920
Speaker 1: a very strong dollar. That's that's pretty uh impressive. But look,

340
00:17:51,800 --> 00:17:56,120
Speaker 1: you know, Europe is following the United States and they're

341
00:17:56,240 --> 00:18:00,680
Speaker 1: raising rates because we're raising rates. They have inflation of inflation.

342
00:18:02,359 --> 00:18:07,520
Speaker 1: It's a global economy. It's very challenging to treat one

343
00:18:07,760 --> 00:18:12,199
Speaker 1: part of the developed world very differently from another. Uh.

344
00:18:12,520 --> 00:18:16,160
Speaker 1: So you know, we We've just finished a ten year

345
00:18:16,359 --> 00:18:20,320
Speaker 1: or twelve year period of US out performance versus Europe.

346
00:18:21,600 --> 00:18:25,439
Speaker 1: I'm waiting for that wheel, that cycle to change. So far,

347
00:18:25,560 --> 00:18:30,320
Speaker 1: we're seeing no signs it's gonna happen anytime soon. UM.

348
00:18:30,840 --> 00:18:33,359
Speaker 1: As a US investor or, your clients, who are I

349
00:18:33,720 --> 00:18:38,320
Speaker 1: assume mostly investors with US, how much how important is

350
00:18:38,359 --> 00:18:41,320
Speaker 1: it to follow you know, the latest new government in

351
00:18:41,440 --> 00:18:45,800
Speaker 1: Italy or Rischi Sunac versus liz Trust and the UK

352
00:18:46,480 --> 00:18:51,080
Speaker 1: or UM, you know the Russian gas situation. How much

353
00:18:51,080 --> 00:18:54,040
Speaker 1: does it matter to to U S investors? Well, if

354
00:18:54,119 --> 00:18:58,280
Speaker 1: you want to be an informed individual, it certainly doesn't

355
00:18:58,359 --> 00:19:00,200
Speaker 1: hurt to know what's going on in the con tent

356
00:19:01,200 --> 00:19:05,520
Speaker 1: in the continent. But generally speaking, as an investor, all

357
00:19:05,600 --> 00:19:10,600
Speaker 1: that stuff is noise and meaningless. You're buying broad assets,

358
00:19:10,680 --> 00:19:14,440
Speaker 1: so you have a diversified portfolio and you're really just

359
00:19:14,840 --> 00:19:18,479
Speaker 1: not paying attention to the day to day stuff. How

360
00:19:18,560 --> 00:19:22,200
Speaker 1: many governments has Italy had and since World War Two?

361
00:19:23,840 --> 00:19:28,240
Speaker 1: I mean, it's a full time job tracking Italian politics.

362
00:19:28,680 --> 00:19:34,360
Speaker 1: So why does does any US based investor, other than

363
00:19:34,480 --> 00:19:38,920
Speaker 1: to be a well rounded, wealth informed individual have to

364
00:19:39,080 --> 00:19:41,840
Speaker 1: track the specifics of what's happening there. It's it's not

365
00:19:42,040 --> 00:19:45,320
Speaker 1: crucial to them, all right. What I thought was interesting

366
00:19:45,359 --> 00:19:48,440
Speaker 1: out of the earnings news flow today it was a

367
00:19:48,680 --> 00:19:52,439
Speaker 1: T and T stuck getting crushed. Now they Barry called

368
00:19:52,440 --> 00:19:57,800
Speaker 1: out some of their clients not paying their phone bill. Man,

369
00:19:57,920 --> 00:20:03,360
Speaker 1: that says something about the consumer. I well, those kinds

370
00:20:03,400 --> 00:20:07,240
Speaker 1: of things. We've seen some credit card delinquencies tick up.

371
00:20:07,520 --> 00:20:11,080
Speaker 1: We've seen it always starts in the worst of the

372
00:20:11,400 --> 00:20:16,280
Speaker 1: automobile loans. So like housing, there's subprime loans and there's

373
00:20:16,359 --> 00:20:21,639
Speaker 1: sub subprime loans. The differences. If you have the weakest credit,

374
00:20:22,640 --> 00:20:26,480
Speaker 1: a car company is going to install literally a kill switch,

375
00:20:26,560 --> 00:20:29,480
Speaker 1: and if you stop making payments, they shut the car

376
00:20:29,600 --> 00:20:31,720
Speaker 1: and they go get it. They know exactly where it is.

377
00:20:31,840 --> 00:20:35,800
Speaker 1: So around the edges we're seeing these things tick up.

378
00:20:36,760 --> 00:20:40,200
Speaker 1: It's not significant yet. It's certainly not a weight oh nine.

379
00:20:40,640 --> 00:20:42,600
Speaker 1: But you pay attention to the ebbs and flows of

380
00:20:42,680 --> 00:20:46,440
Speaker 1: these because you want to know is the household in

381
00:20:46,640 --> 00:20:50,800
Speaker 1: good shape or are they dealing with financial pressures that

382
00:20:51,480 --> 00:20:55,280
Speaker 1: could affect consumer spending, corporate revenues and profits. And the

383
00:20:55,359 --> 00:21:00,359
Speaker 1: other question is, um how are companies deploying capital or

384
00:21:00,800 --> 00:21:03,840
Speaker 1: are they starting to put up barriers as well. We've

385
00:21:04,080 --> 00:21:09,360
Speaker 1: had a number of concerning uh job cut stories, starting

386
00:21:09,440 --> 00:21:12,040
Speaker 1: with the kind of Apple may cut jobs in some

387
00:21:12,280 --> 00:21:14,320
Speaker 1: units next year Scoop at the beginning of the week.

388
00:21:14,600 --> 00:21:19,719
Speaker 1: But now we've got Um, Microsoft, Google, Lift, even Ford

389
00:21:20,440 --> 00:21:24,800
Speaker 1: plans to cut eight thousand jobs. I mean, I'm desperately

390
00:21:25,119 --> 00:21:27,880
Speaker 1: trying to buy any car I see on the lot.

391
00:21:28,400 --> 00:21:31,000
Speaker 1: Why are they cutting jobs now? So Ford is a

392
00:21:31,240 --> 00:21:35,520
Speaker 1: different case and the technology companies. Ford specifically said they're

393
00:21:35,520 --> 00:21:38,080
Speaker 1: going to reduce some headcount in order to be able

394
00:21:38,119 --> 00:21:42,760
Speaker 1: to fund further expansion of their ev production and sales.

395
00:21:43,760 --> 00:21:46,959
Speaker 1: So Ford is moving into the future as aggressively as

396
00:21:47,000 --> 00:21:51,000
Speaker 1: they can. When you look at Google, Apple, Microsoft, Amazon,

397
00:21:51,119 --> 00:21:54,680
Speaker 1: go town the list six months ago, they were desperate

398
00:21:54,720 --> 00:22:00,320
Speaker 1: to hire people, and arguably we're over hiring people. We're

399
00:22:00,400 --> 00:22:03,520
Speaker 1: basically anybody who could father a Mira and and had

400
00:22:03,600 --> 00:22:08,080
Speaker 1: the qualifications was offered a job at a certain point.

401
00:22:08,840 --> 00:22:12,280
Speaker 1: Doesn't take a whole lot of economic slowing for these

402
00:22:12,400 --> 00:22:15,880
Speaker 1: large corporations to look and say, all right, we're good

403
00:22:16,040 --> 00:22:20,760
Speaker 1: for now. Let's catch our breath, let's digest these these

404
00:22:21,160 --> 00:22:24,720
Speaker 1: new hires, get people integrated into their jobs, and see

405
00:22:24,800 --> 00:22:30,320
Speaker 1: if that solves the employee shortfall that everybody's been dealing

406
00:22:30,359 --> 00:22:33,280
Speaker 1: with for the past couple of years. Alright, Baty all

407
00:22:33,320 --> 00:22:35,560
Speaker 1: I know about the car businesses. Matt still waiting for

408
00:22:35,840 --> 00:22:38,520
Speaker 1: Chevy Silverado. I think it's still stuck in Mexico. I

409
00:22:38,600 --> 00:22:40,480
Speaker 1: think it's still stuck in Mexico. I can't get any

410
00:22:40,640 --> 00:22:45,040
Speaker 1: updates on this except the chips then, exactly exactly. It's

411
00:22:45,119 --> 00:22:47,960
Speaker 1: missing chips, that's all I know. And it's sitting on

412
00:22:48,000 --> 00:22:51,000
Speaker 1: a lot outside the factory with like thousands and thousands

413
00:22:51,040 --> 00:22:52,840
Speaker 1: of other trucks. And that's on a first name basis

414
00:22:52,920 --> 00:22:56,879
Speaker 1: with the CEO Afford. You'd think he could get this GM.

415
00:22:59,000 --> 00:23:01,640
Speaker 1: I want to marry as well and Mark. I haven't

416
00:23:01,720 --> 00:23:03,439
Speaker 1: called them on this issue. I might have to call

417
00:23:03,480 --> 00:23:05,600
Speaker 1: him one half. All right, Barry, thanks so much for

418
00:23:05,720 --> 00:23:09,080
Speaker 1: joining us. Barry rid Hilts, host of Masters in Business,

419
00:23:09,160 --> 00:23:15,760
Speaker 1: chairman and chief investment officer Ridholt's Wealth Management. Thanks for

420
00:23:15,840 --> 00:23:19,240
Speaker 1: listening to the Bloomberg Markets podcast. You can subscribe and

421
00:23:19,400 --> 00:23:23,440
Speaker 1: listen to interviews with Apple Podcasts or whatever podcast platform

422
00:23:23,480 --> 00:23:26,800
Speaker 1: you prefer. I'm Matt Miller. I'm on Twitter at Matt

423
00:23:26,840 --> 00:23:30,640
Speaker 1: Miller three on False Sweeney, I'm on Twitter at pt

424
00:23:30,800 --> 00:23:33,760
Speaker 1: Sweeney before the podcast. You can always catch us worldwide

425
00:23:33,800 --> 00:23:34,680
Speaker 1: at Bloomberg Radio