WEBVTT - Trump Steel Tariffs Will Hurt As Much As They Will Help: Deaux 0:00:05.800 --> 0:00:08.360 Welcome to the Bloomberg P and L Podcast. I'm Pim 0:00:08.400 --> 0:00:11.200 Fox along with my co host Lisa A. Bramowitz. Each 0:00:11.240 --> 0:00:14.440 day we bring you the most important, noteworthy, and useful 0:00:14.480 --> 0:00:17.079 interviews for you and your money, whether you're at the 0:00:17.120 --> 0:00:20.360 grocery store or the trading floor. Find the Bloomberg P 0:00:20.520 --> 0:00:32.120 and L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. 0:00:32.240 --> 0:00:35.120 Well as we've been reporting Commerce Secretary Wilbur Ross saying 0:00:35.159 --> 0:00:38.840 that the Trump administration will impose new duties on steel 0:00:38.960 --> 0:00:44.760 and aluminum imports from three key trading partners, the European Union, Canada, 0:00:44.960 --> 0:00:48.040 and Mexico. And here to tell us more about this 0:00:48.120 --> 0:00:50.879 is Joe Doe. He is our metals and mining reporter 0:00:50.920 --> 0:00:53.519 for Bloomberg News and you can follow him on Twitter 0:00:54.080 --> 0:00:57.240 at Joe Dough And that's d E a u X 0:00:57.480 --> 0:01:01.080 for dough. All right, Joe Doe? Why are we doing 0:01:01.120 --> 0:01:06.840 this to three entities that are ostensibly our allies? You know, 0:01:06.840 --> 0:01:09.080 I had a source yesterday on the phone tell me 0:01:09.160 --> 0:01:12.600 when we were gathering that this would likely happen. Say, 0:01:13.120 --> 0:01:15.959 it looks like the administration is finally having their welcome 0:01:16.040 --> 0:01:18.800 to Queen's moment. The only problem is a welcome to 0:01:18.880 --> 0:01:21.160 Queen's moment only works in real estate and not in 0:01:21.160 --> 0:01:24.399 global trade? What is a welcome to Queen's moment? Essentially 0:01:24.440 --> 0:01:27.120 saying this is New York, this is our territory, and 0:01:27.120 --> 0:01:30.959 you're gonna play by our rules. And um. The Trump administration, 0:01:31.520 --> 0:01:33.880 as we know, brought this up back in April of 0:01:33.959 --> 0:01:36.120 last year. I mean, he's been talking about something like 0:01:36.160 --> 0:01:39.720 this since the beginning of his presidency. But a year later, 0:01:39.840 --> 0:01:41.760 one of the things that we kept hearing was, you know, 0:01:42.319 --> 0:01:46.640 we think he might actually just pass the tariff on everybody. 0:01:46.760 --> 0:01:49.880 And the thought behind that is nobody gets away from it, 0:01:49.960 --> 0:01:51.960 and it doesn't matter who you are or what you are. 0:01:52.000 --> 0:01:54.840 We're going to protect this industry. Uh. They have now 0:01:54.880 --> 0:01:58.400 done it, and yeah, okay, so so let's just take 0:01:58.440 --> 0:02:01.360 stock of where we are. So Wilbur Ross today Commerce 0:02:01.400 --> 0:02:03.760 Secretary announced these tariffs, said that there was not going 0:02:03.800 --> 0:02:06.040 to be an exemption for some of our main trading allies. 0:02:06.320 --> 0:02:08.400 Mexico already has come back and said that they are 0:02:08.440 --> 0:02:12.080 going to reciprocate with either tariffs or other measures. You 0:02:12.160 --> 0:02:16.760 have discussions now that the reason why the tariffs are 0:02:16.760 --> 0:02:20.600 going ahead is because now after talks were insufficient from 0:02:20.800 --> 0:02:24.640 the White House is perspective, where do we move forward 0:02:25.680 --> 0:02:28.160 with this? I mean, if this was a negotiating tool, 0:02:28.639 --> 0:02:31.200 it's over. So what does that mean going forward? So 0:02:31.240 --> 0:02:33.320 I think there's two ways of moving forward. There's the 0:02:33.320 --> 0:02:36.440 there's the markets. Right, so the markets just play by 0:02:36.480 --> 0:02:38.440 the rules. They say, listen, we've got to accept that 0:02:38.480 --> 0:02:42.919 there are these tariffs on aluminum imports and on steel imports, 0:02:43.240 --> 0:02:44.760 and you just have to deal with it. So any 0:02:44.760 --> 0:02:48.080 customers that want steel or aluminium that's outside of the country, 0:02:48.080 --> 0:02:50.400 they gotta pay that premium, they gotta pay that duty. 0:02:50.680 --> 0:02:52.760 And that's that's that right. And so you just go 0:02:52.800 --> 0:02:55.320 back to normal and you act like whatever is now 0:02:55.960 --> 0:02:58.839 in place is just how you play by the game. Politically, 0:02:59.560 --> 0:03:02.280 it's a mid term season. Uh, there's a question as 0:03:02.280 --> 0:03:05.440 to whether or not this protection ism will play up 0:03:05.480 --> 0:03:11.560 well in battleground states, battleground districts, and that part is 0:03:11.639 --> 0:03:15.240 yet to be seen. Uh. We know that companies don't 0:03:15.240 --> 0:03:19.920 necessarily benefit from this. American companies, ALCA, the biggest aluminium 0:03:19.960 --> 0:03:23.079 maker in the United States, probably the best known aluminium 0:03:23.120 --> 0:03:26.119 maker in the world, will not necessarily benefit from these 0:03:26.160 --> 0:03:29.400 because they actually produce more of their aluminum in Canada 0:03:29.560 --> 0:03:33.000 than they do in the United States. Uh. These steelmakers 0:03:33.080 --> 0:03:35.840 generally look like they'll benefit from this, but steals a 0:03:35.920 --> 0:03:39.640 much more domestic industry. I mean, six of our consumption 0:03:39.680 --> 0:03:42.880 of steel is made in the US. Only fift of 0:03:42.920 --> 0:03:45.000 what we consume from aluminium is made in the U S. 0:03:45.240 --> 0:03:49.040 Canada makes nearly fifty of aluminium that we use. That's 0:03:49.040 --> 0:03:50.840 what makes this a big deal. The EU, on the 0:03:50.840 --> 0:03:53.240 grand scheme of things, not that big of a producer 0:03:53.280 --> 0:03:56.040 for aluminium the steel used in the US. The EU 0:03:56.240 --> 0:03:59.200 is big because of the larger trade implications that this has. 0:03:59.600 --> 0:04:02.320 The you is moving because now they have to react 0:04:02.400 --> 0:04:05.520 to our tariffs because of the worries that dumping will 0:04:05.560 --> 0:04:08.920 no longer be in the United States, it will instead 0:04:09.040 --> 0:04:12.160 go to the EU. So politically, the EU says we're 0:04:12.200 --> 0:04:15.120 raising trade barriers and retaliation to the United States, but 0:04:15.240 --> 0:04:18.400 in actuality, they're raising trade barriers because they need to 0:04:18.480 --> 0:04:22.680 protect their own industry as well, because other countries will 0:04:22.720 --> 0:04:24.800 start trying to dump there because they don't have to 0:04:24.839 --> 0:04:27.720 pay the tariffs. So there's so much going on here 0:04:27.920 --> 0:04:30.239 and now that this has come into place, we're gonna 0:04:30.279 --> 0:04:32.560 see it play out. I don't know if this was 0:04:32.600 --> 0:04:34.760 something that I expected. I don't know if this is 0:04:34.800 --> 0:04:38.200 something that the market expected. But it has happened, and 0:04:38.279 --> 0:04:40.440 now this is the new reality, and we're going to 0:04:40.480 --> 0:04:42.880 see whether or not Trump actually making good on a 0:04:42.960 --> 0:04:46.480 truly Trumpian policy is going to benefit or hurt him 0:04:46.480 --> 0:04:51.000 in the long run. Is this going to hurt US consumers? 0:04:51.600 --> 0:04:55.280 U S consumers have already adjusted to these higher prices, 0:04:55.320 --> 0:04:58.599 they expected some sort of higher prices would come. The 0:04:58.720 --> 0:05:01.440 people who end up probably getting hurt of the makers, 0:05:01.480 --> 0:05:05.240 the manufacturers of the stuff that we use. So if 0:05:05.279 --> 0:05:09.120 you're ariconic, you make airplane wings, you make pieces used 0:05:09.120 --> 0:05:13.360 an automotive. Actually the same with any steel producer outside 0:05:13.360 --> 0:05:16.039 of the United States sending to Detroit. These are the 0:05:16.040 --> 0:05:19.160 ones that are really worried. That's why Caterpillar would even 0:05:19.200 --> 0:05:22.080 say whoa, whoa, whoa. Let's hold on a second here. 0:05:22.560 --> 0:05:25.320 So I was just looking at Ian Bremer he just 0:05:25.360 --> 0:05:27.919 put out on Twitter. Trans Atlantic relations just hit a 0:05:27.920 --> 0:05:31.800 new post war low. But we're not at bottom yet. 0:05:32.240 --> 0:05:34.880 Can you give us a sense of the last time 0:05:34.960 --> 0:05:38.239 that the US imposed tariffs like this and what happened 0:05:38.440 --> 0:05:41.960 we imposed terrorists? It was a two oh one petition 0:05:42.160 --> 0:05:46.040 by President Bush back in two thousand two, and it 0:05:46.080 --> 0:05:48.359 was to protect the industry that was getting hurt. What 0:05:48.440 --> 0:05:51.360 eventually happened was they passed the two oh one and 0:05:51.520 --> 0:05:54.360 there was so much outcry by industry across the board 0:05:54.560 --> 0:05:57.520 that they started giving exemptions and rolling things back, rolling 0:05:57.520 --> 0:06:01.040 things back, and ultimately saying, forget about. We're just we're 0:06:01.080 --> 0:06:04.400 getting rid of this entire policy, and they scrapped it. 0:06:04.400 --> 0:06:06.279 That's no pun intended, but they got rid of it 0:06:06.320 --> 0:06:12.160 because it was just so unpopular and for businesses, very detrimental. 0:06:12.520 --> 0:06:15.840 Just to your point, Caterpillar shares down nearly two right now, 0:06:15.960 --> 0:06:18.800 there you go too, doo. Thank you so much for 0:06:18.839 --> 0:06:20.720 being with us. We will be hearing more from you 0:06:21.040 --> 0:06:24.440 as this does play out. Really important inside. Joe Doe 0:06:24.520 --> 0:06:28.520 covers the medals and mining industries for us here at 0:06:28.640 --> 0:06:32.160 Bloomberg News, and we've just been talking about how Commerce 0:06:32.160 --> 0:06:36.560 Secretary wolver Ross did say that the European Union, Canada 0:06:36.760 --> 0:06:41.800 and Mexico would all not be exempt from these steel 0:06:41.800 --> 0:07:00.920 and aluminium tariffs. What keeps money managers up at night, Well, 0:07:00.960 --> 0:07:03.120 that's why we've got a John Moniger. He is a 0:07:03.160 --> 0:07:06.040 managing director of Eaton Vans, helping to manage over four 0:07:06.120 --> 0:07:09.560 hundred and twenty billion dollars. He's based in Boston, but 0:07:09.640 --> 0:07:12.960 he joins us here in our eleven three oh studios. John, 0:07:13.000 --> 0:07:15.880 it's a pleasure to have you here. And eating Vance 0:07:15.920 --> 0:07:20.080 Advisors has something called the Top of Mind Index. Tell 0:07:20.160 --> 0:07:23.360 us what is this index? What is it supposed to do? Yeah, Pim, 0:07:23.360 --> 0:07:25.320 thank you for having us today. So the Advisor Top 0:07:25.320 --> 0:07:27.160 of Mind Index is a survey we do every quarter. 0:07:27.440 --> 0:07:29.800 We survey about a thousand advisors and it's really trying 0:07:29.800 --> 0:07:31.680 to get in the mind of what's on their mind 0:07:31.680 --> 0:07:33.480 and what's on the mind of their investors that they're 0:07:33.520 --> 0:07:35.800 working with. And so through that survey you try to 0:07:35.920 --> 0:07:39.040 get some insights into what's driving their decision making. Uh. 0:07:39.080 --> 0:07:41.120 In particular, if you think about what's going on now, 0:07:41.120 --> 0:07:44.480 I'll just give you the highlight of of this particular survey. Um, 0:07:44.720 --> 0:07:47.400 we had volatility continue to be one of the top 0:07:47.440 --> 0:07:50.440 marks in top concerns of advisors and maybe not surprising 0:07:50.480 --> 0:07:52.800 by any means, income being number two and a bit 0:07:52.800 --> 0:07:54.640 of a distant number two. We've seen that kind of 0:07:54.680 --> 0:07:56.760 move around a little bit from quarter to quarter, but 0:07:56.800 --> 0:07:59.280 certainly volatility kind of really driving a lot of what's 0:07:59.280 --> 0:08:01.320 on their mind. And I would say the number one 0:08:01.400 --> 0:08:04.320 cause of that has really been centered around geo political risk. 0:08:04.560 --> 0:08:06.160 So although we see a lot of market movement, it's 0:08:06.160 --> 0:08:07.680 a lot of things like even what we saw this 0:08:07.720 --> 0:08:10.800 morning with you know, tariffs being put in place, which 0:08:10.840 --> 0:08:13.160 is you can question, both has a downstream effect but 0:08:13.200 --> 0:08:15.200 also just has a headline or effect as well, makes 0:08:15.200 --> 0:08:18.040 people really nervous. So can you connect the top of 0:08:18.040 --> 0:08:21.880 mind index to actions? I mean, if they're worried about volatility, 0:08:21.960 --> 0:08:24.600 that means what for how they manage their money? Yeah, 0:08:24.600 --> 0:08:26.720 that's a really great question. So so what we're seeing 0:08:26.760 --> 0:08:28.680 is a few things. You've seen this in just fun flows, 0:08:28.680 --> 0:08:30.280 and we'll see this in the survey as well. Start 0:08:30.280 --> 0:08:32.640 with the survey, I'll connect it to fund flows. In 0:08:32.720 --> 0:08:36.040 the survey, you'd see number one issue, what are they 0:08:36.080 --> 0:08:39.120 doing about it? Short duration strategies on the fixingcome side 0:08:39.120 --> 0:08:40.680 is where they've been going in a pretty big way. 0:08:40.920 --> 0:08:42.800 So we've seen a pretty big pull down and flows 0:08:42.800 --> 0:08:45.400 in equities, we've seen a pretty good resurgence of fixing 0:08:45.400 --> 0:08:47.800 come flows. But really on the short duration side, let 0:08:47.800 --> 0:08:49.880 me drive into that for a minute. So what we're 0:08:49.880 --> 0:08:53.360 seeing specifically is floating rate strategies picking up makes a 0:08:53.400 --> 0:08:55.320 lot of sense rising rates. What can I do to 0:08:55.360 --> 0:08:58.600 participate in rising rates is certainly floating rate strategies, But 0:08:58.679 --> 0:09:01.640 also you're seeing just traditional your duration strategies moving in 0:09:02.120 --> 0:09:03.719 in a very big way. In fact, if you look 0:09:03.720 --> 0:09:05.760 at the fund flows just in the last six months alone, 0:09:05.960 --> 0:09:08.319 but a hundred fifty three billion dollars have come into 0:09:08.400 --> 0:09:12.520 taxable fix income. But about that was short duration strategies. Again, 0:09:12.520 --> 0:09:14.400 you'll see a pretty good move going on. There are 0:09:14.440 --> 0:09:16.240 people not sure where to go. What do I do? 0:09:16.280 --> 0:09:19.000 I put into more of a conservative play, I'll add. 0:09:19.120 --> 0:09:21.200 The one that we're seeing as quite interesting is on 0:09:21.200 --> 0:09:23.480 the municipal bond side. We've seen a lot of pressure 0:09:23.559 --> 0:09:27.160 muni bonds certainly performances negative year today and pretty much 0:09:27.160 --> 0:09:30.280 cross the board, we've seen some movement in the floating 0:09:30.360 --> 0:09:32.400 rate muni bond area. We don't hear a lot about 0:09:32.400 --> 0:09:34.320 that in the marketplace. We actually offer one of the 0:09:34.360 --> 0:09:36.480 few strategies that do this, but other firms do it. 0:09:36.520 --> 0:09:37.840 There's firms that are out there that play in the 0:09:37.880 --> 0:09:41.600 space in floating rate municipal bonds. Actually have higher quality 0:09:41.840 --> 0:09:45.160 and are certainly great place to participate in today's markets. John, 0:09:45.200 --> 0:09:48.479 I want to get your thoughts on what the customer 0:09:49.080 --> 0:09:51.680 is really interested in, because I thought this was a 0:09:51.800 --> 0:09:55.280 very telling point. And you know, you can debate and 0:09:55.280 --> 0:09:58.160 and you know, if you're kind of drawn just investor, 0:09:58.200 --> 0:10:01.440 you can say, well, you know, responsible investing. It sounds nice. 0:10:01.480 --> 0:10:04.520 It's got a chief feely thing to it. Whether whatever 0:10:04.600 --> 0:10:08.880 you're feeling or thinking about it. The reality is the 0:10:09.000 --> 0:10:12.840 customer is really interested in this. There is no question. 0:10:12.880 --> 0:10:14.440 Thank you for bringing this up. I'll tell you the 0:10:14.840 --> 0:10:17.960 in the survey will tell you two thirds of investors 0:10:18.240 --> 0:10:20.719 care about responsible investing at some level. It might be 0:10:20.760 --> 0:10:22.320 at a minor level, might be I want to restrict 0:10:22.360 --> 0:10:24.400 something in a portfolio, or it might be at a 0:10:24.520 --> 0:10:27.920 very deep environmental, social and governance type level, and we're 0:10:27.920 --> 0:10:30.319 seeing the full spectrum of that. The flip side of 0:10:30.360 --> 0:10:32.760 that as advisors aren't as educated, so they're a little 0:10:32.800 --> 0:10:34.800 more nervous to bring this forth to their investors. I'll 0:10:34.800 --> 0:10:37.760 tell you two quick stories. One, um, that's the number 0:10:37.800 --> 0:10:40.319 one asked. We put in place a very strong educational 0:10:40.360 --> 0:10:42.760 effort to educate the financial advisor on how to actually 0:10:42.800 --> 0:10:45.720 have this conversation with a client. Importantly, though, if you 0:10:45.720 --> 0:10:48.400 look at the elite advisors the top in the space today, 0:10:48.800 --> 0:10:50.600 I would say we've seen a shift, and I would 0:10:50.600 --> 0:10:52.120 say in the shift has only occurred in the past 0:10:52.120 --> 0:10:55.080 twelve months, where they've went from being prepared to have 0:10:55.160 --> 0:10:58.360 the conversation to now leaning in and saying, Wow, this 0:10:58.400 --> 0:11:00.640 is now a conversation I have to have every client 0:11:00.920 --> 0:11:02.960 so they know I'm prepared and can actually have this 0:11:03.280 --> 0:11:07.000 ability capability to deliver responsible investing to their investors. So 0:11:07.440 --> 0:11:10.000 that's a big shift that will transcend, no question, as 0:11:10.000 --> 0:11:12.760 we know, down into the other advisors. So the educational 0:11:12.800 --> 0:11:15.000 ask is becoming I would say, greater and greater every 0:11:15.040 --> 0:11:18.160 single day. And this comes after yesterday to Sporting Goods 0:11:18.840 --> 0:11:23.280 reported better than expected earnings even though they had stopped 0:11:23.280 --> 0:11:26.960 selling guns in response to what happened. Their shares gained 0:11:27.040 --> 0:11:30.199 almost twenty six percent. That's flying in the face of 0:11:30.200 --> 0:11:31.480 a lot of people who said, you know what, if 0:11:31.520 --> 0:11:33.840 you stop selling guns you make this big stance, You're 0:11:33.880 --> 0:11:37.440 gonna suffer. They didn't. So with returns and sort of 0:11:37.600 --> 0:11:41.320 you know, doing good and getting returns, I mean the 0:11:41.320 --> 0:11:43.400 focus is still on getting returns right, So how do 0:11:43.400 --> 0:11:45.360 you how are you instructing people have that conversation. Yeah, 0:11:45.400 --> 0:11:47.480 it's a great question because because there are return matters 0:11:47.480 --> 0:11:49.400 most right, at the end of the day, responsible investing 0:11:49.400 --> 0:11:50.480 is only as good as the fact that you can 0:11:50.520 --> 0:11:52.080 put up returns out are in line with the market. 0:11:52.720 --> 0:11:55.280 We have through our Cavert affiliate as an example or 0:11:55.320 --> 0:11:57.680 parametric we've been able to demonstrate a long term track 0:11:57.720 --> 0:12:00.320 record of that just using basic indexes. Frankly, so putting 0:12:00.320 --> 0:12:02.160 an E s G structure on top of an index 0:12:02.200 --> 0:12:04.920 like the Russell one thousand, we can demonstrate ten years 0:12:04.920 --> 0:12:07.520 of performance at show we can match the market. Many 0:12:07.520 --> 0:12:09.680 other organizations do the same thing, so we're not alone 0:12:09.679 --> 0:12:12.080 in that. I think the markets starting to realize you 0:12:12.120 --> 0:12:15.240 can actually get better performance, or at least market level 0:12:15.280 --> 0:12:17.520 performance by actually doing the right thing. And it starts 0:12:17.520 --> 0:12:20.360 to make sense when you start breaking down take foreign countries, 0:12:20.400 --> 0:12:23.360 take emerging markets, for example. If you have really solid 0:12:23.720 --> 0:12:28.080 social governance and environmental considerations built in your portfolio and 0:12:28.080 --> 0:12:30.960 you're acting against that, they tend to do better. And 0:12:30.960 --> 0:12:33.959 we've got again a history of showing that in our portfolios, 0:12:34.280 --> 0:12:36.719 or we're able to uh to outperform over periods of time, 0:12:36.720 --> 0:12:38.199 and again we're not the only ones in that space 0:12:38.240 --> 0:12:40.520 doing it. John Moninger, thank you so much for being 0:12:40.600 --> 0:12:43.839 with us and for illiminating the results from the top 0:12:43.840 --> 0:12:47.360 of Mind Index or a tomics. John Moninger is managing 0:12:47.360 --> 0:12:51.720 director at Eton Vans, overseeing about four billion dollars. Normally 0:12:51.720 --> 0:12:53.800 it is based in Boston, but joins us here in 0:12:53.960 --> 0:13:13.280 our eleven three oh studios. Is Italy an emerging market? 0:13:13.440 --> 0:13:16.440 Is it like Argentina? Is it like Turkey? Well, let's 0:13:16.480 --> 0:13:19.440 find out. We have Damian sasaur fixed income strategist for 0:13:19.480 --> 0:13:23.760 Bloomberg Intelligence in the studio here to tell us more. Damian, 0:13:23.920 --> 0:13:27.600 so is Italy on par with an emerging market? I 0:13:27.600 --> 0:13:30.920 wouldn't say that, especially Argentina and Turkey. Um, what we're 0:13:30.920 --> 0:13:33.640 seeing here, I think is a good old fashioned run 0:13:33.720 --> 0:13:36.880 on the on Italian bonds, right. I mean, it's how 0:13:36.920 --> 0:13:40.240 Italy is basically one of the largest issuers of debt 0:13:40.280 --> 0:13:43.720 globally um, far larger than Turkey or Argentina. But the 0:13:43.800 --> 0:13:46.199 important thing for remembers that all that debt is denominated 0:13:46.200 --> 0:13:48.680 in Europe, right, so in order for it to trade 0:13:48.760 --> 0:13:53.200 even close to Argentina and Turkey, which which I mean 0:13:53.200 --> 0:13:55.160 if you're investing in those bonds are carrying in Lira 0:13:55.840 --> 0:13:59.040 and UH and pacer respectively. I mean, it's just it's 0:13:59.040 --> 0:14:01.720 just far riskier when you do that cross border currency calculation. 0:14:01.760 --> 0:14:04.360 And so for me, I just don't see how your 0:14:04.480 --> 0:14:07.719 denominated Italian bonds are trading on par with them or 0:14:07.760 --> 0:14:09.280 how you can even compare them at this stage. But 0:14:09.520 --> 0:14:11.120 they are, but they are kind of I mean, if 0:14:11.120 --> 0:14:13.480 you look at credit to fault swaps, for example, Italy 0:14:13.559 --> 0:14:15.760 is looking more like an emerging market. See so I 0:14:15.800 --> 0:14:18.200 set you up for that, and then you dissed me. 0:14:18.280 --> 0:14:20.560 You would, just would It's just a quote you said. Now, 0:14:20.600 --> 0:14:23.160 I mean five year cd explain, explain what that all means. 0:14:23.160 --> 0:14:26.200 So so in order to protect against the default, one 0:14:26.280 --> 0:14:28.280 might buy a credit the fault swap, and so five 0:14:28.360 --> 0:14:31.880 year CDs for Italy is now on par with that 0:14:31.960 --> 0:14:34.360 of Turkey in fact that you traded through Turkey, meaning 0:14:34.440 --> 0:14:37.880 to protect against default in Italy is more expensive than 0:14:37.920 --> 0:14:40.720 it is to protect against default in Turkey. So in 0:14:40.840 --> 0:14:42.920 order for first of all Italy to default, it's got 0:14:42.920 --> 0:14:45.280 a first break from the EU and then it's got 0:14:45.320 --> 0:14:47.720 a default on its dead opplications, right, so it's a 0:14:47.840 --> 0:14:50.920 huge Sorry, no, no, no, I mean to me though, 0:14:50.960 --> 0:14:53.600 I want to just push back because it makes sense 0:14:53.600 --> 0:14:55.760 what you're saying. The risk of Italy defaulting at this 0:14:55.840 --> 0:14:58.760 point does not seem, when you take a step back, 0:14:59.000 --> 0:15:01.600 like it is greater than Turkey, which can't get its 0:15:01.600 --> 0:15:06.720 currency under control. That said, perhaps what this shows is 0:15:06.880 --> 0:15:10.560 that central banks are losing some control and that everything 0:15:10.640 --> 0:15:13.360 is mispriced, and Italy is being priced a little bit 0:15:13.360 --> 0:15:16.000 more on fundamentals with the fear of the ECB stepping back, 0:15:16.440 --> 0:15:19.200 And maybe the question should be asking, does this mean 0:15:19.560 --> 0:15:23.320 that the emerging markets should be priced at completely different 0:15:23.440 --> 0:15:25.960 levels with risk much higher than it is right now? Yeah, 0:15:26.040 --> 0:15:28.080 I mean, that's exactly what we're talking about. Think about 0:15:28.080 --> 0:15:31.480 where we are. Rates globally are still near historical lows, 0:15:31.520 --> 0:15:34.600 so any little move is a very is an exaggerated 0:15:34.640 --> 0:15:36.840 move in developed and emerging market right now, and that's 0:15:36.840 --> 0:15:39.000 exactly what we just saw in Italy. And in fact, 0:15:39.440 --> 0:15:42.240 a lot of the move in in in Italian yields 0:15:42.240 --> 0:15:46.000 and Italian bonds BTPs were was driven by the relative 0:15:46.040 --> 0:15:47.760 lack of liquidity in those bonds, right, So they just 0:15:47.760 --> 0:15:50.720 got marked up pretty quickly, and now people are kind 0:15:50.720 --> 0:15:52.600 of saying, well, maybe things aren't so bad, you know, 0:15:52.720 --> 0:15:54.560 maybe you know, the five star movements, so on and 0:15:54.600 --> 0:15:56.880 so forth. So I think you're absolutely right. I think 0:15:56.920 --> 0:15:59.280 it has something to do with liquidity and and the 0:15:59.320 --> 0:16:02.440 structural makeup of the market itself that's kind of driving things. 0:16:02.480 --> 0:16:05.760 But but you know, as these markets sort of normalized, 0:16:05.800 --> 0:16:07.760 as the U s he Old curve pushes higher, as 0:16:07.840 --> 0:16:11.800 rates globally push higher, you're gonna see these dislocations be 0:16:11.880 --> 0:16:14.440 that much more magnified. Right, rate ball is going up. 0:16:14.800 --> 0:16:16.920 I mean, I think we've pretty much hit the psycho 0:16:16.960 --> 0:16:21.480 volatility those right, Sorry, rate volatility is definitely going up globally, 0:16:21.800 --> 0:16:23.560 and so as that happens, what you see are these 0:16:23.640 --> 0:16:26.520 you know, kind of exaggerated moves and and and I 0:16:26.560 --> 0:16:29.200 think that's quite frankly what's been happening in Italy this 0:16:29.240 --> 0:16:32.440 week and Spain tomorrow. I mean, I guess you're right. So, 0:16:32.520 --> 0:16:34.920 I mean that's the other thing, right, I mean, it's 0:16:35.000 --> 0:16:36.520 kind of amazing. There is a little bit of a 0:16:36.520 --> 0:16:40.120 fundamental take to this, because Italy's fundamentals, you know, are 0:16:40.160 --> 0:16:43.120 not nearly as good as Spain, right, and so Spain 0:16:43.240 --> 0:16:46.080 hasn't really moved the way Italy has, even though I 0:16:46.080 --> 0:16:49.360 think the Basques just announced that they're gonna back you know, Sancha. 0:16:49.400 --> 0:16:51.280 So I think I think Spain is at risk of 0:16:51.320 --> 0:16:54.360 a no confidence vote, right, so, so that's a pretty 0:16:54.360 --> 0:16:57.800 big deal. And yet Spanish CDs is not really moving 0:16:57.840 --> 0:17:00.240 the same way Italian CDs is and and Spanish bonds 0:17:00.240 --> 0:17:02.880 haven't really reacted as much as you would have thought. So, 0:17:03.000 --> 0:17:05.080 um so for me, I guess you know, the the 0:17:05.119 --> 0:17:06.919 you know what I'm looking at in terms of emerging 0:17:06.960 --> 0:17:09.600 markets is Argentina and Turkey are on an island all 0:17:09.640 --> 0:17:12.520 to themselves. Um, you know, their currencies are a mass, 0:17:12.560 --> 0:17:15.840 their economies are are are are a mess really and 0:17:16.359 --> 0:17:19.040 you know they're gonna need to really kind of clean 0:17:19.080 --> 0:17:21.160 things up. It leaves in a different situation. It'll least 0:17:21.160 --> 0:17:23.840 still part of the EU until further notice. And in 0:17:23.920 --> 0:17:26.919 order for anything to kind of, you know, move the 0:17:26.960 --> 0:17:29.520 needle in Italy, you're gonna have to see you I'm 0:17:29.560 --> 0:17:31.920 gonna have to see them break from the EU. Has 0:17:31.960 --> 0:17:36.960 that working in Brazil that truckers strike, So so what's 0:17:37.000 --> 0:17:38.840 what I took out of the trucker strike? And I'm 0:17:38.840 --> 0:17:40.480 not as close to it as I should be. Is 0:17:40.520 --> 0:17:43.240 the fact that petrol Brass, I mean, you know, basically, 0:17:43.280 --> 0:17:45.240 petrol Brass makes their money by selling fuel and last 0:17:45.280 --> 0:17:47.760 week what happened was they made the decision to a 0:17:47.800 --> 0:17:50.480 lower petrol prices and they did it and partly in 0:17:50.520 --> 0:17:52.800 response to the fact that you have this trucker strike, 0:17:52.880 --> 0:17:54.680 and you know that the government may be applied a 0:17:54.680 --> 0:17:56.679 little bit of pressure to petrol Brass, to petrol Brass 0:17:57.160 --> 0:17:59.480 despite the fact that sixty some odd percent owned by 0:17:59.520 --> 0:18:02.399 the Brazilian government, it's not part of the government. And 0:18:02.400 --> 0:18:04.760 people who are invested in Petro Brass bonds, when they're 0:18:04.840 --> 0:18:07.239 quite a few of them, um like to think that 0:18:07.280 --> 0:18:09.760 the company is making decisions that are in the creditors 0:18:09.760 --> 0:18:11.720 best interest, meaning we're going to charge you more for 0:18:11.760 --> 0:18:14.400 your gas or your oil. And that's not what happened here. 0:18:14.440 --> 0:18:16.119 So now people are kind of saying, well, we'll wait 0:18:16.160 --> 0:18:19.240 a second. Maybe Petrol Brass really is being pushed by 0:18:19.280 --> 0:18:21.960 the government, Maybe they don't have our best interest at heart. 0:18:21.960 --> 0:18:23.880 And I think that's why what we're seeing, at least 0:18:23.880 --> 0:18:26.520 in petrol Brass, which is one of the largest constituents 0:18:26.560 --> 0:18:29.320 in emerging market hard country that is, you're seeing you know, 0:18:29.359 --> 0:18:31.160 spreads blow out on the back of that, and people 0:18:31.320 --> 0:18:34.000 you know, kind of calling into their calling into question 0:18:34.000 --> 0:18:37.000 their integrity and the efficacy of management. Okay, I want 0:18:37.000 --> 0:18:38.640 to I want to go back to a point here, 0:18:38.680 --> 0:18:41.600 just on a broader level, with emerging markets. If we're 0:18:41.600 --> 0:18:45.880 talking about how all risk has been muted by central banks, 0:18:46.280 --> 0:18:49.680 and then a flare up causes people to suddenly uh 0:18:49.960 --> 0:18:53.040 price fundamental risk, you know, and then it goes back 0:18:53.080 --> 0:18:56.680 to this sort of complacency. I'm just wondering how much 0:18:56.680 --> 0:19:00.639 would emerging markets have to read price if people started 0:19:00.680 --> 0:19:03.800 to feel like central banks weren't back stopping the market. Well, 0:19:03.840 --> 0:19:07.800 I think sentiment is a function of returns, and e 0:19:07.960 --> 0:19:10.399 M has is off to the worst start on record 0:19:10.480 --> 0:19:13.120 this year, right, And as those losses build, or let's 0:19:13.119 --> 0:19:15.560 not say they build, but let's say they persist, sentiments 0:19:15.560 --> 0:19:18.960 starts to sour for the asset class at large. And 0:19:19.119 --> 0:19:21.600 I think that's the real risk because Okay, fine, you 0:19:21.600 --> 0:19:24.280 know things are still good, the economies are still healthy. Yeah, okay, 0:19:24.320 --> 0:19:28.280 yields are climbing, and we're pushing the currencies uh down, 0:19:28.400 --> 0:19:30.240 you know, relative to the dollar. But but by and 0:19:30.320 --> 0:19:32.159 large things are better today than they were, you know, 0:19:32.240 --> 0:19:35.119 only five years ago, and emerging markets. But the longer 0:19:35.160 --> 0:19:38.600 these losses persist, that drives investors who are invested in 0:19:38.640 --> 0:19:42.439 emerging markets to redeem, to basically withdraw their investments. And 0:19:42.480 --> 0:19:45.639 that's gonna basically make it that much more difficult for 0:19:45.680 --> 0:19:48.800 these local economies to to to to borrow and too 0:19:49.000 --> 0:19:50.680 and to lever up, and and and and to run 0:19:50.720 --> 0:19:53.600 their economies. And and that's when it hits the real 0:19:53.640 --> 0:19:56.640 economy or the real economies within emerging markets, right and 0:19:56.680 --> 0:19:59.800 that's when you know, you really can start to feel 0:19:59.800 --> 0:20:02.720 the pain, and that transmission mechanism doesn't happen overnight. Certain 0:20:02.760 --> 0:20:04.719 countries are different than others. Turkey, which has a lot 0:20:04.760 --> 0:20:07.359 of external debt, you're seeing them get smacked right on, 0:20:07.600 --> 0:20:09.560