WEBVTT - Chile’s Popular Unrest Is a Lesson for the World 0:00:13.160 --> 0:00:16.640 Hello, and welcome to What Goes Up, a Bloomberg Weekly 0:00:16.720 --> 0:00:20.400 Markets podcast. I'm Sara Ponte, a reporter on the Cross 0:00:20.400 --> 0:00:23.239 Asset team, and I'm Mike Reagan, a senior editor on 0:00:23.280 --> 0:00:26.240 the Markets Team. This week on the show, we're going abroad. 0:00:26.600 --> 0:00:30.040 The Brexit saga continues and civil unrest is growing across 0:00:30.080 --> 0:00:33.840 countries and continents. What does that mean for markets? We'll 0:00:33.880 --> 0:00:36.760 also talk credit, and we'll discuss whether or not some 0:00:36.840 --> 0:00:40.519 cracks are actually starting to emerge, and of course, speaking 0:00:40.520 --> 0:00:43.600 of cracks, will talk about the craziest things we saw 0:00:43.800 --> 0:00:48.360 in markets this week. You see what I did there? Go? Okay, 0:00:48.360 --> 0:00:51.840 I'm glad someone sorry, But as you said, we're gonna 0:00:52.000 --> 0:00:55.560 take a look abroad for much of today's program. I 0:00:55.600 --> 0:00:58.040 also do want to get sort of a temperature check 0:00:58.040 --> 0:01:01.120 on the U S Stock market, And luckily for us, 0:01:01.160 --> 0:01:03.840 our first guest is a guy who can speak with 0:01:03.880 --> 0:01:08.280 authority on all of these uh subjects as a expatriate 0:01:08.840 --> 0:01:13.679 brit As a expert of Latin markets from spending some 0:01:13.760 --> 0:01:18.520 time in Mexico City for the Financial Times. The only 0:01:18.520 --> 0:01:21.679 thing missing this week is a Red Sox appearance in 0:01:21.680 --> 0:01:25.520 the World series to make him aboutely perfect guests for 0:01:25.600 --> 0:01:27.679 this week, and I hate to rub that in, but 0:01:27.800 --> 0:01:30.119 John authors, welcome to the show. We can live with it. 0:01:30.120 --> 0:01:33.240 It's we'll not let Yankee fans who needs, you know, 0:01:33.240 --> 0:01:37.959 who needs the championship every year to justify their existence. 0:01:38.280 --> 0:01:41.920 I'm very happy to live in the the aura of 0:01:42.080 --> 0:01:47.000 last year as a Phillies fan. I'll take once that 0:01:47.160 --> 0:01:50.040 was John's way of rubbing the rough Yankees loss. And yes, 0:01:51.280 --> 0:01:55.920 that's right. And she catches everything. You can't get anything. 0:01:56.200 --> 0:01:59.320 Sarah also joining us this week. Now, Sarah, let me 0:01:59.400 --> 0:02:02.360 introduce this guest by saying, I'm thinking back to two 0:02:02.360 --> 0:02:06.120 thousand and sixteen. There's a lot of concern about the 0:02:06.160 --> 0:02:09.880 so called turn in the credit cycle. And as a 0:02:09.880 --> 0:02:12.520 guy who's covered stock markets for way too long, I 0:02:12.520 --> 0:02:15.840 can tell you stock market people get very nervous when 0:02:15.840 --> 0:02:18.000 they hear about a potential turn in the credit market. 0:02:18.000 --> 0:02:20.400 I think the thinking is that fixed income investors are 0:02:20.639 --> 0:02:23.680 a little bit smarter than your average stock trader. They 0:02:23.720 --> 0:02:26.840 see things coming down the pike. But anyway, Lisa Brahmowitz 0:02:26.919 --> 0:02:29.280 and I at the time wrote a calm for what 0:02:29.320 --> 0:02:31.800 was Gadfly then it's now part of Bloomberg Opinion. But 0:02:32.120 --> 0:02:35.240 we made the quip in the beginning that maybe we'll 0:02:35.280 --> 0:02:39.400 both be in retirement homes when this credit cycle finally turns. 0:02:40.160 --> 0:02:41.880 I gotta say it might be time to call the 0:02:41.880 --> 0:02:45.399 retirement home, get me some some slacks with the elastic 0:02:45.400 --> 0:02:48.160 waste band, and uh, I don't know a nice easy 0:02:48.200 --> 0:02:52.760 boy because I read something there it's drama. I read 0:02:52.760 --> 0:02:55.320 something this week that makes me once again wonder is 0:02:55.360 --> 0:02:58.000 the credit cycle turning? Dun Hunt Hunt? But to help 0:02:58.080 --> 0:03:00.800 us get through that, we're happy to have a first 0:03:00.800 --> 0:03:03.440 time we're on the show. Long time listener, I hope 0:03:03.760 --> 0:03:06.320 Molly Smith from the Credit team, welcome to what goes up. 0:03:06.520 --> 0:03:11.040 Don't get those pants just yet. You're good. The credit 0:03:11.080 --> 0:03:13.640 cycle is a you know those baseball fans out there 0:03:13.680 --> 0:03:16.880 want to say, is in its ninth, tenth, whatever inning 0:03:16.919 --> 0:03:22.320 we're talking about. So we're just gonna keep on rolling streak, 0:03:22.440 --> 0:03:26.400 is it okay? But John, before we go abroad, I 0:03:26.400 --> 0:03:28.359 do want to start with you and just sort of 0:03:28.520 --> 0:03:33.040 get your sort of thirty thousand foot view of the 0:03:33.120 --> 0:03:35.640 US stock market right now. I know you were a 0:03:35.640 --> 0:03:40.200 little bearish uh this year based on valuations. Uh, but 0:03:40.360 --> 0:03:43.080 I feel like you're sort of coming around to the 0:03:43.120 --> 0:03:45.280 bowl case a little bit. Walk us through how you're 0:03:45.280 --> 0:03:49.720 looking at this. That's that's questionable. I've been I've been too. 0:03:49.760 --> 0:03:52.560 I've been too incorrectly bearish for too long on uk 0:03:52.760 --> 0:03:55.560 US stocks too. To compitulate totally, because I know that 0:03:55.600 --> 0:03:58.640 if I truly capitulate, that will be the moment when 0:03:58.680 --> 0:04:01.280 we make the peak. You this is something that all 0:04:01.440 --> 0:04:04.120 market reporters sort of the prayer that you start with 0:04:04.200 --> 0:04:06.720 a Lord, do not make me into a contrarian. INDI 0:04:08.120 --> 0:04:11.120 so um no, I can I continue to think that 0:04:11.160 --> 0:04:13.440 in the in the very long term, if you're talking 0:04:13.440 --> 0:04:16.520 about the kind of people who read US are most 0:04:16.560 --> 0:04:20.039 interested in long term asset allocation, it's very, very hard 0:04:20.080 --> 0:04:24.160 to be excited about US stocks because any sensible measurement, 0:04:24.560 --> 0:04:28.680 they are historically expensive and the only reason they look 0:04:29.000 --> 0:04:33.080 like a decent buy is that they are relatively cheap 0:04:33.480 --> 0:04:41.240 compared to so that continues to be the case. What 0:04:41.600 --> 0:04:46.360 I think it probably is fair to suggest is that 0:04:46.440 --> 0:04:51.320 there is just so much negativity, so many genuinely really 0:04:51.560 --> 0:04:57.000 good reasons, excuses, but also reasons to get the heck 0:04:57.279 --> 0:05:00.200 out of the stock markets, and instead we are still 0:05:00.480 --> 0:05:03.720 very close to this sort of invisible, invisible lid of 0:05:04.000 --> 0:05:06.839 about three thousands on the SMP that that does suggest 0:05:06.880 --> 0:05:09.840 that once a few good pieces of news came in 0:05:10.040 --> 0:05:12.560 short term, that's got to be a good reason to 0:05:12.920 --> 0:05:15.320 think that the pain trade will be particularly for people 0:05:15.320 --> 0:05:17.200 like me. You've been telling you to give market that 0:05:17.240 --> 0:05:19.000 the pain trade will be will be up on the 0:05:19.000 --> 0:05:22.159 stock market. So tactically, no, I don't think there is 0:05:22.240 --> 0:05:26.560 good reason with what we know now to be hugely, 0:05:27.480 --> 0:05:31.159 hugely bearish long term. If you've got a choice between 0:05:31.760 --> 0:05:33.719 if you've got a choice between haven assets, or if 0:05:33.720 --> 0:05:36.880 you've got a choice of other equity markets around the 0:05:36.920 --> 0:05:38.920 world in which to invest for the next ten years 0:05:39.400 --> 0:05:42.279 or longer, I'm still bearish about the U S stock market. 0:05:42.680 --> 0:05:45.400 John one investor over at UBS, said something to me 0:05:45.440 --> 0:05:47.640 that really struck me this week, and he said, the 0:05:47.680 --> 0:05:50.760 pain trade won't just be stocks going up. The pain 0:05:50.839 --> 0:05:54.040 trade will be a potential rotation. And we've been hearing 0:05:54.080 --> 0:05:56.080 about this now for a couple of weeks, and we've 0:05:56.120 --> 0:05:58.760 started to see some strong performance and the likes of 0:05:58.839 --> 0:06:01.839 banks and the like of likes of energy shares. Do 0:06:01.880 --> 0:06:03.960 you get the sense that this is something that will 0:06:04.000 --> 0:06:07.240 actually be sticky and we might actually see this takeover 0:06:07.279 --> 0:06:09.159 as there it's is, it's still just way too soon 0:06:09.200 --> 0:06:12.200 to tell. It's well, it's too soon so but but 0:06:12.680 --> 0:06:15.520 we did have about a month or so ago now, 0:06:15.560 --> 0:06:17.719 we had the quant apocalypse or whatever you want to 0:06:17.760 --> 0:06:21.599 call it. When momentum, the momentum strategy, the momentum factor 0:06:21.680 --> 0:06:25.279 really did have quite a severe crash. That's the whole 0:06:25.320 --> 0:06:28.040 point of momentum. It works most of the time and 0:06:28.200 --> 0:06:31.800 very occasionally really crashes um. But the fact that that 0:06:31.880 --> 0:06:35.560 happens is an indicative that something may be ready there 0:06:35.600 --> 0:06:40.080 for the turn um. Value stocks is another one of 0:06:40.080 --> 0:06:43.760 those things. I consider myself a value guy. Uh. The 0:06:43.839 --> 0:06:46.520 number of times it's looked as though value is ready 0:06:46.600 --> 0:06:49.520 to turn and take over again in the last decade 0:06:49.880 --> 0:06:53.479 is enough to make a grown man weep. Um. It's 0:06:53.480 --> 0:06:58.120 like waiting for God. Oh I would I mean everything. 0:06:58.240 --> 0:06:59.960 I suppose it's fair to say that with the past 0:07:00.000 --> 0:07:04.440 sing of time UM, we must be getting closer to 0:07:04.520 --> 0:07:07.400 a point of value out performance. I guess that's fair 0:07:07.440 --> 0:07:09.840 to say. And when you think about it, Um, there's 0:07:09.840 --> 0:07:11.880 a school of thought, and I admit I might be 0:07:11.920 --> 0:07:14.520 the only pupil in the school of thought, but that 0:07:14.760 --> 0:07:19.360 stock market corrections can occur on both accesses of the graph, 0:07:19.440 --> 0:07:22.520 you know, not just price, but time, and if the 0:07:22.600 --> 0:07:26.040 market is basically not that far above where it was 0:07:26.120 --> 0:07:29.120 in January of two thousand and eighteen, that's a very 0:07:29.240 --> 0:07:31.640 very good point, and I think that it should be 0:07:31.680 --> 0:07:36.440 made more often that basically you can make a very 0:07:36.480 --> 0:07:39.800 good case for for the vol apocalypse, as I think 0:07:39.960 --> 0:07:42.400 that that was the volpocalypse that might not round. The 0:07:42.440 --> 0:07:46.040 quanto pocalypse at the beginning of February of last year 0:07:46.120 --> 0:07:48.680 really was something of a turning point. That we had 0:07:48.680 --> 0:07:53.160 a brief melt up after the tax reform, and in 0:07:53.200 --> 0:07:56.640 many ways, depending on how you measure it, nothing has 0:07:56.680 --> 0:07:59.320 happened since then. You can also make an argument if 0:07:59.320 --> 0:08:04.760 you're looking at bonds versus stocks, the classic acid allocator 0:08:05.320 --> 0:08:09.760 way of looking at it, sort of last fall, when 0:08:10.000 --> 0:08:12.440 if you if you remember, we were all worried about 0:08:12.640 --> 0:08:17.920 yields going up, right, yes, and and so there was 0:08:17.960 --> 0:08:21.000 there's another turning point that has not been returned to 0:08:21.320 --> 0:08:25.120 when you look at stocks relative to bonds later last year. 0:08:25.360 --> 0:08:28.880 So you, I do agree with you. You corrections don't 0:08:28.920 --> 0:08:30.800 have to be violent and over the passing of time. 0:08:31.320 --> 0:08:33.600 You could say we are in a correcting phase. Yes, 0:08:33.640 --> 0:08:36.800 all right, so Molly, let's switch over to you. I 0:08:36.840 --> 0:08:39.360 gotta say I was kind of looking forward to shopping 0:08:39.400 --> 0:08:44.040 for retirement homes. I my time come and the elastic 0:08:44.080 --> 0:08:50.400 wastman pants you can still wear, can have some suspenders on, 0:08:51.400 --> 0:08:54.560 taking my my hopes and dreams here. My dad used 0:08:54.559 --> 0:08:57.200 to do the rest in peace, Joe Reagan. My dad 0:08:57.240 --> 0:08:59.720 used to do the sweatpants with suspenders. That is the 0:08:59.720 --> 0:09:04.280 power or a retiree. That's what I exactly I'm looking for. 0:09:05.960 --> 0:09:08.000 But let me just read something that came out from 0:09:08.400 --> 0:09:10.800 your colleagues on the credit team this week and the 0:09:10.800 --> 0:09:13.000 headline it's beginning to look a lot like two thousand 0:09:13.040 --> 0:09:16.240 and nine. But let me read the lead. Lead. Investors beware, 0:09:16.400 --> 0:09:18.880 key indicators of a turn in the credit cycle are 0:09:18.880 --> 0:09:22.240 starting to emerge, reaching levels not seen since the last recession. 0:09:22.800 --> 0:09:26.800 Upgrades of US companies in high yield markets are trailing 0:09:26.880 --> 0:09:29.280 down grades by the most since two thousand and nine, 0:09:29.280 --> 0:09:32.679 and according to SMP level ratings, so it's focusing on 0:09:32.760 --> 0:09:38.480 the upgrade to downgrade ratio um well, obviously, yield spreads 0:09:38.480 --> 0:09:43.960 are still not screaming anything, any alarm bells um to 0:09:44.040 --> 0:09:46.320 the market at all. But what's your sort of overview 0:09:46.320 --> 0:09:49.160 from sort of the macro perspective of the credit markets 0:09:49.240 --> 0:09:51.439 right now? Yeah, I think when you want to talk 0:09:51.480 --> 0:09:54.520 about it from a macro perspective, that the more leading 0:09:54.559 --> 0:09:56.920 indicator would be what are yield telling you? What are 0:09:56.960 --> 0:09:59.920 spread selling you? What are market participants who are investing 0:10:00.240 --> 0:10:02.679 in these products that would then give you these yields 0:10:02.679 --> 0:10:05.280 and spreads? What are they telling you? Um? And that's 0:10:05.280 --> 0:10:07.440 not just at all to the rating agencies, but they're 0:10:07.480 --> 0:10:10.200 not putting any of the money into the markets right now, 0:10:10.240 --> 0:10:12.320 so it's a bit a bit harder to gauge the 0:10:12.360 --> 0:10:16.520 pulse from that audience alone. So when we're looking at 0:10:16.679 --> 0:10:18.920 just talking about how does credit feel right now? Is 0:10:18.960 --> 0:10:21.760 this two thousand nine is the cycle turning? It's really 0:10:21.760 --> 0:10:23.800 hard to say that. Right now. Credit is having a 0:10:23.800 --> 0:10:26.679 remarkable year in both investment grade and high yield. On 0:10:26.720 --> 0:10:29.559 the corporate bond side, we're up double digits in both 0:10:29.600 --> 0:10:32.600 asset classes. And if you've held either of those from 0:10:32.640 --> 0:10:35.160 the beginning of the year, I mean you really haven't 0:10:35.160 --> 0:10:37.800 had to touch either. You've made a remarkable return from 0:10:37.840 --> 0:10:41.160 just holding the index in either one. Obviously, there are 0:10:41.200 --> 0:10:44.240 different exceptions to that, like when you look at leverage 0:10:44.240 --> 0:10:47.079 loans that's been a source pat this year. Obviously big 0:10:47.160 --> 0:10:50.120 part of that stemming from when the FED has has 0:10:50.200 --> 0:10:52.520 reverse course from the end of last year, going from 0:10:52.640 --> 0:10:56.000 hiking rights to now in a cutting cycle or or 0:10:56.040 --> 0:10:59.640 a pause at least, and as J. Powe would describe it, 0:10:59.720 --> 0:11:03.160 So it's definitely hard to say that this is the 0:11:03.200 --> 0:11:06.080 turn right now when a lot of deals are getting done, 0:11:06.120 --> 0:11:10.000 issuance is still strong, and the flows are looking strong too, 0:11:10.080 --> 0:11:12.720 so people are still buying these products. Like you said, 0:11:12.760 --> 0:11:15.600 double digit gains in i G, double digit gains in 0:11:15.760 --> 0:11:18.839 high yield. We've seen double digit gains and stocks if 0:11:18.840 --> 0:11:21.680 you only use the year to date period. However, we 0:11:21.720 --> 0:11:23.880 are at a point now where investors seem to be 0:11:23.880 --> 0:11:26.200 getting testy. For a lot of the credit investors that 0:11:26.240 --> 0:11:29.280 you speak with, do they seem to be as nervous 0:11:29.360 --> 0:11:31.840 or jittery? Are they still feeling pretty good? It would 0:11:31.960 --> 0:11:35.720 definitely feel like they are are definitely feeling pretty good, 0:11:35.800 --> 0:11:39.679 especially because of when you look at primary market performance, 0:11:39.720 --> 0:11:43.240 which is the most recent indicator of what the pulse 0:11:43.280 --> 0:11:46.600 would be telling you. That's the most accurate UH price 0:11:46.640 --> 0:11:49.120 gauge out there for where assets should be trading at. 0:11:49.280 --> 0:11:53.160 And we're looking at really really strong performance across the board, 0:11:53.200 --> 0:11:56.040 and that deals are getting done in both investment grade 0:11:56.080 --> 0:11:58.640 and how yields granted and how yield These are mostly 0:11:58.720 --> 0:12:01.280 higher quality names, so we haven't seen a ton of 0:12:01.360 --> 0:12:04.240 issuance from that triple Sea bucket, the lowest ratings to here. 0:12:04.480 --> 0:12:07.520 But even triple ces right now are having the best 0:12:07.600 --> 0:12:10.280 run they've had in a year performance wise, and that 0:12:10.920 --> 0:12:14.320 is hard to rationalize that against what maybe feels like 0:12:14.320 --> 0:12:17.560 two thousand nine from a raider's perspective. It's part of it, 0:12:17.640 --> 0:12:19.960 just this giant ball of money. I think that's how 0:12:20.120 --> 0:12:22.440 Tracy Allaway would call the giant ball of money that's 0:12:22.440 --> 0:12:26.080 gotta roll somewhere. And and it makes me bring up 0:12:26.320 --> 0:12:29.480 another piece she wrote this week, uh uh, the headline 0:12:29.480 --> 0:12:32.080 being with little yield in sight, bond buyers turned to 0:12:32.240 --> 0:12:35.920 a liquid debt And it's basically talking about how an 0:12:35.920 --> 0:12:40.240 investment grade um there is a demand for bonds that 0:12:40.280 --> 0:12:44.720 don't trade very awesome, very often highly a liquid and 0:12:45.120 --> 0:12:47.160 how big of a risk is that? I mean, I'm thinking, 0:12:47.200 --> 0:12:50.440 if if the payments are coming in if the coupons 0:12:50.480 --> 0:12:52.440 are being paid, how much do I have to worry 0:12:52.480 --> 0:12:55.560 about liquidity in as a credit investorent. If that's all 0:12:55.640 --> 0:12:57.360 you want, then you don't have to worry. And there 0:12:57.400 --> 0:12:59.680 are plenty of buyers out there that that is their mandate. 0:12:59.760 --> 0:13:02.760 That's the pension funds and the insurance companies of the 0:13:02.760 --> 0:13:06.400 world that they're the typical buy and hold community copound clipping, 0:13:06.720 --> 0:13:09.440 not looking to get any kind of price appreciation. And 0:13:09.640 --> 0:13:12.400 these are very high dollar price bonds. One like traded 0:13:12.600 --> 0:13:16.360 around like the forty range on cents on the dollars. 0:13:16.400 --> 0:13:18.599 So if you're looking to buy at that range in 0:13:18.640 --> 0:13:21.880 the one sixty area, there's not going to be a 0:13:21.920 --> 0:13:24.200 whole lot of capital appreciation, right because at the end 0:13:24.200 --> 0:13:25.839 of the day, you're getting paid back at a hundred 0:13:25.920 --> 0:13:28.240 cents on the dollars. So clearly this is not where 0:13:28.280 --> 0:13:31.560 you're going to get the big gains of the bond market, 0:13:31.679 --> 0:13:34.559 and that's where it really becomes like an individual credit 0:13:34.600 --> 0:13:37.040 pickers market. But yeah, if you just want to buy 0:13:37.040 --> 0:13:40.240 and hold, go for that all day long. It's great strategy. Welly, 0:13:40.520 --> 0:13:42.839 you also get very involved with the earning season and 0:13:42.920 --> 0:13:45.120 I feel like on the show Whenever we talk about earnings, 0:13:45.120 --> 0:13:47.360 we always think about the stock side. But you've been 0:13:47.440 --> 0:13:50.720 very involved in the coverage of Tesla, which did post 0:13:50.760 --> 0:13:54.240 a surprise profit gain for the last quarter, also for 0:13:54.559 --> 0:13:57.160 which lowered its full your forecast, what have really been 0:13:57.200 --> 0:14:00.960 the standouts and from the credit side, what have learned? Yeah, 0:14:01.000 --> 0:14:04.240 so those are the big ones, especially auto earnings this week. 0:14:04.360 --> 0:14:07.920 That it's uh. I think we focus on Tesla a 0:14:07.920 --> 0:14:10.319 lot for pretty obvious reasons. Right, It's a pretty flashy 0:14:10.360 --> 0:14:12.120 company in every sense of the word, has a pretty 0:14:12.120 --> 0:14:15.600 flashy guy running it. So when the thing is from 0:14:15.600 --> 0:14:18.320 a bond perspective, it's I feel like it's getting increasingly 0:14:18.400 --> 0:14:21.360 less of a credit story. It's Tesla is not at 0:14:21.400 --> 0:14:24.400 all like a massive name in the high yield index, 0:14:24.560 --> 0:14:27.600 and it's hardly a bell weather of where to sense 0:14:27.680 --> 0:14:31.160 like how high how people feel about the high yield market. Um. 0:14:31.200 --> 0:14:35.240 But granted, even saying all that, like looking at Tesla specifically, 0:14:36.000 --> 0:14:38.000 this really is a great sign for the company, and 0:14:38.040 --> 0:14:40.800 that this is UH to see that they're posting now 0:14:41.160 --> 0:14:44.640 more quarters of positive free cash flow. We're wondering when 0:14:44.680 --> 0:14:47.960 are they going to finally get to being sustainably profitable. 0:14:48.320 --> 0:14:50.440 I hold my breath in saying we could be there, 0:14:50.680 --> 0:14:53.440 because certainly we felt this way a year ago and 0:14:53.480 --> 0:14:55.680 that didn't turn out to be the case. But it's 0:14:55.720 --> 0:14:59.480 looking better this time around. And for Ford, unfortunately, um, 0:14:59.800 --> 0:15:01.920 the this is where you might say to start to say, 0:15:02.280 --> 0:15:04.320 is this two thousand five all over again when the 0:15:04.320 --> 0:15:08.400 automakers proceeded the ultimate the financial crisis and a few 0:15:08.440 --> 0:15:12.440 years later. So with Ford, it's a very different story. 0:15:12.520 --> 0:15:15.320 And GM could tell you the same thing that the 0:15:15.400 --> 0:15:18.760 growth overseas is certainly challenging, and I'm sure we talked 0:15:18.760 --> 0:15:20.440 about this on the show all the time, about the 0:15:20.480 --> 0:15:23.440 macro challenges in China and Europe in those markets, and 0:15:24.040 --> 0:15:26.000 it's not the best time to be buying a car 0:15:26.120 --> 0:15:28.680 right now. And that's where Ford is struggling. Has been 0:15:28.720 --> 0:15:32.200 going on this multi year restructuring plan and is increasingly 0:15:32.200 --> 0:15:36.120 looking like they're going to get another downgrade. Don't cancel 0:15:36.200 --> 0:15:55.680 my sweatpant order just yet. Yeah, let's let's do a 0:15:55.680 --> 0:15:57.840 tour of the world here, because I really wanted to 0:15:57.840 --> 0:16:00.920 talk about Chili. Uh, you know, obviously we came in 0:16:00.960 --> 0:16:04.480 on Monday to these alarming headlines. I guess if you're 0:16:04.480 --> 0:16:07.200 paying attention over the weekend. Unlike me, you saw the 0:16:07.680 --> 0:16:11.960 news over the weekend about these alarming protests and Chili 0:16:12.040 --> 0:16:15.880 really turning violent. Uh, several deaths. I don't know what 0:16:15.920 --> 0:16:18.280 the count is now, but um a lot of it 0:16:18.360 --> 0:16:22.800 being uh pinned on, of all things, the increase of 0:16:22.960 --> 0:16:27.800 a subway fair um and your headline UH really stuck 0:16:27.840 --> 0:16:31.600 with me. You wrote, the Chili unrest has a worrisome 0:16:31.640 --> 0:16:34.240 message for the rest of the world, and then in 0:16:34.320 --> 0:16:37.200 your commune, right, if it can happen in Santiago, it 0:16:37.240 --> 0:16:40.920 can happen anywhere. So walk us through. You know, how 0:16:40.960 --> 0:16:44.960 alarming should we be? And you know, one thing to 0:16:45.000 --> 0:16:48.520 look at this from a sociologist perspective, but obviously our 0:16:48.520 --> 0:16:52.360 audiences markets perspective. So so how worried should investors be 0:16:52.800 --> 0:16:55.480 about this type of thing? I mean, if, first of all, 0:16:55.520 --> 0:16:58.760 if you're an investors, increasingly the sociological things that I'll 0:16:58.800 --> 0:17:02.360 beginning to are you it's is civil order going to 0:17:02.440 --> 0:17:06.439 break down in some countries, and that even includes my 0:17:06.520 --> 0:17:09.520 own home country, which justiness can probably guess is Britain 0:17:10.400 --> 0:17:13.159 where things are getting very alarming. Indeed, is the country 0:17:13.160 --> 0:17:15.640 still can't work out how to how to resolve brexits 0:17:15.640 --> 0:17:19.679 now in the case of Chile, it is by an 0:17:19.800 --> 0:17:25.320 order of magnitude traditionally the calmest, stablest country in the region. 0:17:25.640 --> 0:17:28.040 It did have a very unpleasant dictatorship for a while, 0:17:28.119 --> 0:17:30.600 that was a stable dictatorship. It had had the longest 0:17:30.600 --> 0:17:34.320 continuous democracy before Pinochet took over, and it has had 0:17:34.320 --> 0:17:40.199 a stable democracy without pause since Pinochet fell peacefully. So 0:17:40.280 --> 0:17:42.919 it is the stablest country in the region. It is 0:17:43.320 --> 0:17:46.840 by any sensible measure, the wealthiest country in the region. 0:17:47.480 --> 0:17:50.720 And one of the critical points, which is why this 0:17:51.240 --> 0:17:55.280 is alarming for a lot of the markets type, capitalist 0:17:55.400 --> 0:17:58.080 type of people that we talked to at Bloomberg, is 0:17:58.119 --> 0:18:00.240 that it's the country in Latin America which is has 0:18:00.280 --> 0:18:06.080 done things exactly the way your average markets person, your 0:18:06.080 --> 0:18:09.720 average Washington d C. Policy wonk, would think they had 0:18:09.760 --> 0:18:13.920 to do them. Under Pinochet, you did have then known 0:18:13.920 --> 0:18:17.440 as the Chicago Boys, a group of people largely trained 0:18:17.520 --> 0:18:22.280 under Milton Freedom of the University of Chicago, established away 0:18:22.280 --> 0:18:24.960 for chill later work, and that plainly does have a 0:18:25.000 --> 0:18:27.479 lot to do with why Chile has performed better than 0:18:27.480 --> 0:18:30.080 most of the rest of the region for a long time. 0:18:30.720 --> 0:18:34.760 The pension program that they basically many people would say 0:18:35.160 --> 0:18:37.000 a better version of the four oh one K and 0:18:37.080 --> 0:18:39.480 better thought through version of the four oh one K 0:18:39.560 --> 0:18:43.400 which they established in the late seventies or early eighties. 0:18:44.520 --> 0:18:46.760 And that's one of the biggest things that people are 0:18:46.800 --> 0:18:50.439 now protesting about that that we're having the first wave 0:18:50.520 --> 0:18:52.640 of people who have really been on one of these 0:18:52.680 --> 0:18:57.080 pension plans throughout their working lives. And I've had plenty 0:18:57.119 --> 0:19:02.920 of emails from chileans two hundred dollars month mentions for 0:19:03.000 --> 0:19:06.400 people who have worked as engineers for thirty forty years. 0:19:07.280 --> 0:19:09.840 What is also very interesting, just just throw the other 0:19:09.880 --> 0:19:13.359 final point, which is which is concerning, is that yes, 0:19:13.440 --> 0:19:18.800 it's transport fairs which were aimed at making it helping 0:19:19.600 --> 0:19:22.920 ease the transition away from carbon fuels. And also there's 0:19:22.920 --> 0:19:28.160 a fuel price increase, a general electricity price increase all 0:19:28.200 --> 0:19:31.200 over the world that tends to be the catalyst when 0:19:31.240 --> 0:19:35.159 people are angry, including the Hill Jane in in France. 0:19:35.160 --> 0:19:37.200 To make it clear that this isn't just a Latin 0:19:37.240 --> 0:19:40.920 American story. You've got to be very careful indeed, when 0:19:40.960 --> 0:19:44.560 you make people pay more for fuel for energy for transport. 0:19:45.320 --> 0:19:47.280 You had a follow up column as well, and the 0:19:47.280 --> 0:19:50.159 title was the big issue confronting the stock market, and 0:19:50.200 --> 0:19:55.080 you mentioned Chile, you mentioned Spain, Braxit, and really what 0:19:55.160 --> 0:19:57.159 it comes down to is what you say is inequality. 0:19:57.160 --> 0:20:00.159 As for companies too, when you talk about mode that 0:20:00.280 --> 0:20:03.199 companies build around themselves competition wise, when they can keep 0:20:03.200 --> 0:20:07.000 building themselves up to be larger and larger, how does 0:20:07.080 --> 0:20:11.320 this actually affect the process of investing and thinking about markets. Well, 0:20:12.000 --> 0:20:15.920 the moats phrase is a beautifully folksy phrase that it 0:20:15.960 --> 0:20:18.480 comes from Warren Buffett himself. He looks for companies with 0:20:18.520 --> 0:20:21.239 a wide economic moats and coming from Warren Buffetts, who 0:20:21.240 --> 0:20:24.720 manages to make being a plutocratic billionaire so charming and 0:20:24.800 --> 0:20:29.120 folksy in Midwestern and it sounds really cool. But when 0:20:29.119 --> 0:20:31.360 you think about it's actually when you when you say 0:20:31.400 --> 0:20:33.639 you're building an economic motor around your company, what you 0:20:33.680 --> 0:20:38.720 mean is you're ruthlessly exploiting it's whatever monopoly power it 0:20:38.760 --> 0:20:41.320 has since entrenching it in a way that you can 0:20:41.680 --> 0:20:43.680 rip off people for more than you otherwise would be 0:20:43.720 --> 0:20:48.080 able to rip them off. Um and uh, that has 0:20:48.119 --> 0:20:50.720 been a process that has been rewarded. This comes back 0:20:50.720 --> 0:20:52.760 to the long term beer case for the US stock market. 0:20:53.760 --> 0:20:58.480 If you look at um, the priced book multiples that 0:20:58.520 --> 0:21:02.360 people will pay on the biggest five companies in each 0:21:02.400 --> 0:21:05.280 sector compared to the rest of the market. I don't 0:21:05.320 --> 0:21:06.720 have the numbers in front of me, but it's like 0:21:06.800 --> 0:21:14.600 double um. And if you look at the profitability of 0:21:14.640 --> 0:21:19.720 the biggest companies compared to all the rest, again it's 0:21:19.800 --> 0:21:24.600 quite startling. The big get bigger, get more profitable, and 0:21:24.760 --> 0:21:29.560 the rest are left nowhere or very very little to do. 0:21:30.160 --> 0:21:32.199 The other interesting thing, which might come back to some 0:21:32.240 --> 0:21:34.080 of the points that that Molly was making there there 0:21:34.119 --> 0:21:37.000 is an interesting debate whether this is about exploiting monopoly 0:21:37.040 --> 0:21:40.960 power or whether it's about exploiting the ability to leverage 0:21:41.000 --> 0:21:47.280 yourself up seriously to the hilt. Because the leverage by 0:21:47.320 --> 0:21:50.399 all the nor sensible measures, debtory bits are or whatever 0:21:51.200 --> 0:21:55.320 is of the biggest companies in each sector is again 0:21:56.200 --> 0:21:57.840 off the top of my head, of an order of 0:21:57.960 --> 0:22:01.679 double the typical leverage for every body else. That's the 0:22:01.760 --> 0:22:05.840 leverage we're seeing in the economy is largely these huge, 0:22:06.400 --> 0:22:11.400 well protected companies. And that then needs policy question, which 0:22:11.480 --> 0:22:13.040 you don't need to be Elizabeth Warrant to think there 0:22:13.119 --> 0:22:14.639 might be a very good case for splitting some of 0:22:14.680 --> 0:22:17.720 these companies up. But does that then begin to become 0:22:17.760 --> 0:22:21.119 the moment when actually the amount of credit we've extended 0:22:21.560 --> 0:22:25.680 gets very nervous because we've extended them to these companies 0:22:25.680 --> 0:22:27.640 that we've allowed to get so big they rip us off, 0:22:27.800 --> 0:22:29.760 and once we no longer let them rip us off, 0:22:29.880 --> 0:22:31.600 they might also not be able to repay their debt, 0:22:31.760 --> 0:22:34.240 but we're still extending to them. So it's it seems 0:22:34.280 --> 0:22:36.200 that like that that that we haven't reached. So maybe 0:22:36.200 --> 0:22:38.359 we'd better let them keep ripping us off or otherwise 0:22:38.440 --> 0:22:41.040 keep on doing it. Yeah, sure, let's keep giving the money. 0:22:41.080 --> 0:22:44.840