WEBVTT - Jay Powell Nomination Ruptures Bipartisan Fed Image, Binder Says 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. 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 --> 0:00:32.519 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. President 0:00:32.560 --> 0:00:36.320 Trump has the opportunity to reshape the Federal Reserve. Many 0:00:36.360 --> 0:00:41.320 people are concerned that he will compromise the feds independence. 0:00:41.680 --> 0:00:45.080 Our next guests argue that that independence is a myth. 0:00:45.159 --> 0:00:47.720 To begin with, I want to bring in Sarah bind 0:00:47.760 --> 0:00:51.680 a professor of political silence science at George Washington University, 0:00:51.720 --> 0:00:54.840 as well as Mark Spindell, founder and chief investment officer 0:00:54.880 --> 0:00:58.400 at Potomac River Capital, both based in Washington, d C. 0:00:58.680 --> 0:01:02.000 Co authors of the new book The Myth of Independence, 0:01:02.040 --> 0:01:05.200 How Congress Governs the Federal Reserve. Sarah, I want to 0:01:05.240 --> 0:01:08.640 start with you. Can you just explain why it is 0:01:08.720 --> 0:01:11.440 a myth that the FED is independent and how so 0:01:11.480 --> 0:01:15.920 many people believe this myth? Well, there is thanks for 0:01:15.959 --> 0:01:20.280 having us. It is a widely held notion, certainly outside 0:01:20.280 --> 0:01:23.840 the FED. UH that Congress created the FED and then 0:01:23.880 --> 0:01:26.520 throw away the key it gave it autonomy to set 0:01:26.640 --> 0:01:30.959 interest rates and control monetary policy, and then Congress turns 0:01:30.959 --> 0:01:34.479 the other way. Right. The argument is that in exchange, 0:01:34.680 --> 0:01:37.840 Congress conducts oversight and tries to hold the FED accountable 0:01:37.920 --> 0:01:41.880 for meeting the goals that Congress gives it. We find, though, 0:01:41.959 --> 0:01:43.880 in looking at both the history of the FED and 0:01:43.920 --> 0:01:48.800 contemporary the FED, that there's a relationship between Congress the Boss, 0:01:49.160 --> 0:01:52.520 and the Federal Reserve UH and that both depend on 0:01:52.640 --> 0:01:56.280 each other. Right, we call it interdependence. Congress needs the 0:01:56.280 --> 0:01:59.360 FED to do a good job control the economy and 0:01:59.400 --> 0:02:02.760 to have someone to blame when the economy sours. At 0:02:02.800 --> 0:02:06.040 the same time, the FED needs Congress, right Congress, The 0:02:06.040 --> 0:02:09.000 FED wants to protect its powers, but it needs support. 0:02:09.120 --> 0:02:12.080 It needs political support when it makes tough policy choices. 0:02:12.480 --> 0:02:15.880 Otherwise Congress will reopen the Federal Reserve Act and possibly 0:02:16.080 --> 0:02:18.760 take those powers away or give it more powers that 0:02:18.840 --> 0:02:21.760 the FED might not want to have. Mark, why don't 0:02:21.760 --> 0:02:24.040 you come in on this and offer your thoughts. Obviously 0:02:24.200 --> 0:02:27.640 you must have something that is sympathetic to what Sarah 0:02:27.720 --> 0:02:30.799 is saying. But is there any doubt that this was ever, 0:02:30.880 --> 0:02:34.280 so I think so, and I think that myth was 0:02:34.360 --> 0:02:37.520 really propagated in the markets. Uh. You know, part of 0:02:37.520 --> 0:02:42.359 the genesis for this project stretches back a decade um 0:02:42.400 --> 0:02:46.760 at the time of the Tarp Tarp legislation torpedoing. I 0:02:46.760 --> 0:02:49.799 think Sarah and I began to talk about the possibility 0:02:49.840 --> 0:02:54.399 that Congress would reopen the Act, and I think in that, uh, 0:02:54.680 --> 0:02:58.480 what we discovered a reasonably recurring feature of the Fed's 0:02:58.560 --> 0:03:02.520 relationship with Congress and congresses relationship with the FED that 0:03:02.639 --> 0:03:06.960 had enormous implications for the way that Congress and the 0:03:06.960 --> 0:03:09.560 FED could shape the outlook for markets, the economy, and 0:03:09.600 --> 0:03:12.720 monetary policy. And I think beginning to factor in the 0:03:12.800 --> 0:03:15.679 kinds of political risks that we saw at the heat 0:03:15.720 --> 0:03:18.160 of the crisis, and I think in the in the 0:03:18.240 --> 0:03:20.840 ten years hence has really been a feature of trying 0:03:20.840 --> 0:03:24.360 to understand, uh, the outlook for for the FED, for 0:03:24.480 --> 0:03:27.960 monetary policy, and for markets. Indeed, I'm wondering, Sarah, you know, 0:03:28.120 --> 0:03:30.359 is this something that always has been the case where 0:03:30.360 --> 0:03:33.320 there has been this incredibly political element or has it 0:03:33.400 --> 0:03:36.440 gotten more so as the FED has engaged in all 0:03:36.480 --> 0:03:39.720 of these unconventional policies and taken more control over the economy. 0:03:39.760 --> 0:03:42.040 And I just want to add, you know, in previous 0:03:42.160 --> 0:03:47.320 years Obama, for example, former President Obama appointed Ben Burnanki, 0:03:47.360 --> 0:03:49.840 who was originally appointed by George W. Bush. So this 0:03:49.920 --> 0:03:53.480 was a bipartisan type of arrangement and it seemed to 0:03:53.480 --> 0:03:56.720 be an endorsement of just sort of keeping the status quo. 0:03:57.360 --> 0:03:59.240 Now we're seeing something different. Can you weigh in? Have 0:03:59.320 --> 0:04:03.040 we seen a shift? Sure? Well, this relationship, the interdependence 0:04:03.040 --> 0:04:04.960 has been there back to the beginning, back to the 0:04:04.960 --> 0:04:08.040 early nineteen hundreds. But what's changed here is really at 0:04:08.120 --> 0:04:11.320 least twofold. First, the FED as a far more powerful 0:04:11.360 --> 0:04:14.760 institution over over that century because of the powers Congress 0:04:14.800 --> 0:04:17.680 has in repeatedly in the responsibilities Congress has given to 0:04:17.720 --> 0:04:20.400 the FED. So the FED is vastly more important, and 0:04:20.440 --> 0:04:23.480 the US as a global economic power is vastly more 0:04:23.520 --> 0:04:26.800 important than it was a hundred years ago. But partisanship 0:04:26.839 --> 0:04:30.839 in Washington is also far more polarized today than it 0:04:30.960 --> 0:04:33.800 than it has been the last thirty forty years. You 0:04:33.880 --> 0:04:35.880 add that up and what do you get, right, it's 0:04:35.920 --> 0:04:40.240 crystallized in the Trump nominee uh last week. Right, as 0:04:40.320 --> 0:04:45.600 you said, for several several decades, sitting presidents, when faced 0:04:45.600 --> 0:04:49.039 with the opportunity to reappoint the incumbent chair to a 0:04:49.080 --> 0:04:52.279 second term who was appointed by the other party's president, 0:04:52.640 --> 0:04:56.359 has gone ahead and made that essentially bipartisan appointment. That 0:04:56.440 --> 0:05:00.440 was ruptured last week with the Trump nominating a pal 0:05:01.080 --> 0:05:03.719 who's pretty close I think to the current Chair, Jennet 0:05:03.800 --> 0:05:06.240 Yellen in terms of monetary policy, at least in terms 0:05:06.240 --> 0:05:10.679 of their votes. But that appointment really ruptured this image 0:05:10.680 --> 0:05:14.760 of this bipartisan Fed, this technocratic Fed. And now with 0:05:14.800 --> 0:05:17.200 Trump right, he can make up to three, maybe even 0:05:17.200 --> 0:05:19.560 four appointments to the board in addition to the two 0:05:19.680 --> 0:05:21.640 he's the one he's made and one he's about to make. 0:05:22.040 --> 0:05:25.400 Um that that uniformly changes will change the makeup of 0:05:25.400 --> 0:05:27.880 the FED in a way that the framers of the 0:05:27.880 --> 0:05:31.200 FED back in the early nineteen hundreds never envisioned one 0:05:31.240 --> 0:05:34.719 party having that much influence over the makeup of the board. 0:05:35.480 --> 0:05:37.560 I'm just wondering to both of you all see this 0:05:37.760 --> 0:05:40.880 as something that is just specific to the Federal Reserve 0:05:41.000 --> 0:05:43.320 or other government institutions. I think of the U. S. 0:05:43.320 --> 0:05:48.000 Supreme Court, for example, Sarah or whatever you choose, who's 0:05:48.040 --> 0:05:50.800 going to answer that one. It's it's it's certainly the 0:05:50.880 --> 0:05:54.520 case that the FED is not the only political institution 0:05:54.920 --> 0:05:59.920 with norms and statutes that protect independence. I think what's 0:06:00.080 --> 0:06:03.200 unique here is the FED is a unique body here. 0:06:03.320 --> 0:06:06.720 It has far more influence over the economy than any 0:06:06.760 --> 0:06:12.200 other the myriad independent agencies with economic powers. Right, Yeah, 0:06:12.279 --> 0:06:17.040 And I think it's it's important to understand the political similarities, 0:06:17.040 --> 0:06:20.919 but I think the economic differences between the impact that 0:06:20.960 --> 0:06:24.520 the Federal Reserve can have on markets, on on the 0:06:24.560 --> 0:06:28.360 economy versus versus the Court. Although I think PEM it's 0:06:28.400 --> 0:06:31.240 a it's a it's an interesting question and an analog 0:06:31.320 --> 0:06:34.720 that we looked at in trying to understand the nature 0:06:34.960 --> 0:06:38.080 of of the politics, and I think that goes back 0:06:38.120 --> 0:06:43.080 to thinking about monetary politics revealed this myth Mark, I 0:06:43.120 --> 0:06:47.120 want to get your perspective as a long time investment manager. 0:06:47.160 --> 0:06:50.000 I mean, if we are getting a more more polarized 0:06:50.080 --> 0:06:53.560 backdrop to the FED, which is already a political animal 0:06:53.600 --> 0:06:56.719 as you sort of described, I'm wondering, Mark, how that 0:06:56.800 --> 0:07:00.960 affects investments going forward. Does this give or reliability to 0:07:01.000 --> 0:07:04.000 the Fed? Less reliability? I mean, how do you navigate that? 0:07:04.600 --> 0:07:08.400 So I think I think the selection process, which for 0:07:08.520 --> 0:07:11.640 lack of a better word, seemed weird, UM, but did 0:07:11.720 --> 0:07:17.560 result in an institutionalist UH. We we assume a confirmation 0:07:17.640 --> 0:07:21.360 of of J. Powell Chairman. Powell will follow very much 0:07:21.360 --> 0:07:25.559 along the monetary contours that Ben Bernankee and Janet Yellen 0:07:25.600 --> 0:07:29.920 have put in place, and I think motivating yelling UH 0:07:29.960 --> 0:07:33.560 to to institute the balance sheet unwind the kickoff of 0:07:33.760 --> 0:07:37.800 monetary tightening, I think it's very easy baton for for J. 0:07:37.920 --> 0:07:42.280 Powell to pick up that said, um, we we recognize 0:07:42.320 --> 0:07:44.640 that the last two downturns in the US have really 0:07:44.680 --> 0:07:50.280 been financially financially led the certain Certainly the global financial 0:07:50.320 --> 0:07:56.160 crisis revealed a a sort of range of issues regarding 0:07:56.240 --> 0:08:00.960 mac repredential and UH super super supervision and regulatory issues 0:08:01.240 --> 0:08:04.080 where the FED is really the uber regulator UH. And 0:08:04.120 --> 0:08:06.760 I think as we think about not just J. Powell, 0:08:06.800 --> 0:08:09.760 but the whole complexion of the board, I think where 0:08:09.800 --> 0:08:13.560 we are really paying a lot of attention and as 0:08:13.560 --> 0:08:17.200 an investor, the financial sector obviously is is integral? Is 0:08:17.240 --> 0:08:19.960 how that how that shakes out? Thank you very much. 0:08:20.280 --> 0:08:24.240 Mark Spindell is UH a co author along with Sarah Binder, 0:08:24.240 --> 0:08:27.760 professor of George Washington University, of the new book The 0:08:27.840 --> 0:08:32.320 Myth of Independence, How Congress Governs the Federal Reserve. You're 0:08:32.360 --> 0:08:47.880 listening to Bloomberg. Will the Murdoch family break up Fox? 0:08:47.960 --> 0:08:52.240 It's a question that is on every media mobile's mind today. 0:08:52.320 --> 0:08:54.959 And here to help us understand why they might break 0:08:55.000 --> 0:08:57.600 it up and who might purchase it is Porter Bib. 0:08:57.960 --> 0:09:00.640 He is the uh well, I guess, the founder of 0:09:00.800 --> 0:09:04.160 Media Tech Capital Partners, and he joins us now. Port 0:09:04.160 --> 0:09:06.280 are always a pleasure. I think of you as a 0:09:06.520 --> 0:09:10.800 kind of media guru. If someone came to you and said, boy, uh, 0:09:11.000 --> 0:09:15.360 there is a uh, you know, movie production facility and 0:09:15.400 --> 0:09:19.200 television production house that may be up for sale, and 0:09:19.240 --> 0:09:23.240 it's called twenty one century Fox, would that be of 0:09:23.320 --> 0:09:25.920 interest to you? Why would you be interested in perhaps 0:09:25.920 --> 0:09:29.400 buying it? If I be keenly interested in buying it, 0:09:29.440 --> 0:09:32.840 as are a lot of other people in the media business. 0:09:32.920 --> 0:09:37.280 Because Fox has a terrific array of assets that are 0:09:37.360 --> 0:09:40.800 are firing on all cylinders right now, and they have 0:09:40.840 --> 0:09:45.840 a global franchise. But they also are very, very undervalued 0:09:45.920 --> 0:09:49.280 as a public company. So let's talk about this. There 0:09:49.360 --> 0:09:54.280 was reports yesterday that Disney was in talks to acquire 0:09:54.440 --> 0:09:57.719 some of the assets from twenty one century Fox. We're 0:09:57.720 --> 0:10:01.480 getting subsequent reporting showing that those box have ended with 0:10:01.640 --> 0:10:05.120 no deal. But this has opened up the door for 0:10:05.400 --> 0:10:09.720 twenty one century to start selling off pieces of its 0:10:09.880 --> 0:10:13.920 vast network. And I'm wondering which assets, in particular do 0:10:13.960 --> 0:10:17.400 you think are most vulnerable to being sold off or 0:10:17.480 --> 0:10:22.160 the ripest candidates for for being uh for being auctions. Well, 0:10:22.559 --> 0:10:27.360 Disney wanted to buy everything except the Fox News, Fox Business, 0:10:27.360 --> 0:10:32.600 and Fox Sports, leaving uh Mr Murdoch and his sons 0:10:32.679 --> 0:10:37.280 with a news and sports uh empire of some consequence, 0:10:37.920 --> 0:10:42.920 But all of the TV production, the cable networks, the 0:10:42.920 --> 0:10:46.160 the the thirty nine percent interest in be skuy b, 0:10:47.320 --> 0:10:51.200 all of those assets were of vital interest to Disney. 0:10:51.520 --> 0:10:56.000 The problem that that the Disney has is that they're 0:10:56.120 --> 0:11:01.359 they're low ball players. Bob Iger has been very scrupulous 0:11:01.360 --> 0:11:06.319 about never overpaying for any acquisition that he's acquired, and 0:11:06.679 --> 0:11:09.320 Ruper Murhak is on the other side of the table 0:11:09.760 --> 0:11:14.880 and has never ever uh been willing to sell anything 0:11:14.920 --> 0:11:18.679 that he owns at at a bargain basement prices. So 0:11:18.720 --> 0:11:21.480 they're gonna be other people. I think the issue here 0:11:21.600 --> 0:11:26.240 is Disney came to Murdoch um not knowing whether or 0:11:26.280 --> 0:11:30.040 not he was a seller. A lot of UH speculators 0:11:30.040 --> 0:11:33.800 have said that Rupert Murdoch and his son's basically said, 0:11:34.320 --> 0:11:38.480 the scale is too big a hurdle for a Fox, 0:11:38.880 --> 0:11:41.600 So we're gonna start to slim down and keep the 0:11:41.600 --> 0:11:45.120 assets that we want. He needs to have as long 0:11:45.160 --> 0:11:48.480 as Mr Murdoch is co executive chairman of the company, 0:11:49.000 --> 0:11:51.920 the Fox News and Fox Business, those those are his 0:11:52.040 --> 0:11:56.080 key assets. He's politically connected, politically involved. He talks to 0:11:56.120 --> 0:12:00.320 the President almost every day, and he's not about sell 0:12:00.400 --> 0:12:03.320 those assets. That that's the legacy that he wants to 0:12:03.400 --> 0:12:07.480 have um after fifty years of building a media empire. 0:12:07.920 --> 0:12:11.560 But the other assets are really valuable, and they're going 0:12:11.600 --> 0:12:16.360 to be a lot of people beyond Disney who come knocking. Well, Porter, 0:12:16.679 --> 0:12:21.000 I was looking at the numbers right and Century Fox 0:12:21.040 --> 0:12:24.000 stock was a thirty two dollars a share that was 0:12:24.600 --> 0:12:27.600 less spring Now it's at twenty eight dollars. It's got 0:12:27.679 --> 0:12:31.760 a fifty one billion dollar market cap. Have you been 0:12:31.760 --> 0:12:33.439 able to do with some of the parts, I mean, 0:12:33.520 --> 0:12:36.600 you know, what are the division's worth twenties century Fox Film, 0:12:36.640 --> 0:12:39.240 You've got the television business and so on. What do 0:12:39.240 --> 0:12:42.880 you think is a is a going price for this? Well, 0:12:43.080 --> 0:12:46.439 we's it's not just a going price, it's what people 0:12:46.440 --> 0:12:49.120 are willing to pay. UM. One of one of the 0:12:49.160 --> 0:12:52.480 most interesting buyers standing in the wings right now is 0:12:53.040 --> 0:12:56.240 A T and T. Their deal with Time Warner and 0:12:57.080 --> 0:13:01.520 billion dollar deal looks like it may not happen right now. 0:13:01.720 --> 0:13:06.319 They the rub is that the President and CNN or 0:13:06.360 --> 0:13:10.880 at daggers drawn and President Trump has asked the Justice 0:13:10.880 --> 0:13:15.720 Department to do a new review of that transaction of Fox. 0:13:16.320 --> 0:13:19.160 The assets that Disney wanted to buy from Fox and 0:13:19.200 --> 0:13:22.520 that Ruper Murdoch was willing to sell would be exactly 0:13:22.720 --> 0:13:26.280 what a T and T could use. And and in 0:13:26.360 --> 0:13:30.000 terms of evaluation, UH, Fox does not break out all 0:13:30.080 --> 0:13:33.480 of the numbers of the different entities that are under 0:13:33.520 --> 0:13:36.520 twenty first century Fox. But I think you're looking at 0:13:36.559 --> 0:13:41.880 it somewhere in the same valuation UH as as the 0:13:41.600 --> 0:13:44.719 the Time Warner deal would be for a T and T, 0:13:45.120 --> 0:13:49.920 somewhere in the in the eight million dollar billion dollar range. 0:13:50.679 --> 0:13:55.319 Porter I'm wondering what this UH, these discussions mean for 0:13:55.600 --> 0:14:00.599 Foxes proposed acquisition of Sky Networks. I knew that European 0:14:01.240 --> 0:14:05.480 British regulators just so reviewing that transaction, and it seems 0:14:05.559 --> 0:14:10.199 as though Rupert Murdoch was willing to ditch that deal 0:14:10.320 --> 0:14:13.240 in order to sell most of the assets to Disney. 0:14:13.280 --> 0:14:16.520 Does that mean that he's rethinking this deal or that 0:14:16.679 --> 0:14:19.840 it's on shake your ground at this point? I think 0:14:20.480 --> 0:14:24.640 the latter is what what really caused Rupert to sit 0:14:24.680 --> 0:14:28.840 down and talk to Disney about selling Fox assets. UH. 0:14:29.560 --> 0:14:33.320 Just in the last several weeks, the British regulators have 0:14:33.600 --> 0:14:37.720 decided that they have to take another look at at 0:14:38.720 --> 0:14:44.080 at Fox's attempt to buy the majority interest that they 0:14:44.080 --> 0:14:47.720 don't now own in Best Guy B. And it is 0:14:47.760 --> 0:14:50.120 not a question of whether there would be too much 0:14:50.160 --> 0:14:53.320 consolidation of power in one media company. Really was an 0:14:53.360 --> 0:14:58.440 issue of whether or not in the British vernacular, Fox 0:14:58.560 --> 0:15:01.400 is a fit and proper purse and to control a 0:15:01.480 --> 0:15:07.360 media asset like the skuy B and the the most 0:15:07.440 --> 0:15:11.800 recent problems that they've had with the on the sexual 0:15:11.800 --> 0:15:15.240 molestation the issue UH and and and a lot of 0:15:15.280 --> 0:15:19.320 that is still ongoing there. There's litigation in the UK 0:15:19.520 --> 0:15:23.760 as well as in the US that caused the government 0:15:24.560 --> 0:15:26.360 in London to say, we have to look at this 0:15:26.440 --> 0:15:29.760 all again and there's a major long term review that 0:15:29.920 --> 0:15:32.960 probably is going to come out negative against the box. 0:15:33.000 --> 0:15:37.200 So Rupert said, let's start to bail out. Well, we 0:15:37.240 --> 0:15:39.320 will be following this. Porter Bib thank you so much 0:15:39.400 --> 0:15:42.600 as always for joining us. Porter Bib is managing partner 0:15:42.680 --> 0:15:45.280 of Media Tech Capital Partners in New York, also the 0:15:45.320 --> 0:16:04.160 first publisher of Rolling Stone magazine This is Blue. When 0:16:04.200 --> 0:16:08.920 I think of debt negotiations, I don't think of a cartel, 0:16:09.080 --> 0:16:12.480 a drug cartel. I think of office rooms where people 0:16:12.680 --> 0:16:15.640 in ties or people who are wearing you know, suits, 0:16:15.640 --> 0:16:18.320 sit around and talk about how to restructure debt. That 0:16:18.480 --> 0:16:22.320 is perhaps not going to be the case in Venezuela, because, uh, 0:16:22.400 --> 0:16:25.520 the President of Venezuela just appointed a drug kingpen to 0:16:25.880 --> 0:16:29.360 lead the renegotiation of the nation's debt, which is sort 0:16:29.360 --> 0:16:31.520 of a mystery as to exactly how much there is anyway, 0:16:31.920 --> 0:16:35.440 but here to understand exactly what this means for the 0:16:35.480 --> 0:16:38.200 negotiations that affect a lot of big money managers in 0:16:38.240 --> 0:16:41.760 the United States is Damien Sassaur. He's fixed income strategist 0:16:41.880 --> 0:16:46.200 for Bloomberg Intelligence with a deep knowledge of emerging markets 0:16:46.240 --> 0:16:52.640 over time, Damien, What was Nicholas Maduro, the head of Venezuela, 0:16:52.680 --> 0:16:55.200 thinking with this appointment. Yeah, and Nicholas was thinking about 0:16:55.520 --> 0:16:58.480 getting reelected next year. So I mean effectively what what 0:16:58.560 --> 0:17:01.640 he did by by now saying that the negotiations would 0:17:01.720 --> 0:17:05.760 be run by Alisami, who is the drug the drug 0:17:05.840 --> 0:17:08.240 kingman you're alluding to. He's no fact, Memories been sanctioned 0:17:08.280 --> 0:17:11.520 by the government. Technically, US creditors cannot negotiate with him, 0:17:11.520 --> 0:17:16.840 it's legal. So what he's effectively doing is forcing UM, 0:17:17.040 --> 0:17:22.119 forcing effectively creditors to basically they're going to go into default. 0:17:22.160 --> 0:17:24.520 It's a it's a given now because you can't talk 0:17:24.520 --> 0:17:26.119 to somebody like that, you can't deal with them. And 0:17:26.119 --> 0:17:30.760 more importantly, he's doing this because the bonds UM that 0:17:30.800 --> 0:17:34.320 are held by US creditors are you know, they're effectively 0:17:34.520 --> 0:17:36.359 you know down here at twenty cents on the dollar. 0:17:36.480 --> 0:17:38.080 They could go as low as ten cents on the dollar. 0:17:38.119 --> 0:17:40.320 He really doesn't care. He's just basically trying to solidify 0:17:40.359 --> 0:17:44.400 his power base ahead of next year. So I'm so okay, 0:17:44.520 --> 0:17:47.680 let's back up. Let's talk about the fact that many, 0:17:47.720 --> 0:17:50.919 many money managers, the biggest ones in the United States 0:17:50.920 --> 0:17:54.399 own Venezuela debt. It accounts for nearly two percent of 0:17:54.440 --> 0:17:57.600 the benchmark broad emerging markets. Well not anymore. It actually 0:17:57.640 --> 0:17:59.879 only accounts for ninety basis points of the bench markt 0:18:00.119 --> 0:18:01.639 X and that's but you're right. Yesterday it was one 0:18:01.680 --> 0:18:04.120 point four percent. On Friday was two percent. So they're plummeting. 0:18:04.359 --> 0:18:06.520 The market value of these bonds are definitely plummeting. I 0:18:06.520 --> 0:18:09.560 mean the yield, the average yield for Venezuela debt went 0:18:09.560 --> 0:18:12.399 from something like thirty on Friday close a business to 0:18:12.560 --> 0:18:15.879 over I think last night was the last time I checked. 0:18:15.880 --> 0:18:18.680 So the numbers are just off the charts. So who's 0:18:18.680 --> 0:18:21.680 solidifying their losses right now? So, you know, in terms 0:18:21.680 --> 0:18:24.160 of fund UH, I mean, look, we can only capture 0:18:24.200 --> 0:18:26.280 FUN filings right so they're a little bit dated. You know, 0:18:26.280 --> 0:18:28.200 we're looking at stuff, you know, in arrears. But for 0:18:28.240 --> 0:18:32.200 the most part, FUN holdings in Venezuela and Petivisa debt, 0:18:32.200 --> 0:18:34.760 which is the the oil and gas company that is 0:18:34.800 --> 0:18:37.680 effectively a quasi sermonant, is effectively an extension of the government. 0:18:37.960 --> 0:18:42.640 You're talking about um black Rock, Goldman, sachs Ashmore, Tiro 0:18:42.760 --> 0:18:46.040 price GMO. Those are the big fund families that are 0:18:46.040 --> 0:18:49.359 holding that debt um and you know, effectively in the 0:18:49.359 --> 0:18:52.320 case of black Rock, you know, passive investors like the 0:18:52.359 --> 0:18:55.359 black Rock I share et F. It's really it's not 0:18:55.440 --> 0:18:58.720 a very big position within the index. But and the 0:18:58.720 --> 0:19:00.320 index is up I think, I'm sorry, the et F 0:19:00.359 --> 0:19:01.840 is up something on the order of nine percent year 0:19:01.880 --> 0:19:04.720 to date, and I think negative attribution for venezuel alone 0:19:04.800 --> 0:19:06.280 is something on the order of a hundred and forty 0:19:06.280 --> 0:19:08.000 basis points of that. So yeah, I know it's had 0:19:08.040 --> 0:19:12.040 an impact, but it's now at what if it's only 0:19:12.119 --> 0:19:15.560 ninety basis points of the index, that's your floor. You 0:19:15.560 --> 0:19:18.919 can't really lose any more than that technically, right, So 0:19:18.920 --> 0:19:21.440 so the impact on broader emerging markets is going to 0:19:21.520 --> 0:19:26.960 be constrained to that point. Damian Venezuela is already overdue 0:19:26.960 --> 0:19:37.360 on interest payments for debt that is due in twenty six, right, 0:19:37.400 --> 0:19:41.160 I mean, they've they've got foreign currency reserves, but it's 0:19:41.240 --> 0:19:44.320 like what about ten billion dollars and I understand that 0:19:44.359 --> 0:19:47.879 most of that is in gold. Um, well, you know, 0:19:47.920 --> 0:19:50.840 we don't actually know what the Central Bank of Venezuela 0:19:50.840 --> 0:19:53.080 is doing when they're calculating their reserves, to be completely 0:19:53.080 --> 0:19:55.399 honest with you, But the reality is you're absolutely right. 0:19:55.440 --> 0:19:58.679 I mean, you know, they've got UM roughly sixty billion 0:19:58.720 --> 0:20:01.680 plus in loans that they received from the China Development 0:20:01.680 --> 0:20:03.600 Bank in China x him and we looked at that 0:20:03.680 --> 0:20:07.080 because that's where I wanted you to go. Those Russia 0:20:07.200 --> 0:20:10.320 and Russia and roseen aft right. So so first, starting 0:20:10.359 --> 0:20:13.919 with China, the big government agencies, the big government lenders 0:20:14.000 --> 0:20:16.199 lend sixty billion over the better part since two thousands 0:20:16.600 --> 0:20:20.440 whatever called the mid two thousands to Venezuela, and those 0:20:20.520 --> 0:20:22.400 loans are outstanding. We don't know how much of those 0:20:22.440 --> 0:20:24.520 loads are outstanding. We don't know what assets were pledged 0:20:24.560 --> 0:20:27.280 against those loans. We don't really know much about them, 0:20:27.520 --> 0:20:29.960 and we don't know their seniority. And I think creditors 0:20:29.960 --> 0:20:32.159 don't know where they stack uh you know where they 0:20:32.160 --> 0:20:36.600 stack up relative to China. So here's what I don't understand. Okay, 0:20:36.600 --> 0:20:39.679 So basically Venezuela is all but guaranteeing itself a default. 0:20:39.720 --> 0:20:43.399 At this point, why has this been something that Muduro 0:20:43.520 --> 0:20:45.800 has avoided for so long? And when people were saying 0:20:45.800 --> 0:20:47.720 this could lead to regime change, and now it's not 0:20:47.960 --> 0:20:49.880 been There's been a lot of speculation on that. You've 0:20:49.880 --> 0:20:51.520 just hit the nail on the head. I mean, everyone 0:20:51.560 --> 0:20:54.720 had kind of been playing this game where the next 0:20:54.760 --> 0:20:56.800 the next principle, you know, the next bond that was 0:20:56.800 --> 0:20:58.560 set to mature. You know, you want to you know, 0:20:59.320 --> 0:21:01.119 you're hoping that they gonna make payment on that. If 0:21:01.119 --> 0:21:03.240 they do, it's a home run. If they don't, we're 0:21:03.280 --> 0:21:06.040 in this situation we are now. And many people felt 0:21:06.080 --> 0:21:08.480 that Maduro was paying back the people that helped him 0:21:08.600 --> 0:21:11.640 secure his power base initially by telling them to get 0:21:11.720 --> 0:21:15.000 along those bonds effectively, and I'm gonna make you whole. 0:21:15.040 --> 0:21:16.200 That's the way I'm gonna be able to pay it 0:21:16.200 --> 0:21:18.119 back because I quite frankly can't pay back any other 0:21:18.119 --> 0:21:20.600 way because I'm sanctioned by everybody else. And so that's 0:21:20.640 --> 0:21:22.560 the speculation that's been out there. There's no way to 0:21:22.600 --> 0:21:25.680 prove it, but certainly that's that's that's been kind of 0:21:25.760 --> 0:21:28.639 you know what we've been like focused on, um. But yeah, no, 0:21:28.680 --> 0:21:31.200 I mean China, Russia, I mean you just again, creditors 0:21:31.200 --> 0:21:33.359 don't really know where they stack up, and that's the mystery. 0:21:33.480 --> 0:21:36.000 Thanks very much for helping to dispel at least some 0:21:36.040 --> 0:21:52.280 of that mystery. Damian Sassaur, fixed income strategist for Bloomberg Intelligence, Well, 0:21:52.320 --> 0:21:54.960 we're going to have a focus on fixed income, which 0:21:54.960 --> 0:21:57.359 has brought to you by PIMCO for investors who demand 0:21:57.520 --> 0:22:00.840 more than the markets deliver. All investments contain risk and 0:22:00.840 --> 0:22:05.080 may lose value. Consult your investment professional before investing. And 0:22:05.119 --> 0:22:08.960 if you want to invest in the European bond markets, 0:22:09.000 --> 0:22:12.000 and it's important to listen. It's to what Simon Ballard 0:22:12.040 --> 0:22:15.480 has to say. He's our global credit strategist for Bloomberg 0:22:15.520 --> 0:22:17.800 and he comes to us from London. Simon, you know 0:22:17.920 --> 0:22:23.520 today I'm watching the gap in yields between Italian tenure 0:22:23.800 --> 0:22:27.040 and German ten year government bonds. It is shrunk to 0:22:27.080 --> 0:22:31.160 the narrowest this year. Why is Italy so much better 0:22:31.200 --> 0:22:34.000 in terms of economic outlook? I mean still their banking 0:22:34.040 --> 0:22:36.879 system has some challenges. Can you explain the dynamic right 0:22:36.920 --> 0:22:40.000 now that's sort of driving this? Yeah, no, absolutely, so 0:22:40.080 --> 0:22:42.080 good afternoon. It's a it's a great question. But yes, 0:22:42.119 --> 0:22:43.800 that is one of the one of the trends that 0:22:43.800 --> 0:22:46.199 we've seen, not only with Italy but with with peripheral 0:22:46.240 --> 0:22:48.840 with higher yielding risk generally over the course of the 0:22:48.880 --> 0:22:51.879 last couple of years has been the compression towards the 0:22:52.240 --> 0:22:56.080 core risk towards Germany um as as investors have chased 0:22:56.160 --> 0:22:59.320 yield um in what is still a very low interest 0:22:59.400 --> 0:23:01.560 rate environment what will remain a low interest rate environment. 0:23:01.600 --> 0:23:04.719 So yes, you know there has been a compression in 0:23:04.920 --> 0:23:09.439 Italian spreads over Germany. Has the fundamental picture in Italy 0:23:09.520 --> 0:23:11.840 improved to that extent, No, it has not. It as 0:23:11.840 --> 0:23:14.439 a function of the underlying liquidity in the market, and 0:23:14.480 --> 0:23:16.920 there in lies probably one of the risks for investors 0:23:16.920 --> 0:23:21.120 going forward that as that spread compression continues and yields 0:23:21.160 --> 0:23:24.480 continue to to to fall, investors are increasingly sort of 0:23:24.640 --> 0:23:27.040 not being compensated we say, for the risk they're taking 0:23:27.040 --> 0:23:29.040 on board, but they are obliged, for want of a 0:23:29.080 --> 0:23:32.040 better term, to to to buy into high yielding in 0:23:32.040 --> 0:23:36.720 inverted commas risk the lower quality issuance in order to 0:23:36.720 --> 0:23:38.600 just get a little bit of incremental yield over Germany. 0:23:38.600 --> 0:23:40.840 So yes, you've seen a compression with with with Italy. 0:23:41.560 --> 0:23:45.080 You've seen a compression with with with Spain, and with Portugal, 0:23:45.119 --> 0:23:47.119 and to a certain extent with Greece, although probably more 0:23:47.160 --> 0:23:50.360 question marks with Greece going forward. Um so yes, it's 0:23:50.440 --> 0:23:54.879 it's not a story about improving or dramatically improving fundamental 0:23:54.920 --> 0:23:58.680 stories within Italy. It's more the chase for yield exacerbated 0:23:58.720 --> 0:24:02.119 by the e CBS as it purchased program. Well, well, Simon, 0:24:02.160 --> 0:24:03.720