WEBVTT - We're Halfway Through this Cycle, Gimbel Predicts 0:00:00.080 --> 0:00:13.600 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom keene Jaileye. 0:00:13.640 --> 0:00:16.640 We bring you insight from the best in economics, finance, 0:00:16.720 --> 0:00:23.200 investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.320 --> 0:00:32.239 Bloomberg dot Com, and of course on the Bloomberg. Let's 0:00:32.280 --> 0:00:34.520 just want to zoom in on the FX market first 0:00:34.520 --> 0:00:37.440 of all and bring in hands Eradiquet Morgan Stanley Investment Management, 0:00:37.440 --> 0:00:41.400 Global head of ffex Strategy and he joins us from London. Hands, 0:00:41.479 --> 0:00:45.839 let's begin with Turkey. What constitutes a currency crisis and 0:00:45.920 --> 0:00:50.680 how close are we to want in Turkey? So honestly, 0:00:50.720 --> 0:00:54.400 the recent movements in the currency had been a quiet 0:00:54.400 --> 0:00:56.520 to dramatic and you have to put that into context 0:00:56.560 --> 0:01:00.480 of really interest rates. So we're analyzing for an exchange 0:01:00.480 --> 0:01:02.520 we have always to think about what type of rear 0:01:02.600 --> 0:01:06.840 rate level do you require to cover up for internal 0:01:06.920 --> 0:01:12.280 and external imbalances? And the Turkish rear rate and environment 0:01:12.360 --> 0:01:15.600 is obviously too low for the taste of investors and 0:01:15.680 --> 0:01:17.840 that is so why is the exchange rate is currently 0:01:17.959 --> 0:01:21.040 selling off now when you look into what is priced 0:01:21.080 --> 0:01:23.800 in on rate hikes in talk is about two on 0:01:23.880 --> 0:01:27.280 that basis points. So in order to stabilize the exchange rate, 0:01:27.560 --> 0:01:31.560 you would have to see rate hikes going beyond what 0:01:31.720 --> 0:01:34.319 is currently priced in in the in the front end 0:01:34.360 --> 0:01:37.920 of the curve. Now that obviously it does require a 0:01:37.959 --> 0:01:40.080 decision by the Center Bank to do so well, and 0:01:40.120 --> 0:01:43.280 it's amazing to me that the Central Bank hasn't moved yet. 0:01:43.319 --> 0:01:45.400 And it's not just me. A lot of traders are saying, 0:01:45.520 --> 0:01:47.680 what is the what are they waiting for? What do 0:01:47.680 --> 0:01:51.640 they need to raise rates? If they don't raise rates, 0:01:51.640 --> 0:01:55.720 how far can this go? Well, there's obviously the ultimate question, 0:01:55.760 --> 0:01:56.960 but you have as well to put that in the 0:01:57.040 --> 0:02:02.040 context of other circumstances or that is, actually the vulnerability 0:02:02.040 --> 0:02:05.520 which is commonly exposed in Turkey is as well a 0:02:05.600 --> 0:02:08.880 result of US dollar strengths, which we are now experiencing. 0:02:09.320 --> 0:02:13.079 Since so it's hard to call this that. I mean, 0:02:13.240 --> 0:02:16.840 the lyric has fallen twenty one percent so far this year. 0:02:17.480 --> 0:02:21.080 Japanese investors who had previously been bullish are now pulling back, 0:02:21.080 --> 0:02:24.200 cutting their losses, getting out of there. Uh, this isn't 0:02:24.240 --> 0:02:27.320 just a dollar strength story. No, no, no, no no. 0:02:27.400 --> 0:02:30.919 You have actually to think about under which circumstances can 0:02:30.960 --> 0:02:35.400 you fund for an imbalance of funding needs in capital 0:02:35.480 --> 0:02:39.160 importance and under which circumstances is becoming more difficult. And 0:02:39.440 --> 0:02:41.720 the situation was obviously in the past a few years 0:02:41.720 --> 0:02:45.760 it was there were situations where capital important into higher 0:02:45.800 --> 0:02:49.240 yielding environment, so we're less difficult a than they emerged 0:02:49.480 --> 0:02:52.799 from Fabry onwards. And of course there were then other 0:02:52.840 --> 0:02:56.120 effectors which are much more specific to Turkey kicking in. 0:02:56.720 --> 0:03:01.160 But my point here is that are to be easier 0:03:01.280 --> 0:03:04.920 for for authorities to stabilize the exchange rate within an 0:03:05.000 --> 0:03:08.120 environment of US solar weakness. When you have a dollar 0:03:08.160 --> 0:03:13.600 strengths generally are happening out or happening, then that effort 0:03:13.600 --> 0:03:16.359 is becoming a much more difficult. That is the point 0:03:16.400 --> 0:03:18.239 I wanted to make. It's a good point hands. And 0:03:18.240 --> 0:03:21.040 when you overload the credibility issue here as well, you've 0:03:21.040 --> 0:03:24.320 got investors wondering whether the central Bank could indeed deliver 0:03:24.360 --> 0:03:26.440 a rate car never mind a rate hike after the 0:03:26.480 --> 0:03:29.840 election in Turkey, a real credibility issue there. Two hands, 0:03:29.840 --> 0:03:32.799 what's the contagion risk here? If there is any asel hands? 0:03:34.000 --> 0:03:35.680 So what you have seen in the merchant market so 0:03:35.720 --> 0:03:39.080 far is that a bond equity and credit had been 0:03:39.320 --> 0:03:43.560 multi selling off, but it had been not astromatic as 0:03:43.600 --> 0:03:45.720 you would assume if you look at the exchange rates. 0:03:45.720 --> 0:03:48.560 So what happened here is that the value at risk 0:03:48.800 --> 0:03:52.680 in a merchant market portfolio also got reduced by people 0:03:52.720 --> 0:03:55.880 are hitching the Curren series. Now you know that hitching 0:03:55.920 --> 0:04:00.400 in the fixer emerging market environment is expensive. That actually 0:04:00.440 --> 0:04:04.480 means we have currently unsustainable portfolio structure. So it actually 0:04:04.520 --> 0:04:07.120 means that are either at one point you have to 0:04:07.120 --> 0:04:11.160 lift the hatch or alternatively you need to reduce your 0:04:11.200 --> 0:04:15.040 holdings in equities, bonsor and credit. And that decision is 0:04:15.040 --> 0:04:17.159 going to come up in the next few days and 0:04:17.279 --> 0:04:20.120 a lot. Again, it is going to depend how the 0:04:20.200 --> 0:04:22.800 general perception of cs dollar is. What do you think 0:04:22.839 --> 0:04:25.840 about a global risk appetite? Are we in an environment 0:04:25.839 --> 0:04:29.800 where people put money at work or not? And we 0:04:29.880 --> 0:04:33.200 have as well then to think about the complicating issue 0:04:33.360 --> 0:04:37.480 of the euro. What is currently happening in Italy does 0:04:37.560 --> 0:04:40.400 not help the issue. Yeah, you know, you make a 0:04:40.400 --> 0:04:44.800 really important point about how any moves to stabilize or 0:04:44.880 --> 0:04:49.039 even sort of edify developing economies really hinges on the 0:04:49.120 --> 0:04:53.360 dollar and the euro. And right now I'm looking at 0:04:53.400 --> 0:04:56.280 a story that Bloomberg News put out showing that emerging 0:04:56.360 --> 0:04:59.880 market companies and governments have borrowed a record amount of 0:05:00.040 --> 0:05:03.920 hard currency debt in the past decade. What is your 0:05:04.000 --> 0:05:07.040 view for the dollar in the next six months and 0:05:07.760 --> 0:05:11.680 how concerning is this free m Now? The thing is 0:05:11.680 --> 0:05:14.200 that there's not nothing new that that there had been 0:05:14.279 --> 0:05:16.880 a hard currency in flow into a merchant market. The 0:05:17.000 --> 0:05:21.120 fo to think about that in the context of capital 0:05:21.480 --> 0:05:24.120 or capex expansion or in a merchant markets. When the 0:05:24.120 --> 0:05:27.840 global economy is synchronized and strong, you eat into global 0:05:27.880 --> 0:05:31.000 capacity reserves. You wanted to increase your capacity use your 0:05:31.000 --> 0:05:34.480 as dollar for funding purposes, and therefore you raise dollar 0:05:34.600 --> 0:05:39.560 debt and take it for your domestic investment purposes. So 0:05:39.680 --> 0:05:44.040 that is not new, that is usual. Now. What is, however, 0:05:45.320 --> 0:05:48.120 a new theme here is where do we stand in 0:05:48.240 --> 0:05:51.599 respect of global economic growth? This is still as strong 0:05:51.720 --> 0:05:54.560 as it's synchronized as it seemed to look in Genuary. 0:05:54.920 --> 0:05:57.960 And we have seen all the week data, especially in 0:05:58.040 --> 0:06:00.160 February coming in in Europe and then nature on a 0:06:00.240 --> 0:06:03.160 well in Japan, which are raising doubts on that, and 0:06:03.800 --> 0:06:06.599 you need to analyze the market from that point. We 0:06:06.680 --> 0:06:10.440 have released a scoreboard here at morns than in respect 0:06:10.440 --> 0:06:14.359 of serious dollar, which gives us quite precise information about 0:06:14.400 --> 0:06:17.800 the outlook of serious dollar, and that want us in 0:06:17.880 --> 0:06:21.080 February March to get long dollars. And what it does 0:06:21.160 --> 0:06:25.520 tell me now is that it is now time to 0:06:26.200 --> 0:06:29.320 see only very limited upside potential in zeals solar. What 0:06:29.360 --> 0:06:31.240 I wanted to say here is that this dollar really 0:06:31.760 --> 0:06:34.080 is going to run out of steam within the next 0:06:34.279 --> 0:06:37.039 few weeks. Hands red, it's always great to cant shop 0:06:37.080 --> 0:06:39.279 with your hands Jo wanting us from the capital of 0:06:39.400 --> 0:06:43.200 Global Foreign Exchange and in London, Morgan Stanley's Investment Management 0:06:43.200 --> 0:07:01.479 Global head of Ethics Strategy. But it's some news overnight 0:07:01.880 --> 0:07:05.440 the United States House approving a sweeping overhaul of bank regulation, 0:07:05.920 --> 0:07:08.520 now sending it to the President of the United States 0:07:08.560 --> 0:07:10.400 don A. Trump, a bill that would give him a 0:07:10.480 --> 0:07:12.360 chance to make good on his vow to do a 0:07:12.400 --> 0:07:14.760 big number on the Dodd Frankak. So to what extent 0:07:14.840 --> 0:07:17.480 is this a big number on the Dodd Frankack. Let's 0:07:17.480 --> 0:07:20.320 bring an Isaac Boltanski. Shall we compass Point Research Policy 0:07:20.360 --> 0:07:24.440 Research managing Director, Isaac your thoughts on whether this is 0:07:24.480 --> 0:07:28.200 a big number on the regulation or not and what's 0:07:28.240 --> 0:07:32.080 in the bill. It's a number, but I don't think 0:07:32.160 --> 0:07:35.400 it's a big number by any means. This is a modest, 0:07:35.880 --> 0:07:40.080 narrowly tailored bill that isn't as good as its proponents 0:07:40.240 --> 0:07:44.840 argue or as bad as its detractors suggest. At its core, 0:07:44.960 --> 0:07:50.560 they're really three elements. The bill significantly lessens the regulatory 0:07:50.600 --> 0:07:54.000 burden for community banks, and here I mean banks under 0:07:54.080 --> 0:07:58.880 ten billion and assets. It modestly reduced compliance costs for 0:07:59.000 --> 0:08:03.240 regional banks, uh. And the mechanism that does there is 0:08:03.360 --> 0:08:08.840 raising the fifty billion threshold for enhanced stand prudential standards 0:08:08.840 --> 0:08:11.280 from the FED all the way up to two and 0:08:11.360 --> 0:08:15.000 fifty billion over time. And I think it's gonna bolster 0:08:15.560 --> 0:08:18.760 m and atail winds in the banking sector as a result. Well, 0:08:18.880 --> 0:08:20.080 and that's where I was going to go with this. 0:08:20.440 --> 0:08:23.120 I think after reading a number of nacs last night 0:08:23.520 --> 0:08:26.880 after this bill was passed, it seems like there is 0:08:26.920 --> 0:08:29.440 going to be a pretty significant wave of mergers and 0:08:29.480 --> 0:08:33.680 acquisitions among smaller community banks, and that may be the 0:08:33.880 --> 0:08:38.600 biggest takeaway from this number. To use the language de jure, 0:08:38.720 --> 0:08:40.640 I'm just wondering, I mean, do you think that this 0:08:40.679 --> 0:08:42.960 is going to benefit that industry or do you think, 0:08:43.000 --> 0:08:45.440 I mean, what's what's the outcome the ultimate outcome of that. 0:08:46.840 --> 0:08:49.280 The ultimate outcome, I think is that we will have 0:08:50.440 --> 0:08:54.679 a modest consolidation the banking sector. I think that regional 0:08:54.720 --> 0:08:58.080 banks and super regional banks will become a choirers. I 0:08:58.120 --> 0:09:01.800 think that they will um start looking around the landscape 0:09:01.840 --> 0:09:05.480 more aggressively. A good example is New York Community Bank, 0:09:05.640 --> 0:09:10.120 who sits at point seven billion in assets and has 0:09:10.160 --> 0:09:13.959 done everything food to stay under that fifty billion threshold. 0:09:14.760 --> 0:09:17.920 Now they have the capacity to local across the landscape 0:09:17.960 --> 0:09:21.160 and see where they want to increase their footprint. And 0:09:21.200 --> 0:09:23.200 so I think that's a perfect example of someone who 0:09:23.240 --> 0:09:26.160 wasn't a buyer is going to become a buyer after 0:09:26.200 --> 0:09:29.319 the President sells this sells the ex cuse science this 0:09:29.520 --> 0:09:32.600 bill on Thursday, Isaac Toun to what extent is there 0:09:32.640 --> 0:09:35.920 any evidence that banks have struggled to lend because of 0:09:35.960 --> 0:09:40.760 these regulations? It's a it's a tough argument to prove, 0:09:40.880 --> 0:09:44.400 and I think of the mortgage market is a good example. 0:09:45.000 --> 0:09:50.480 Um is there are mortgage credit standards too tight? Or 0:09:50.600 --> 0:09:56.160 is it an issue of household formation and supply availability 0:09:56.640 --> 0:09:59.840 and inventory in certain markets. So I think we hear 0:10:00.000 --> 0:10:03.840 lot of hyperbolic arguments, especially about this bill, but as 0:10:03.880 --> 0:10:06.480 you know, the truth is always more nuanced when it 0:10:06.520 --> 0:10:10.720 comes to financial services policy in particular. So I think 0:10:10.720 --> 0:10:13.360 that on the margin, we are going to see a 0:10:13.559 --> 0:10:16.680 slight increase in lending in certain products because of this bill, 0:10:16.880 --> 0:10:20.120 and community banks are going to become a more willing 0:10:20.120 --> 0:10:24.199 to lend, particularly in mortgage products. But it's not going 0:10:24.280 --> 0:10:29.440 to be the panacea or lending activity that some have 0:10:29.480 --> 0:10:32.480 described it as. Isaac, do you think that big Wall 0:10:32.480 --> 0:10:35.880 Street banks are going to take more risk, substantially more 0:10:36.000 --> 0:10:41.800 risk under the sort of rolled back good Frank so 0:10:42.760 --> 0:10:46.520 from this bill. No, there's very little in this bill 0:10:46.600 --> 0:10:51.520 that impacts the biggest Wall Street banks. It's supplementary leverage 0:10:51.640 --> 0:10:56.679 ratio change and immiscible bond capital change, um. But if 0:10:56.720 --> 0:10:59.720 we look more holistically and we start to think about 0:11:00.400 --> 0:11:04.320 forthcoming issues, in particular the vulgar rule change that's going 0:11:04.360 --> 0:11:07.839 to be ongoing throughout the year from the five regulators, 0:11:08.200 --> 0:11:11.000 as well as some of the other capital and liquidity 0:11:11.080 --> 0:11:14.640 role changes ahead, I do think that it's clear directionally 0:11:14.960 --> 0:11:18.160 the regulatory burden is lstening for those bigger banks. Isaac's 0:11:18.160 --> 0:11:20.480 always great to get your insight on what's happening in Washington, 0:11:20.520 --> 0:11:22.640 d C. And ultimately what it means for some of 0:11:22.679 --> 0:11:26.120 the themes and stories happening here on Wall Street. Issa Boltanski, 0:11:26.160 --> 0:11:42.040 Campus Point Research Policy, a research managing director. I've been 0:11:42.040 --> 0:11:44.400 talking a lot about developing markets this morning as the 0:11:44.440 --> 0:11:48.600 Turkish lira falls in a precipitous decline that seems to 0:11:48.600 --> 0:11:51.560 have no end. So with us, please to say Don Gimble, 0:11:51.600 --> 0:11:56.400 Senior vice president of c IBC Atlantic Trust Wealth Management, 0:11:56.480 --> 0:12:00.240 overseeing forty eight billion dollars. He has decade it's of 0:12:00.240 --> 0:12:03.000 experience in the market, and we are pleased to say 0:12:03.040 --> 0:12:05.160 he joins us here, Don um, I want to just 0:12:05.200 --> 0:12:08.200 get your view on developing markets. You said that about 0:12:08.240 --> 0:12:11.360 half your fund is currently in the US, quarter in 0:12:11.440 --> 0:12:14.520 Asia and a quarter in Europe. Correct. So, right now, 0:12:14.760 --> 0:12:19.480 at a time when particularly China has built up it's 0:12:19.559 --> 0:12:22.760 external debt to such a degree and has overleveraged its 0:12:22.760 --> 0:12:25.880 economy to the point where they're actually taking action, are 0:12:25.880 --> 0:12:30.040 you getting more concerned now? Interesting? We've been talking about 0:12:30.240 --> 0:12:34.280 the excess of US treasury debt for how many decades, 0:12:34.720 --> 0:12:38.240 and now we're talking about China. And I remember a 0:12:38.240 --> 0:12:43.559 few years ago talking about was there a banking crisis 0:12:43.800 --> 0:12:47.280 in China? And I had several clients saying, Oh my god, 0:12:47.320 --> 0:12:48.840 We've got to get out of China because of the 0:12:48.840 --> 0:12:51.720 banking situation. And I said, the banks are owned by 0:12:51.720 --> 0:12:56.199 the government, They're not going to default. And I look 0:12:56.240 --> 0:13:01.000 at China today now they in my opinion, the the 0:13:01.080 --> 0:13:03.920 miracle of the People's Republic of China for the last 0:13:03.960 --> 0:13:07.840 twenty years has been the financing by the United States 0:13:07.920 --> 0:13:11.080 of the growth in China. There's been a huge transfer 0:13:11.520 --> 0:13:15.680 of money into into China over the last twenty years, 0:13:16.160 --> 0:13:20.960 and that has produced what we've seen. And Uh, is 0:13:20.960 --> 0:13:23.559 it coming to an end now? Well, I think that 0:13:23.679 --> 0:13:26.640 the question you're gonna ask the right question. You know, 0:13:27.160 --> 0:13:30.760 if you ask the run question, the right the right 0:13:30.840 --> 0:13:36.920 question is in China, we've seen a consolidation of power 0:13:38.280 --> 0:13:44.040 from a standing committee into the hands of the leader. Uh. Now, 0:13:44.280 --> 0:13:48.800 in in when Singapore was started fifty years ago, Li Kwang, you, 0:13:49.120 --> 0:13:54.200 an enlightened man of incredible strength, formed a country and 0:13:54.280 --> 0:13:57.040 ran a country and has run a country for well. 0:13:57.040 --> 0:14:00.000 He passed away last year, as you know, but uh 0:14:00.120 --> 0:14:02.839 for fifty years and he did wonderful things made made 0:14:03.440 --> 0:14:07.199 Singapore into the jewel in the crown of Asia. Uh. 0:14:07.240 --> 0:14:11.119 In China, we have a consolidation, And the question is 0:14:11.120 --> 0:14:15.120 is this an enlightened man who is opening his arms 0:14:15.520 --> 0:14:19.120 to h two foreigners and is continuing to raise the 0:14:19.160 --> 0:14:22.000 standard of living in the in the People's Republic. Uh? 0:14:22.080 --> 0:14:26.280 So far the answer is yes. But Uh, the the 0:14:26.320 --> 0:14:30.480 extent of landing in China, I think really is not 0:14:31.040 --> 0:14:34.520 that relevant to the future of the PRC at this point. 0:14:34.760 --> 0:14:37.600 Now could it get worse? Of course? So you know 0:14:37.640 --> 0:14:42.560 you're talking about how you decide when to change your investments. Uh. 0:14:42.600 --> 0:14:47.160 If the fundamentals change, and a lot of people are 0:14:47.240 --> 0:14:50.400 saying the fundamentals are shifting, that we're not seeing the 0:14:50.440 --> 0:14:53.520 sort of synchronized global growth that we once did. Uh 0:14:53.600 --> 0:14:56.080 you're rolling your eyes. Um that that that you know, 0:14:56.160 --> 0:14:58.760 you're seeing weakness, You're seeing defaults take up in China, 0:14:58.840 --> 0:15:02.520 You're seeing the situation in Argentina and Turkey interiorate. Is 0:15:02.560 --> 0:15:07.280 that not a fundamental change to you? Uh, it's an evolution. Uh. 0:15:07.840 --> 0:15:11.040 As somebody said a couple of days ago on Bloomberg, Uh, 0:15:11.160 --> 0:15:15.080 we're not in the early stages of this economic cycle. Globally, 0:15:16.200 --> 0:15:20.000 the question is are we at in the fourth inning, 0:15:20.080 --> 0:15:23.000 the sixth inning or the eighth inning? UM? And I 0:15:23.040 --> 0:15:26.040 think that's that's a really good question. My guesses were 0:15:26.040 --> 0:15:29.720 halfway through the game. UM. And there's there's at least 0:15:30.440 --> 0:15:34.680 a couple of years left UM in much of the world. Now, 0:15:35.080 --> 0:15:38.960 what's happening in Turkey is government driven. And when a 0:15:39.000 --> 0:15:43.360 government drives off a cliff, as in my opinion, as 0:15:43.360 --> 0:15:47.480 it has in Turkey, and as as the deterioration in 0:15:47.560 --> 0:15:51.640 both Argentina and to a lesser degree in Brazil, UM 0:15:52.480 --> 0:15:56.040 are our red flags, There's no doubt. But that isn't 0:15:56.240 --> 0:15:59.840 That isn't necessarily the whole picture of the emerging markets. 0:16:00.080 --> 0:16:05.600 Emerging markets are a vast number of very individual countries 0:16:05.960 --> 0:16:10.400 whose economic growth is well behind their development as well 0:16:10.440 --> 0:16:14.400 behind ours. Therefore we call them developing countries. We you know, 0:16:14.480 --> 0:16:16.600 we used to call them third world. We can't do 0:16:16.640 --> 0:16:20.640 that anymore, right, So it's UM. But you know, I 0:16:20.640 --> 0:16:23.680 I look at problems around the world and there's wall 0:16:23.720 --> 0:16:26.920 that we were talking about before, the wall of worry. 0:16:26.920 --> 0:16:30.480 We have it in in the UK with Brexas, Um, 0:16:30.560 --> 0:16:32.880 we have it with a new young man in France, 0:16:33.320 --> 0:16:37.080 so we have struggling in Spain. I mean they're all 0:16:37.120 --> 0:16:39.800 over the world. Look at look at what's happening in Australia. 0:16:39.920 --> 0:16:42.160 So we could talk for hours on we could, but 0:16:42.320 --> 0:16:44.400 times run out. Don Can I just say thank you, 0:16:44.480 --> 0:16:46.320 thank for coming in this morning. We really appreciate your 0:16:46.320 --> 0:16:49.880 balanced approach to two global markets, a reasoned approach at 0:16:49.880 --> 0:16:51.720 a time when there's a lot of scary news out 0:16:51.760 --> 0:16:54.640 there in some places, including Turkey. Don Gimball, Senior vice 0:16:54.680 --> 0:16:57.640 president of c I p C Atlantic Trust Wealth Management, 0:17:11.400 --> 0:17:14.600 and a lot of news this morning, and among the headlines, 0:17:14.680 --> 0:17:19.560 Comcast decided to up the antie for the Fox assets 0:17:19.600 --> 0:17:22.440 and is going to offer a cash bid that will 0:17:22.480 --> 0:17:26.440 likely exceed the one of Walt Disney and Co. Walt 0:17:26.440 --> 0:17:31.320 Disney shares down nearly nine tenths of one percent, so 0:17:31.560 --> 0:17:34.000 definitely a strong reaction. I want to bring in Abilla Ahmed, 0:17:34.200 --> 0:17:36.800 who's been covering the twists and turns in the saga, 0:17:36.880 --> 0:17:38.880 and I'm sure that there will be more of them 0:17:38.920 --> 0:17:42.560 as it continues. For Bloomberg News. She covers all things 0:17:42.600 --> 0:17:45.679 deals and Disney and everything else. Uh so, what do 0:17:45.720 --> 0:17:47.400 we make of this? Right? I mean, this seems like 0:17:48.000 --> 0:17:50.879 the Fox the Fox assets at hand. Here we're talking 0:17:50.920 --> 0:17:53.679 about the movies, we're talking about the TV shows, we're 0:17:53.720 --> 0:17:57.680 talking about content. Why does Comcast want that more than Disney? 0:17:58.440 --> 0:18:01.240 Comcast neids in more than Disney's. People will say, Disney 0:18:01.280 --> 0:18:06.040 obviously has its own TV film studio. Comcast doesn't. Comcast product, 0:18:06.240 --> 0:18:08.639 especially overseas when you look at it is significantly weaker 0:18:08.680 --> 0:18:11.720 than Disney. So Comcast is pretty desperate. You know. I 0:18:11.720 --> 0:18:13.679 think everybody's woken up to the fact that this is 0:18:13.680 --> 0:18:17.080 the last big asset of scale to go in the 0:18:17.119 --> 0:18:20.399 media industry, and everyone's just falling over themselves to secure it. 0:18:20.680 --> 0:18:22.239 Where they're going to get the money to make this 0:18:22.280 --> 0:18:27.480 deal happen the debt markets. We already have sixty six 0:18:27.520 --> 0:18:29.719 billion dollars of debt. This is going to make them 0:18:29.760 --> 0:18:33.760 one of the most indebted American companies. And you know, 0:18:33.960 --> 0:18:37.800 there are debt investors who having already indicated they're happy 0:18:37.840 --> 0:18:40.679 to lend to this company. You know, most of the 0:18:40.680 --> 0:18:43.040 debt issuance in the market has been to do with 0:18:43.200 --> 0:18:45.040 M and A, and this is just another deal, and 0:18:45.520 --> 0:18:48.119 you know people are happy to support it. Well, some 0:18:48.160 --> 0:18:49.920 people who are a little bit less than happy or 0:18:49.960 --> 0:18:54.240 the Comcast shareholders shares down now in futures trading down 0:18:54.280 --> 0:18:57.760 more than two in responses and just to say down 0:18:57.960 --> 0:19:03.400 more than twenty five, and since they January minor detail. 0:19:03.480 --> 0:19:05.359 I mean, it seems like people are not that enthused 0:19:05.359 --> 0:19:08.120 about this bidding war. Is it just the price or 0:19:08.560 --> 0:19:10.600 is it that people think that there just isn't necessarily 0:19:10.920 --> 0:19:13.480 a better strategy here other than entering into this kind 0:19:13.480 --> 0:19:15.439 of a bit of both. And I think Comcast holders 0:19:15.480 --> 0:19:17.639 think that this is a vote against what Comcast is 0:19:17.640 --> 0:19:20.160 currently doing, which is cable and that makes up eight 0:19:20.600 --> 0:19:23.280 of their business currently. So people are saying, hey, if 0:19:23.320 --> 0:19:26.480 you think it's like we should be just betting the 0:19:26.520 --> 0:19:28.520 house and going for these assets, what does it say 0:19:28.520 --> 0:19:32.040 about what we actually currently do? Well, you know, just 0:19:32.080 --> 0:19:34.840 to go back to Lisa's point about how shareholders are 0:19:34.880 --> 0:19:38.120 seemed to be so thrilled about this um. If you 0:19:38.280 --> 0:19:42.320 were going to offer a combination stock cash deal, that 0:19:43.000 --> 0:19:45.800 seems to have been taken away not necessarily by your 0:19:45.840 --> 0:19:49.199 own internal strategy, but by the marketplace. Because if you're 0:19:49.200 --> 0:19:52.639 going to be offering anything that involves Comcast stock, you 0:19:52.680 --> 0:19:58.080 could bet that that would be a much less valuable deal. Yeah, 0:19:58.119 --> 0:20:00.840 and listen, Fox is already said that they are not 0:20:00.960 --> 0:20:03.960 interested in that, right, But remember Comcast actually made a 0:20:03.960 --> 0:20:06.920 bit for these assets late last year, and Fox chose 0:20:06.920 --> 0:20:10.560 Disney over Comcast at that time, Right, So what does 0:20:10.680 --> 0:20:13.600 what I mean? How much more would they have to offer? Well, 0:20:13.640 --> 0:20:16.440 at that time, they had offered sixteen percent more than 0:20:16.600 --> 0:20:19.359 what foxes agree to sell these assets to Disney for, 0:20:19.720 --> 0:20:22.200 So that would put it out about sixty billion dollars. 0:20:22.400 --> 0:20:25.160 Talking to my sources today, they are saying that they 0:20:25.200 --> 0:20:27.760 do realize that it's going to have to be higher 0:20:27.800 --> 0:20:32.840 than that to beat out Disney. Alright, So here's the thing. 0:20:33.000 --> 0:20:37.159 From Fox's perspective, does it matter Are they just interested 0:20:37.160 --> 0:20:39.760 in a price tag or is there something more here 0:20:39.800 --> 0:20:43.560 that they're looking for in a suitor if you're just 0:20:43.640 --> 0:20:46.919 their pocketbook, or they're looking beyond the wallet and just 0:20:46.960 --> 0:20:52.840 looking at the personality. Sure, Initially Rupert Murdoch was not 0:20:53.040 --> 0:20:55.320 just about the wallet, but what he wanted. He's going 0:20:55.359 --> 0:20:58.520 to have five percent share in the new Disney with 0:20:58.560 --> 0:21:01.520 the Fox assets combined, and that would have mitigated a 0:21:01.520 --> 0:21:04.160 lot of tax issues for him. So in all, cash 0:21:04.359 --> 0:21:08.879 bid for him makes less sense because because of because 0:21:08.880 --> 0:21:11.200 of the tax and the tax burden that the family 0:21:11.200 --> 0:21:13.240 will have to bear. So Comcast has to keep that 0:21:13.280 --> 0:21:16.119 in mind when it's coming back with its second firm offer. 0:21:16.240 --> 0:21:18.880 But this is really interesting. In other words, even if 0:21:18.960 --> 0:21:23.680 Comcast gives a higher offer than Disney, it might be 0:21:23.960 --> 0:21:27.399 less attractive to the Murdoch's as a result of the 0:21:27.480 --> 0:21:30.159 tax treatment. Yeah. Absolutely, and that was one of the 0:21:30.200 --> 0:21:32.920 reasons why they said they didn't go for Comcast offer 0:21:33.400 --> 0:21:35.560 late last year, even though at that time it was 0:21:35.600 --> 0:21:39.359 already higher. And they were also worried about regulatory the 0:21:39.440 --> 0:21:43.520 regulatory issues. As you know, regulators have been very strongly 0:21:43.560 --> 0:21:46.720 looking at all of these sorts of mergers and and 0:21:47.000 --> 0:21:49.360 you know, Fox decided that they thought that the Disney 0:21:49.359 --> 0:21:53.960 bid had a better chance of getting through. Well, the 0:21:54.000 --> 0:21:57.760 regulators in the UK, I believe they were very concerned 0:21:57.800 --> 0:22:01.000 about what would happen to Sky News. Yeah, and look, 0:22:01.280 --> 0:22:04.119 and that's another there's already a bit more there for 0:22:04.160 --> 0:22:06.719 Sky as well. You know, as you know, Fox has 0:22:06.720 --> 0:22:09.280 been trying to buy that business for a while, um 0:22:10.200 --> 0:22:12.879 of it it doesn't already own, and Comcast is come 0:22:12.920 --> 0:22:15.320 in and made a bit for that too. All right, Well, 0:22:15.320 --> 0:22:17.639 the saga continues and We will keep following it, and 0:22:17.840 --> 0:22:19.720 so will you, and you'll be joining us, I'm sure 0:22:19.760 --> 0:22:23.320 again in the near future. Nobela Ahmed, Bloomberg Deal's reporter 0:22:23.560 --> 0:22:27.840 and the expert. When it comes to Comcast and Fox 0:22:27.880 --> 0:22:31.520 and Disney, maybe they'll make it into a into a 0:22:31.560 --> 0:22:36.200 you know, a Netflix series that could run simultaneous series 0:22:36.560 --> 0:22:49.240 about CPS. And indeed, indeed, thanks for listening to the 0:22:49.240 --> 0:22:55.760 Bloomberg Surveillance Podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 0:22:56.119 --> 0:23:00.160 or whichever podcast platform you prefer. I'm on Twitter her 0:23:00.200 --> 0:23:03.639 at Tom Keene before the podcast. You can always catch 0:23:03.720 --> 0:23:06.160 us worldwide. I'm Bloomberg Radio.