WEBVTT - Microsoft Rises to Record; Tiffany Rallies on Takeover Talks 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel Podcast. I'm Paul swing you, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.960 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:22.880 at Bloomberg dot com. Tiffany shares surging the most on record, 0:00:23.079 --> 0:00:26.440 more than thirty percent, on the heels of this bid 0:00:26.480 --> 0:00:30.240 by Louis Vutan's parent company for fourteen and a half 0:00:30.320 --> 0:00:33.840 billion dollars. A question is who are the other potential 0:00:33.960 --> 0:00:37.320 suitors that could step up to buy Tiffany or is 0:00:37.360 --> 0:00:41.560 it just going to be on LVMHU to raise their bid. 0:00:41.720 --> 0:00:44.080 Kim Fassine is joining us now. He's a Bloomberg News 0:00:44.159 --> 0:00:46.880 US luxury reporter. I want to start with the price tag. 0:00:47.320 --> 0:00:51.280 What is the implied path forward by the premium that 0:00:51.280 --> 0:00:53.840 we're seeing baked into Tiffany shares currently at one thirty 0:00:53.880 --> 0:00:58.920 dollars plus versus the one share price that the fourteen 0:00:58.960 --> 0:01:01.920 and a half billion dollars tag would imply. Right, So 0:01:01.960 --> 0:01:04.759 it's a fourteen and a half billion dollar proposal from LVMH. 0:01:04.880 --> 0:01:09.800 That's one twenties share and um some analysts are speculating 0:01:09.840 --> 0:01:11.959 that they might have to go up to as much 0:01:12.000 --> 0:01:16.480 as one sixty and uh. They're also speculating that Tiffany 0:01:16.520 --> 0:01:19.800 could attract bids for other suitors. Now, so there's companies 0:01:19.800 --> 0:01:24.160 that have been mentioned, our Richment, which owns Cartier and Caring, 0:01:24.200 --> 0:01:27.640 which is LVMH's biggest fashion rival that owns it owns 0:01:27.680 --> 0:01:31.000 brands like Gucci and Salt Laurent. So can what's the 0:01:31.000 --> 0:01:35.640 strategy for LVMH and perhaps other suitors to uh, you know, 0:01:35.920 --> 0:01:38.679 go after Tiffany? What are they looking for? Tiffany makes 0:01:38.720 --> 0:01:40.280 a lot of sense for l v m H because 0:01:40.280 --> 0:01:44.680 it fills a pretty big gap in its portfolio. Of course, 0:01:44.720 --> 0:01:47.520 it has numerous very strong European fashion labels like Louis 0:01:47.600 --> 0:01:52.400 Utton and dir Selene, Fendi and jewelry. It owns Bulgari, 0:01:52.520 --> 0:01:54.840 which is much more high end than Tiffany. But Tiffany 0:01:54.920 --> 0:01:59.880 would be away into the US jewelry market and American shoppers. Uh. Jewelry, 0:01:59.880 --> 0:02:05.480 particularly branded jewelry, has been performing particularly well in luxury lately, 0:02:05.760 --> 0:02:08.920 and it's a relatively small segment of LVM age compared 0:02:08.919 --> 0:02:11.200 with fashion and leather goods. Can I talk about the 0:02:11.240 --> 0:02:15.160 timing why now? I'm not sure why now, but the 0:02:15.480 --> 0:02:19.760 tivity has been on the rebound in recent years. So 0:02:20.200 --> 0:02:24.519 CEO Alessandro Boliolo has been very busy. He's overhauled Tiffany's 0:02:24.560 --> 0:02:28.399 marketing hoping, hoping to attract younger shoppers. Uh. He entered 0:02:28.440 --> 0:02:32.560 into India after reaching what they called a critical mass 0:02:32.600 --> 0:02:35.800 of demand to warrant moving in there. It vowed to 0:02:35.840 --> 0:02:39.320 make its more supply, its supply chain more transparent, and 0:02:39.400 --> 0:02:42.880 hired thousands of new diamond industry workers and executives. Right 0:02:42.880 --> 0:02:46.560 now are super focused on growing the business in China, 0:02:46.720 --> 0:02:49.760 and because by opening their own stores there, rather than 0:02:49.800 --> 0:02:53.280 waiting for tourists to come abroad, you avoid the volatier 0:02:53.480 --> 0:02:56.440 volatility of tourist flows. So let's talk about the luxury 0:02:56.480 --> 0:02:59.720 market in China. Know, China has been an Asian general 0:02:59.760 --> 0:03:02.960 has in a big driver of the growth and luxury 0:03:03.040 --> 0:03:06.240 over the last ten plus years. But so the trade 0:03:06.360 --> 0:03:09.160 uncertainty here can't be good for luxury. So what are 0:03:09.400 --> 0:03:10.880 some of the companies that you covered? What? What are you? 0:03:10.880 --> 0:03:14.240 What are they saying? About trade wars and luxury. Well, 0:03:14.280 --> 0:03:16.840 let's start with Tiffany, which is in an interesting situation. 0:03:16.880 --> 0:03:19.799 They make their jewelry here in the US, so they 0:03:19.840 --> 0:03:24.880 do everything backwards. UH them. The big luxury company is 0:03:24.919 --> 0:03:28.440 the American Ones. So let's take UH Tapestry, which owns 0:03:28.560 --> 0:03:32.480 Coach and Kate Spade and Stuart Whitespan. They used to 0:03:32.520 --> 0:03:36.760 make a lot of goods in China fifteen years ago, 0:03:36.800 --> 0:03:40.040 but they've spent the last decade or so diversifying their 0:03:40.080 --> 0:03:46.080 supply chains. So in UH in Coaches case, UM, fewer 0:03:46.200 --> 0:03:48.600 less than five percent of their goods are made in 0:03:48.680 --> 0:03:51.520 China now because they've moved to places like Vietnam and 0:03:51.560 --> 0:03:54.640 the Philippines in India. And this is what we're seeing 0:03:54.680 --> 0:04:00.160 across the industry. I'm looking right now LVMH's shares in 0:04:00.280 --> 0:04:04.680 Paris and they're up just slightly or basically flat. I 0:04:04.720 --> 0:04:07.720 find this really interesting. Basically people saying this is a 0:04:07.760 --> 0:04:10.760 good move. Yeah, I think that is people saying it 0:04:10.840 --> 0:04:13.080 is it is a good move because it does fill 0:04:13.120 --> 0:04:15.440 that fill that gap. Tiffany is basically flat in the 0:04:15.560 --> 0:04:18.920 US now. UH. It used to be a more that's 0:04:18.920 --> 0:04:21.200 brand used to be stag here like people didn't it 0:04:21.240 --> 0:04:24.440 was less relevant to two young shoppers, which are so 0:04:24.440 --> 0:04:27.640 so valuable. But these moves lately seem to have to 0:04:27.760 --> 0:04:32.080 have worked. I'm just wondering about sort of whether this 0:04:32.160 --> 0:04:36.560 will also diversify Tiffany outside of the US much more 0:04:36.680 --> 0:04:41.640 because of LVMH's footprint. The push in recent over the 0:04:41.640 --> 0:04:45.520 past year or so has been to physically go to 0:04:45.640 --> 0:04:49.440 where the shoppers are and not rely so much on 0:04:49.440 --> 0:04:54.240 on tourists going abroad, you know, Paris or London or 0:04:54.360 --> 0:04:57.760 New York where their biggest stories. They're spending two hundred 0:04:57.800 --> 0:05:01.200 and fifty million dollars to renov eight their flagship store. 0:05:01.600 --> 0:05:04.800 Uh they're currently they're about to move next door, move 0:05:04.839 --> 0:05:07.800 their whole selling floor next door to their to their 0:05:07.839 --> 0:05:09.640 old place, so they can they can spend all this, 0:05:09.960 --> 0:05:14.039 all this time and money because that is the their 0:05:14.160 --> 0:05:18.960 their crown jewel of of their business. Like as much 0:05:19.000 --> 0:05:22.880 as ten percent of their global business comes from this 0:05:23.040 --> 0:05:26.920 one store in New York on Fifth Avenue. Kimbasine, thanks 0:05:26.920 --> 0:05:30.040 so much for joining us. Kimmassin is a luxury reporter 0:05:30.120 --> 0:05:48.480 for Bloomberg News covering all things luxury. Let's gears and 0:05:48.560 --> 0:05:52.440 talk about the story that really is raising so many eyebrows. 0:05:53.080 --> 0:05:56.560 Microsoft shares jumping to an all time high today, the 0:05:56.640 --> 0:06:01.280 battle over cloud services with Amazon dot Com heating up. 0:06:01.360 --> 0:06:04.400 Joining us right now, James Back of Bloomberg Intelligence. Uh, 0:06:04.440 --> 0:06:09.520 Microsoft one a Pentagon cloud contract that was much disputed. Uh, 0:06:09.560 --> 0:06:11.720 there could still be appeals. But can you give us 0:06:11.720 --> 0:06:14.159 a sense of why this is being viewed by the 0:06:14.200 --> 0:06:17.560 market as such an important development? Well, I think that 0:06:17.640 --> 0:06:21.919 it is a confirmation that Microsoft has essentially made it 0:06:21.920 --> 0:06:24.880 in the infrastructure as a service market. It's long trail 0:06:24.960 --> 0:06:27.160 Amazon dot Com, and now we're starting to really see 0:06:27.200 --> 0:06:29.919 that it has kind of forged its role as the 0:06:30.000 --> 0:06:33.039 number two player, and with with the Department of Defense, 0:06:33.480 --> 0:06:37.240 with all of it's you know, very very rigorous security requirements, 0:06:37.920 --> 0:06:41.600 very highly sensitive workloads. Going with Microsoft over Amazon, the 0:06:41.680 --> 0:06:44.280 larger player, it's a pretty big statement about where Microsoft 0:06:44.320 --> 0:06:46.360 is in the cloud market. So, James, I know you 0:06:46.400 --> 0:06:50.360 follow these federal contracts and government contracts very closely. Clearly 0:06:50.440 --> 0:06:53.839 a surprise to the marketplace. How about the folks inside 0:06:53.880 --> 0:06:58.480 the Beltway to see, uh, you know, Amazon displaced here. 0:06:58.520 --> 0:07:01.200 How much for a surprise was that? It depends on 0:07:01.279 --> 0:07:04.440 here you're talking to, Uh, the market may be a 0:07:04.440 --> 0:07:06.560 little taken aback by it and some other people who 0:07:06.600 --> 0:07:09.920 may have felt that Amazon was positioned well to win this. 0:07:10.040 --> 0:07:12.760 Certainly we felt that they were the favorite, just given 0:07:12.800 --> 0:07:15.480 that they have experience with the c I A, given 0:07:15.520 --> 0:07:19.440 that they have the largest offering in cloud infrastructure in 0:07:19.480 --> 0:07:23.840 the market. Um, but Microsoft was always a formidable competitor 0:07:24.040 --> 0:07:27.000 in this competition, So it shouldn't come as too much 0:07:27.000 --> 0:07:30.280 as of a surprise that they did end up displacing Amazon, 0:07:30.400 --> 0:07:33.120 or not to say displacing Amazon, but did kind of 0:07:33.240 --> 0:07:34.920 you know, score an upset here. I don't think this 0:07:34.960 --> 0:07:37.160 is a stunning of an upset as some may believe 0:07:37.200 --> 0:07:39.960 it to be. So I wonder how much politics really 0:07:40.000 --> 0:07:44.120 played in here because Amazon dot Com Jeff Bezos has 0:07:44.160 --> 0:07:46.360 a stake in the Washington Post, and we know that 0:07:46.400 --> 0:07:50.280 President Trump has been pretty vocal against Jeff Bezos in 0:07:50.360 --> 0:07:53.600 part for that was that a driver behind this decision 0:07:53.600 --> 0:07:57.040 in anyway? I think that papers over It's it's a 0:07:57.040 --> 0:07:59.800 fun story to kind of speculate about whether Trump had 0:07:59.840 --> 0:08:04.520 influence on how this was you know, awarded, but it 0:08:04.640 --> 0:08:09.120 really kind of papers over the capabilities that Microsoft did have. 0:08:09.240 --> 0:08:12.239 They definitely had an offering that was capable of taking 0:08:12.280 --> 0:08:15.240 on this job. Um, And I think it might be 0:08:15.800 --> 0:08:18.960 you know, misleading, or it might be you know, overthinking 0:08:18.960 --> 0:08:22.440 it to say that Trump's uh, you know, his his 0:08:22.440 --> 0:08:24.480 his kind of bad blood he may have with Jeff 0:08:24.520 --> 0:08:27.040 Bezos or the Washington Posted anything to do with how 0:08:27.040 --> 0:08:30.360 this was awarded. You know, the whole you know, acquisition 0:08:30.840 --> 0:08:35.120 bureaucracy and procurement bureaucracy is much larger than anyone president. UM. 0:08:35.240 --> 0:08:37.200 So it'd be hard to see this being something that 0:08:37.240 --> 0:08:41.000 Trump was able to influence, um, really in any big 0:08:41.120 --> 0:08:44.960 meaningful way. So James, does Amazon have any recourse here? 0:08:45.080 --> 0:08:47.679 I seem to have heard that maybe they might be 0:08:47.760 --> 0:08:50.599 able try to stop this. Yeah, they can go to 0:08:50.920 --> 0:08:52.920 and this is just kind of standard procedure for any 0:08:53.000 --> 0:08:56.080 large contract. They can go to the Government Accountability Office 0:08:56.280 --> 0:08:59.400 uh and file a bid protest um if they feel 0:08:59.440 --> 0:09:02.959 there was any problems with the overall procurement. UM. That 0:09:03.000 --> 0:09:05.960 would delay the program by about a hundred days. And 0:09:06.000 --> 0:09:08.520 that's to say they don't you know, even take this 0:09:08.559 --> 0:09:11.120 maybe to the Court of Federal Claims. Um. There's a 0:09:11.120 --> 0:09:14.400 lot of different options they can pursue now to potentially 0:09:14.920 --> 0:09:17.240 you know, change the procurement or try to get this 0:09:17.320 --> 0:09:19.680 back from Microsoft. I want to go back to something 0:09:19.720 --> 0:09:22.520 you said, which is, perhaps people are are making too 0:09:22.600 --> 0:09:26.199 much of this in terms of uh, Amazon dot Com 0:09:26.280 --> 0:09:30.080 losing its dominance over the cloud business. Why do you 0:09:30.120 --> 0:09:33.520 think that, Well, the federal market, and this is also 0:09:33.679 --> 0:09:35.760 a kind of our our our look at the commercial 0:09:35.800 --> 0:09:40.120 market to cloud is a very big, um growing piece 0:09:40.200 --> 0:09:42.880 of the I T sector. So, you know, one loss 0:09:43.000 --> 0:09:45.880 is about you know, ten billion dollar contract over ten years. 0:09:46.160 --> 0:09:49.679 These are two companies that have both very large cloud businesses. 0:09:50.080 --> 0:09:53.320 One contract isn't going to really change too much for 0:09:53.520 --> 0:09:56.120 any of them, um. But at the same time, it 0:09:56.200 --> 0:09:58.240 is a big statement for Microsoft and where they are 0:09:58.240 --> 0:10:00.960 in the cloud market. For people who some observers who 0:10:01.080 --> 0:10:03.199 may have thought that this was a slam dunk for Amazon. 0:10:03.240 --> 0:10:05.640 I think it's a surprise. But at the same time, 0:10:06.320 --> 0:10:08.200 there's a lot of cloud uh, there's a lot of 0:10:08.320 --> 0:10:11.000 I TA modernization that's going to happen in the federal market, 0:10:11.360 --> 0:10:14.160 and it's it's very you know, it's it's not hard 0:10:14.200 --> 0:10:17.320 to see that Amazon and Microsoft, regardless of this contract, 0:10:17.360 --> 0:10:18.880 are going to be a part of that in some way. 0:10:19.280 --> 0:10:22.640 And there's been some pushback within Microsoft employees about that. 0:10:22.679 --> 0:10:25.360 How common is that in terms of well, I mean 0:10:25.640 --> 0:10:28.120 in terms of the I guess doing business with the 0:10:28.120 --> 0:10:31.079 government and you know, with whether it's the Defense Establishment 0:10:31.160 --> 0:10:33.080 or the c I A. Yeah, we saw this with 0:10:33.280 --> 0:10:36.199 Google um and it's ultimately Google was in the running 0:10:36.200 --> 0:10:38.120 for JEDI at one point and dropped out because of 0:10:38.200 --> 0:10:40.240 kind of an employee revolt. So it is something that 0:10:40.320 --> 0:10:43.560 happens in some cases. The difference here is, you know, 0:10:43.920 --> 0:10:46.360 Microsoft has been with the federal government for a pretty 0:10:46.400 --> 0:10:48.199 long time. They've been at d O D for about 0:10:48.240 --> 0:10:51.440 three decades. It's hard to imagine that any kind of 0:10:51.600 --> 0:10:54.400 big employee revolt is going to take place and is 0:10:54.559 --> 0:10:58.000 going to stop Microsoft from operating in the Defense Department. 0:10:58.800 --> 0:11:00.720 James bad thank you so much for joining us. We we 0:11:00.520 --> 0:11:04.760 we really appreciate your insight here. James back covers all 0:11:04.800 --> 0:11:07.240 things in terms of the federal contracts and the government 0:11:07.280 --> 0:11:09.040 and procurements and all that stuff. He does have for 0:11:09.040 --> 0:11:12.559 Bloomberg Intelligence. So really giving Bloomberg clients a real sense 0:11:12.600 --> 0:11:15.560 of what it means, what companies are at risk, what 0:11:15.600 --> 0:11:18.680 companies are doing, what types of business with the US 0:11:18.760 --> 0:11:21.520 government on days like today, really valuable to get his thoughts. 0:11:38.600 --> 0:11:41.600 This is a very big week for interest rates and 0:11:41.679 --> 0:11:44.920 certainly the outlook going forward. The Pleasure Reserve meets Tuesday 0:11:44.960 --> 0:11:48.640 and Wednesday releasing what everyone expects to be a rate cut. 0:11:48.840 --> 0:11:50.839 That is not what people are watching for. What they're 0:11:50.880 --> 0:11:52.920 watching for is what they're going to signal in terms 0:11:52.960 --> 0:11:56.400 of whether this is one and hold for the time being, 0:11:56.480 --> 0:11:59.000 or whether they expect to cut rates yet again in 0:11:59.080 --> 0:12:02.080 twenty nineteen. Join us now. R J. Gallo, senior portfolio 0:12:02.200 --> 0:12:06.000 manager focused on fixed income at Federated Investors Are J 0:12:06.160 --> 0:12:09.280 what are you expecting them to signal on Wednesday in 0:12:09.360 --> 0:12:13.440 terms of future rate cuts? Good morning, UM. I think 0:12:13.559 --> 0:12:16.679 it's important to realize that although you know sort of 0:12:16.720 --> 0:12:19.160 the one and done phrases being talked about, this is 0:12:19.160 --> 0:12:22.120 really the third right. This is the mid cycle adjustment 0:12:22.200 --> 0:12:25.560 language which was invoked by Chairman Powell UM around the 0:12:25.600 --> 0:12:28.520 time of the first ease, may in fact be realized 0:12:28.520 --> 0:12:31.520 by what we see now. The other periods of mid 0:12:31.559 --> 0:12:35.240 cycle adjustment have typically entailed more than one ease, oftentimes 0:12:35.240 --> 0:12:38.200 two or three. This looks like the third in a series, 0:12:38.559 --> 0:12:42.200 and our bet here at Federated is that imminent recession 0:12:42.240 --> 0:12:44.560 is not most likely, and the FED may in fact 0:12:44.840 --> 0:12:47.520 layer in its third ease and see what happens next. 0:12:47.600 --> 0:12:51.000 That what happens next is probably a deceleration and economic growth. 0:12:51.040 --> 0:12:52.440 We're going to see some data this week on that 0:12:52.520 --> 0:12:54.760 on the GDP front. But the FED, I think, is 0:12:54.760 --> 0:12:57.640 probably a little less eager to signal further easing right away. 0:12:57.960 --> 0:13:01.880 It's becoming states contingent or data dependent in their terminology. Yeah, 0:13:01.880 --> 0:13:04.160 it's interesting r J. You mentioned the data dependency. You know. 0:13:04.200 --> 0:13:06.200 I think if I were to go down to the 0:13:06.320 --> 0:13:08.960 f O m C this wee can argue for Hey, 0:13:09.040 --> 0:13:11.839 the data is not supporting this easing environment. I think 0:13:11.840 --> 0:13:13.760 you guys need to sit on the sidelines. Will they 0:13:13.920 --> 0:13:17.319 throw me out of the room. UM, I don't know 0:13:17.320 --> 0:13:18.719 if they'd throw you out of the room. I'll tell 0:13:18.720 --> 0:13:21.040 you this. I think that the FED, or at least 0:13:21.040 --> 0:13:23.040 the core of the FED, the leadership of the FED, 0:13:23.120 --> 0:13:26.640 you know, the the New York FED President, the vice chairman, 0:13:26.679 --> 0:13:30.280 the chairman. UM, they're interested in being forward looking and 0:13:30.360 --> 0:13:33.600 proactive at this point in time. UM, they feel as 0:13:33.600 --> 0:13:35.400 if the United States is being sort of one of 0:13:35.400 --> 0:13:39.520 the strongest pillars of an otherwise slowing global economy. That 0:13:39.600 --> 0:13:42.320 they can afford to be proactive because the risk of 0:13:42.360 --> 0:13:45.280 being wrong, namely we ease and we shouldn't have doesn't 0:13:45.320 --> 0:13:50.160 produce an inflationary spiral. Inflation continues to disappoint. So what's 0:13:50.160 --> 0:13:52.760 the problem with being proactive on growth? That's that's how 0:13:52.840 --> 0:13:55.160 I think they think of it. UM. Those out there 0:13:55.200 --> 0:13:58.000 like a Laretta Laretta Master who are arguing but data 0:13:58.040 --> 0:14:00.880 doesn't support it, UM, well, that's the ackward looking data. 0:14:01.240 --> 0:14:03.960 So in a risk management framework, they can afford to 0:14:03.679 --> 0:14:06.559 to layer layer in theseasies and see how the market 0:14:06.720 --> 0:14:09.080 and the economy response. So what does that mean in 0:14:09.200 --> 0:14:13.280 terms of how you're positioning your portfolio? UM, if you 0:14:13.320 --> 0:14:16.679 look at my firm, we have spent years being overweight 0:14:16.720 --> 0:14:19.400 credit and expecting FED policy normalization in the form of 0:14:19.480 --> 0:14:22.320 higher rates that ultimately occurred. We had a complete flip 0:14:22.360 --> 0:14:25.000 flop on that last element as the FED has has 0:14:25.040 --> 0:14:27.840 moved towards easing. As we've been discussing on this call um, 0:14:27.920 --> 0:14:31.320 we anticipated the economic deceleration that would occur and selectively 0:14:31.360 --> 0:14:33.280 have been long duration at various points over the last 0:14:33.280 --> 0:14:36.240 six months. It's been an incremental win. At this point, 0:14:36.280 --> 0:14:38.920 we've shifted closer to neutral on a lot of our variables, 0:14:38.920 --> 0:14:42.320 because I think it's not totally clear that that what's 0:14:42.360 --> 0:14:45.480 going to happen next. If President Trump and President z 0:14:45.600 --> 0:14:49.440 in China actually strike a meaningful truth phase one deal, 0:14:49.840 --> 0:14:52.920 then some of the global deceleration, some of the problem 0:14:53.000 --> 0:14:56.480 with presidential nonresidential investment in the United States make correct, 0:14:56.560 --> 0:14:58.560 and we can have a nice soft landing if we 0:14:58.680 --> 0:15:02.080 get that yoke had a little fire. Corporate credit does okay. 0:15:02.120 --> 0:15:05.720 On the other hand, deal hasn't been struck. Global economy 0:15:05.800 --> 0:15:08.600 is slowing. Uh, you can't rule out that recession risk 0:15:08.680 --> 0:15:10.320 is elevated at this point in time. So we're trying 0:15:10.320 --> 0:15:12.160 to be nimble with almost like sort of a neutral 0:15:12.200 --> 0:15:14.440 home base on a lot of variables right now. So 0:15:14.560 --> 0:15:17.280 r J, as it relates to the R word recession, 0:15:17.560 --> 0:15:20.760 what is kind of your call there at federating base 0:15:20.880 --> 0:15:25.080 case we think we can have the the fabled soft landing, 0:15:25.080 --> 0:15:26.880 which you know, which we had in the nineties. For example, 0:15:26.960 --> 0:15:31.360 Chairman Greenspan was successful at finding that after multi phased 0:15:31.560 --> 0:15:36.080 tightening that he oversaw um soft landings prolonged by definition 0:15:36.280 --> 0:15:40.080 the economic expansion, which I think pal is very committed 0:15:40.120 --> 0:15:41.800 to do. We think he might be able to stick 0:15:41.800 --> 0:15:45.160 that landing. Let's talk about what a soft landing actually 0:15:45.200 --> 0:15:48.440 looks like. What's the playbook for a soft landing? Does 0:15:48.480 --> 0:15:52.880 it mean just a DECELERA is deceleration that's steady but 0:15:52.960 --> 0:15:56.000 continues with the with the growth or and how long 0:15:56.040 --> 0:15:59.440 can that continue? Well, if you believe the the the 0:15:59.640 --> 0:16:04.120 official arbiters of of potential growth, it's somewhere around one 0:16:04.160 --> 0:16:08.160 point eight maybe even one. Right. Um, we think that 0:16:08.240 --> 0:16:10.680 GDP is going to have a one handle this week 0:16:10.760 --> 0:16:12.960 when we see the first read on the third quarter 0:16:13.000 --> 0:16:15.280 result here in the United States. A soft landing, in 0:16:15.280 --> 0:16:19.160 my opinion, has to mean that in coming quarters we 0:16:19.200 --> 0:16:21.920 can grow at potential or higher. Why is that a 0:16:21.960 --> 0:16:24.840 soft landing? Because that's after the Fed funds rate was 0:16:24.880 --> 0:16:28.360 increased sharply, it was zero not that long ago. That's 0:16:28.400 --> 0:16:30.680 after the Fed halted QWI. And what they're doing now 0:16:30.800 --> 0:16:33.080 is not qui. Anybody who thinks it is is apparently 0:16:33.120 --> 0:16:36.680 not aware of Federal reserve history. Uh. And that soft 0:16:36.760 --> 0:16:40.480 landing of a potential or higher growth means corporate assets 0:16:40.520 --> 0:16:42.400 can do okay. I think that we're in an Arab 0:16:42.480 --> 0:16:47.160 diminished returns where bond yields are where stocks are. I 0:16:47.200 --> 0:16:50.360 think investors need to sort of ratchet down return expectations 0:16:50.400 --> 0:16:52.400 because there's not a lot of easy money. In a 0:16:52.400 --> 0:16:54.960 soft landing scenario, you don't get a recession, so you 0:16:54.960 --> 0:16:57.160 probably don't get a crash in terms of stocks. I 0:16:57.200 --> 0:16:59.400 hope UM, but it's hard to say that there's a 0:16:59.400 --> 0:17:03.080 lot of a track active undervalued assets right now. R J. Gallo, 0:17:03.160 --> 0:17:05.320 thank you so much for joining us, giving us your 0:17:05.359 --> 0:17:08.680 thoughts on the credit markets and the upcoming uh FED 0:17:08.880 --> 0:17:12.639 meeting and outcome coming tomorrow Wednesday. R J. Gallo, Senior 0:17:12.680 --> 0:17:16.280 portfolio Manager, fixed to come at Federated Investors Investors joining 0:17:16.359 --> 0:17:34.080 us on the phone from Pittsburgh where Argentina. Over the 0:17:34.119 --> 0:17:38.960 weekend we saw a president elect, Alberto Fernandez win the election. 0:17:39.080 --> 0:17:42.760 Mauricio Macrie is out. He was thought to be market friendly. 0:17:42.800 --> 0:17:46.240 Alberto Fernandez not so much. What will the path be 0:17:46.560 --> 0:17:49.240 going forward? Joining us now is Michael Bulliger. He is 0:17:49.280 --> 0:17:53.600 head of Emerging Markets Asset Allocation uh for UBS Global 0:17:53.720 --> 0:17:56.760 Wealth Management, and Michael, I want to just get your 0:17:56.880 --> 0:18:00.000 sense of the outcome of this election. Does not seem 0:18:00.040 --> 0:18:02.560 to be surprising markets all that much. Moves are not 0:18:02.760 --> 0:18:07.080 that severe, But do you have a feeling that perhaps 0:18:07.119 --> 0:18:10.720 people are under playing some of the risks that could 0:18:10.720 --> 0:18:15.880 potentially cause much steeper losses for deadholders. Yeah, I think 0:18:15.880 --> 0:18:19.080 when it comes to Argentina, I mean the big surprise 0:18:19.160 --> 0:18:23.879 happened earlier when MARQUEI lost the primary um a few 0:18:24.119 --> 0:18:26.560 a few weeks back, and now this result actually has 0:18:26.600 --> 0:18:32.119 been widely expect expected by the markets and the positioning 0:18:32.160 --> 0:18:35.160 has been a justice already. Now for us, the critical 0:18:35.200 --> 0:18:37.920 part now is to look forward um. The next few 0:18:37.960 --> 0:18:41.199 weeks will be critical, so people will be watching for 0:18:41.240 --> 0:18:44.200 example of what's going to happen on the ethics side 0:18:44.320 --> 0:18:48.000 and the central Bank, which has increased a couple of controls, 0:18:48.080 --> 0:18:52.200 avoid another steep devaluation of the piezo. And then crucially 0:18:52.240 --> 0:18:56.240 also what will the new president elect do between now 0:18:56.280 --> 0:19:01.000 and it's his integration with regard to which persons will 0:19:01.000 --> 0:19:04.800 you appoint for you know, the cabinet including Ministry of Finance, 0:19:04.840 --> 0:19:08.160 central Bank governor, etcetera. And then also we are eagerly 0:19:08.200 --> 0:19:12.960 awaiting more specific guidance on his economic policies for his 0:19:13.359 --> 0:19:19.080 upcoming term. So Michael, for investors in Argentina, you know, 0:19:19.200 --> 0:19:22.080 what is the bulk case for being in Argentina now, 0:19:22.520 --> 0:19:27.040 it seems like there's just so many unknowns. There's that's true, 0:19:27.040 --> 0:19:29.840 there's really a lot of question marks at this point 0:19:29.880 --> 0:19:34.200 in time. One one clear argument why people might hold 0:19:34.280 --> 0:19:36.760 onto their exposure, and that's also what we, by the 0:19:36.760 --> 0:19:40.160 way recommend our clients, is that if you look, for example, 0:19:40.160 --> 0:19:44.960 at the dullity denominated bonds and they offer obviously quite 0:19:45.000 --> 0:19:47.240 a bit of a discount they tried and the trade 0:19:47.240 --> 0:19:50.880 in the forties, and so you know, with with Anne 0:19:50.920 --> 0:19:53.880 this now and Board being part of this upcoming government, 0:19:53.920 --> 0:19:58.520 the president, he has obviously now incentives to try to 0:19:58.640 --> 0:20:02.480 come up with a you know, as market friendly um 0:20:02.960 --> 0:20:06.360 policy program as possible, and that can also involve that 0:20:06.760 --> 0:20:09.960 maybe the restructuring, if it has to happen, might be 0:20:10.000 --> 0:20:12.760 even you know, a bit less market and friendly than 0:20:12.800 --> 0:20:16.320 what one's currently uprising. So Argentina has two hundred and 0:20:16.320 --> 0:20:21.320 eighty two billion dollars of debt outstanding, people concerned uh 0:20:21.359 --> 0:20:23.679 that they will default yet again. They are a serial 0:20:23.720 --> 0:20:26.399 defaulter and this is going to be yet another one. 0:20:26.400 --> 0:20:28.640 They already have defaulted on some of it. I guess 0:20:28.880 --> 0:20:31.280 the question is what a recovery is going to be 0:20:31.359 --> 0:20:33.840 A number of people have been saying around forty cents 0:20:33.840 --> 0:20:37.479 on the dollar. Seems like that might be the most likely. 0:20:37.720 --> 0:20:41.240 Where do you come in on this? Yeah, I think 0:20:41.520 --> 0:20:44.040 you know, as as said before, there's really a lot 0:20:44.080 --> 0:20:48.359 of unknowns. Um there's a wide range of indications on 0:20:48.440 --> 0:20:51.720 where a possible recovery value could be. But again, just 0:20:51.800 --> 0:20:54.880 to retrate what I said before, I think current prices 0:20:54.920 --> 0:20:59.320 do reflect quite a dire outcome on such a restructuring, 0:20:59.359 --> 0:21:02.840 a possible structuring. And you know, we're not advising people 0:21:02.840 --> 0:21:06.119 to now buy into Argentine paper, but rather sort of 0:21:06.119 --> 0:21:08.640 holding a market weight to exposure at this point in time, 0:21:08.920 --> 0:21:11.520 So broadening out to Latin American in general, we've seen 0:21:11.600 --> 0:21:16.520 a series of situations that vote to even more unrest, 0:21:16.520 --> 0:21:20.600 whether it's Chile, whether it's Ecuador, uh, and the prospect 0:21:20.680 --> 0:21:23.399 of yet another default there. What do you make of 0:21:23.440 --> 0:21:26.160 all this? Are you recommending people get out of Latin 0:21:26.200 --> 0:21:30.560 American assets? No, that's not what we're recommending. Actually. I mean, 0:21:30.600 --> 0:21:33.280 first of all, it's worth noting that you know, you 0:21:33.320 --> 0:21:36.919 mentioned Chile, you mentioned Ecuador, we talked about Argentina. But 0:21:37.040 --> 0:21:40.040 this is not a topic that is specific alone to 0:21:40.119 --> 0:21:44.040 Latin America. You remember the Chile shown in France, You 0:21:44.160 --> 0:21:48.560 remember uh, you know, current protests in Spain, the crisis 0:21:48.600 --> 0:21:52.960 in Lebanon um. So this is almost a global phenomenon. 0:21:53.600 --> 0:21:55.679 And you know what many of these protests have in 0:21:55.760 --> 0:21:59.439 common is that people point towards, you know, issues of 0:21:59.440 --> 0:22:02.439 inequality te people point to you know, a lack of 0:22:02.480 --> 0:22:06.359 perceived quality of what their government is doing. And you know, 0:22:06.480 --> 0:22:09.320 for us as investors, what we tell people is to 0:22:09.440 --> 0:22:12.720 look at, you know, each each country, each market individually 0:22:13.119 --> 0:22:16.560 to assess the likelihood of such an unrest to happen, 0:22:16.920 --> 0:22:20.240 and then also what can the government to to resolve 0:22:20.280 --> 0:22:23.400 that situation. Now, looking at a Chile, which has been 0:22:23.440 --> 0:22:27.040 a posted child for liberal policies for economic reform, which 0:22:27.119 --> 0:22:31.199 is very strong depth credits fundamentals were not concerned at 0:22:31.200 --> 0:22:33.760 all that you know, for example, the Chilean government or 0:22:33.800 --> 0:22:37.119 some of the Chilean corporates that we cover will see 0:22:37.200 --> 0:22:40.239 issues servicing their depth. So there we see that as 0:22:40.240 --> 0:22:43.760 a temporary about of volatility, whereas elsewhere, you know, the 0:22:43.840 --> 0:22:47.760 situation might look more challenging. Michael Baldner, thanks so much 0:22:47.760 --> 0:22:50.720 for joining us. Michael's ahead of Emerging Market Asset Allocation 0:22:50.840 --> 0:22:54.320