WEBVTT - Surveillance: U.K.'s Tories Vs. Labour With Cavendish 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom keene Jailey. 0:00:13.960 --> 0:00:16.960 We bring you insight from the best in economics, finance, 0:00:17.040 --> 0:00:23.520 investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.319 Bloomberg dot Com, and of course on the Bloomberg Place. 0:00:27.360 --> 0:00:29.200 To say that, joining us in London to continue the 0:00:29.200 --> 0:00:32.519 conversation ahead of Tomorrow's general election, Roger Birtle joins us 0:00:32.560 --> 0:00:36.160 now Capital Economics founder and Shairman. Good day to Roger. 0:00:36.240 --> 0:00:38.800 Great to see you. Just walk me through what's at 0:00:38.840 --> 0:00:41.640 stake in the next twenty four hours. Well, it's difficult 0:00:41.680 --> 0:00:44.000 to exaggerate how important this election is. I think on 0:00:44.040 --> 0:00:46.120 the whole, elections don't make much difference, by the way, 0:00:46.240 --> 0:00:48.400 at least UK ones don't, because in the end the 0:00:48.400 --> 0:00:51.199 politicians do much the same thing. This election is not 0:00:51.400 --> 0:00:54.920 like that. And on the left and the Labor Party, 0:00:54.960 --> 0:00:57.880 the leader of the Labor Party is effectively a sort 0:00:57.920 --> 0:01:02.120 of Marxist. His right hand man is a Marxist. If 0:01:02.160 --> 0:01:05.199 they were to form a government, we would have policies 0:01:05.280 --> 0:01:07.920 in this country more left wing than anything we've ever 0:01:07.959 --> 0:01:10.520 seen before. On the other side, the Conservatives are going 0:01:10.560 --> 0:01:12.160 to be much the same as we've had over the 0:01:12.240 --> 0:01:14.319 last five years. To be very clear here, Roger, that's 0:01:14.319 --> 0:01:16.920 not an accusation. They are very open about being socialists. 0:01:17.080 --> 0:01:19.800 They're very open about being extremely left wing. Yes, and 0:01:19.880 --> 0:01:22.840 I don't support them, but you know, they don't make 0:01:22.880 --> 0:01:25.840 any secret of it. I mean, these guys make some 0:01:26.000 --> 0:01:28.480 US politicians that we all know, like Elizabeth Warren and 0:01:28.560 --> 0:01:31.920 Bernie Sanders, they make them seem like outright right wingers. 0:01:32.640 --> 0:01:36.039 We're talking about nationalizing areas of the economy much more 0:01:36.280 --> 0:01:39.240 than we've ever seen before, perhaps since the nineteen seventies. 0:01:39.280 --> 0:01:42.440 What's interesting about this particular period of UK politics for me, Roger, 0:01:42.680 --> 0:01:45.520 going back to the election, we've now had three of 0:01:45.520 --> 0:01:48.160 them in a round about four years. Ed Milliban was 0:01:48.160 --> 0:01:50.360 the leader of the opposition, the Labor Party. They said 0:01:50.360 --> 0:01:52.440 he was too left wing and then they went further left. 0:01:52.600 --> 0:01:54.640 What does that tell you about the state of politics 0:01:54.720 --> 0:01:56.960 right now, that we're experiencing the shift to the extremes, 0:01:57.240 --> 0:01:59.280 not just in the United Kingdom but in the United 0:01:59.320 --> 0:02:01.640 States as well. Yeah, I wouldn't actually saying that in 0:02:01.680 --> 0:02:03.640 the UK we are seeing a shift to the extremes. 0:02:03.680 --> 0:02:05.840 We are in regard to the Labor party, But interesting 0:02:05.880 --> 0:02:07.880 me at the same time, the Conservative Party of anything, 0:02:07.880 --> 0:02:10.480 he's moving towards the center. Very interesting this, I think 0:02:10.480 --> 0:02:12.640 the Conservatives, we don't know what exactly what they're going 0:02:12.680 --> 0:02:14.520 to do if they do get a majority, but in 0:02:14.560 --> 0:02:16.960 what they've been saying recently, at least in terms of 0:02:16.960 --> 0:02:20.359 economic policy, they've been moving leftwards towards more public spending, 0:02:20.680 --> 0:02:23.320 concentrating on public services. Interesting that. How do you have 0:02:23.360 --> 0:02:27.800 a stimulus driven, a fiscal space driven conservative that seems 0:02:27.919 --> 0:02:32.120 impart greg again writing about one trillion dollar deficits in 0:02:32.160 --> 0:02:35.080 the United States, but in Germany, in France, in the 0:02:35.120 --> 0:02:40.280 United Kingdom. How can a conservative be pro stimulus? Well, 0:02:40.320 --> 0:02:42.720 I think it's quite easy for that actually to happen. 0:02:42.760 --> 0:02:45.000 Of course in the States you've had it in the past. 0:02:45.240 --> 0:02:47.600 What about the Reagan tax cuts? How Italy all this 0:02:47.720 --> 0:02:52.320 was justified in terms of supply side economics rather than demand. 0:02:52.360 --> 0:02:57.480 But still you had more borrowing, deliberate borrowing by the government, 0:02:57.639 --> 0:03:00.920 by conservative government. I think over the difference is that 0:03:01.000 --> 0:03:04.200 circumstances have changed so much. When you've got a very 0:03:04.320 --> 0:03:07.120 big debt and the deficits extremely high, and the markets 0:03:07.120 --> 0:03:10.480 are very wary, a conservative government will be worried about 0:03:10.480 --> 0:03:13.400 spending and borrowing more, but that's not the position we're in. 0:03:13.440 --> 0:03:16.280 The deficits down the markets are desperate to lend to 0:03:16.320 --> 0:03:18.960 the government and I think it's about time that we 0:03:19.080 --> 0:03:21.440 borrowed more for investment. It depends what you spend the 0:03:21.440 --> 0:03:24.680 money on. And this, I think is a big going 0:03:24.720 --> 0:03:26.920 forward from here. The big, big focus for a lot 0:03:26.960 --> 0:03:29.079 of people outside the United Kingdom won't just be on 0:03:29.120 --> 0:03:31.200 the future of austerity. It will be on the path 0:03:31.240 --> 0:03:35.040 towards brexit. Roger walk me through the kind of different 0:03:35.080 --> 0:03:37.760 paths that are available to the UK within the next 0:03:37.800 --> 0:03:41.040 twelve months or so off the back of this election. Well, 0:03:41.080 --> 0:03:43.840 let's assume first of all that the Conservatives form of 0:03:44.000 --> 0:03:47.000 majority government. Then we know pretty much that we're going 0:03:47.000 --> 0:03:50.000 to leave the EU on the thirty one January, so 0:03:50.160 --> 0:03:53.560 very soon. But that really, frankly, only sorts out part 0:03:53.640 --> 0:03:57.360 of the issue, because according to Boris Johnson's deal, he's 0:03:57.360 --> 0:03:59.400 then going to negotiate with the EU to try to 0:03:59.400 --> 0:04:01.320 get a free tra rade agreement by the end of 0:04:01.360 --> 0:04:03.680 next year, by the end of twenty and he said 0:04:03.720 --> 0:04:06.200 that if he doesn't get a deal then he's not 0:04:06.240 --> 0:04:08.560 going to seek an extension to this transition. A lot 0:04:08.560 --> 0:04:10.640 of people don't believe that, by the way. Now, of course, 0:04:10.760 --> 0:04:12.800 if that happens, say we don't get a deal and 0:04:12.840 --> 0:04:15.480 he doesn't get the extension, then Britain's in the sort 0:04:15.480 --> 0:04:18.720 of no deal territory where we then have to trade 0:04:18.760 --> 0:04:21.440 with the EU, presumably on w t O terms. Now 0:04:21.440 --> 0:04:23.960 if if if Labor wins, their policy, by the way, 0:04:24.080 --> 0:04:26.920 is rather confused on Brexit, but we understand they're going 0:04:26.920 --> 0:04:29.840 to try and renegotiate Boris's deal with the EU. Good 0:04:29.880 --> 0:04:32.800 luck on that one, and then have yet another referendum 0:04:32.800 --> 0:04:34.600 in the UK. So we're going to have in that case, 0:04:34.600 --> 0:04:37.039 I think prolonged uncertain The UK has twelve months to 0:04:37.080 --> 0:04:40.040 negotiate a free trade agreement with the European Union. It 0:04:40.160 --> 0:04:43.840 took the Canadians about seven years. Can you do these 0:04:43.880 --> 0:04:45.520 kind of things in twelve months? Well, I think the 0:04:45.520 --> 0:04:49.040 answer is yes you can. As far as the economics concerned, 0:04:49.040 --> 0:04:51.440 I think it's deadly simple. After all, we already have 0:04:51.480 --> 0:04:54.200 effectively a deal with the EU. It's called free trade 0:04:54.240 --> 0:04:57.000 plus bills and whistles. We don't have any tariffs or barriers. 0:04:57.040 --> 0:05:00.000 That's the starting point. So I think given the political world. 0:05:00.080 --> 0:05:02.359 I think it's dead easy to do actually within twelve months. 0:05:02.440 --> 0:05:04.320 But that's the big if you know, is there going 0:05:04.320 --> 0:05:05.680 to be the political will? And I think you're going 0:05:05.720 --> 0:05:08.800 to see massive wrangley on both sides. Actually, what kind 0:05:08.800 --> 0:05:12.640 of conservative is the new Boris Johnson? I understand as 0:05:12.640 --> 0:05:15.080 a foreigner, there's three or four Boris Johnson's that can 0:05:15.120 --> 0:05:17.960 be said of a lot of least. What kind of 0:05:18.000 --> 0:05:21.160 conservative is he? For twos depends what newspaper you read 0:05:21.200 --> 0:05:24.680 this name, Roger, Well, it's Tom. It's a great question. 0:05:24.800 --> 0:05:27.599 I think that Okay, there Feral gave me the question 0:05:27.680 --> 0:05:31.520 that the truthful answer is, we don't know. I mean, 0:05:31.520 --> 0:05:33.640 you listen to him sometimes and he calls himself a 0:05:33.640 --> 0:05:36.640 one nation conservative, which I guess is a bit close 0:05:36.680 --> 0:05:39.360 in the American terms of almost being a liberal pro 0:05:39.520 --> 0:05:43.000 public spending. And then other times he's very much in 0:05:43.040 --> 0:05:45.400 favor of free markets, and he has been known to 0:05:45.440 --> 0:05:48.279 wax lyrical about the importance of tax cuts and supply side. 0:05:48.920 --> 0:05:51.160 You gotta come back, Roger Boodle, thank you so much. 0:05:51.160 --> 0:05:55.919 Thank you, and writing for the Telegraph as well, always 0:05:55.960 --> 0:05:58.520 interesting and out with an important new book, The A 0:05:58.680 --> 0:06:01.760 I Economy. Will dive into that here. It's getting some 0:06:01.800 --> 0:06:18.839 reve reviews right now. This is fascinating. She writes for 0:06:18.839 --> 0:06:21.760 the Financial Ties, but far more than that has an 0:06:21.800 --> 0:06:28.480 exceptionally extinguished resume of not only policy but just thinking 0:06:28.640 --> 0:06:34.880 John in doing how you change things, and that's rare, 0:06:35.600 --> 0:06:38.200 to say the least. To bring her in absolutely, Committa 0:06:38.200 --> 0:06:40.280 camindists join us now, the former head of policy for 0:06:40.400 --> 0:06:42.440 UK Prime Minister David Cameron. Commit a great to have 0:06:42.440 --> 0:06:44.200 you with us on the program. Let's just begin the 0:06:44.200 --> 0:06:46.440 conversation where we started it just a little bit earlier 0:06:46.440 --> 0:06:49.320 on this hour. What is at stake with this general 0:06:49.320 --> 0:06:54.000 election in the next twenty four hours. A lot is 0:06:54.040 --> 0:06:56.120 at stake, which is why a lot of people are 0:06:56.120 --> 0:06:58.600 actually going to turn out and vote. Because this election 0:06:58.800 --> 0:07:02.480 represents two poles. I mean, it used to be said 0:07:02.480 --> 0:07:05.279 that all politicians were the same. That is certainly not 0:07:05.320 --> 0:07:08.560 true in this selection. We have a Conservative Party which 0:07:08.640 --> 0:07:11.320 is bent on delivering Brexit and their slogan is get 0:07:11.400 --> 0:07:14.920 Brexit done. And we have a Labor Party which is 0:07:15.080 --> 0:07:17.840 further to the left than anything we've seen for forty 0:07:17.920 --> 0:07:21.360 years and possibly for longer, which would impose a Marxist 0:07:21.520 --> 0:07:25.240 vision upon the state and Cammilla. On top of that, 0:07:25.320 --> 0:07:28.880 we have this really weird situation in many many constituencies 0:07:28.880 --> 0:07:32.640 where they are traditional labor strongholds but voted leave. Then 0:07:32.680 --> 0:07:36.720 we have these traditional conservative strongholds that voted remain. They're 0:07:36.760 --> 0:07:39.680 regarded as the marginal seats, many of them. Com How 0:07:39.680 --> 0:07:41.840 do you expect that to play out as the results 0:07:41.880 --> 0:07:44.360 start to come through. Well, so this is one of 0:07:44.360 --> 0:07:46.400 the things that makes it really hard to predict. So 0:07:46.640 --> 0:07:49.480 the Conservatives are trying to breach what they call Labor's 0:07:49.520 --> 0:07:53.560 red wall of seats which have traditionally been working class 0:07:53.640 --> 0:07:56.000 labor held seats in the Midlands and the North of England. 0:07:56.520 --> 0:07:59.080 Many of those voters voted to leave the European Union. 0:07:59.440 --> 0:08:03.200 They're very patriotic. They think Jeremy Corbyn is anti American, 0:08:03.400 --> 0:08:07.120 anti NATO and is not a patriot, and the Conservatives 0:08:07.200 --> 0:08:09.120 think that they can win quite a lot of those 0:08:09.120 --> 0:08:12.040 people back. As you said, of course, there may also 0:08:12.080 --> 0:08:14.680 be a swap from the other direction, which is quite 0:08:14.680 --> 0:08:17.400 a lot of remainers, particularly in London and the South, 0:08:17.600 --> 0:08:20.360 may vote Liberal Democrat or may they may vote Labor. 0:08:20.880 --> 0:08:23.520 So how complex does that make campaigning in the last 0:08:23.560 --> 0:08:27.280 day of campaigning and of course, Um, you know, we 0:08:27.360 --> 0:08:29.520 now know that. I mean, most parties are doing this 0:08:29.640 --> 0:08:32.560 micro targeting. I mean it's all about individual seats. They're 0:08:32.600 --> 0:08:35.520 running slightly different campaigns and different seats. To be honest, Um, 0:08:35.559 --> 0:08:38.440 there's a lot of social media. The Conservatives have a 0:08:38.520 --> 0:08:41.520 lot of money to spend. They are spending a great 0:08:41.559 --> 0:08:43.679 deal of it today in the last couple of days 0:08:43.720 --> 0:08:46.840 of the campaign, and their social media strategy I think 0:08:46.840 --> 0:08:49.600 has improved a lot. Um. You know, the current prediction 0:08:49.760 --> 0:08:53.200 is that the Conservatives will get a majority. The main 0:08:53.320 --> 0:08:56.000 question is how big and how big it is does 0:08:56.400 --> 0:08:58.880 make a lot of difference, because that makes a lot 0:08:58.920 --> 0:09:02.000 of difference to whether Boris Johnson can get his withdrawal 0:09:02.040 --> 0:09:05.520 agreement through Parliament really easily, and whether he can sort 0:09:05.520 --> 0:09:09.559 of unshackle himself from his right wing If if there 0:09:09.679 --> 0:09:18.120 wasn't breakfast breakfasts many people call it breakfast. If there 0:09:18.240 --> 0:09:22.079 wasn't breakfast, what would be the Conservative manifesto? I mean, 0:09:22.640 --> 0:09:27.040 is there such a thing between London elite Conservatives and 0:09:27.120 --> 0:09:31.640 everybody else out there that's not London elite Conservatives. That's 0:09:31.679 --> 0:09:34.360 a really interesting question which actually most people are not 0:09:34.400 --> 0:09:38.280 asking because everybody's obsessed with breakit right to ask it. 0:09:38.360 --> 0:09:42.520 I mean the Conservative manifesto was deliberately written this time 0:09:42.559 --> 0:09:46.560 to be fairly low key, not give any headlines, not 0:09:46.679 --> 0:09:49.720 actually give very many clues as to what the rest 0:09:49.760 --> 0:09:52.959 of the prospectives looks like. Um, it is quite heavy 0:09:52.960 --> 0:09:55.520 with spending pledges. So we now know that both parties, 0:09:55.600 --> 0:09:58.080 I mean Britain is shifting in the direction of spending 0:09:58.120 --> 0:10:01.160 more money under Cameron Osborne. You know, you saw a 0:10:01.280 --> 0:10:04.720 serious tackling of the deficit after the financial crisis. Um. 0:10:04.760 --> 0:10:07.840 We've actually they came out of that in sixteen with 0:10:08.040 --> 0:10:12.400 a pretty strong economy and record high employment. Um. But 0:10:12.600 --> 0:10:15.880 you know, the voters are wanting greater spending on public 0:10:15.880 --> 0:10:17.920 services and quite a lot of voters are prepared to 0:10:17.920 --> 0:10:19.760 pay more tax. So we're going to see a more 0:10:19.840 --> 0:10:23.959 interventionist I think whoever went But you're right to ask 0:10:24.000 --> 0:10:25.520 the question. You know, kind of what do the Tories 0:10:25.520 --> 0:10:28.520 spans will be on Brexit. At the moment, their campaign 0:10:28.559 --> 0:10:31.640 is all about two things. One is get Brexit done 0:10:31.640 --> 0:10:33.720 and the other one is keep Jeremy Corbyn out and 0:10:33.720 --> 0:10:35.960 they seem to think that is enough to win. Let's 0:10:35.960 --> 0:10:38.120 take it once they're further Cammilla, Who is the party 0:10:38.120 --> 0:10:39.600 of the working class? Now, have you'd asked me ten 0:10:40.320 --> 0:10:43.040 years ago, I would have said labor. Similar conversation taking 0:10:43.040 --> 0:10:44.720 place in the United States at the moment as well, 0:10:44.760 --> 0:10:47.400 which is fascinating. Who is the party of the working 0:10:47.440 --> 0:10:50.920 class in the United Kingdom? Yeah, well, it's a your right. 0:10:50.960 --> 0:10:52.360 I spent a lot of time in the States. It's 0:10:52.400 --> 0:10:56.080 the same question. Um. Look, I think the Tories aspire 0:10:56.160 --> 0:10:57.880 to be the party of the working class. A lot 0:10:57.920 --> 0:11:01.360 of working class voters may lend them the supported this election, 0:11:02.000 --> 0:11:04.000 but whether they can hang on to that support in 0:11:04.040 --> 0:11:07.199 the long term is a really big question. And whether 0:11:07.240 --> 0:11:10.080 they can, as you say, bridge the gap between the 0:11:10.080 --> 0:11:13.000 classif question. But look, we need to bridge that gap 0:11:13.040 --> 0:11:15.560 because whoever becomes Prime Minister needs to govern for the 0:11:15.600 --> 0:11:18.120 whole country, and we have too many people left behind 0:11:18.120 --> 0:11:20.080 in this country. So I do think it is completely 0:11:20.160 --> 0:11:23.600 plausible that the Conservatives could be the party of the 0:11:23.679 --> 0:11:27.000 aspiring working class and the loans, which is what Mrs 0:11:27.040 --> 0:11:30.360 Thatcher was all about. Conservatives in America are having no 0:11:30.600 --> 0:11:35.520 trouble embracing fiscal space. It's called trillion dollar deficits. Do 0:11:35.559 --> 0:11:39.840 you perceive that the Conservatives are the Cameron. The Conservatives 0:11:39.920 --> 0:11:43.559 are a Jansen. The Conservatives are the Conservative of a decade. 0:11:43.559 --> 0:11:49.040 Now can embrace fiscal space? Well, I mean Cameron was 0:11:49.240 --> 0:11:52.200 a fiscal conservative. You know, he bought down on the deficit. 0:11:52.800 --> 0:11:55.880 The opposition have used that very effectively against the Conservatives 0:11:56.000 --> 0:11:59.640 because of austerity, uh, you know, which has had some 0:11:59.679 --> 0:12:02.560 impact act are on you know, people in the lower 0:12:02.600 --> 0:12:05.720 socio demographic groups. But now everybody is embracing fiscal space. 0:12:05.760 --> 0:12:07.920 To use your terminology, I mean, you know, you've got 0:12:07.920 --> 0:12:11.920 low interest rates. Whoever comes into power will borrow a lot. 0:12:11.960 --> 0:12:15.720 They will fund massive infrastructure spending. And if we're going 0:12:15.760 --> 0:12:17.920 to leave the EU, we need a fiscal stimulus. I mean, 0:12:17.960 --> 0:12:19.760 we aren't going to need to get through this. There's 0:12:19.800 --> 0:12:22.360 likely to be an economic downturn anyway in the cycle. 0:12:22.400 --> 0:12:25.520 If you look at you, the economy are slowing. So 0:12:25.520 --> 0:12:27.680 we're going to have a fiscal stimulus in some form. 0:12:28.000 --> 0:12:29.640 Commit Before we let you go, I'd like to focus 0:12:29.679 --> 0:12:32.200 on something that I know you're passionate about. Public health. 0:12:32.520 --> 0:12:34.840 The NHS is at the epicenter of this election for 0:12:34.920 --> 0:12:37.800 many many people. Walk me through how you thinking about 0:12:37.800 --> 0:12:40.679 that particular subject and your thoughts on how the Conservative 0:12:40.720 --> 0:12:45.040 Party in its current form of tackled it. Well, you're right, 0:12:45.160 --> 0:12:48.120 NHS is the next biggest issue after Brexit. We have 0:12:48.160 --> 0:12:51.240 an aging population, we have huge demand on our service. 0:12:51.320 --> 0:12:54.360 We have a lot of immigration to this country. We 0:12:54.480 --> 0:12:57.000 have low morale of doctors, and we have a particular 0:12:57.040 --> 0:12:59.040 problem about pensions in the health service at the moment, 0:12:59.080 --> 0:13:00.400 which just means a lot of doc as they're not 0:13:00.440 --> 0:13:02.800 able to do as many as they should. Um, there 0:13:02.880 --> 0:13:06.280 is huge concerns. Actually underneath all of that, there is 0:13:06.360 --> 0:13:09.280 serious reform going on in the health service where we 0:13:09.320 --> 0:13:12.240 are beginning in some places to join up health with 0:13:12.320 --> 0:13:14.800 social care, which is basically care for the elderly, which 0:13:14.840 --> 0:13:16.480 is the bit that's kind of fallen off and been 0:13:16.559 --> 0:13:20.280 forgotten about. Um. You know whoever comes into power that 0:13:20.320 --> 0:13:21.960 if the Tories come to power, I mean, they will 0:13:22.000 --> 0:13:24.640 spend more money on the health service health haverpending has 0:13:24.679 --> 0:13:26.680 been increasing in real time. It's just not very much. 0:13:27.400 --> 0:13:29.800 What they have to do is also grasp the reform 0:13:29.920 --> 0:13:33.319 narrative which the insiders are promoting. But you know it's 0:13:33.360 --> 0:13:35.040 so political in this country. I mean, you have a 0:13:35.040 --> 0:13:37.960 different healthcare system over there, but our healthcare system which 0:13:38.000 --> 0:13:39.599 is very precious to us and is free at the 0:13:39.640 --> 0:13:42.920 point of need, is very very political, and so making 0:13:43.000 --> 0:13:44.760 any change to it, even if you're trying to make 0:13:44.760 --> 0:13:48.120 it better, is fraught with difficulty. Lady Cavenish, thank you 0:13:48.200 --> 0:13:50.440 so much bearing as Cavenish of Little Venice with us 0:13:50.480 --> 0:13:52.840 today and of course your at work for David Cameron 0:13:53.720 --> 0:14:10.800 what seems long ago in far away. Our next guest 0:14:10.920 --> 0:14:14.040 is one of our most popular guests, because even if 0:14:14.040 --> 0:14:17.760 you don't get fixed income, you haven't read your Fobos 0:14:18.000 --> 0:14:23.040 cover to cover, everybody leans forward when she talked. She 0:14:23.120 --> 0:14:25.200 just braces it down really really nicely for everyone, and 0:14:25.200 --> 0:14:27.440 we always get positive feedback when she comes on the program. 0:14:27.480 --> 0:14:30.360 So guess what we got it back lighttough. Charlie J H. 0:14:30.400 --> 0:14:33.880 C M, Senior fund Manager, Good morning to Lalie. Good morning. 0:14:33.920 --> 0:14:36.400 It's very lonely here without you, guys. I'm sorry. We'll 0:14:36.400 --> 0:14:39.240 be back very soon. I promise a Federal Reserve decision 0:14:39.360 --> 0:14:43.920 coming up later this afternoon, the least anticipated Fed decision 0:14:43.920 --> 0:14:45.960 of the year so far for some people. Larly, will 0:14:46.000 --> 0:14:47.840 you be going to launch? You're paying attention. If you're 0:14:47.840 --> 0:14:51.960 paying attention, what to um you know? I think You're right, 0:14:52.080 --> 0:14:54.680 it is the least anticipated because I think they made 0:14:54.680 --> 0:14:56.960 it clear that they're going to be on hold from 0:14:56.960 --> 0:14:59.640 a rate perspective. So I think what will really matter 0:14:59.800 --> 0:15:02.560 is the commentary. Look, and I think you've seen the 0:15:02.680 --> 0:15:06.160 b I S report that came out obviously result and 0:15:06.720 --> 0:15:09.320 piece has just taken over the internet. I think on 0:15:09.400 --> 0:15:11.920 what he wrote on the repo um, you know, I 0:15:11.920 --> 0:15:15.880 think people will focus on the commentary on on that 0:15:15.960 --> 0:15:20.160 part whether they see any problems or um they and 0:15:20.200 --> 0:15:23.280 if they see anything where they do something about it. 0:15:23.960 --> 0:15:26.600 Let's talk about what they're doing in the balance sheet currently. 0:15:26.600 --> 0:15:28.960 There's a massive debate about this as to whether it 0:15:29.040 --> 0:15:32.040 is QA, whether it isn't QA, whether the market thinks 0:15:32.040 --> 0:15:34.600 it's QA. What are you telling people? How do you 0:15:34.680 --> 0:15:37.720 characterize the current operations from the Federal Reserve at the 0:15:37.800 --> 0:15:41.200 moment and that expanding balance sheet. It's not QUI because 0:15:41.200 --> 0:15:45.480 it's not creating excess reserves UM, so it's definitely not 0:15:45.640 --> 0:15:48.960 QUE the way it would be q E is they 0:15:48.960 --> 0:15:53.840 extended out on the curve um. But at this point, 0:15:53.880 --> 0:15:56.280 I think Powell has been chairman and Powell has been 0:15:56.400 --> 0:15:59.720 very clear that he does not see this as Q 0:16:00.560 --> 0:16:02.400 and I think, right, do you see the market lolly 0:16:02.440 --> 0:16:06.040 behaving as it if it is q A. I think 0:16:06.040 --> 0:16:10.160 the market is behaving with the notion that the central 0:16:10.200 --> 0:16:14.440 Bank put globally is here and it's here to stay. 0:16:14.600 --> 0:16:18.640 I think that's a very strong narrative. It's an unpredictable 0:16:18.720 --> 0:16:23.920 narrative because it can change UM. But I don't think 0:16:23.920 --> 0:16:28.720 the market necessarily sees it as que. I'm looking at 0:16:28.760 --> 0:16:31.040 five year five year forwards, which is one gauge of 0:16:31.040 --> 0:16:34.480 inflation folks out ten years for the United Kingdom, for 0:16:34.520 --> 0:16:37.480 the United States and for Europe, and I believe the 0:16:37.560 --> 0:16:39.120 chairman is going to be able to go in and 0:16:39.160 --> 0:16:43.760 say today global inflation is the word Greenspan would use quiescent. 0:16:44.360 --> 0:16:47.720 How quiescent do you observe inflation? As you look at 0:16:47.720 --> 0:16:51.440 all those spread dynamics in the fixed income market UM 0:16:51.720 --> 0:16:54.680 we have. It's been more prominent in our company conversations 0:16:54.720 --> 0:16:58.800 on the labor side UM specifically UM the labor pressure 0:16:58.840 --> 0:17:01.280 I think has been a que for a whole year 0:17:01.360 --> 0:17:05.879 now where companies are actually having difficulty UM sourcing labor. 0:17:06.520 --> 0:17:09.679 And it's actually quite interesting because as you know, you know, 0:17:09.720 --> 0:17:12.440 typically when the company runs into a challenge whether it's 0:17:12.440 --> 0:17:16.399 because of tariffs or UM cyclical or secular pressure as 0:17:16.480 --> 0:17:20.439 labor goes first UM. But they've been really hesitancy on 0:17:20.480 --> 0:17:23.800 the part of companies to tackle labor because they're actually 0:17:23.840 --> 0:17:26.639 afraid that they won't be able to find the labor back, 0:17:27.160 --> 0:17:29.760 which is fascinating. So I think the companies are on 0:17:29.840 --> 0:17:31.960 a holding pattern. We're certainly seeing the labor pressure, and 0:17:32.000 --> 0:17:34.359 I think you're you're seeing it in the financial results. 0:17:34.480 --> 0:17:37.200 It's it's pressuring a little bit UM and I think 0:17:37.200 --> 0:17:40.320 that seems it seems like that that's here to stay. 0:17:40.920 --> 0:17:45.040 I mean, to me, it's absolutely fascinating that the wage 0:17:45.280 --> 0:17:50.720 elasticity isn't there this time around. What would happen if 0:17:50.760 --> 0:17:53.720 companies just raised wages. What would that do to the 0:17:53.920 --> 0:17:59.200 architecture of our fixed income markets? Well, it depends by industry, 0:17:59.320 --> 0:18:02.800 so labor is not always a large component of the 0:18:02.840 --> 0:18:06.480 cost um. So for the labor intensive ones it will 0:18:06.520 --> 0:18:09.400 it will certainly UM, you know, impact the girl's margins 0:18:10.080 --> 0:18:13.679 UM and anything that's labor intensive in the services or 0:18:13.680 --> 0:18:18.240 in the retail, etcetera. UM. You're also seeing the tariff 0:18:18.240 --> 0:18:20.480 pressure as well, so you kind of get this jaw 0:18:20.560 --> 0:18:24.199 impact UM and it would certainly impact. But look, I mean, 0:18:24.240 --> 0:18:29.000 I think high yield if you're in the secularly challenge sectors, 0:18:29.040 --> 0:18:32.720 you already have pretty large hurdles. So they will just 0:18:32.800 --> 0:18:36.680 be icing on the cake. To be perfectly frank about it. Um. 0:18:36.840 --> 0:18:39.520 And you know, in some of these industries they already 0:18:39.560 --> 0:18:42.879 create at what I would call to be distressed levels. 0:18:42.920 --> 0:18:48.120 High yields returned almost in twenty nineteen. Corporates and investment 0:18:48.160 --> 0:18:53.520 grade what are they are? Fourteen fifteen day? Unbelievable. Now 0:18:53.520 --> 0:18:55.919 I wanted to talk to Larne's world right now. Credit 0:18:55.960 --> 0:18:58.239 just to wrap this conversation up. We've been in this 0:18:58.320 --> 0:19:02.159 really interesting training range. It's on how you'd spreads of 0:19:02.359 --> 0:19:04.840 between three fifty and full fifty. We get down to 0:19:04.880 --> 0:19:07.040 three fifty, we bounced back up to four fifty, We're 0:19:07.040 --> 0:19:10.040 back down to three fifty again. What does that mean 0:19:10.080 --> 0:19:12.200 to you right now? Just where spreads are really really 0:19:12.200 --> 0:19:14.679 tight the tides of the year once more, where's this going? 0:19:15.320 --> 0:19:17.240 It just means you go buy some three month treasury 0:19:17.240 --> 0:19:20.120 bills and keep it rolling it forward. Um. And as 0:19:20.119 --> 0:19:22.560 actually the beauty of the tight spreads because by going 0:19:22.600 --> 0:19:26.000 into higher quality you give up fifty or hundred pibs, 0:19:26.040 --> 0:19:29.040 but you pick up an entire optionality because over six 0:19:29.080 --> 0:19:32.320 months losing you know, half of fifty BIPs or hundred pips, 0:19:32.320 --> 0:19:34.720 it's not going to make a big determined determination on 0:19:34.760 --> 0:19:37.639 your overall portfolio performance. And if you're right, then we 0:19:37.680 --> 0:19:39.919 have a volatility event. Then then you have like a 0:19:40.000 --> 0:19:43.040 huge upside and you're able to deploy cash. I think 0:19:43.040 --> 0:19:46.480 two twenty. If it stays put where we are, it's 0:19:46.600 --> 0:19:49.000 very hard to see stellar returns out of credit. And 0:19:49.000 --> 0:19:51.159 I think most people frame it as a coupon clipping 0:19:51.240 --> 0:19:53.800 years And I got news for you. Every time somebody 0:19:53.840 --> 0:19:57.960 says coupon clipping here, it never works. Are you thinking 0:19:58.000 --> 0:20:00.800 about being a liquidity provide events? So as speak going 0:20:00.800 --> 0:20:04.240 into waiting for those dislocations to take advantage of them. 0:20:04.520 --> 0:20:07.159 We'll wait for the dislocations um and you have to 0:20:07.200 --> 0:20:10.359 define you know, there's no blanket statement, right. It depends 0:20:10.440 --> 0:20:12.480 what else is happening in the world and how the 0:20:12.560 --> 0:20:15.840 world is changing, so high yield, you know. I'll leave 0:20:15.840 --> 0:20:18.080 you with this final thought. I think everybody focuses on 0:20:18.119 --> 0:20:20.320 the triple seas and and how bad it is, but 0:20:20.400 --> 0:20:22.400 it's actually if even if you look at the Double Bees, 0:20:22.440 --> 0:20:26.520 which I think is ridiculously rich. You also have another 0:20:26.600 --> 0:20:29.440 different phenomena from the lack of covenant. Right most people 0:20:29.440 --> 0:20:31.280 look at lack of convenance and a high quality. They go, 0:20:31.320 --> 0:20:33.200 why do I care? This company is really good, it's 0:20:33.280 --> 0:20:36.320 very high quality. The problem is if it's a public 0:20:36.359 --> 0:20:40.719 company and their stock performance suffers because you know, equity 0:20:40.760 --> 0:20:43.080 analysts do actually look at EBIT and operating income. None 0:20:43.119 --> 0:20:45.480 of this adjusted EBITDA nonsense, which is fictitious. As we 0:20:45.520 --> 0:20:49.960 talked about UM, you actually take on event risk, whether 0:20:50.000 --> 0:20:52.760 the company goes private, whether the company actually spins off 0:20:52.840 --> 0:20:56.280 an asset, and guess what, because the covenants are sold loose, 0:20:56.640 --> 0:21:00.080 you have absolutely no claim on that cash flow. The 0:21:00.160 --> 0:21:04.520 high yield market has structurally changed, in my opinion, based 0:21:04.560 --> 0:21:10.320 on this Lucy Goosey documentation. We've seen a level four, 0:21:11.880 --> 0:21:16.680 A level five is fantastic. Let's Charlie j s fun 0:21:16.720 --> 0:21:18.960 manager lot. If we don't catch up with you, enjoy 0:21:19.000 --> 0:21:23.320