WEBVTT - Why It's Time To Be More Optimistic On EM Assets: PGIM's Rajan 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg P and L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg P M L 0:00:20.840 --> 0:00:33.760 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Global 0:00:34.040 --> 0:00:38.839 trade wars, strength of the US dollar strikes in Argentina. 0:00:39.040 --> 0:00:42.879 Let's talk about emerging markets with Arvin Rajan, Managing Director 0:00:42.920 --> 0:00:45.520 and the head of Global and Macro at p JIM 0:00:45.680 --> 0:00:49.040 Fixed Income, helping to manage more than seven hundred billion 0:00:49.080 --> 0:00:52.120 dollars of customer assets. Are Vin a pleasure to have 0:00:52.240 --> 0:00:54.720 you with us. Give us your thoughts right now on 0:00:54.800 --> 0:00:58.520 what is going on with emerging market investments. Yeah, thank 0:00:58.560 --> 0:01:02.120 you for having me on TIM. It's it's a fascinating 0:01:02.120 --> 0:01:06.319 time and markets because um as often happens during periods 0:01:06.360 --> 0:01:10.679 of tightening global liquidity and global votility. Emerging markets have 0:01:10.760 --> 0:01:13.559 been taking it on the nose. So we have had 0:01:14.400 --> 0:01:18.520 nine consecutive weeks of outflows. We've had a bit of 0:01:18.560 --> 0:01:21.920 a slow lead, but there's not yet a total capitulation. 0:01:22.319 --> 0:01:26.160 In terms of emerging assets UM. In fact, you know, 0:01:26.240 --> 0:01:30.920 it's countries with which have current account deficits that have 0:01:31.040 --> 0:01:34.039 actually sold off the most, because those are the countries 0:01:34.120 --> 0:01:39.080 that benefited the most from YEO chasing inflows. We've had elections, 0:01:39.240 --> 0:01:43.120 you know, just now in Turkey, but looming in Mexico 0:01:43.160 --> 0:01:47.760 and Brazil. Trade wars obviously are taking a tool, and 0:01:47.880 --> 0:01:52.760 geopolitical issues and idiosyncratic problems in EM. But I want 0:01:52.760 --> 0:01:55.279 to tell you why I still like EM in spite 0:01:55.280 --> 0:01:58.560 of all of this, and it is somewhat of a 0:01:58.640 --> 0:02:01.920 falling knife. I don't think the sell off is necessarily 0:02:01.960 --> 0:02:05.280 over yet, but I see several bright spots here, so 0:02:05.600 --> 0:02:08.880 emerging market debt in particular, all right, So is it's 0:02:08.960 --> 0:02:12.880 idiosyncratic bright spots where you're looking at specific countries and 0:02:13.440 --> 0:02:17.280 UH specific companies and emerging markets or is it is 0:02:17.320 --> 0:02:20.120 it more broad than that. It's actually a bit of both. 0:02:20.320 --> 0:02:24.280 So the on the broader side, i'd say that the 0:02:24.320 --> 0:02:27.960 assets are now much cheaper, So we've had a five 0:02:28.040 --> 0:02:31.360 to eight percent sell off in depth hard currency as 0:02:31.360 --> 0:02:35.120 well as local currency, and I believe that the leverage 0:02:35.160 --> 0:02:39.040 cycle broadly speaking and emerging markets is not as scary 0:02:39.200 --> 0:02:42.720 as it was in the past, a more diverse group 0:02:42.760 --> 0:02:46.880 of investors today than than in the past, stronger reserves 0:02:47.440 --> 0:02:52.079 and strong commodities UM, and so far pretty healthy China. 0:02:52.680 --> 0:02:56.959 Having said that, obviously a China US trade war could 0:02:57.080 --> 0:03:01.160 challenge that last point. UM. What I'd say basically is 0:03:01.200 --> 0:03:04.320 that idiosyncratically, there are a couple of things going for 0:03:04.440 --> 0:03:09.359 e M. I mentioned commodities, and that helps the commodity exporters, 0:03:09.400 --> 0:03:14.280 but also there's policy responses to the volatility. So emerging 0:03:14.280 --> 0:03:18.080 market policy makers, I'm not sitting by idly as global 0:03:18.120 --> 0:03:22.920 markets are pushing their assets down. They're responding with interest 0:03:23.000 --> 0:03:30.639 rate increases and with macroeconomic. Macroeconomic responses that would strengthen 0:03:30.720 --> 0:03:33.440 these countries just have to break in there. Because we 0:03:33.480 --> 0:03:38.080 saw that Argentina raised interest rates to three times in 0:03:38.160 --> 0:03:41.800 one week, and we saw Turkey try also to raise 0:03:41.880 --> 0:03:45.200 interest rates and markets weren't budging, they weren't buying it, 0:03:45.240 --> 0:03:47.920 they were not getting control over their currencies. A lot 0:03:47.960 --> 0:03:50.480 of people are speculating that in an emerging markets that 0:03:50.560 --> 0:03:53.960 some of these central banks have lost control. Do you disagree? Yes, 0:03:54.080 --> 0:03:58.480 I do disagree. I think that in certain individual cases, 0:03:58.600 --> 0:04:02.120 and I think you might have vargued for a for 0:04:02.160 --> 0:04:05.960 a response that came sooner rather than later. So UM, 0:04:06.000 --> 0:04:08.720 it's true that I think, in the case of Turkey 0:04:08.760 --> 0:04:13.080 in particular, that the policy response has been lagging. It 0:04:13.120 --> 0:04:16.480 now remains to be seen whether after the election and 0:04:17.080 --> 0:04:21.960 Duane's confirmation for another term, that he uses that consolidated 0:04:22.000 --> 0:04:28.279 power to take more definitive economic reform actions and policy actions. Um. 0:04:28.320 --> 0:04:32.080 In Argentina's case, as you know, they have actually gone 0:04:32.080 --> 0:04:36.720 ahead and applied for a fifty billion dollar loan program 0:04:36.880 --> 0:04:40.320 with the I m F and other multilateral lenders. So 0:04:40.480 --> 0:04:43.960 I think that with that in their pocket and with 0:04:44.120 --> 0:04:48.240 the determination to do better on current account deficits, Argentina 0:04:48.400 --> 0:04:52.560 is um, you know, doing appropriate things. You know, from 0:04:52.600 --> 0:04:56.320 the policy standpoint, it is true that markets are never 0:04:56.560 --> 0:05:01.200 fully in sync with these markets are off often evaluating 0:05:01.240 --> 0:05:04.159 whether these policy responses are adequate at the moment that 0:05:04.240 --> 0:05:09.479 they're announced. But these panics when they are often in 0:05:09.560 --> 0:05:13.440 emerging markets and opportunity to buy cheap assets. And I 0:05:13.480 --> 0:05:18.039 think that this is not an exception to the twenty 0:05:18.120 --> 0:05:21.000 years so sell offs that we've seen in emerging markets 0:05:21.000 --> 0:05:24.640 over the last twenty years, each of which in many 0:05:24.680 --> 0:05:29.120 cases has mean reverted, you know, back to to higher 0:05:29.160 --> 0:05:33.960 prices in subsequent months. Are are there specific companies that 0:05:34.200 --> 0:05:37.719 you have on a list that when they fall in 0:05:37.920 --> 0:05:40.159 value you say, these we got to scoop up or 0:05:40.200 --> 0:05:43.720 we have to add to a bigger position. So UM, 0:05:44.080 --> 0:05:47.560 I can't speak about individual company investments, but I can 0:05:47.600 --> 0:05:51.120 tell you that there are different opportunity sets when it 0:05:51.160 --> 0:05:57.039 comes to hard currency, that the currency itself and local rates, 0:05:57.160 --> 0:06:00.680 and we tend to think about those three in separate mentions. 0:06:00.720 --> 0:06:04.039 And the fourth dimension is, of course corporate debt, and 0:06:04.360 --> 0:06:08.080 corporate debt has actually been least impacted of these four 0:06:08.120 --> 0:06:12.400 asset classes this year. I see the best opportunity set 0:06:12.440 --> 0:06:17.080 for investors in EM away from equities because we don't 0:06:17.080 --> 0:06:20.600 do equities, but we see that in hard currency debt 0:06:20.880 --> 0:06:24.760 because that has been taking it really on the nose, 0:06:25.080 --> 0:06:30.279 and it's because of investor related portfolio outflows. It is 0:06:30.320 --> 0:06:32.680 true that some of these countries have two large a 0:06:32.760 --> 0:06:38.000 percentage of their markets owned by foreigners, and I think 0:06:38.000 --> 0:06:44.040 that that's h exacerbated volatility. I'd say countries such as Mexico, 0:06:44.080 --> 0:06:48.120 which is about to have its election, Brazil where there's 0:06:48.200 --> 0:06:53.960 uncertainty around the election outcome Indonesia UM, where the ownership 0:06:54.000 --> 0:06:57.000 of foreign assets has created a lot of voulatility in 0:06:57.080 --> 0:07:00.960 spite of decent economic management. Our ex amples of places 0:07:01.000 --> 0:07:05.760 where we might find really good UM investments that are 0:07:05.839 --> 0:07:09.840 that are now presenting value, Just real quick, in about 0:07:09.840 --> 0:07:12.520 thirty seconds, I'm wondering a The m c I index 0:07:12.560 --> 0:07:16.280 of Developing nation currencies is down about half a percent today. 0:07:16.360 --> 0:07:19.960 It's its worst performance on a Monday since August twenty sixteen. 0:07:20.600 --> 0:07:24.600 Do you think that these e M currencies are poised 0:07:24.600 --> 0:07:26.120 to rally or do you think that they're going to 0:07:26.160 --> 0:07:29.800 deteriorate further as the dollar strengthens. I think tactically we 0:07:29.880 --> 0:07:33.480 are concerned about those currencies. I think that you know, 0:07:33.760 --> 0:07:36.240 while the dollar is on a strengthening spree as it 0:07:36.320 --> 0:07:41.040 is today, it is definitely a falling knife. UM. That said, 0:07:41.200 --> 0:07:44.720 I would say that if you took a somewhat longer horizon, 0:07:44.880 --> 0:07:48.520 like one to three years, that these currencies are actually 0:07:48.920 --> 0:07:51.960 looking starting to look really cheap, both on a nominal 0:07:52.360 --> 0:07:56.320 as well as on a real effective exchange rate basis UM. 0:07:56.480 --> 0:07:59.679 And the reason why is because global growth we expect 0:07:59.720 --> 0:08:03.520 will be come most sunchronized over the rest of this year. UM, 0:08:03.680 --> 0:08:06.920 we do think that inflation pressures will not really in 0:08:07.000 --> 0:08:11.640 the base case increased significantly. So that said is roughly 0:08:11.720 --> 0:08:15.280 priced in for eight and the rally and the dollar 0:08:15.440 --> 0:08:18.920 overall should therefore come to an end, and in turn, 0:08:19.360 --> 0:08:22.320 you know, the pull of capital out of emerging market 0:08:22.320 --> 0:08:25.560 countries should abate. Aranjan, thank you so much for being 0:08:25.600 --> 0:08:28.560 with us. Arjen Managing director and head of Global and 0:08:28.760 --> 0:08:32.640 Macro at PGIM Fixed Income, talking about why he likes 0:08:32.880 --> 0:08:51.480 emerging markets fixed income. From here, could the United States 0:08:51.520 --> 0:08:56.040 prevent Chinese companies from investing in US companies and what 0:08:56.200 --> 0:09:00.120 could be the effects. Brooks Southerland, Bloomberg opinion writer for 0:09:00.360 --> 0:09:04.800 Deals and Industrials, joins us now about potential curbs on 0:09:05.040 --> 0:09:08.040 Chinese investments. Brooke, what have you learned in terms of 0:09:08.080 --> 0:09:11.680 detail about what the president is proposing? So? I think 0:09:11.720 --> 0:09:14.440 the most significant thing here is he's looking to use 0:09:14.600 --> 0:09:20.040 this sort of antiquated and not very commonly employed tactic 0:09:20.080 --> 0:09:25.240 of invoking a national economic emergency to justify stricter controls 0:09:25.280 --> 0:09:27.960 on Chinese investments in the US. And then they're also 0:09:28.040 --> 0:09:32.640 looking at export controls of key US technologies. Now, I 0:09:32.679 --> 0:09:36.360 will note it's not like Chinese companies have been making 0:09:36.400 --> 0:09:38.920 a ton of takeovers in the US. As it is, 0:09:39.360 --> 0:09:42.320 you know, there's already a significant deterrent in place, given 0:09:42.480 --> 0:09:45.240 how the number of deals that Cyphius has already cracked 0:09:45.280 --> 0:09:47.920 down upon and sort of the rhetoric coming out of 0:09:47.920 --> 0:09:50.760 the Trump administration, we've seen deal activity really slow to 0:09:50.800 --> 0:09:54.000 a trickle. And that's not just takeovers, that's investments, that's 0:09:54.080 --> 0:09:56.959 joint ventures. You're just really not seeing that deal flow. 0:09:57.320 --> 0:10:00.640 So does that rise to the level of a national 0:10:00.679 --> 0:10:04.240 economic emergency? I would argue know that there's already a 0:10:04.280 --> 0:10:07.600 deterrent in place for these deals. So there is a 0:10:07.679 --> 0:10:11.400 real question about how President Trump is going about implementing 0:10:11.440 --> 0:10:15.000 some of these directives, rules, orders, and I'm not sure 0:10:15.000 --> 0:10:17.079 exactly how they will be implemented. But then there's a 0:10:17.200 --> 0:10:21.520 question of what they mean. I mean, investments is pretty 0:10:21.520 --> 0:10:26.800 ambiguous and uh, you know, really important sort of central 0:10:27.280 --> 0:10:30.559 areas to the US. What does what does that mean? 0:10:30.640 --> 0:10:32.880 I mean, what break this down for US? What are 0:10:32.880 --> 0:10:34.920 we talking about here? Well, the hard thing about national 0:10:34.960 --> 0:10:37.640 security is, as we've seen, the Trump administration has really 0:10:37.760 --> 0:10:40.040 used this to justify all kinds of things that are 0:10:40.080 --> 0:10:44.280 not actually national security. Risk, Like, does a car imported 0:10:44.280 --> 0:10:47.760 from Germany really pose a dangered America and its citizens? No, 0:10:48.360 --> 0:10:51.360 But there's just so much flexibility, so much latitude once 0:10:51.360 --> 0:10:53.800 you start talking about national security, that you could really 0:10:53.800 --> 0:10:57.440 be talking about a very broad swath of the economy. 0:10:57.480 --> 0:11:00.360 So going back to this idea of export controls, the 0:11:00.360 --> 0:11:03.760 Wall Street Journal has reported this would be targeting technologies 0:11:03.800 --> 0:11:06.240 that China is looking to uh, you know, elevate through 0:11:06.240 --> 0:11:11.240 its initiative. That includes aerospace, that includes clean energy, cars, 0:11:11.320 --> 0:11:15.240 that include semiconductors, advanced materials. I mean, you start talking 0:11:15.280 --> 0:11:18.600 about this, you're really a number of companies can be impacted, 0:11:18.600 --> 0:11:21.280 and it's not exactly clear how this would work, but 0:11:21.400 --> 0:11:24.120 even taking away a decent chunk of any of these 0:11:24.120 --> 0:11:27.120 companies businesses to China would be very painful, especially for 0:11:27.160 --> 0:11:30.200 somebody like Boeing well and bowing shares down today. Right, 0:11:31.760 --> 0:11:33.400 So I have to wonder just to push back a 0:11:33.400 --> 0:11:36.120 little bit and play devil's advocate here. You know, some 0:11:36.240 --> 0:11:39.280 may argue China has been stealing intellectual property from the 0:11:39.400 --> 0:11:42.679 US for a long time. It entices companies to come 0:11:42.720 --> 0:11:47.640 over to that nation and then basically copies the different 0:11:48.000 --> 0:11:50.800 trademarks that they have and then pumps out their own stuff. 0:11:51.080 --> 0:11:54.479 And this is President Trump trying to curtail that activity 0:11:54.520 --> 0:11:56.360 and say, you guys can't do that ahead of your 0:11:56.400 --> 0:12:01.520 Belt and Road initiative. Uh, you know, five understood. But 0:12:01.600 --> 0:12:03.600 what was interesting to me about this is it's not 0:12:03.800 --> 0:12:06.000 going after deals that have already been done. It's not 0:12:06.080 --> 0:12:10.719 seeking to undo transactions. It would just be limiting future investment. 0:12:10.840 --> 0:12:13.920 So at that point, these investments, these joint ventures that 0:12:13.960 --> 0:12:18.720 exists that have supposedly been facilitating this transfer of US 0:12:18.720 --> 0:12:22.480 technology to Chinese firms, technically those relationships would be allowed 0:12:22.520 --> 0:12:25.280 to continue. And I don't know that you know, limiting 0:12:25.440 --> 0:12:28.120 US exports of technologies is necessarily going to have the 0:12:28.200 --> 0:12:32.720 impact that's desired. You start broadening this out and making 0:12:32.720 --> 0:12:35.760 this such a wide definition of key US technology, I 0:12:35.760 --> 0:12:38.800 think that may ultimately end up being more painful for 0:12:38.880 --> 0:12:41.040 US companies. I mean going back to Boeing, so they're 0:12:41.080 --> 0:12:43.880 really trying to ramp up their China investment. That's a 0:12:43.960 --> 0:12:45.960 huge market for them, a huge source of growth. But 0:12:46.040 --> 0:12:49.880 China is already developing its own domestic plane manufacturer that 0:12:49.920 --> 0:12:51.840 could be a real threat to Boeing. As it is, 0:12:52.200 --> 0:12:54.719 you limit Boeing's exports ahead of that. I mean, you're 0:12:54.720 --> 0:12:58.160 talking about a really potentially painful loss of market share. Okay, 0:12:58.160 --> 0:13:01.280 But just to continue Leasa's point, I mean, if the 0:13:01.400 --> 0:13:06.479 United States is going to secure its UH physical security 0:13:06.800 --> 0:13:12.760 and military security, um, can it be argued that you 0:13:12.840 --> 0:13:15.400 can't have it both ways and that you're going to 0:13:15.480 --> 0:13:20.600 have to sacrifice profits in order to protect the national 0:13:20.679 --> 0:13:24.040 interests of the country. And that would mean limiting the 0:13:24.120 --> 0:13:27.880 transfer of technology that is sensitive and that could be 0:13:28.040 --> 0:13:32.280 used eventually to supplant US companies such as Boeing like 0:13:32.360 --> 0:13:36.360 you just described, and that what is happening now is 0:13:36.440 --> 0:13:40.480 something that while it may be quote too late, it 0:13:40.640 --> 0:13:42.840 is at least an effort on the part of the 0:13:42.840 --> 0:13:47.720 administration to protect the national security interests of the nation. 0:13:47.960 --> 0:13:49.920 But they're also trying to make the argument that this 0:13:50.000 --> 0:13:55.720 makes America more hospitable for businesses. They're trying to sales. 0:13:55.960 --> 0:13:58.840 You know, that's the marketing. That may be the marketing 0:13:58.880 --> 0:14:01.560 around it, but but in terms of the actual you know, 0:14:01.600 --> 0:14:04.880 being able to transfer military technology or technology that could 0:14:04.960 --> 0:14:09.720 be used in a military setting, or anything that's sensitive that, 0:14:10.000 --> 0:14:14.160 as Lisa said, is pretty well known that Chinese companies 0:14:14.160 --> 0:14:16.679 in many companies can just copy sure, and I think 0:14:16.720 --> 0:14:19.760 there's a valid argument for paying close attention to that 0:14:19.800 --> 0:14:22.400 and trying to limit those instances when they do happen. 0:14:22.440 --> 0:14:24.880 I will, you know, point out that CIFIAS has already 0:14:24.880 --> 0:14:28.920 been rather active on this front. President Obama prevented a 0:14:29.040 --> 0:14:31.760 Chinese own company from building a wind farm because it 0:14:31.800 --> 0:14:34.000 was too close to a Navy base in Ohio. So 0:14:34.040 --> 0:14:37.240 there are already these considerations underplay. There's a bill in 0:14:37.280 --> 0:14:40.800 front of Congress right now that would tighten cifius is 0:14:40.840 --> 0:14:44.040 scrutiny of these investments, give them more ammunition to go 0:14:44.160 --> 0:14:46.240 after these types of deals in a broader range of 0:14:46.280 --> 0:14:50.440 industries and a broader range of scenarios. I would argue 0:14:50.480 --> 0:14:54.960 that that's probably a more powerful way to actually curb 0:14:55.040 --> 0:14:59.600 this than just invoking national economic emergencies and taking a 0:14:59.720 --> 0:15:03.240 unit lateral approach to this. Brook Sutherland, Bloomberg, Opinion, Deals 0:15:03.240 --> 0:15:05.880 in Industrial Calumnists. Thank you so much, as always for 0:15:05.880 --> 0:15:26.680 your insights. How do small towns attract bigger businesses to 0:15:27.120 --> 0:15:30.640 their shores or to their lands in order to drive 0:15:30.760 --> 0:15:33.320 up economic activity. This is the question at the heart 0:15:33.360 --> 0:15:35.840 of an article that Craig Torus wrote that I found 0:15:35.880 --> 0:15:38.880 truly compelling. Craig tourists, economy and Federal Reserve reporter for 0:15:39.000 --> 0:15:41.680 Bloomberg News. He joins us now from our Bloomberg Unit 0:15:41.800 --> 0:15:44.840 and One Studios in d C. Craig talk to us 0:15:44.960 --> 0:15:48.320 about Greenville and why you decided to focus in on 0:15:48.440 --> 0:15:53.320 this particular city for a story. Okay, so high Lisa 0:15:53.400 --> 0:15:57.640 Hi pim Uh I worked with one of our data scientists, 0:15:57.720 --> 0:16:02.200 Katerina Sa, and we start looking at where has new 0:16:02.240 --> 0:16:06.320 business growth occurred in the context and of overall slumping 0:16:06.320 --> 0:16:09.880 new business growth, and we found that Greenville stood out 0:16:09.920 --> 0:16:12.560 among regional piers and was kind of keeping up with 0:16:12.600 --> 0:16:16.840 the national average and even kind of competing with bigger 0:16:16.840 --> 0:16:21.320 cities like Boston in terms of new business activity. So 0:16:21.400 --> 0:16:24.360 we went down there to take a look. So what 0:16:24.400 --> 0:16:28.200 did you find. In addition to Michelin which has the 0:16:28.320 --> 0:16:32.000 North American headquarters, they're also Lockeed Martin's got a big 0:16:32.040 --> 0:16:36.080 presence because the old Donaldson Air Force Base is now 0:16:36.080 --> 0:16:40.920 a technology center. Also General Electric has has business operations there. 0:16:41.520 --> 0:16:44.800 So what we found was a community and I mean 0:16:45.000 --> 0:16:51.680 everybody very focused on startups. Um they could be technology startups, 0:16:51.720 --> 0:16:54.680 they could be biotech startups. They could be companies like 0:16:55.120 --> 0:16:58.360 Boyd Cycling, which makes high end road bike wheels in 0:16:58.360 --> 0:17:01.760 a warehouse on the side out of town. As long 0:17:01.800 --> 0:17:05.320 as it was new and innovative. Both the civic leaders 0:17:05.440 --> 0:17:10.720 in Greenville and other businessmen were very interested. And to me, 0:17:11.359 --> 0:17:14.520 Pim and Lisa, the key ingredient was a big Angel 0:17:14.600 --> 0:17:18.679 network willing to fund new ideas right there in a 0:17:18.720 --> 0:17:23.160 corner of South Carolina. So here's what I'm struggling with. 0:17:23.720 --> 0:17:27.560 I feel like that's a cultural issue, and I'm wondering 0:17:27.760 --> 0:17:31.720 how many other small towns have the Angel money to 0:17:31.800 --> 0:17:34.600 pour into this, or could they do something similar simply 0:17:34.600 --> 0:17:38.080 with tax cuts and other benefits. I'm glad you raised that. 0:17:38.520 --> 0:17:42.000 Probably U, I and most people listening to this have 0:17:42.119 --> 0:17:44.879 driven through a city, no matter what state, and asked 0:17:44.920 --> 0:17:48.359 ourselves what happened here? And as you know, this is 0:17:48.400 --> 0:17:52.360 shaping politics and policies as we put in place tariffs 0:17:52.400 --> 0:17:56.159 and immigration. So what can they do? In the story, 0:17:56.200 --> 0:18:00.760 we visited Danville, Virginia, which suffered tremen and this loss 0:18:00.840 --> 0:18:04.879 through exitive textile and tobacco. And I'm glad to use 0:18:04.920 --> 0:18:08.639 the word cultural, Lisa, because that's what they talk about 0:18:08.880 --> 0:18:12.320 we need cultural change. How do we bring innovators to 0:18:12.400 --> 0:18:16.760 this city. It's not easy. Incentives play a big role, 0:18:17.080 --> 0:18:21.240 for sure, But instead of looking for one big answer 0:18:21.400 --> 0:18:25.600 like Amazon HQ two, what they really want are small 0:18:26.040 --> 0:18:30.760 cells of innovation that feed on each other. Well, what's 0:18:30.800 --> 0:18:32.679 an example, I mean, give us tell us some of 0:18:32.680 --> 0:18:35.919 the startups and how it works, because uh, you know, 0:18:36.000 --> 0:18:39.800 you talk about the culture. It's one thing to have 0:18:39.840 --> 0:18:41.639 the culture, it's another thing to have the money to 0:18:41.680 --> 0:18:44.880 actually fund these things. Okay, So one of the one 0:18:44.920 --> 0:18:48.479 of the secret weapons that Danville has is the region 0:18:48.600 --> 0:18:52.680 sold off a health system, giving them about a quarter 0:18:52.800 --> 0:18:57.760 billion dollars to start putting incentives into community development. And 0:18:57.800 --> 0:19:01.600 I found the people who run it um very interesting. 0:19:01.720 --> 0:19:04.919 So obviously when you have that much money and that 0:19:05.119 --> 0:19:07.360 sort of corner of the state, you get a lot 0:19:07.400 --> 0:19:11.160 of asks. And they don't give money just to anybody. 0:19:11.200 --> 0:19:15.080 They give money to change agents that's there. That's their standard, 0:19:15.840 --> 0:19:18.439 and a change agent could be a social change agent. 0:19:18.600 --> 0:19:21.600 Like they built a brand new y m c A 0:19:21.800 --> 0:19:24.480 right on the river. It was the first building on 0:19:24.560 --> 0:19:29.760 the riverfront and maybe years and like they told me, 0:19:29.800 --> 0:19:34.040 it's very racially integrated. Which is an important achievement down 0:19:34.040 --> 0:19:39.159 there in terms of business. Uh. What they're doing is 0:19:39.400 --> 0:19:45.480 trying to convince UM high tech manufacturers that their community 0:19:45.520 --> 0:19:49.080 college has a special program that a third year program 0:19:49.080 --> 0:19:54.120 that imitates workplace environments with cut topics like conflict resolution, 0:19:54.800 --> 0:19:57.480 and they can provide the human capital for that kind 0:19:57.520 --> 0:20:00.919 of operation. And they've had a cup bull of successes 0:20:00.960 --> 0:20:07.440 recently Kaio, Sarah and a biotech company called Panaceutics. Are 0:20:07.480 --> 0:20:11.480 there any other cities like this? A lot of cities 0:20:11.520 --> 0:20:16.800 are visiting Greenville trying to find out what the secret 0:20:16.840 --> 0:20:22.920 sauces UM. You've probably heard of places like Boise and UM. 0:20:22.960 --> 0:20:29.960 I think uh Nashville as having some success with startups. UM. 0:20:30.000 --> 0:20:32.400 I'm glad you used the word city because it does 0:20:32.520 --> 0:20:35.919 take single minded civic focus that this is what we 0:20:36.000 --> 0:20:38.080 want to do. We don't want to just create a 0:20:38.200 --> 0:20:41.960 number of low skilled jobs. We want high skill, high 0:20:41.960 --> 0:20:45.080 talent jobs. And if I may, I'm going to give 0:20:45.080 --> 0:20:48.640 you an example. Okay, there's a company in Greenville called 0:20:48.720 --> 0:20:53.240 kaya Tech. UM. It's a biotech company. They're doing something 0:20:53.359 --> 0:20:58.800 very disruptive. They're testing cancer drugs on live patient cells. 0:20:59.840 --> 0:21:03.560 The company was welcomed into the local healthcare system. Their 0:21:03.680 --> 0:21:08.000 lab sits in the cancer ward of Greenville Hospital. The 0:21:08.160 --> 0:21:12.200 state is both an equity partner and a grant tea 0:21:12.280 --> 0:21:15.520 to this company. And you gotta ask yourself, why did 0:21:15.520 --> 0:21:17.960 they did do this? This is not going to generate 0:21:18.040 --> 0:21:21.320 hundreds of jobs. It's a long term bet that this 0:21:21.400 --> 0:21:26.639 disruptive technology well somehow spin off even more companies and 0:21:26.720 --> 0:21:30.280 more jobs. I found that very progressive. Thanks very much, 0:21:30.440 --> 0:21:33.240 very interesting story I recommended to all of our listeners. 0:21:33.320 --> 0:21:37.240 Craig Tours is our Economy Federal Reserve reporter for Bloomberg News. 0:21:37.280 --> 0:21:40.640 You can follow Craig on Twitter at c torres Reporter 0:21:41.000 --> 0:22:00.000 and you can check out his story on Bloomberg dot com. 0:22:00.119 --> 0:22:03.800 Just minutes ago, a Treasury Secretary Stephen Manuchin tweeted out 0:22:03.840 --> 0:22:07.320 on behalf of President Donald Trump, the stories on investment 0:22:07.320 --> 0:22:11.040 restrictions in Bloomberg and Wall Street Journal are false, fake news. 0:22:11.160 --> 0:22:14.920 The leaker either doesn't exist or do the subject very well. 0:22:15.080 --> 0:22:18.080 Statement will be out not specific to China, but to 0:22:18.240 --> 0:22:22.480 all countries that are trying to steal our technology. We 0:22:22.480 --> 0:22:24.840 will bring you more as we get it, But this 0:22:24.920 --> 0:22:27.119 of course is referring to the to the topic that 0:22:27.119 --> 0:22:30.040 we were just talking about the last segment about these 0:22:30.080 --> 0:22:34.080 restrictions that President Trump plans to put out there under 0:22:34.160 --> 0:22:38.560 using or incurring the scipious rule to do it. We 0:22:38.600 --> 0:22:40.240 will bring you more right now. I want to bring 0:22:40.240 --> 0:22:43.840 in Peter Kenny, founder and owner of Strategic Board Solutions, 0:22:43.920 --> 0:22:47.399 also founder and owner of Kenny and Co. Coming to 0:22:47.480 --> 0:22:50.399 us from New Jersey. Peter, Uh, you know, this is 0:22:50.440 --> 0:22:53.840 just just one little snapshot of the back and forth 0:22:53.840 --> 0:22:56.560 that we keep getting with respect to trade. Is there 0:22:56.600 --> 0:23:00.080 anything that we've gotten so far that would cause you 0:23:00.440 --> 0:23:03.760 to change your recommendation as to what investors ought to 0:23:03.760 --> 0:23:06.960 be buying or selling right now. Because of the lack 0:23:07.040 --> 0:23:10.119 of clarity, and because of the number of variables, and 0:23:10.160 --> 0:23:16.120 we're talking really large, large global variables, it's difficult to 0:23:16.160 --> 0:23:21.200 say anything other than be cautious. And we're seeing that 0:23:21.520 --> 0:23:26.240 in the flattening Yelker. We're seeing that in the tenure today. 0:23:26.240 --> 0:23:29.880 For example, I mean treating a two point eight seven yield. 0:23:30.200 --> 0:23:33.600 That's telling us that investors are cautious all the one second. 0:23:33.640 --> 0:23:35.840 I'm sorry to break in here, but the idea of 0:23:35.880 --> 0:23:38.680 caution at a time when you are seeing inflation pickup 0:23:38.720 --> 0:23:41.919 and you are seeing the Federal Reserve hiking rates isn't clear. 0:23:42.240 --> 0:23:45.880 What does expressing caution mean in markets today? Well, what 0:23:45.920 --> 0:23:49.040 it's what we're seeing is a flattening Yelk curve and 0:23:49.080 --> 0:23:52.119 the fact that investors are looking to hedge their bets. 0:23:52.160 --> 0:23:54.800 We're seeing your to date return on the SMP five, 0:23:55.240 --> 0:23:58.159 the Dow Jones, which is largely flat to negative. We 0:23:58.240 --> 0:24:01.320 have seen that performance by the NASDAC. But there's clearly 0:24:01.359 --> 0:24:03.840 caution in the market. And that is in spite of 0:24:03.840 --> 0:24:06.600 what you just you know, just mentioned, which is clearly 0:24:06.600 --> 0:24:08.480 the fad is going to be raising rates as many 0:24:08.480 --> 0:24:11.480 as four times over the next twelve months. So we're 0:24:11.520 --> 0:24:14.040 at a it's a very odd point in time for 0:24:14.160 --> 0:24:17.480 markets and investors because we are seeing really great earnings, 0:24:17.680 --> 0:24:23.119 great guidance, rising rates, healthy inflation, and yet we're seeing 0:24:23.200 --> 0:24:25.760 very little in the way of positive traction for equity. So, 0:24:26.280 --> 0:24:30.760 I mean, that's a conundrum. The bottom line is caution 0:24:30.840 --> 0:24:32.639 seems to be ruling the day, and we're seeing that 0:24:32.680 --> 0:24:36.120 in the treasure yields and we're seeing that in equity prices. Well, Peter, 0:24:36.760 --> 0:24:39.200 is this the time to be cautious when everybody else 0:24:39.320 --> 0:24:41.120 is I mean, don't you want to be buying when 0:24:41.119 --> 0:24:46.280 people are not interested in buying and you want to sell. Yeah, 0:24:46.400 --> 0:24:48.639 so what would you be looking at right now? All right? 0:24:48.680 --> 0:24:50.199 So I mean, if you don't want to take too 0:24:50.280 --> 0:24:53.440 much of a chance, what do you go out and buy? Well, 0:24:53.520 --> 0:24:57.520 you know my from my perspective, we're going to continue 0:24:57.520 --> 0:25:01.520 to see some really solid earnings and great economic data. 0:25:02.080 --> 0:25:07.280 Those two functions are the drivers of equity prices, and 0:25:07.480 --> 0:25:10.200 as a result, I do think that the bias remains very, 0:25:10.280 --> 0:25:13.560 very positive. As a result of that, I still like 0:25:13.680 --> 0:25:16.080 the financials, primarily because of the fact that we're going 0:25:16.119 --> 0:25:18.639 to see rising rates and that related to expansion of 0:25:18.680 --> 0:25:22.359 an interest margin. I also like to see homebuilders in 0:25:22.400 --> 0:25:25.720 spite of the fact we're seeing some some asset bubbles there. Um. 0:25:25.760 --> 0:25:28.760 I think that there's the demand for housing is absolutely 0:25:28.840 --> 0:25:32.080 through the roof. We're seeing that in the dislocation and pricing. 0:25:32.119 --> 0:25:35.760 But housing and financials continue to be and will be 0:25:36.119 --> 0:25:38.560 in my opinion second half and well into next year. 0:25:38.680 --> 0:25:42.359 Leaders Peter, how shall we think about oil because amid 0:25:42.480 --> 0:25:45.960 all of the trade talk, we're getting the OPEC agreement 0:25:46.080 --> 0:25:50.760