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Speaker 1: This is Bloomberg Surveillance. Every time something comes along that

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Speaker 1: worries the FED, it seems like it's a minimum three

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Speaker 1: months delay. The practice is that leaving the single market,

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Speaker 1: it's forty three year marriage. And who knows what the

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Speaker 1: volt looks like in me scenario. Looking at a broad

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Speaker 1: range of data over a long period of time tells

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Speaker 1: the story of an economy that is moving steadily forward.

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Speaker 1: Bloomberg Surveillance your link to the world of economics, finance,

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Speaker 1: and investment on Bloomberg Radio. Good morning everyone, Michael McKee

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Speaker 1: and Tom Kane worldwide, Bloomberg Surveillance. Good morning on Sirius

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Speaker 1: next M Channel one nineteen across the nation, across Canada,

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Speaker 1: Bloomberg twe Boston FM in Washington and Baltimore, Bloomberg nine

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Speaker 1: sixty the Bay Area. Good early morning across the West Coast,

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Speaker 1: and a particular good morning to New York City, and

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Speaker 1: a most gorgeous day here in New York. It is

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Speaker 1: a Friday. The good news is I really needed a

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Speaker 1: breather after the intensity, the true intensity that we saw

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Speaker 1: on Wednesday and then into yesterday, and of course the

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Speaker 1: horrific um. I use this word with with with great

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Speaker 1: sadness assassination of a member of Parliament in England. They

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Speaker 1: have shut down the Brexit Remain debate. Prime Minister Cameron

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Speaker 1: was to travel to Gibraltar with all of that symbolism

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Speaker 1: as they vote within the EU reperfriendom. He canceled that

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Speaker 1: trip and all other cancelations as well. Just a very

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Speaker 1: challenging two days and it's nice today to recalibrate. Edward

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Speaker 1: Shing will join Edmund Sing when we'll join us here

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Speaker 1: in a moment. He's just brilliant on dynamics within the market.

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Speaker 1: Bloomberg Surveillance is always brought you by Cone Resnick. Look Ahead,

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Speaker 1: Gain insight, imagine more, get forward thinking advice that can

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Speaker 1: help turn business possibilities in the business opportunities. Find out

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Speaker 1: more at Cone rest Nick dot com. A few housekeeping notes.

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Speaker 1: Michael McKee and I will travel for the first time

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Speaker 1: and surveillance history. We will travel on the same airplane.

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Speaker 1: We've never done that when we go on the surveillance

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Speaker 1: goulf stream, one of us always has to stay on

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Speaker 1: the ground for the usual safety considerations. We will both

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Speaker 1: travel together across the Atlantic. Thank you British Airways. To

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Speaker 1: see one Franciaqua and we will enjoy our London hospitality

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Speaker 1: of our headquarters there. Uh, through the entire week. So

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Speaker 1: Brexit on Thursday and the vote remain on Thursday, I

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Speaker 1: should say, to be balanced. And then really the important day,

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Speaker 1: the analysis Friday, is the United Kingdom picks up the

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Speaker 1: pieces and tries to ave forward whatever the outcome. Uh.

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Speaker 1: Maybe so really looking forward to that all in all,

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Speaker 1: futures negative to Dow futures negative seven Everge Shing rights

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Speaker 1: brilliantly at Emp Perry Bar and the dynamics of the market. Um,

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Speaker 1: let's let me get right to the point. And then

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Speaker 1: you and your team basically say VIX stock market volatility,

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Speaker 1: and you say, look out below, what do you see? Well,

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Speaker 1: I think, Tom, if we look at Europe, clearly, what

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Speaker 1: we can see if we look at the equivalent of

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Speaker 1: VIX to the European stock market, which is called the

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Speaker 1: v Stocks index, Clearly that has been on a tear

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Speaker 1: and has almost doubled in level up to a nearly forty.

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Speaker 1: So what we're really looking at here is looking at

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Speaker 1: the spread between the v stocks which is clearly heavily

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Speaker 1: impacted by all the various political events that are happening

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Speaker 1: or about to happen across Europe. And on the other hand,

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Speaker 1: the VIX, which should be of course less impacted by

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Speaker 1: these by these forthcoming events, and you can see the

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Speaker 1: spread and volatility between these two is really absolutely at

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Speaker 1: a twelve month high. So when I say look out below,

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Speaker 1: what I'm saying is that there has in a huge

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Speaker 1: boost of the upside, but in fact, in fact maybe

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Speaker 1: in the short term, things that go a little bit

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Speaker 1: ahead of themselves at least when we talk about volatility,

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Speaker 1: and so there is room for that side moving forwards

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Speaker 1: when we revert to the mean, whether remain or Brexit.

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Speaker 1: Can you do that ex ante now Monday, Tuesday, Wednesday,

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Speaker 1: or do you by definition have to act ex post

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Speaker 1: and wait for the result. Well, I think what I

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Speaker 1: can see what clients are doing, and certainly clients and

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Speaker 1: investors generally in Europe are on more in the weight

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Speaker 1: and sea camp than to do something now camp. I

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Speaker 1: think because there is so much uncertainty around this particular event,

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Speaker 1: it is clear that investors are clearly it's not because

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Speaker 1: it's not even binary, tom, I think there are a

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Speaker 1: whole host of other considerations. Whatever the outcoming. The boat

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Speaker 1: and certainly WEDMP have no view on on that. Uh,

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Speaker 1: whatever happens, there will be a whole bunch of other uncertainties.

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Speaker 1: I think that will remain or become even more relevant

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Speaker 1: after next week. And I think investors are therefore thinking, well,

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Speaker 1: you be good to see the dust set a little bit,

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Speaker 1: or I try to lay on my plan of attack.

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Speaker 1: I mean, I tried forced to keep my view out

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Speaker 1: of it, and Mike and I are as guilty as

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Speaker 1: anyone of sometimes imparting her view. And I'm not going

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Speaker 1: to start that here, but certainly Edmund, the polarity between

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Speaker 1: people saying that gyrations are Brexit remain centric versus there's

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Speaker 1: a lot of other stuff going on. That's an amazing

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Speaker 1: polarity debate. Is there a way to play that debate

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Speaker 1: to make money? They're always waits listening, So I gotta

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Speaker 1: have you able to afford cocktails against broker. On the

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Speaker 1: other I got, you know, come on, I gotta buy

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Speaker 1: Mike drinks at rules. So I help me here, how

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Speaker 1: do I? Okay? So what I would do is I

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Speaker 1: would actually abstract away from this and I would say

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Speaker 1: these are very short term events. The longer term one

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Speaker 1: of the key elements, and one of the key indicators

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Speaker 1: that I've been looking at is one that perhaps has

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Speaker 1: not looked at very often, which is called a cop

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Speaker 1: Hock curve. I don't know if you've heard of it,

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Speaker 1: but it's this long term technical insticator that uses eleven

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Speaker 1: months and fourteen months moving averages. And let's not go

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Speaker 1: into the details, but let's go straight to the conclusion.

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Speaker 1: The conclusion is this indicator only typically flashes at upside

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Speaker 1: by signal once every six odd years. This month, or

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Speaker 1: rather at the end of May, because it's a monthly indicator.

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Speaker 1: At the end of May flashed exactly that by signal

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Speaker 1: both the S and P five index and also for

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Speaker 1: the UK which is interesting. Remember that for the SP

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Speaker 1: five index, since this thing has has gone off, let's

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Speaker 1: say twenty times and the SMP has been higher twelve

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Speaker 1: months later on subsequently, a nineteen of those twenty reliable indicators,

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Speaker 1: what's it called C O P, P O t K.

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Speaker 1: So again it's a very it's a very long term

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Speaker 1: monthly thing. But what it does tell you today is

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Speaker 1: that there could be substantial upside ahead. And when I've

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Speaker 1: looked at my calculations, on average, the median upside for

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Speaker 1: the twelve months after visiting Flashes A boy single is No,

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Speaker 1: It's not small beer, Mike mr in Europe. Mike, I'm really, really,

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Speaker 1: really good at this. I have never heard of E. S. C.

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Speaker 1: Co Pocks curve from Baron's Magazine, October of nineteen sixty two.

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Speaker 1: This is why, Mike, we have Edmund Singer. We always

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Speaker 1: learned something. You were supposed to be reading about the

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Speaker 1: cook curve two, but you were watching the Davy crack

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Speaker 1: At TV show and I was watching The Red Sox

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Speaker 1: go eighteen years in a row in fourth place. Continue.

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Speaker 1: How busy are you these days? I mean we're hearing

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Speaker 1: stories that there is an enormous its Suddenly investors have

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Speaker 1: started to take the idea of Brexit seriously and there's

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Speaker 1: been an enormous rush into derivative hedges. Well, absolutely, there

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Speaker 1: has been a lot of hedging going on. Clearly, to

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Speaker 1: some degree there has been an acceleration, which is exactly

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Speaker 1: why volatility has written. The levels of implied volatility have

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Speaker 1: written because clearly, as the polls remained so close, investors

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Speaker 1: have decided that they better put some hedges on just

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Speaker 1: in case. But I think, um, really, what we want

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Speaker 1: to do is look forward beyond that, and I think

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Speaker 1: there will be a lot to be done potentially after

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Speaker 1: these days. And don't forget there are the whole number

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Speaker 1: of elections. It's not just this vote in the UK.

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Speaker 1: We have Spanish elections round two. Well, of course have

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Speaker 1: US presidential elections, which people momentarily seem to have forgotten about.

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Speaker 1: But of course in November is not that far away either,

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Speaker 1: So really, charge doctor Shank Paul Ryan has not forgotten

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Speaker 1: about the presidential? Is anybody Is anybody putting money to

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Speaker 1: work on the election? Yet? The US election? The presidential

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Speaker 1: the US not really No, I would say I would

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Speaker 1: I would say not at this moment. There's still very

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Speaker 1: much await and see attitude, and I think they want

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Speaker 1: to see the they want to see the the think

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Speaker 1: the clouds clear. In Europe before taking those tubs of positions,

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Speaker 1: it's always let's take Yeah, the market almost is quite

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Speaker 1: binary in that sense. They can only focus on one

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Speaker 1: thing at the times. Yeah, so let's just focus on

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Speaker 1: one crisis at the side. Let's get through the first prisis,

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Speaker 1: then let's try to figure out what I gain plans

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Speaker 1: should be for the next one. I think our game

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Speaker 1: plan should be, you know, go away for the summer

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Speaker 1: and cop changes come back. Let's continue with this, Edminshing,

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Speaker 1: I love this, folks, and I just put out on

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Speaker 1: Twitter the Compacker CEO P P O C K and

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Speaker 1: you and I have to get smarter about that are

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Speaker 1: real value they have? Edminshing under that, he will continue

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Speaker 1: with US lots to talk about particul lee in f

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Speaker 1: X and in the fixed income space. What a week again,

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Speaker 1: it's been it really the seismic change, even with yields

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Speaker 1: higher by two basis points today, the US tenure one

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Speaker 1: point six zero percent. The German tenure after history made

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Speaker 1: earlier this week is positive point zero zero four will

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Speaker 1: take it. Even Swiss yields get a little bit of

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Speaker 1: a breather today Gold takes a break under thirteen under

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Speaker 1: the ounce, down seven dollars one the ounce. But again,

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Speaker 1: if you were away for a week or two and

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Speaker 1: you came back, Mike, what have you noticed the Pittsburgh

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Speaker 1: Penguins won the Stanley cost. Let's start there, and then

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Speaker 1: you've got the idea of seismic changes in the markets

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Speaker 1: as well. Futures and negative two time to check in

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Speaker 1: with like a bar now and get the latest world

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Speaker 1: in national headlines. Michael, Mike Tom, thank you very much.

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Speaker 1: Campaigning over whether Britain should leave the EU has been

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Speaker 1: suspended for a second day today after the murder of

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Speaker 1: labor lawmaker Joe Cox. She was shot dead in the

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Speaker 1: town of Birstall in northern England yesterday. Cox, who was

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Speaker 1: forty one, was a strong supporter of Britain remaining in

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Speaker 1: the EU. The Kremlin has a strong reaction to reports

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Speaker 1: about an internal document in which dozens of US State

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Speaker 1: Department employees call for military action against Syrian President of

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Speaker 1: Sans Forces. It's produced a stern warning against Washington striking

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Speaker 1: Assuans Forces, saying it would fuel turmoil across the entire region.

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Speaker 1: The second black box has been found from each of

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Speaker 1: the air Flight eight oh four crashed in the Mediterranean

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Speaker 1: last month. Global News twenty four hours a day, powered

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Speaker 1: by our its twenty four hundred journalists and more than

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Speaker 1: a hundred fifty news bureaus around the world. I'm Michael Barr,

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Speaker 1: Mike Tom, Michael Barr, thanks so much. Futures negative three down,

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Speaker 1: futures negative seven. If you need to get ready for

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Speaker 1: the weekend. Brilliance within the Derivative Markets, Edmund shing with

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Speaker 1: b MP, Perry with us, Stay with us. The news

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Speaker 1: This is a Bloomberg Business Flash, And good morning with

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Speaker 1: your Bloomberg Business Flash. I'm John Tucker on the Bloomberg

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Speaker 1: News Room. Let's say hea up to the first word

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Speaker 1: breaking news test now for today's morning call, and here's

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Speaker 1: Bill Malogney. Good morning, John. US futures are quiet today,

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Speaker 1: with our futures currently unchanged, SV futures down to and

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Speaker 1: NAZAC futures declined by a point. The US ten yield

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Speaker 1: at one point six percent and the Knik gained one

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Speaker 1: point one percent overnight. Well. Europe is also trading higher.

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Speaker 1: Italy climbs two point in percent on the Economic Frinday

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Speaker 1: eight thirty. Housing starts at eleven o'clock ECB Stroggi speaks

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Speaker 1: in Munich after Debellis night finished our Q and views

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Speaker 1: and Q for results top to estimates, Oracle's revenue beat

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Speaker 1: on the strength of cloud based products, and Smith and

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Speaker 1: Wesson beat in dealing news revel and by Elizabeth Arden

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Speaker 1: for fourteen dollars a share and another those lumber liquidators

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Speaker 1: settles with regulator shares her up twelve percent pre market.

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Speaker 1: Finally sent me your walls sheet upgrades and downgrades. Philip

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Speaker 1: Morris raised over eight over at JP Morgan Philip sixty

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Speaker 1: six cut to equate high Frontier cut to underweight over

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Speaker 1: at Morgan Stanley, and Viacom rays the sector perform over

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Speaker 1: at RBC Live from the first Breaking News Desco on

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Speaker 1: Bill Maloney, John A right, thanks Bill Anti here live

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Speaker 1: breaking news over your Bloomberg type squawk go on your

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Speaker 1: terminal and that he is a Bloomberg business flash back

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Speaker 1: to Michael and Tom Jim. Thanks so much. Bloomberg Surveillance

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Speaker 1: support globally. Investco globally, we thank you very much. Ev

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Speaker 1: interesting with us with BMP Perry bot Edmund. When yields

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Speaker 1: get this compressed, does your analysis change? I I have

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Speaker 1: trouble believing dynamics in the study of derivatives of derivatives

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Speaker 1: works in a low nominal low real yield versus where

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Speaker 1: we are normally say, with a two basis point of

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Speaker 1: two percentage points spread between nominal and real. Is it

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Speaker 1: hard to work in this environment? Well, it is a

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Speaker 1: very very strange environment. I think the problem. The problem

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Speaker 1: is you know, certainly for all those budding graduates thinking

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Speaker 1: about joining the finance industry, you know my advice to

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Speaker 1: them these days as well. You know that economics one

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Speaker 1: one textbook you you took a course on, chuck it

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Speaker 1: out the window, because you certainly won't find in there

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Speaker 1: anything about negative bond yiels or zero rate interest policies

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Speaker 1: and quantitated easing. I mean, this is all we are

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Speaker 1: all in. Yeah, we are all in the new world

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Speaker 1: from an economic point of view, and certainly from our

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Speaker 1: point of view, it does make it somewhat more challenging

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Speaker 1: to try to to try to apply the same old models,

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Speaker 1: and and that's why we try not to. We try to.

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Speaker 1: It's it's always very dangerous to say it's different this time.

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Speaker 1: But honestly speaking, you can't really come to any other conclusion.

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Speaker 1: And certainly in a world where the ten year government

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Speaker 1: bonds in Germany is yielding precisely nothing. You're blending your

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Speaker 1: money to the German government for ten years for nothing

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Speaker 1: in return, then clearly you have to think a little

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Speaker 1: bit differently. If that's the case. How do you think,

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Speaker 1: I mean, what what do you do when the model

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Speaker 1: doesn't work? How do you model what you want to

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Speaker 1: do well? I think this is interesting. But if we

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Speaker 1: look at risk can return, for instance, and we were

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Speaker 1: to focus on the bond market, to say okay, I

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Speaker 1: can lend my money to the judgment of the German

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Speaker 1: government for ten years, it does tell me that actually,

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Speaker 1: you know the motivations of investors to invest in that

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Speaker 1: sort of um product. It's very different is that you're

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Speaker 1: investing in a bond for capital gain, not for yield, which,

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Speaker 1: as I said, turns the established model on its head.

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Speaker 1: Normally you'd buy it for a nice, safe, boring yield,

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Speaker 1: and we wouldn't think about capital game. But now you

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Speaker 1: can only think about capital game because there is no yield. Now,

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Speaker 1: when I come to the equity market, that actually is

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Speaker 1: quite attractive to me because in a sense, equities, and

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Speaker 1: even if you look at low volatility equities, they do

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Speaker 1: offer quite a substantial yield, particularly in Europe. And so

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Speaker 1: if I say, well, on the one hand, the European

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Speaker 1: bond market gives me nothing. On the other hand, the

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Speaker 1: European equity market even if I pick lower volatility styles,

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Speaker 1: so I don't really go I don't touch cicklicals or financials.

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Speaker 1: I just stick with boring, bor ring, defensive stocks. I

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Speaker 1: can still get a yield that is often two to

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Speaker 1: three above the sovereign bond deal, and also maybe even

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Speaker 1: as much as two percent above the prevailing corporate bond deals,

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Speaker 1: because even corporate bonds have been yield collapse as the

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Speaker 1: European Central Bank has been starting to buy them. And

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Speaker 1: what we are finding is that has happened, you know,

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Speaker 1: that is having a huge effect on yields, with the

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Speaker 1: average investment grade corporate bond index yielding under one percent

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Speaker 1: in Europe now, so really you've seen a massive compression

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Speaker 1: which makes dividend yield all the more attractive, and why

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Speaker 1: I personally like very boring defensive sectors for instance, like

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Speaker 1: global infrastructure, motorway stocks, electricity and transmission stocks, nothing to

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Speaker 1: write him about, but they offer very generous yields compared

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Speaker 1: to bonds, and their revenues and profitability are very very predictable.

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Speaker 1: What what do you do with things that aren't predictable?

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Speaker 1: To stay away from them? No, no, no, I do

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Speaker 1: think there's a price for other thing. And what we've

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Speaker 1: seen Europe is that prices rapidly becoming much much cheaper.

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Speaker 1: So again, just coming back to the copper indicator, I

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Speaker 1: would say that on a twelve months basis, if you

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Speaker 1: have if you can take a twelve month if you

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Speaker 1: then do so, and that would suggest that you should

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Speaker 1: be buying equity upside across the board in Europe, and

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Speaker 1: that would include things even certain banks, because even with

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Speaker 1: the banking sector, which has been a sector that has

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Speaker 1: under performed quite dramatically over the last twelve months, there

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Speaker 1: are for instance, yields as high as seven or even

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Speaker 1: eight percent right now from banks which really should be

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Speaker 1: able to pay those dividen niels over the next twelve months.

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Speaker 1: So that is an incredible yield, which is actually double

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Speaker 1: the year you can get from even high yields corporate

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Speaker 1: bonds in Europe to the can institutional by side conservative

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Speaker 1: boring institutional by side? Can they hedge now? Or is

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Speaker 1: the clast of hedging so great it diminishes the advantages

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Speaker 1: of hedging? I think absolutely that. So I think we're

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Speaker 1: at the point if we look at implied volatility levels

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Speaker 1: now that if you haven't done it, really you can't

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Speaker 1: do it. You are too late yet totally agreed. Everyone

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Speaker 1: else has already been to the trough and saide and

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Speaker 1: if you hoss and kem on it now, then unfortunately

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Speaker 1: the risk return profile al those ages, he's looking quite unappealing. Edvnshing,

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Speaker 1: thank you so much, BMP Perry. Well, Mike, I did

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Speaker 1: a Facebook live thing yesterday and I lead with the

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Speaker 1: three dimensional surface of Sterling, and I rarely would use

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Speaker 1: this word, Mike. I've never seen it. I've never seen

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Speaker 1: short term volve skewed so much to a short you know,

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Speaker 1: Brexit centric outcome like Sterling. I don't know how you

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Speaker 1: play that against the trade. Even the coopic indicator can't

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Speaker 1: help you with that no, it can't, but but it

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Speaker 1: was a remarkable that was great eminshing with BP. That

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