WEBVTT - Tariffs Creating 'Fortress America', Lovely Says 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. 0:00:13.480 --> 0:00:17.560 Daily we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:34.479 Bloomberg dot com, and of course on the Bloomberg Let 0:00:34.640 --> 0:00:38.800 reign with us with fx FS investments right now, they're 0:00:38.880 --> 0:00:41.160 chief economists and of course with the heritage of looking 0:00:41.520 --> 0:00:44.479 at foreign exchange, how do you fold laer the dollar 0:00:44.920 --> 0:00:48.919 into our economy. Most of the unterviews would you say, 0:00:49.000 --> 0:00:51.279 you know, the dollars were talking about, but it's not 0:00:51.360 --> 0:00:54.320 that big a deal. I just don't buy that. So, 0:00:55.000 --> 0:00:57.920 you know, I think the dollar has shifted from being 0:00:57.960 --> 0:01:02.520 important for full GDP to analyzeing GDP growth to investors 0:01:03.080 --> 0:01:06.200 because we've seen the dollar make you know, you and 0:01:06.240 --> 0:01:09.960 I've been around through some huge dollar moves, but the 0:01:10.040 --> 0:01:13.360 last couple of years, we've seen dollar up ten percent, 0:01:13.520 --> 0:01:16.480 down ten percent, back up again, and that has an 0:01:16.520 --> 0:01:22.360 impact on corporations, especially SMP five D enormous multinationals with 0:01:22.480 --> 0:01:25.399 big international supply chains, and you see it having an 0:01:25.440 --> 0:01:28.839 impact on earning statements. So to me, that's a more 0:01:29.200 --> 0:01:32.399 um near term risk because when we think about trade, right, 0:01:32.440 --> 0:01:35.880 that's the normal place that the dollar used to feed 0:01:35.920 --> 0:01:38.880 through into the economy. We've got a bigger fish to 0:01:38.920 --> 0:01:42.080 fry right now in analyzing trade than just looking at 0:01:42.480 --> 0:01:50.560 what are those fish? Tariffs uncertainty, Uh, it's full on, 0:01:50.720 --> 0:01:54.240 you know, it's a variety of other protectionist measures and 0:01:54.400 --> 0:01:58.240 these unilateral trade agreements and and very lovely of Peterson 0:01:58.320 --> 0:02:02.360 Institute about an hour go telling us very clearly that 0:02:02.360 --> 0:02:06.960 we're gonna see tariffs on European automobiles. So that ruined 0:02:06.960 --> 0:02:11.040 your taxicab act, right, well it might, Um, Laura, I 0:02:11.080 --> 0:02:12.320 want to I want to find out have you ever 0:02:12.360 --> 0:02:14.680 met a CEO that has made a decision based on 0:02:14.720 --> 0:02:17.720 what currencies we're gonna do? No, that's you know, I 0:02:17.760 --> 0:02:21.799 think there's a lot of hedging that happens. And you 0:02:21.840 --> 0:02:24.120 know it goes on in the Treasury Department, right, I mean, 0:02:24.120 --> 0:02:26.119 it doesn't go on at the board level. It does, 0:02:26.200 --> 0:02:28.679 but we have seen if you look at the earning statements, 0:02:28.760 --> 0:02:31.760 you see, um, you know you see it in the 0:02:31.760 --> 0:02:34.840 earning statements. They measure the dollar, they measure the fact 0:02:34.840 --> 0:02:37.720 that it's um, you know, weakened as a reason why 0:02:37.720 --> 0:02:41.440 they've had particularly positive results. We saw that last year, 0:02:42.000 --> 0:02:44.680 and you know the fact that it strengthens reduces their 0:02:44.720 --> 0:02:48.959 ability to repatriate um. You know when it when it 0:02:49.760 --> 0:02:52.320 when we see the opposite. So it's not that so 0:02:52.400 --> 0:02:54.800 much that they're making future business decisions based on effects, 0:02:54.800 --> 0:02:56.720 but it's the fact that quarter by quarter you see 0:02:56.840 --> 0:02:59.520 dollar impact on the earning statements. Okay, but the reason 0:02:59.560 --> 0:03:02.399 I was going there is that as an investor, if 0:03:02.440 --> 0:03:06.919 you are trying to think strategically, as a chief executive 0:03:07.000 --> 0:03:11.800 or someone running a major enterprise, those effects over time 0:03:12.160 --> 0:03:15.360 will be diminished. But it just leads to uncertainty. The 0:03:15.400 --> 0:03:19.040 more volatility we see in the FX market, you know, 0:03:19.200 --> 0:03:22.200 the more it's the uncertainty that's creeping in through so 0:03:22.240 --> 0:03:25.840 many different sectors of companies which rely not only on 0:03:26.400 --> 0:03:30.240 international supply chains but international revenue chains. And when we 0:03:30.280 --> 0:03:34.200 get trade piled on top of you know, larger volatility 0:03:34.360 --> 0:03:36.960 in effects. And the volatility we're seeing right now is 0:03:37.040 --> 0:03:40.040 not that significant. We've seen much higher volatility in the past. 0:03:40.520 --> 0:03:43.840 But to the extent that volatility is hitting us from 0:03:43.840 --> 0:03:45.520 a lot of different angles in matters, that adds up 0:03:45.560 --> 0:03:48.279 the arch question for me. And you see this Antiffanies 0:03:48.960 --> 0:03:53.480 up seven same store sales. Is does the new nominal 0:03:53.600 --> 0:03:57.120 GDP and the new animal spirit and all these comp 0:03:57.240 --> 0:04:01.920 numbers mean more investment? And I don't see. I get 0:04:01.960 --> 0:04:05.280 the idea of CAPEX is up, but is it goosed? 0:04:05.360 --> 0:04:08.680 Is it a boom economy investment? I don't think so. 0:04:08.760 --> 0:04:12.160 I think that you you know, CAPEX is really what 0:04:12.240 --> 0:04:15.560 we see now are CAPEX. When we see the numbers 0:04:15.600 --> 0:04:18.000 of durable goods shipments, we see the numbers of GDP, 0:04:18.279 --> 0:04:20.839 those often to reflect decisions that were made two years ago, 0:04:20.960 --> 0:04:24.279 especially the big lumpy investments that we want to get 0:04:24.279 --> 0:04:27.719 from companies that could really push our productivity ahead, you know, 0:04:27.800 --> 0:04:30.800 for years to come. Outside of the energy sector, it's 0:04:30.920 --> 0:04:34.039 it's been hard to find it. And when I think 0:04:34.320 --> 0:04:36.440 right now the uncertainty we're seeing, I think it's gonna 0:04:36.520 --> 0:04:39.120 we're gonna feel it, you know, four quarters from now, 0:04:39.160 --> 0:04:43.000 eight quarters from now, when companies just aren't incentivized to 0:04:43.440 --> 0:04:46.280 so we're going to see eighteen months from now, two 0:04:46.360 --> 0:04:50.000 years from now, three years from now, greater investment. No, 0:04:50.200 --> 0:04:52.479 I think the I think it's going to continue to 0:04:52.480 --> 0:04:54.840 be challenged. I mean, you know, we have seen even 0:04:54.960 --> 0:04:57.919 with the new accord between the United States and Mexico. 0:04:58.480 --> 0:05:02.640 Maybe that is a blueprint for for for other trade agreements. 0:05:02.720 --> 0:05:04.640 I feel like that was more of a rebranding than 0:05:04.680 --> 0:05:08.000 a new than a reinvention. What is SNL going to 0:05:08.120 --> 0:05:11.479 do with that this weekend? Mexico? You know, with that 0:05:11.600 --> 0:05:15.320 phone call yesterday? You know, I don't know. It wasn't bad, 0:05:15.480 --> 0:05:18.840 was it? You didn't It was interesting to me within 0:05:18.960 --> 0:05:21.840 within the reporting I saw, including Katherine Ramplet the Washington 0:05:21.880 --> 0:05:25.719 Post and David Fickling with a terrific Bloomberg opinion essay, 0:05:26.040 --> 0:05:29.520 a really detailed essay. What I noted that the President 0:05:29.560 --> 0:05:33.400 of Mexico four times in the conversation brought in Canada. 0:05:33.480 --> 0:05:36.120 Well yeah, sure, I mean, well, you know NAFTA was 0:05:36.160 --> 0:05:40.039 a tripartit agreement, right, But Lara, why why do you 0:05:40.080 --> 0:05:43.839 believe that these agreements will not have a beneficial effect? 0:05:44.680 --> 0:05:50.440 The question is so beneficial to investment, beneficial to growth, 0:05:50.520 --> 0:05:54.159 and it's I don't know that they're going to have 0:05:54.240 --> 0:05:56.720 a negative effect. I just we still don't know a 0:05:56.800 --> 0:05:59.200 lot of details, and these are agreements that have to 0:05:59.200 --> 0:06:01.159 be ratified by Congress, and we don't know if the 0:06:01.160 --> 0:06:05.240 president is going to have the full weight of Congress 0:06:05.279 --> 0:06:09.520 behind him. You know when that comes around, tariffs are unilateral, 0:06:09.640 --> 0:06:12.560 that's a place where the president can act. La Ran, 0:06:12.640 --> 0:06:30.479 thank you so much. Investments with US. UH today very 0:06:30.520 --> 0:06:35.160 lovely with us with the Peterson Institute in Syracuse University. Mary, 0:06:35.160 --> 0:06:37.120 I'm gonna give you an open question to get started. 0:06:37.400 --> 0:06:42.000 What is the distinction today that you're thinking about after 0:06:42.080 --> 0:06:46.880 what you observed yesterday on left? Well, I think we're 0:06:46.880 --> 0:06:50.880 really interested in seeing more details, especially on the roll 0:06:50.880 --> 0:06:54.200 of the origin. Uh. The agreement is quite complex. What 0:06:54.320 --> 0:06:57.479 we had yesterday is sort of a broad outline. We 0:06:57.560 --> 0:07:01.760 really need to think about the details because for businesses 0:07:01.800 --> 0:07:04.400 operating across the three countries, it's going to be the 0:07:04.440 --> 0:07:06.159 details that are going to determine how much they have 0:07:06.200 --> 0:07:11.400 to change their business operations. Mary, what are rules of origin? 0:07:11.800 --> 0:07:17.160 And when we talk about things such as requirements and 0:07:17.320 --> 0:07:21.960 a separate rule for maybe for content, that's all kind 0:07:21.960 --> 0:07:26.280 of jumbled and complicated. Can you kind of disentangle that 0:07:26.360 --> 0:07:30.040 force and explain what that means? Show rules of origin 0:07:30.080 --> 0:07:32.680 are usually in things that make people yawn. Uh. And 0:07:32.720 --> 0:07:35.200 I think in some sense this administration is counting on 0:07:35.240 --> 0:07:38.400 that because the headline news is that this good for workers, 0:07:38.440 --> 0:07:41.600 But when one really digs in, uh, it's very unlikely 0:07:41.640 --> 0:07:44.960 that this is going to produce good news for American workers. 0:07:45.280 --> 0:07:49.400 And here's why. The rules of origin basically are a 0:07:49.440 --> 0:07:53.560 way of determining which products will be able to enjoy 0:07:53.680 --> 0:07:57.400 duty free status within the US market. So it limits 0:07:57.720 --> 0:08:00.840 uh important content of goods that are going to be 0:08:00.960 --> 0:08:05.600 traveling freely across the three countries. In the auto case, 0:08:05.720 --> 0:08:09.280 it means that no more than of the content of 0:08:09.280 --> 0:08:13.280 the automobile can be made outside North America. And that 0:08:13.400 --> 0:08:16.520 while that sounds great the average person, great more jobs 0:08:16.560 --> 0:08:19.440 for the US, what it really does drive up the 0:08:19.480 --> 0:08:23.360 price of vehicles and limit our ability to export our 0:08:23.440 --> 0:08:27.880 vehicles to the rest of the world. Okay, so that's 0:08:26.520 --> 0:08:31.600 the content. What about the wage rule because that also 0:08:31.680 --> 0:08:37.040 figures into the assembly line that makes the automobiles. Yes, 0:08:37.120 --> 0:08:41.440 and the wage rule is really a way to get uh, 0:08:42.240 --> 0:08:45.760 really an advantage for the United States over Mexico. So 0:08:45.840 --> 0:08:48.840 this really is a strong arming of Mexico by the 0:08:48.920 --> 0:08:53.120 United States. Came into play because Mexican wages are not 0:08:53.240 --> 0:08:56.480 that high and by saying that a certain share of 0:08:56.640 --> 0:08:59.000 late of the car has been made with labor that 0:08:59.000 --> 0:09:03.240 that receives a sixteen dollar an hour wage means that 0:09:03.640 --> 0:09:06.360 a larger share of the automobile may have to be 0:09:06.440 --> 0:09:10.240 made within the United States in Canada. So this really 0:09:10.320 --> 0:09:17.120 is a provision that will benefit the United States against Mexico. Okay, 0:09:17.360 --> 0:09:19.880 you get we wrote writing that down, So I've got 0:09:19.920 --> 0:09:25.800 those two specific David Fickling and Travine gets into the 0:09:25.800 --> 0:09:29.600 complexity of this all. Do we usually see this complexity 0:09:29.640 --> 0:09:33.280 in trade agreements? Mary? Or is this unique? Mr Trump 0:09:33.320 --> 0:09:38.000 is doing trade? Oh? Well, we do see rules of origin. 0:09:38.360 --> 0:09:42.520 These are particularly complex, and that is because I believe 0:09:42.559 --> 0:09:46.040 Ambassador Lighthouser in particular really prefers what we think of 0:09:46.080 --> 0:09:50.839 as managed trade or supply management. Unfortunately, that means that 0:09:50.880 --> 0:09:55.800 we are replacing the decisions of business involved by government 0:09:55.800 --> 0:10:00.400 bureaucrats as to how it's formulas competitive. I mean, the 0:10:00.400 --> 0:10:03.600 bottom line is there's a lot of formulas dictated by 0:10:03.679 --> 0:10:09.120 government that Marie Barra at General Motors has to memorize, right, right, 0:10:09.160 --> 0:10:11.079 It's going to be a boom for consoles to figure 0:10:11.080 --> 0:10:14.280 out how to get around them, because once you start 0:10:14.320 --> 0:10:18.520 restricting the ability of companies to do with economically beneficial 0:10:18.559 --> 0:10:20.760 they're going to try to find ways around it. So 0:10:20.800 --> 0:10:24.439 what does Christipher Friedland do today? She's gonna wander down 0:10:24.720 --> 0:10:28.640 to Washington. Let's be clear here, the President United States 0:10:28.640 --> 0:10:31.920 does not have a lot of love and affection Minister 0:10:32.000 --> 0:10:36.320 of Canada, Canadian Foreign Trade negotiate her. So what do 0:10:36.360 --> 0:10:39.120 you expect to see from Canada? Why should they why 0:10:39.160 --> 0:10:44.200 should they enjoy this Trump lateral party. Well, they have 0:10:44.360 --> 0:10:49.600 different issues than than the Mexican Well, in particular, they 0:10:49.640 --> 0:10:52.560 were very much against the sunset provision, which meant that 0:10:52.600 --> 0:10:56.040 after five years this deal would go away unless it 0:10:56.120 --> 0:11:00.840 was explicitly renewed. That was softened. This is a sixteen 0:11:00.920 --> 0:11:03.560 year period. What after six years the agreement has to 0:11:03.559 --> 0:11:07.120 be renewed, as opposed to automatically going away unless it 0:11:07.320 --> 0:11:12.080 is renewed. So that has been softened. UH. The Canadians, 0:11:12.120 --> 0:11:14.880 and I think rightly. So, we're concerned about the uncertainty 0:11:14.960 --> 0:11:19.600 that that enters for UH investors as to whether, you know, 0:11:19.679 --> 0:11:22.280 when they invested in North America, what would be the 0:11:22.360 --> 0:11:25.360 rules operating you know, five years. Hence, so they were 0:11:25.400 --> 0:11:29.440 against that. They may be able to accept this soft version. UM, 0:11:29.440 --> 0:11:35.240 they're also concerned about their ability to UH basically complain 0:11:35.360 --> 0:11:38.960 about US trade restrictions that take away some of the 0:11:39.000 --> 0:11:42.480 benefits that they think they've agreed to. And people in 0:11:42.520 --> 0:11:44.640 the past may said, well, that won't happen, but now 0:11:44.720 --> 0:11:47.200 we're seeing that this happens all the time, which with 0:11:47.320 --> 0:11:51.720 the Trump administration. Uh basically all many of our partners 0:11:51.800 --> 0:11:56.160 have seen, uh them levies on steal and aluminum, on 0:11:56.280 --> 0:11:59.640 washing machines, on others, things that washing machines was a 0:11:59.720 --> 0:12:03.480 safe guards allowed under w t O. But nevertheless all 0:12:03.520 --> 0:12:06.600 these things say, hey, at any moment, some of our 0:12:06.640 --> 0:12:09.320 exports can be subject to terrorists that we thought were 0:12:09.360 --> 0:12:12.880 already negotiated away. So this is a real concern for 0:12:12.920 --> 0:12:17.079 the Canadians. Mary, does this really matter in the sense 0:12:17.120 --> 0:12:20.560 that the growing market is China? There was an announcement today, 0:12:20.559 --> 0:12:24.240 for example, that Nissan is going to be building the 0:12:24.280 --> 0:12:29.599 first made for China electric automobile. This is a developing 0:12:29.679 --> 0:12:34.400 market talking about China. The United States is a developed market. 0:12:35.800 --> 0:12:37.520 Are we talk is this basically if you looked at 0:12:37.520 --> 0:12:41.560 it five years hence that we're kind of discussing how 0:12:41.600 --> 0:12:44.880 many angels fit on the head of a pin. Well, 0:12:45.120 --> 0:12:47.160 I don't think so. I think there's two ways to 0:12:47.160 --> 0:12:50.200 look at that. First, the American market remains very important. 0:12:50.240 --> 0:12:53.240 Not only it is large, I mean that's growing is quickly, 0:12:53.240 --> 0:12:56.680 although it is growing fairly healthy for a developed country 0:12:56.800 --> 0:13:01.079 um in the scheme of things, UM. But it's also 0:13:01.160 --> 0:13:04.440 a market where the competition in the past has been 0:13:04.600 --> 0:13:07.880 urged nurse and quality demands are very high. So you 0:13:08.000 --> 0:13:11.439 see developing countries UH in emerging markets having to reach 0:13:11.440 --> 0:13:15.360 a certain level of competitiveness in competency before they can 0:13:15.400 --> 0:13:19.160 even you know, really sell into the American European market. 0:13:19.600 --> 0:13:22.840 So we're very important in that way. On the other hand, 0:13:23.360 --> 0:13:27.280 what we're doing now is creating fortress America. We're creating 0:13:27.320 --> 0:13:30.600 a lot of trade barriers for our companies to import 0:13:30.640 --> 0:13:33.680 inputs that will keep them competitive in Asian markets. And 0:13:33.720 --> 0:13:37.880 then we're inviting retaliation. If this administration moves ahead with 0:13:38.040 --> 0:13:41.760 national security tariffs on important vehicles, we're going to see 0:13:41.760 --> 0:13:44.120 more retaliation from our trading partners and that's going to 0:13:44.200 --> 0:13:47.160 hurt our exporters. Trivic briefly, very lovely, thank you so 0:13:47.240 --> 0:13:49.400 much for the Peterson Institute. She and Chad bound have 0:13:49.480 --> 0:13:53.200 just him. I just think smart, smart work of cutting 0:13:53.320 --> 0:14:11.040 through the many rhetorics. David Harrow joins us now from 0:14:11.080 --> 0:14:14.160 Harrow Associates. David, before we get to investment, right now, 0:14:14.200 --> 0:14:17.600 a brewer's update is in uh in in in order. 0:14:17.679 --> 0:14:21.520 How are the brewers of Milwaukee doing when the brewers 0:14:21.520 --> 0:14:24.360 are hanging in there, Tom, I mean they're they're, you know, 0:14:24.640 --> 0:14:28.000 got a good shot at postseason play. I agree that 0:14:28.080 --> 0:14:31.200 all the focuses on Red Sox, Yankees and maybe the Astros, 0:14:31.240 --> 0:14:35.120 and you know a couple of times Cubs Cubs as well, 0:14:35.240 --> 0:14:39.000 And there's all these teams like Milwaukee percolating underneath to 0:14:39.080 --> 0:14:41.920 make it interesting as we go. Let's get to it. 0:14:42.000 --> 0:14:45.720 David Harrow on international investment, do you have a normal 0:14:45.960 --> 0:14:49.320 enthusiasm with all the e M crisis? Is it a 0:14:49.440 --> 0:14:54.040 greater enthusiasm or are you looking at general motors now 0:14:54.240 --> 0:14:57.720 levels are at greater enthusiasm. I mean it's been a 0:14:57.840 --> 0:15:01.880 very volatile summer where you've had a stream price movements 0:15:01.880 --> 0:15:06.600 in certain sectors, in particular overseas. You mentioned the emerging markets. 0:15:06.640 --> 0:15:10.080 I would also mention what's happening in Europe, European financials, 0:15:10.160 --> 0:15:14.200 European autos. Some industrials been very very weak on a 0:15:14.200 --> 0:15:18.760 lot of these macro headlines and meanwhile the business conditions, 0:15:18.840 --> 0:15:22.280 the underlying business conditions have been more than acceptable. So 0:15:22.680 --> 0:15:26.000 this is what provides opportunity is when you get these 0:15:26.040 --> 0:15:32.160 exaggerated price movements as a result of kind of macroeconomic disturbances. 0:15:32.240 --> 0:15:35.320 So this is this is good for bottom up value 0:15:35.360 --> 0:15:38.320 stock picker this summer. So you know, it's you've got 0:15:38.320 --> 0:15:41.200 to be you're very busy. There's never rest, but you 0:15:41.240 --> 0:15:44.440 know that's the nature of summers as of recent Within 0:15:44.520 --> 0:15:47.640 that in the opportunity as a value of EU banking. 0:15:47.680 --> 0:15:50.520 We had a Steam guest this morning talking up Bank 0:15:50.560 --> 0:15:55.920 of Cent and there, but frame how inexpensive EU banking 0:15:56.200 --> 0:15:59.400 is right now. I mean, if you look at what 0:15:59.480 --> 0:16:02.360 I think is one of the highest qualities EU Bank, 0:16:02.840 --> 0:16:07.520 b n P Perry Bob Banco National pre Um. If 0:16:07.520 --> 0:16:09.800 you look at its where it trades on a price 0:16:09.880 --> 0:16:12.760 to book value or a price to earnings and not 0:16:12.840 --> 0:16:16.240 just current earnings, kind of normal earnings, it probably trades 0:16:16.360 --> 0:16:20.680 at a good thirty five to discount to say a 0:16:20.800 --> 0:16:25.680 JP Morgan. Now it's return on equity equity will probably 0:16:25.720 --> 0:16:29.080 be a pointer or two lower and normalcy if if 0:16:29.800 --> 0:16:34.760 JP Morgan is kind of mid teens. UH. Perhaps BNP 0:16:34.920 --> 0:16:38.760 will be low double digits, but still I don't believe 0:16:39.520 --> 0:16:46.400 that this valuation differential UH is UH is sustainable. And 0:16:46.520 --> 0:16:50.360 this all happened, This really started to happen in February 0:16:50.520 --> 0:16:54.000 when the Italian couldn't get their act together and from 0:16:54.200 --> 0:16:57.880 a government, and you know, this really hit the European 0:16:57.960 --> 0:17:02.440 financials and we've seen this happened so many times the 0:17:02.640 --> 0:17:06.160 financial crisis. Him, I would know the dividend on BMP 0:17:06.320 --> 0:17:08.879 Perry is you know this is not a type on 0:17:09.040 --> 0:17:13.920 radio AD five eight zero percent. Yeah, but as David 0:17:14.000 --> 0:17:18.680 just mentioned, uh, the actual capital appreciation not there. Hey, David, 0:17:18.720 --> 0:17:20.679 you know I know that B ANDB PARRYBA is the 0:17:20.800 --> 0:17:25.280 largest holding in your oak Mark International Fund. The fund 0:17:25.280 --> 0:17:28.000 down a little bit, just less than eight percent so 0:17:28.080 --> 0:17:32.240 far this year. I'm wondering whether you are thinking about 0:17:32.400 --> 0:17:36.320 changing the geographic allocation in the fund. The top allocation 0:17:36.440 --> 0:17:39.960 right now is to the United Kingdom nearly twenty three percent. 0:17:40.640 --> 0:17:46.520 But you've got companies like Daimler, Alliance, Credit, Swiss, BMW, Glencore, 0:17:47.160 --> 0:17:50.840 uh C, NH Industrial. Are you thinking about maybe shifting 0:17:50.840 --> 0:17:57.520 to a more concentrated continent of Europe position Well, not necessarily. 0:17:57.560 --> 0:18:00.680 What we do is position ourselves based down where we 0:18:00.800 --> 0:18:05.720 find the underlying value of the companies themselves. And all 0:18:05.760 --> 0:18:09.560 those companies that you listed and named exists in our 0:18:09.600 --> 0:18:12.960 top position, and they made jockey around depending on what 0:18:13.080 --> 0:18:16.840 happens any given day, week, or month. But basically, our 0:18:16.920 --> 0:18:21.720 position sizes within the portfolio and our waitings within the 0:18:21.760 --> 0:18:26.119 portfolio are a function of the discount those stocks are 0:18:26.160 --> 0:18:31.000 trading that verse our measurement of their intrinsic value. And 0:18:31.040 --> 0:18:34.159 what's happened is is our measurement of intrinsic value. And 0:18:34.200 --> 0:18:37.359 most of these names has done nothing but gone up. 0:18:37.720 --> 0:18:41.399 But meanwhile, because of these headlines, starting in spring and 0:18:41.440 --> 0:18:44.360 in summer, the prices have been down and in some 0:18:44.480 --> 0:18:49.520 cases very extreme downward movements in price, and especially in 0:18:49.560 --> 0:18:53.040 those two sectors, the automotive sector of Europe and as 0:18:53.040 --> 0:18:56.240 well as the financial sector of Europe. So as those 0:18:56.280 --> 0:19:01.160 prices decline and that value gap open, we actually see 0:19:01.200 --> 0:19:05.800 more opportunities. So our decision making is predicated on trying 0:19:05.840 --> 0:19:10.320 to take advantage of that gap, that gap between intrinsic 0:19:10.440 --> 0:19:13.840 value and price, knowing that in the short term, mr 0:19:13.960 --> 0:19:18.080 market could be very finicky, very irrational, very volatile, and 0:19:18.119 --> 0:19:20.520 even though it's painful, you mentioned, you know, a year 0:19:20.560 --> 0:19:23.239 to data, our numbers haven't been so good. But this 0:19:23.400 --> 0:19:27.439 actually provides us with the basis to outperform over the 0:19:27.520 --> 0:19:30.520 medium and long term taking advantage of what I call 0:19:30.600 --> 0:19:36.439 are these exaggerated and unnatural prices. Is in Tessa San Paolo, 0:19:36.600 --> 0:19:41.560 the touring Italy based bank. Is that an example. This 0:19:41.720 --> 0:19:44.040 is a perfect example. By the way you look at 0:19:44.080 --> 0:19:47.280 that divided yield. Uh, you know you're probably pushing a 0:19:47.320 --> 0:19:50.359 normal yield of our own seven or eight percent. Why 0:19:50.440 --> 0:19:53.040 has this stock been so weak? Has it been because 0:19:53.080 --> 0:19:55.880 of more loan losses? No, their loan losses in fact 0:19:55.880 --> 0:19:59.600 are declining and they're actually picking up some lending growth. 0:20:00.040 --> 0:20:04.000 The whole issue behind in Tessa is where it's domiciled. 0:20:04.080 --> 0:20:08.560 It's domiciled in Italy, where Italy is having some instability, 0:20:08.640 --> 0:20:14.440 political instability. Despite the fact that in Tessa's operating basis 0:20:14.560 --> 0:20:17.439 is in northern Italy, which is very healthy, which is 0:20:17.440 --> 0:20:21.320 showing some good growth. Uh, it's a very healthy balance sheet, 0:20:21.520 --> 0:20:26.080 very healthy capital position. But because it's in Italy, it's 0:20:26.119 --> 0:20:29.960 been extremely weak and US dollar terms, it's probably down 0:20:30.040 --> 0:20:36.119 somewhere in the mid since early January, David Harrow with 0:20:36.200 --> 0:20:52.560 us where Harris associates lts to talk about big elections 0:20:52.560 --> 0:20:54.800 taking place. A lot of primaries today. Here to tell 0:20:54.880 --> 0:20:57.880 us all about them is Greg Gerrow, our Bloomberg Government 0:20:57.960 --> 0:21:03.480 Elections reporter, joining us from studios in Washington, d C. 0:21:03.760 --> 0:21:07.440 Greg always a pleasure. Let's start with Arizona. What's going 0:21:07.480 --> 0:21:11.200 on there and how important is this for the Democrats. Well, 0:21:11.240 --> 0:21:15.480 Arizona is critical to the Democratic campaign, the underdog campaign 0:21:15.560 --> 0:21:17.960 to win control of the Senate from the Republicans. Jeff 0:21:17.960 --> 0:21:21.520 Flake is retiring and you have primaries today for his seat. 0:21:21.960 --> 0:21:24.240 I think the race to watch is the Republican primary, 0:21:24.280 --> 0:21:27.720 a three way primary that includes Congressman Martha McSally who's 0:21:27.800 --> 0:21:30.879 up against Kelly Ward, who ran against John McCain in 0:21:30.920 --> 0:21:35.160 the Republican primary, trying to run as a more conservative 0:21:35.160 --> 0:21:38.600 alternative and more of a pro Trump cadidate than Martha McSally. 0:21:38.680 --> 0:21:41.440 And then you have Joe R. Pio, the uh controversial 0:21:41.480 --> 0:21:44.240 former Arizona sheriff who want to pardon from Donald Trump 0:21:45.000 --> 0:21:48.520 bar peo and order, probably likely to split a lot 0:21:48.520 --> 0:21:51.720 of the anti establishment votes. So I think McSally goes 0:21:51.760 --> 0:21:54.040 on to win and will advance to the November election, 0:21:54.400 --> 0:21:57.760 probably against one of our colleagues, Democratic Congresswoman Kirsten Cinema. 0:21:58.000 --> 0:22:01.240 It's a state that Trump narrowly harried in and it 0:22:01.240 --> 0:22:04.199 will be key to UH, key to the one of 0:22:04.200 --> 0:22:06.800 the top seven or eight center races in November, and 0:22:06.880 --> 0:22:11.520 just quickly. Any idea of who the Arizona governor will 0:22:11.520 --> 0:22:15.360 select to fill the seat left vacant by the passing 0:22:15.520 --> 0:22:19.199 of Senator John McCain, we don't know quite yet. The 0:22:19.240 --> 0:22:21.439 governor is keeping his cards close to his vest. He 0:22:21.480 --> 0:22:24.840 will appoint a Republican uh, because he is a Republican, 0:22:24.960 --> 0:22:27.760 also because state lowe requires it. UM. There are several 0:22:27.840 --> 0:22:31.360 names that have been speculated, including Cindy McCain, the late 0:22:31.440 --> 0:22:34.200 senator's widow. I don't think that will happen. Republican leaders 0:22:34.200 --> 0:22:36.920 are gonna want someone who will run in the special 0:22:36.920 --> 0:22:41.040 election in because Arizona, as I mentioned, as competitive, and 0:22:41.040 --> 0:22:44.280 they wanted the Republican leaders want a strong candidate to 0:22:44.320 --> 0:22:46.640 defend that seat when it comes up again. Are these 0:22:46.640 --> 0:22:49.440 primaries different than the ones months and months and months ago? 0:22:49.920 --> 0:22:51.840 I mean, I think of the presidential primary, how they 0:22:51.920 --> 0:22:54.800 change over time or is just the primaries of primary 0:22:55.640 --> 0:22:59.000 primaries are primary, you know in this case here, you know, 0:22:59.200 --> 0:23:02.040 congressional primary is a little odd and that they start 0:23:02.080 --> 0:23:04.760 as early as in March, and states like Illinois and Texas. 0:23:04.800 --> 0:23:06.679 And we're kind of getting near to the end with 0:23:06.720 --> 0:23:10.160 Florida and Arizona, which traditionally vote late. After today, we'll 0:23:10.160 --> 0:23:12.600 only have a handful of New England states mostly to 0:23:12.960 --> 0:23:15.040 left to vote. But people are gonna be watching the 0:23:15.040 --> 0:23:18.240 primary turnout very closely, especially in Florida, where you have 0:23:18.280 --> 0:23:22.159 contested primaries in both parties for the governorship and the 0:23:22.200 --> 0:23:25.399 Republican primary. President Trump is intervened to back a preferred 0:23:25.440 --> 0:23:30.240 candidate for candidate there tell us about Florida, but specifically 0:23:30.280 --> 0:23:36.040 about Donna Schalela. Yeah, Donna Schalela Um. She was President 0:23:36.080 --> 0:23:40.480 Clinton's Bill Clinton's Health and Human Services Secretary, later the 0:23:40.520 --> 0:23:43.160 president of the University of Miami. This is a Miami 0:23:43.400 --> 0:23:46.680 area congressional district that Salela is seeking in today's primary. 0:23:47.200 --> 0:23:50.440 She has several opponents in the Democratic primary, but because 0:23:50.440 --> 0:23:53.960 of her name recognition and fundraising, she's likely to win, 0:23:54.040 --> 0:23:56.520 perhaps with a plurality of the vote. This is a 0:23:56.600 --> 0:24:00.480 district that is Hispanic majority it is anti Trump, but 0:24:00.520 --> 0:24:04.400 it's held by a Republican, Eliana Ross Latenan who is retiring, 0:24:04.720 --> 0:24:07.920 and it is a top target of Democrats seeking a 0:24:08.000 --> 0:24:11.080 net game of twenty three seats to overturn the majority. 0:24:11.080 --> 0:24:13.960 It's a must win for the Democrats. Well, we've got 0:24:14.000 --> 0:24:18.080 you on overnight the news of courts saying to North 0:24:18.160 --> 0:24:23.760 Carolina you're gerrymandering, which I believe tilster Republicans is just 0:24:23.840 --> 0:24:27.040 not going to go even before the election. Translate that 0:24:27.080 --> 0:24:31.480 for Yeah, So, a federal court last night issued an 0:24:31.520 --> 0:24:35.199 opinion that was over three hundred pages that basically invalidated 0:24:35.280 --> 0:24:39.479 a Republican drawn North Carolina congressional district map as an 0:24:39.560 --> 0:24:44.199 unlawful partisan gerrymander. And but it's not clear yet if 0:24:44.240 --> 0:24:47.040 that map will be used in the elections coming up 0:24:47.080 --> 0:24:49.840 in just a little over two months. I suspect that 0:24:49.880 --> 0:24:53.640 the Republicans defending the map will try and ask to 0:24:53.680 --> 0:24:56.120 stay the ruling or block it until after the election, 0:24:56.400 --> 0:24:58.879 noting how close we are. We've already had the primary 0:24:58.880 --> 0:25:01.639 elections in North Carolina in the spring, so we have 0:25:01.680 --> 0:25:03.760 to wait and see what the what the court is 0:25:04.000 --> 0:25:07.119 going to do, what the Supreme Court might do because 0:25:07.119 --> 0:25:11.600 it will certainly be appealed to that body. It rundown. 0:25:11.800 --> 0:25:14.160 Gregg Gerald, thank you. Loved your work earlier this morning 0:25:14.160 --> 0:25:17.520 as well. Mr gerro with Bloomberg Government and Washington really 0:25:17.560 --> 0:25:27.960 encyclopedic on all this stuff. Thanks for listening to the 0:25:27.960 --> 0:25:34.480 Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 0:25:34.840 --> 0:25:39.040 or whichever podcast platform you prefer. I'm on Twitter at 0:25:39.080 --> 0:25:43.360