Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom keene Jaileye.
Speaker 1: We bring you insight from the best in economics, finance,
Speaker 1: investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Let's
Speaker 1: just want to zoom in on the FX market first
Speaker 1: of all and bring in hands Eradiquet Morgan Stanley Investment Management,
Speaker 1: Global head of ffex Strategy and he joins us from London. Hands,
Speaker 1: let's begin with Turkey. What constitutes a currency crisis and
Speaker 1: how close are we to want in Turkey? So honestly,
Speaker 1: the recent movements in the currency had been a quiet
Speaker 1: to dramatic and you have to put that into context
Speaker 1: of really interest rates. So we're analyzing for an exchange
Speaker 1: we have always to think about what type of rear
Speaker 1: rate level do you require to cover up for internal
Speaker 1: and external imbalances? And the Turkish rear rate and environment
Speaker 1: is obviously too low for the taste of investors and
Speaker 1: that is so why is the exchange rate is currently
Speaker 1: selling off now when you look into what is priced
Speaker 1: in on rate hikes in talk is about two on
Speaker 1: that basis points. So in order to stabilize the exchange rate,
Speaker 1: you would have to see rate hikes going beyond what
Speaker 1: is currently priced in in the in the front end
Speaker 1: of the curve. Now that obviously it does require a
Speaker 1: decision by the Center Bank to do so well, and
Speaker 1: it's amazing to me that the Central Bank hasn't moved yet.
Speaker 1: And it's not just me. A lot of traders are saying,
Speaker 1: what is the what are they waiting for? What do
Speaker 1: they need to raise rates? If they don't raise rates,
Speaker 1: how far can this go? Well, there's obviously the ultimate question,
Speaker 1: but you have as well to put that in the
Speaker 1: context of other circumstances or that is, actually the vulnerability
Speaker 1: which is commonly exposed in Turkey is as well a
Speaker 1: result of US dollar strengths, which we are now experiencing.
Speaker 1: Since so it's hard to call this that. I mean,
Speaker 1: the lyric has fallen twenty one percent so far this year.
Speaker 1: Japanese investors who had previously been bullish are now pulling back,
Speaker 1: cutting their losses, getting out of there. Uh, this isn't
Speaker 1: just a dollar strength story. No, no, no, no no.
Speaker 1: You have actually to think about under which circumstances can
Speaker 1: you fund for an imbalance of funding needs in capital
Speaker 1: importance and under which circumstances is becoming more difficult. And
Speaker 1: the situation was obviously in the past a few years
Speaker 1: it was there were situations where capital important into higher
Speaker 1: yielding environment, so we're less difficult a than they emerged
Speaker 1: from Fabry onwards. And of course there were then other
Speaker 1: effectors which are much more specific to Turkey kicking in.
Speaker 1: But my point here is that are to be easier
Speaker 1: for for authorities to stabilize the exchange rate within an
Speaker 1: environment of US solar weakness. When you have a dollar
Speaker 1: strengths generally are happening out or happening, then that effort
Speaker 1: is becoming a much more difficult. That is the point
Speaker 1: I wanted to make. It's a good point hands. And
Speaker 1: when you overload the credibility issue here as well, you've
Speaker 1: got investors wondering whether the central Bank could indeed deliver
Speaker 1: a rate car never mind a rate hike after the
Speaker 1: election in Turkey, a real credibility issue there. Two hands,
Speaker 1: what's the contagion risk here? If there is any asel hands?
Speaker 1: So what you have seen in the merchant market so
Speaker 1: far is that a bond equity and credit had been
Speaker 1: multi selling off, but it had been not astromatic as
Speaker 1: you would assume if you look at the exchange rates.
Speaker 1: So what happened here is that the value at risk
Speaker 1: in a merchant market portfolio also got reduced by people
Speaker 1: are hitching the Curren series. Now you know that hitching
Speaker 1: in the fixer emerging market environment is expensive. That actually
Speaker 1: means we have currently unsustainable portfolio structure. So it actually
Speaker 1: means that are either at one point you have to
Speaker 1: lift the hatch or alternatively you need to reduce your
Speaker 1: holdings in equities, bonsor and credit. And that decision is
Speaker 1: going to come up in the next few days and
Speaker 1: a lot. Again, it is going to depend how the
Speaker 1: general perception of cs dollar is. What do you think
Speaker 1: about a global risk appetite? Are we in an environment
Speaker 1: where people put money at work or not? And we
Speaker 1: have as well then to think about the complicating issue
Speaker 1: of the euro. What is currently happening in Italy does
Speaker 1: not help the issue. Yeah, you know, you make a
Speaker 1: really important point about how any moves to stabilize or
Speaker 1: even sort of edify developing economies really hinges on the
Speaker 1: dollar and the euro. And right now I'm looking at
Speaker 1: a story that Bloomberg News put out showing that emerging
Speaker 1: market companies and governments have borrowed a record amount of
Speaker 1: hard currency debt in the past decade. What is your
Speaker 1: view for the dollar in the next six months and
Speaker 1: how concerning is this free m Now? The thing is
Speaker 1: that there's not nothing new that that there had been
Speaker 1: a hard currency in flow into a merchant market. The
Speaker 1: fo to think about that in the context of capital
Speaker 1: or capex expansion or in a merchant markets. When the
Speaker 1: global economy is synchronized and strong, you eat into global
Speaker 1: capacity reserves. You wanted to increase your capacity use your
Speaker 1: as dollar for funding purposes, and therefore you raise dollar
Speaker 1: debt and take it for your domestic investment purposes. So
Speaker 1: that is not new, that is usual. Now. What is, however,
Speaker 1: a new theme here is where do we stand in
Speaker 1: respect of global economic growth? This is still as strong
Speaker 1: as it's synchronized as it seemed to look in Genuary.
Speaker 1: And we have seen all the week data, especially in
Speaker 1: February coming in in Europe and then nature on a
Speaker 1: well in Japan, which are raising doubts on that, and
Speaker 1: you need to analyze the market from that point. We
Speaker 1: have released a scoreboard here at morns than in respect
Speaker 1: of serious dollar, which gives us quite precise information about
Speaker 1: the outlook of serious dollar, and that want us in
Speaker 1: February March to get long dollars. And what it does
Speaker 1: tell me now is that it is now time to
Speaker 1: see only very limited upside potential in zeals solar. What
Speaker 1: I wanted to say here is that this dollar really
Speaker 1: is going to run out of steam within the next
Speaker 1: few weeks. Hands red, it's always great to cant shop
Speaker 1: with your hands Jo wanting us from the capital of
Speaker 1: Global Foreign Exchange and in London, Morgan Stanley's Investment Management
Speaker 1: Global head of Ethics Strategy. But it's some news overnight
Speaker 1: the United States House approving a sweeping overhaul of bank regulation,
Speaker 1: now sending it to the President of the United States
Speaker 1: don A. Trump, a bill that would give him a
Speaker 1: chance to make good on his vow to do a
Speaker 1: big number on the Dodd Frankak. So to what extent
Speaker 1: is this a big number on the Dodd Frankack. Let's
Speaker 1: bring an Isaac Boltanski. Shall we compass Point Research Policy
Speaker 1: Research managing Director, Isaac your thoughts on whether this is
Speaker 1: a big number on the regulation or not and what's
Speaker 1: in the bill. It's a number, but I don't think
Speaker 1: it's a big number by any means. This is a modest,
Speaker 1: narrowly tailored bill that isn't as good as its proponents
Speaker 1: argue or as bad as its detractors suggest. At its core,
Speaker 1: they're really three elements. The bill significantly lessens the regulatory
Speaker 1: burden for community banks, and here I mean banks under
Speaker 1: ten billion and assets. It modestly reduced compliance costs for
Speaker 1: regional banks, uh. And the mechanism that does there is
Speaker 1: raising the fifty billion threshold for enhanced stand prudential standards
Speaker 1: from the FED all the way up to two and
Speaker 1: fifty billion over time. And I think it's gonna bolster
Speaker 1: m and atail winds in the banking sector as a result. Well,
Speaker 1: and that's where I was going to go with this.
Speaker 1: I think after reading a number of nacs last night
Speaker 1: after this bill was passed, it seems like there is
Speaker 1: going to be a pretty significant wave of mergers and
Speaker 1: acquisitions among smaller community banks, and that may be the
Speaker 1: biggest takeaway from this number. To use the language de jure,
Speaker 1: I'm just wondering, I mean, do you think that this
Speaker 1: is going to benefit that industry or do you think,
Speaker 1: I mean, what's what's the outcome the ultimate outcome of that.
Speaker 1: The ultimate outcome, I think is that we will have
Speaker 1: a modest consolidation the banking sector. I think that regional
Speaker 1: banks and super regional banks will become a choirers. I
Speaker 1: think that they will um start looking around the landscape
Speaker 1: more aggressively. A good example is New York Community Bank,
Speaker 1: who sits at point seven billion in assets and has
Speaker 1: done everything food to stay under that fifty billion threshold.
Speaker 1: Now they have the capacity to local across the landscape
Speaker 1: and see where they want to increase their footprint. And
Speaker 1: so I think that's a perfect example of someone who
Speaker 1: wasn't a buyer is going to become a buyer after
Speaker 1: the President sells this sells the ex cuse science this
Speaker 1: bill on Thursday, Isaac Toun to what extent is there
Speaker 1: any evidence that banks have struggled to lend because of
Speaker 1: these regulations? It's a it's a tough argument to prove,
Speaker 1: and I think of the mortgage market is a good example.
Speaker 1: Um is there are mortgage credit standards too tight? Or
Speaker 1: is it an issue of household formation and supply availability
Speaker 1: and inventory in certain markets. So I think we hear
Speaker 1: lot of hyperbolic arguments, especially about this bill, but as
Speaker 1: you know, the truth is always more nuanced when it
Speaker 1: comes to financial services policy in particular. So I think
Speaker 1: that on the margin, we are going to see a
Speaker 1: slight increase in lending in certain products because of this bill,
Speaker 1: and community banks are going to become a more willing
Speaker 1: to lend, particularly in mortgage products. But it's not going
Speaker 1: to be the panacea or lending activity that some have
Speaker 1: described it as. Isaac, do you think that big Wall
Speaker 1: Street banks are going to take more risk, substantially more
Speaker 1: risk under the sort of rolled back good Frank so
Speaker 1: from this bill. No, there's very little in this bill
Speaker 1: that impacts the biggest Wall Street banks. It's supplementary leverage
Speaker 1: ratio change and immiscible bond capital change, um. But if
Speaker 1: we look more holistically and we start to think about
Speaker 1: forthcoming issues, in particular the vulgar rule change that's going
Speaker 1: to be ongoing throughout the year from the five regulators,
Speaker 1: as well as some of the other capital and liquidity
Speaker 1: role changes ahead, I do think that it's clear directionally
Speaker 1: the regulatory burden is lstening for those bigger banks. Isaac's
Speaker 1: always great to get your insight on what's happening in Washington,
Speaker 1: d C. And ultimately what it means for some of
Speaker 1: the themes and stories happening here on Wall Street. Issa Boltanski,
Speaker 1: Campus Point Research Policy, a research managing director. I've been
Speaker 1: talking a lot about developing markets this morning as the
Speaker 1: Turkish lira falls in a precipitous decline that seems to
Speaker 1: have no end. So with us, please to say Don Gimble,
Speaker 1: Senior vice president of c IBC Atlantic Trust Wealth Management,
Speaker 1: overseeing forty eight billion dollars. He has decade it's of
Speaker 1: experience in the market, and we are pleased to say
Speaker 1: he joins us here, Don um, I want to just
Speaker 1: get your view on developing markets. You said that about
Speaker 1: half your fund is currently in the US, quarter in
Speaker 1: Asia and a quarter in Europe. Correct. So, right now,
Speaker 1: at a time when particularly China has built up it's
Speaker 1: external debt to such a degree and has overleveraged its
Speaker 1: economy to the point where they're actually taking action, are
Speaker 1: you getting more concerned now? Interesting? We've been talking about
Speaker 1: the excess of US treasury debt for how many decades,
Speaker 1: and now we're talking about China. And I remember a
Speaker 1: few years ago talking about was there a banking crisis
Speaker 1: in China? And I had several clients saying, Oh my god,
Speaker 1: We've got to get out of China because of the
Speaker 1: banking situation. And I said, the banks are owned by
Speaker 1: the government, They're not going to default. And I look
Speaker 1: at China today now they in my opinion, the the
Speaker 1: miracle of the People's Republic of China for the last
Speaker 1: twenty years has been the financing by the United States
Speaker 1: of the growth in China. There's been a huge transfer
Speaker 1: of money into into China over the last twenty years,
Speaker 1: and that has produced what we've seen. And Uh, is
Speaker 1: it coming to an end now? Well, I think that
Speaker 1: the question you're gonna ask the right question. You know,
Speaker 1: if you ask the run question, the right the right
Speaker 1: question is in China, we've seen a consolidation of power
Speaker 1: from a standing committee into the hands of the leader. Uh. Now,
Speaker 1: in in when Singapore was started fifty years ago, Li Kwang, you,
Speaker 1: an enlightened man of incredible strength, formed a country and
Speaker 1: ran a country and has run a country for well.
Speaker 1: He passed away last year, as you know, but uh
Speaker 1: for fifty years and he did wonderful things made made
Speaker 1: Singapore into the jewel in the crown of Asia. Uh.
Speaker 1: In China, we have a consolidation, And the question is
Speaker 1: is this an enlightened man who is opening his arms
Speaker 1: to h two foreigners and is continuing to raise the
Speaker 1: standard of living in the in the People's Republic. Uh?
Speaker 1: So far the answer is yes. But Uh, the the
Speaker 1: extent of landing in China, I think really is not
Speaker 1: that relevant to the future of the PRC at this point.
Speaker 1: Now could it get worse? Of course? So you know
Speaker 1: you're talking about how you decide when to change your investments. Uh.
Speaker 1: If the fundamentals change, and a lot of people are
Speaker 1: saying the fundamentals are shifting, that we're not seeing the
Speaker 1: sort of synchronized global growth that we once did. Uh
Speaker 1: you're rolling your eyes. Um that that that you know,
Speaker 1: you're seeing weakness, You're seeing defaults take up in China,
Speaker 1: You're seeing the situation in Argentina and Turkey interiorate. Is
Speaker 1: that not a fundamental change to you? Uh, it's an evolution. Uh.
Speaker 1: As somebody said a couple of days ago on Bloomberg, Uh,
Speaker 1: we're not in the early stages of this economic cycle. Globally,
Speaker 1: the question is are we at in the fourth inning,
Speaker 1: the sixth inning or the eighth inning? UM? And I
Speaker 1: think that's that's a really good question. My guesses were
Speaker 1: halfway through the game. UM. And there's there's at least
Speaker 1: a couple of years left UM in much of the world. Now,
Speaker 1: what's happening in Turkey is government driven. And when a
Speaker 1: government drives off a cliff, as in my opinion, as
Speaker 1: it has in Turkey, and as as the deterioration in
Speaker 1: both Argentina and to a lesser degree in Brazil, UM
Speaker 1: are our red flags, There's no doubt. But that isn't
Speaker 1: That isn't necessarily the whole picture of the emerging markets.
Speaker 1: Emerging markets are a vast number of very individual countries
Speaker 1: whose economic growth is well behind their development as well
Speaker 1: behind ours. Therefore we call them developing countries. We you know,
Speaker 1: we used to call them third world. We can't do
Speaker 1: that anymore, right, So it's UM. But you know, I
Speaker 1: I look at problems around the world and there's wall
Speaker 1: that we were talking about before, the wall of worry.
Speaker 1: We have it in in the UK with Brexas, Um,
Speaker 1: we have it with a new young man in France,
Speaker 1: so we have struggling in Spain. I mean they're all
Speaker 1: over the world. Look at look at what's happening in Australia.
Speaker 1: So we could talk for hours on we could, but
Speaker 1: times run out. Don Can I just say thank you,
Speaker 1: thank for coming in this morning. We really appreciate your
Speaker 1: balanced approach to two global markets, a reasoned approach at
Speaker 1: a time when there's a lot of scary news out
Speaker 1: there in some places, including Turkey. Don Gimball, Senior vice
Speaker 1: president of c I p C Atlantic Trust Wealth Management,
Speaker 1: and a lot of news this morning, and among the headlines,
Speaker 1: Comcast decided to up the antie for the Fox assets
Speaker 1: and is going to offer a cash bid that will
Speaker 1: likely exceed the one of Walt Disney and Co. Walt
Speaker 1: Disney shares down nearly nine tenths of one percent, so
Speaker 1: definitely a strong reaction. I want to bring in Abilla Ahmed,
Speaker 1: who's been covering the twists and turns in the saga,
Speaker 1: and I'm sure that there will be more of them
Speaker 1: as it continues. For Bloomberg News. She covers all things
Speaker 1: deals and Disney and everything else. Uh so, what do
Speaker 1: we make of this? Right? I mean, this seems like
Speaker 1: the Fox the Fox assets at hand. Here we're talking
Speaker 1: about the movies, we're talking about the TV shows, we're
Speaker 1: talking about content. Why does Comcast want that more than Disney?
Speaker 1: Comcast neids in more than Disney's. People will say, Disney
Speaker 1: obviously has its own TV film studio. Comcast doesn't. Comcast product,
Speaker 1: especially overseas when you look at it is significantly weaker
Speaker 1: than Disney. So Comcast is pretty desperate. You know. I
Speaker 1: think everybody's woken up to the fact that this is
Speaker 1: the last big asset of scale to go in the
Speaker 1: media industry, and everyone's just falling over themselves to secure it.
Speaker 1: Where they're going to get the money to make this
Speaker 1: deal happen the debt markets. We already have sixty six
Speaker 1: billion dollars of debt. This is going to make them
Speaker 1: one of the most indebted American companies. And you know,
Speaker 1: there are debt investors who having already indicated they're happy
Speaker 1: to lend to this company. You know, most of the
Speaker 1: debt issuance in the market has been to do with
Speaker 1: M and A, and this is just another deal, and
Speaker 1: you know people are happy to support it. Well, some
Speaker 1: people who are a little bit less than happy or
Speaker 1: the Comcast shareholders shares down now in futures trading down
Speaker 1: more than two in responses and just to say down
Speaker 1: more than twenty five, and since they January minor detail.
Speaker 1: I mean, it seems like people are not that enthused
Speaker 1: about this bidding war. Is it just the price or
Speaker 1: is it that people think that there just isn't necessarily
Speaker 1: a better strategy here other than entering into this kind
Speaker 1: of a bit of both. And I think Comcast holders
Speaker 1: think that this is a vote against what Comcast is
Speaker 1: currently doing, which is cable and that makes up eight
Speaker 1: of their business currently. So people are saying, hey, if
Speaker 1: you think it's like we should be just betting the
Speaker 1: house and going for these assets, what does it say
Speaker 1: about what we actually currently do? Well, you know, just
Speaker 1: to go back to Lisa's point about how shareholders are
Speaker 1: seemed to be so thrilled about this um. If you
Speaker 1: were going to offer a combination stock cash deal, that
Speaker 1: seems to have been taken away not necessarily by your
Speaker 1: own internal strategy, but by the marketplace. Because if you're
Speaker 1: going to be offering anything that involves Comcast stock, you
Speaker 1: could bet that that would be a much less valuable deal. Yeah,
Speaker 1: and listen, Fox is already said that they are not
Speaker 1: interested in that, right, But remember Comcast actually made a
Speaker 1: bit for these assets late last year, and Fox chose
Speaker 1: Disney over Comcast at that time, Right, So what does
Speaker 1: what I mean? How much more would they have to offer? Well,
Speaker 1: at that time, they had offered sixteen percent more than
Speaker 1: what foxes agree to sell these assets to Disney for,
Speaker 1: So that would put it out about sixty billion dollars.
Speaker 1: Talking to my sources today, they are saying that they
Speaker 1: do realize that it's going to have to be higher
Speaker 1: than that to beat out Disney. Alright, So here's the thing.
Speaker 1: From Fox's perspective, does it matter Are they just interested
Speaker 1: in a price tag or is there something more here
Speaker 1: that they're looking for in a suitor if you're just
Speaker 1: their pocketbook, or they're looking beyond the wallet and just
Speaker 1: looking at the personality. Sure, Initially Rupert Murdoch was not
Speaker 1: just about the wallet, but what he wanted. He's going
Speaker 1: to have five percent share in the new Disney with
Speaker 1: the Fox assets combined, and that would have mitigated a
Speaker 1: lot of tax issues for him. So in all, cash
Speaker 1: bid for him makes less sense because because of because
Speaker 1: of the tax and the tax burden that the family
Speaker 1: will have to bear. So Comcast has to keep that
Speaker 1: in mind when it's coming back with its second firm offer.
Speaker 1: But this is really interesting. In other words, even if
Speaker 1: Comcast gives a higher offer than Disney, it might be
Speaker 1: less attractive to the Murdoch's as a result of the
Speaker 1: tax treatment. Yeah. Absolutely, and that was one of the
Speaker 1: reasons why they said they didn't go for Comcast offer
Speaker 1: late last year, even though at that time it was
Speaker 1: already higher. And they were also worried about regulatory the
Speaker 1: regulatory issues. As you know, regulators have been very strongly
Speaker 1: looking at all of these sorts of mergers and and
Speaker 1: you know, Fox decided that they thought that the Disney
Speaker 1: bid had a better chance of getting through. Well, the
Speaker 1: regulators in the UK, I believe they were very concerned
Speaker 1: about what would happen to Sky News. Yeah, and look,
Speaker 1: and that's another there's already a bit more there for
Speaker 1: Sky as well. You know, as you know, Fox has
Speaker 1: been trying to buy that business for a while, um
Speaker 1: of it it doesn't already own, and Comcast is come
Speaker 1: in and made a bit for that too. All right, Well,
Speaker 1: the saga continues and We will keep following it, and
Speaker 1: so will you, and you'll be joining us, I'm sure
Speaker 1: again in the near future. Nobela Ahmed, Bloomberg Deal's reporter
Speaker 1: and the expert. When it comes to Comcast and Fox
Speaker 1: and Disney, maybe they'll make it into a into a
Speaker 1: you know, a Netflix series that could run simultaneous series
Speaker 1: about CPS. And indeed, indeed, thanks for listening to the
Speaker 1: Bloomberg Surveillance Podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
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Speaker 1: us worldwide. I'm Bloomberg Radio.