WEBVTT - Surveillance: Everyone Is Scrambling For Yield, Michele Says 0:00:00.080 --> 0:00:13.040 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:34.159 Bloomberg dot Com and of course on the Bloomberg with Us. 0:00:34.159 --> 0:00:36.920 We are thrilled this morning to have Davide Sarah with 0:00:37.080 --> 0:00:41.519 Us of Algebrast, truly expert on EU banking. Davida to 0:00:41.600 --> 0:00:46.160 our global Wall Street audience, what is the single statistical 0:00:46.479 --> 0:00:50.519 or ratio observation of EU banking that maybe is not 0:00:50.640 --> 0:00:57.440 in the zeitgeist right now? What's the Sarah ratio that matters? Well? 0:00:57.720 --> 0:01:00.560 I think the nless the probably Matt as the most 0:01:00.640 --> 0:01:04.679 is the number of banking institution. Um, you know, the 0:01:04.720 --> 0:01:08.920 EU has the highest number of banks. We're talking about 0:01:08.959 --> 0:01:13.440 an AMBO which is very twenty eight thousand institution vacompass 0:01:13.560 --> 0:01:16.240 basically three times or size the US basically for the 0:01:16.280 --> 0:01:19.640 same economy. And if you take the top five banks 0:01:19.680 --> 0:01:22.480 in Europe in the US in terms of concentration of 0:01:22.520 --> 0:01:26.319 the posits now have almost fifty in Europe and not 0:01:26.400 --> 0:01:30.880 even fifteen percent. Very we've got too many banks and 0:01:30.959 --> 0:01:34.320 not large enough. Well, very very interesting. Not only do 0:01:34.360 --> 0:01:36.399 you do the financial but you also look at the 0:01:36.480 --> 0:01:39.240 human condition here, and so much of it is set 0:01:39.319 --> 0:01:43.560 up with boards that I would suggest really don't represent shareholders. 0:01:43.680 --> 0:01:47.480 Is that true, the boards really don't Deutsche Bank, Commerce Bank, whatever, 0:01:47.800 --> 0:01:53.000 that they really aren't representing shareholders. Well, yes or no? 0:01:53.200 --> 0:01:57.560 Because the right now more than seventy eight percent of 0:01:57.920 --> 0:02:01.560 large European banks actually held by titition and shoreholders. So 0:02:02.120 --> 0:02:04.960 the reality is thetituitions shoreholders can have a weight that 0:02:05.000 --> 0:02:08.280 the reality is because about thirty percent are passive. No 0:02:08.360 --> 0:02:11.280 one is voting, they don't really care. They're mimicking an index, 0:02:11.600 --> 0:02:13.680 and that has become a problem. And that's why you 0:02:13.800 --> 0:02:17.680 see a few activists stepping up and actually making a point, 0:02:18.120 --> 0:02:22.280 simply because the majority has basically abdicated the role of stewartship. 0:02:22.560 --> 0:02:24.919 We still see in the US. Do you own any 0:02:24.960 --> 0:02:28.280 Deutsche Bank or Commerce Bank? We do not own any 0:02:28.360 --> 0:02:32.400 Dodge bank or merge equity. We do on some of 0:02:32.400 --> 0:02:35.840 the credit if a merge will be very positive of 0:02:35.919 --> 0:02:39.680 their credit status because you'll basically need a recap or 0:02:39.760 --> 0:02:42.240 some sort of the other. So you probably need equity 0:02:42.240 --> 0:02:44.320 at the bottom of the capital structure, so that will 0:02:44.360 --> 0:02:47.400 be positive for credit equity will have to see. I 0:02:47.400 --> 0:02:49.679 know we were talking a little bit about it last week, 0:02:49.720 --> 0:02:52.080 but does it make sense. This is, I guess the 0:02:52.120 --> 0:02:55.480 only way in which you can really cut costs because 0:02:55.520 --> 0:02:58.120 of the unions and because some of the labor laws. 0:02:58.480 --> 0:03:00.480 But then Deutsche Bank is also doing with its U 0:03:00.480 --> 0:03:02.520 S investment arm and I don't know how that fits 0:03:02.560 --> 0:03:05.600 into the conversation. Well, I think there are a free 0:03:05.600 --> 0:03:08.280 issue here. The first one is under German label laws, 0:03:08.400 --> 0:03:12.560 you can't really get a massive redendancy package and five 0:03:12.600 --> 0:03:15.960 lots of people unless you have eneminy activity. Secondly, if 0:03:15.960 --> 0:03:18.760 you look at common Spank and dodge Bank, dodge Bank 0:03:18.800 --> 0:03:22.040 has about ninety people. If you have contractors, you're almost 0:03:22.120 --> 0:03:24.920 under and ten thousand for a revenue base of twenty 0:03:24.919 --> 0:03:27.679 eight billion euro, which is below Goldman, which has a 0:03:27.760 --> 0:03:31.079 third of employees less than thirty. So the issue is 0:03:31.200 --> 0:03:35.240 Dodge Bank is just too many employees for its revenue base. Secondly, 0:03:35.400 --> 0:03:39.200 inside Germany, Common Spank is about fifty thousand employees but 0:03:39.320 --> 0:03:41.920 an asset base which is a quarter of the one 0:03:41.960 --> 0:03:45.760 of Dodgemank. So a merger between the two will strengthen 0:03:45.920 --> 0:03:49.000 and will enable cost cutting. The Germany that will do 0:03:49.080 --> 0:03:52.000 anything to the will do nothing to the international operation 0:03:52.000 --> 0:03:55.160 on the dodgemank. And as a result you probably need 0:03:55.520 --> 0:03:58.400 you know, you're looking at thirty forty employees or the 0:03:58.520 --> 0:04:01.880 combined the cost pays I have to go, it's a 0:04:01.960 --> 0:04:05.680 huge number. What's your favorite European bank right now? On 0:04:05.720 --> 0:04:12.800 a standalone basis, our favorite are in Tessa, UniCredit, Santandre, NBNP. 0:04:14.240 --> 0:04:16.760 That's sort of a retail skew there as well. You 0:04:16.800 --> 0:04:20.560 mentioned fifteent, which I think for all Americans dobbyde is 0:04:20.600 --> 0:04:25.360 basically unimaginable. Who controls the politics of Germany, the politics 0:04:25.400 --> 0:04:28.239 of Austria, the politics of Italy is that the small 0:04:28.279 --> 0:04:30.880 banking lobby? Is it the mid bank lobby or is 0:04:30.880 --> 0:04:33.320 there a conduit from say unit credit right to the 0:04:33.320 --> 0:04:38.840 Italian political leaders who olds who holds that power right now? Well, 0:04:38.960 --> 0:04:42.400 first of all, in Europe, if you say banking, it's 0:04:42.440 --> 0:04:48.080 bad simply because the populish rhetoric, it's centered around banks 0:04:48.080 --> 0:04:50.280 of money. They're only given to us and as a 0:04:50.320 --> 0:04:53.640 result of bad guys. This is across Europe. It's as 0:04:53.680 --> 0:04:57.480 simple as that. Secondly, in Germany, though, because seventy cent 0:04:57.560 --> 0:05:00.400 of the banking market is actually state owned, whether it 0:05:00.480 --> 0:05:03.560 is SPA, Cassen or Lander's Banking, they hold the true 0:05:03.600 --> 0:05:07.039 power and hence the strongest lobby group of the spark 0:05:07.040 --> 0:05:10.320 Assen and the caster Path and in France the combination 0:05:10.360 --> 0:05:14.200 of the two are the one which can basically make laws. 0:05:14.520 --> 0:05:18.799 The larger banks forget it, they're basically in the dark house. 0:05:30.040 --> 0:05:33.040 So one word echoed around trading flaws following the latest 0:05:33.080 --> 0:05:38.000 jobs report goldilocks, goldilocks. Goldilocks investors taking some comfort that 0:05:38.080 --> 0:05:40.599 the jobs market was running neither too hot or too cold, 0:05:40.839 --> 0:05:43.800 and fueling the view that the rallying risk assets has 0:05:43.839 --> 0:05:45.640 a little further to go. Here in the studio to 0:05:45.680 --> 0:05:50.359 discuss this, Ibrahim Rock Barry City, Global head of FX Analysis. Ibrahim, 0:05:50.440 --> 0:05:53.160 let's just begin with that word, goldilocks. I heard it 0:05:53.320 --> 0:05:56.240 so much Friday through the weekended into Monday morning. Your 0:05:56.320 --> 0:05:59.320 view on whether that accurately describes the U S economy 0:05:59.440 --> 0:06:03.200 right now? I think it probably does. I think we're 0:06:03.640 --> 0:06:07.160 in a world that's ultimately very supportive for for sid 0:06:07.200 --> 0:06:10.080 markets and for risk appetite, and and the main the 0:06:10.120 --> 0:06:14.600 main pillars of that are that growth indeed is is 0:06:14.640 --> 0:06:16.760 good enough. It's neither too hot nor too cold, and 0:06:16.800 --> 0:06:19.039 inflation will will be subdued, and all of that is 0:06:19.080 --> 0:06:22.880 being being underwritten by a very dovish central bank. So 0:06:22.920 --> 0:06:24.520 I don't think it's misleading. So I caught up with 0:06:24.520 --> 0:06:27.760 the administration, and the administration wants a rate cut, and 0:06:27.760 --> 0:06:30.320 I'm trying to understand the justification for a rate cut 0:06:30.440 --> 0:06:32.720 at this point. Are you part of that group of 0:06:32.720 --> 0:06:35.560 individuals that thinks we could get a right cut sometimes 0:06:35.560 --> 0:06:39.440 soon from the Fed? Yes? Absolutely, I think that we 0:06:39.480 --> 0:06:42.800 are dealing with a very very dovish central bank and 0:06:42.800 --> 0:06:45.640 and ultimately with the combination of two forces that are 0:06:45.640 --> 0:06:49.240 pushing pushing them in that direction. One is real politic, 0:06:49.279 --> 0:06:51.200 if you like, we haven't. We have a big election 0:06:51.240 --> 0:06:52.960 coming up next year, and of course part of the 0:06:53.040 --> 0:06:56.680 rhetoric is to both make it more likely that the 0:06:56.720 --> 0:07:00.320 economy stay stay strong and to position this administryation as 0:07:00.320 --> 0:07:03.760 a pro growth administration. But the other and maybe intellectually 0:07:03.760 --> 0:07:07.360 more interesting question, and ultimately economically one is how do 0:07:07.400 --> 0:07:12.560 you how do you formulate policy to avoid a major slowdown? 0:07:12.920 --> 0:07:14.880 Is there a way to beat the cycle if you like, 0:07:14.960 --> 0:07:17.480 because that's I think precisely what the FED is trying 0:07:17.520 --> 0:07:19.480 to do. Well. These kind of conversations worry may they 0:07:19.560 --> 0:07:21.240 worry others as well. They preham the idea that you 0:07:21.240 --> 0:07:24.280 can beat the cycle. Does that make sense to you 0:07:24.360 --> 0:07:26.520 that kind of language. Well, I think it makes sense 0:07:26.520 --> 0:07:29.440 for me to try. I think in the end you 0:07:29.480 --> 0:07:32.600 will you will fail. But I think there's something to 0:07:32.680 --> 0:07:37.360 the idea that perhaps historically central banks or policy makers 0:07:37.360 --> 0:07:39.760 more generally have at times been slow to react to 0:07:39.760 --> 0:07:42.560 a changing picture. I think this FED in particular has 0:07:42.600 --> 0:07:46.200 been obsessed for some time with not repeating the mistakes 0:07:46.200 --> 0:07:49.680 of the past. So I'm sympathetic to the view that 0:07:50.080 --> 0:07:53.680 if you if you see a slow downcoming, try and come, 0:07:53.840 --> 0:07:57.600 try and come into the act early. The front page 0:07:57.600 --> 0:08:01.200 of Barons over the weaekend is the bull market unstoppable, 0:08:01.480 --> 0:08:03.160 and then the lead quote was as follows the bull 0:08:03.240 --> 0:08:08.520 market recently it's tent birthday. Can it rally for another ten? 0:08:08.640 --> 0:08:11.400 We've heard it many times before, but it's worth repealing. 0:08:11.400 --> 0:08:13.360 Bull markets do not die of old age. You have 0:08:13.480 --> 0:08:15.200 to say that a lot of criticism about the front 0:08:15.240 --> 0:08:17.360 out page being a contrayer and indicator, it was a 0:08:17.440 --> 0:08:20.040 very balanced piece. Once you read through it. But Abraham, 0:08:20.040 --> 0:08:21.880 that's kind of the position we're in right now. I 0:08:21.920 --> 0:08:24.640 think there's a little bit of complacency creeping through. And 0:08:24.640 --> 0:08:27.280 it's the idea that central banks can beat the cycle, 0:08:27.640 --> 0:08:31.160 they can carry on pushing this out, and the view 0:08:31.200 --> 0:08:34.240 of Federal Reserve Chairman Jpal himself that his old own 0:08:34.240 --> 0:08:37.959 objective now is to extend the cycle. We're putting a 0:08:38.000 --> 0:08:39.880 little bit too much faith in central bankers and their 0:08:39.920 --> 0:08:42.440 ability to do that. Yes, absolutely, you know, and it 0:08:42.440 --> 0:08:45.480 shouldn't be clear that one. I think if we look 0:08:45.520 --> 0:08:48.760 at the most recent market developments, they clearly suggests that 0:08:49.440 --> 0:08:53.679 some some some markets are being overboard. Whenever melt up 0:08:53.840 --> 0:08:56.880 enters the financial vocabulary, you have to be you have 0:08:56.960 --> 0:08:59.480 to be cautious. And the other is that clearly can't 0:08:59.520 --> 0:09:01.640 just be sent show banks that safeguard this sort of 0:09:01.679 --> 0:09:04.680 goldilocks environment. And I put much more weight on the 0:09:04.720 --> 0:09:09.560 combination of stabilization and Chinese growth, including the policy similars 0:09:09.559 --> 0:09:12.640 that they have had a peak in trade tensions, and 0:09:12.679 --> 0:09:15.720 then the FED as a supportive act the march and 0:09:16.360 --> 0:09:20.120 does currency dynamics right now, and particularly dollar dynamics, does 0:09:20.160 --> 0:09:25.719 it help us multinationals? I think broadly speaking, yes, I 0:09:25.800 --> 0:09:28.760 think we're because we are effectively an arrangement scenario. Of course, 0:09:28.800 --> 0:09:32.760 the dollar is is still strong and relatively highly valued, 0:09:32.800 --> 0:09:36.120 but the fact that it's not getting aggressively stronger is 0:09:37.080 --> 0:09:39.640 I think a world that these multination. Part of the 0:09:39.800 --> 0:09:44.040 enthusiasm John's mentioning on the cover of barons U is 0:09:44.080 --> 0:09:48.760 the idea that multinationals can keep delivering down the income statement. Right. Yeah, 0:09:48.800 --> 0:09:50.840 her world doesn't get in the way right now. So 0:09:50.920 --> 0:09:52.839 I think that the dollar is not helping. But but 0:09:52.920 --> 0:09:55.480 all I'm arguing is it's not it's not hurting too much. 0:09:55.520 --> 0:09:59.200 And I think that their concerns probably more recently have 0:09:59.240 --> 0:10:03.320 been centered around trade as opposed to as opposed to 0:10:03.320 --> 0:10:06.400 perhaps the dollar. So again I don't think the dollar 0:10:06.480 --> 0:10:09.840 is helping, but it's probably not top of their stuff concerns. 0:10:09.960 --> 0:10:12.760 The cheap guide just looking back, I'll put my hat 0:10:12.760 --> 0:10:15.880 on as the c i O of the of Hindsight 0:10:15.960 --> 0:10:18.440 Capital just for a moment, if that's okay. But the 0:10:18.520 --> 0:10:20.600 cheap guide for the EFEX market over the last couple 0:10:20.600 --> 0:10:23.280 of years, Abraham, is when global risk appetite is good, 0:10:23.280 --> 0:10:26.160 the dollar is weaker, and when global risk appetite is bad, 0:10:26.160 --> 0:10:28.320 the dollar is stronger. I mean, that's pretty consistent. That's 0:10:28.320 --> 0:10:30.760 maybe the one consistent framework that you can apply to 0:10:30.760 --> 0:10:33.040 the effects market over the last couple of years. If 0:10:33.080 --> 0:10:39.360 you're forecasting better risk appetite, a more stable Chinese economy, equally, 0:10:39.360 --> 0:10:42.640 I imagine your forecasting a weaker dollar around you eventually. Yes, 0:10:42.840 --> 0:10:44.719 But I think there's the devil is a bid in 0:10:44.760 --> 0:10:47.560 the detail because two factors come into play here. One 0:10:47.679 --> 0:10:51.160 is carry matters. So we are in a in a 0:10:51.200 --> 0:10:54.560 search for yield environment, and the dollar is uncharacteristically now 0:10:54.880 --> 0:10:58.040 a high yielder in in G ten exactly, it's it's 0:10:58.080 --> 0:11:01.400 it's expensive to funding dollars. We're looking for alternative funding 0:11:01.440 --> 0:11:05.959 currencies across the range. And the other is that we 0:11:05.960 --> 0:11:09.160 we don't think that that improvement in risk appetite and 0:11:09.200 --> 0:11:12.680 the improvement in the economic trajectory will be will be 0:11:13.240 --> 0:11:18.160 a monitor monotonic dynamic. We think in particular that Europe 0:11:18.160 --> 0:11:21.520 for now lacks some of the global improvement for European reasons, 0:11:21.520 --> 0:11:24.439 if you like, so, particularly within G ten. I think 0:11:24.480 --> 0:11:26.800 we're moving in that direction over the course of this year, 0:11:26.880 --> 0:11:29.280 but I don't think right now this is a dollar 0:11:29.320 --> 0:11:31.679 cell environment. Is you're at the trouble spot for you 0:11:31.840 --> 0:11:35.000 at the moment. Sorry, I didn't it's Europe the trouble 0:11:35.080 --> 0:11:38.880 spot for you at the moment. Certainly a laggard. I 0:11:38.920 --> 0:11:42.360 think it's they're clearly a number of of of economies 0:11:42.360 --> 0:11:44.960 in the world that are struggling even more. But I 0:11:45.000 --> 0:11:48.640 think the level of disappointment in Europe is right up there. 0:11:49.040 --> 0:11:51.319 Abraham right to catch out with the Abraham wrap. Bowery 0:11:51.360 --> 0:12:03.920 City's global head of Effects Analysis, John Pharaoh is Brexit 0:12:04.000 --> 0:12:06.840 worn out. And I got a little more interest in John, 0:12:06.920 --> 0:12:09.600 but everybody, as we know it is Brexit worn out. 0:12:09.679 --> 0:12:11.559 She was on with us ten days ago or so 0:12:12.000 --> 0:12:15.880 and we got huge response from Catherine Barnard, who is 0:12:15.920 --> 0:12:21.280 like actually an adult on the legal minutia, the paragraphs, 0:12:21.360 --> 0:12:25.320 the sentences of all this Brexit EU trade stuff. She 0:12:25.440 --> 0:12:28.920 is of course at Cambridge and is definitive on this. 0:12:29.720 --> 0:12:32.840 I love this the UK and a changing Europe. Senior fellow, 0:12:32.840 --> 0:12:35.200 I have no idea what that means, professor, Thank you 0:12:35.240 --> 0:12:38.400 so much for joining us again. Where are the red 0:12:38.480 --> 0:12:42.720 lines right now? Where are the red lines? Well, we 0:12:42.800 --> 0:12:45.040 don't know if you're on the answer. They're looking a 0:12:45.040 --> 0:12:48.160 bit pink. I a bit fuzzy around the edge. The 0:12:48.240 --> 0:12:50.839 one red line that seems to still be there is 0:12:51.240 --> 0:12:54.480 Theresa May wants to stop free movement of persons. That's 0:12:54.520 --> 0:12:58.199 where individuals can go from France to Germany and live 0:12:58.280 --> 0:13:00.720 there pretty much with that restriction. He wants to stop 0:13:00.760 --> 0:13:04.880 that for UK citizens going abroad and for Polish and 0:13:05.400 --> 0:13:08.440 Hungarian citizens coming to the UK. Okay, fine, but I 0:13:08.480 --> 0:13:12.120 did some careful analysis ready for publication at a Cambridge 0:13:12.200 --> 0:13:17.160 University standing in line at Heathrow, what's the what's the soul? 0:13:17.200 --> 0:13:21.520 What if people have to go movement through a different 0:13:21.559 --> 0:13:25.760 line at Heathrow or wherever it's It's not so much 0:13:25.840 --> 0:13:30.080 the sort of temporary movement for tourism purposes. It's for 0:13:30.120 --> 0:13:32.360 people who want to come to work. And at the 0:13:32.400 --> 0:13:36.280 moment they can work in the UK pretty much without restrictions. Crucially, 0:13:36.320 --> 0:13:40.680 they don't need a visa um if they come to 0:13:40.920 --> 0:13:44.920 the UK. So an American or a or a Pakistani 0:13:45.040 --> 0:13:47.800 national comes to the UK to work on a long 0:13:47.920 --> 0:13:52.120 term basis, they need a visa, probably into visa and 0:13:52.160 --> 0:13:55.280 those are really bureaucratic to get and they're also very 0:13:55.440 --> 0:13:58.560 very Okay, the UK has got a visa rating probably 0:13:58.600 --> 0:14:01.680 the most expensive world. Well well explained. Tell me what 0:14:01.800 --> 0:14:04.600 Boris Jansen and other Brexiteers will do today. It's been 0:14:04.720 --> 0:14:09.240 very centric and Tory labor that you know, no compromise thought. 0:14:09.760 --> 0:14:12.040 And then of course Prime Minister May shooting a high 0:14:12.120 --> 0:14:15.840 quality video Spielberg like and then and then of course 0:14:15.840 --> 0:14:18.040 she's going to trot off and see macraw and get 0:14:18.080 --> 0:14:21.320 her frequent flyer miles up. What are the other guys doing? 0:14:21.440 --> 0:14:26.000 What does brexiteer doing? Well, what Brexiteurs are doing at 0:14:26.040 --> 0:14:28.720 the moment is maneuvering to be to be the next 0:14:28.760 --> 0:14:31.080 prime minister. The trouble is they don't want to be 0:14:31.120 --> 0:14:34.600 the next prime minister now I this week or next week, 0:14:34.960 --> 0:14:36.520 but they want to be able to do it in 0:14:36.680 --> 0:14:39.720 three or four months time when I think the deal 0:14:39.880 --> 0:14:42.880 is done and so. But what they're really worried about 0:14:43.000 --> 0:14:46.360 is the reason May today is talking to the Labor Party, 0:14:46.440 --> 0:14:49.680 the opposition Labor Party, and they think this is an 0:14:49.720 --> 0:14:54.360 appalling decision. So the Brexiteers, people like Pretty Patel, who 0:14:54.440 --> 0:14:58.120 you might remember from the referendum campaigns. He was part 0:14:58.120 --> 0:15:01.280 of the group with Boris Johnson and others. She was saying, 0:15:01.280 --> 0:15:05.480 you know, it is absolutely unforgivable that Theresa May should 0:15:05.520 --> 0:15:08.680 be talking with the the Labor Party. The EU or the 0:15:08.720 --> 0:15:10.600 EU think she should be talking to the Labor Party 0:15:10.720 --> 0:15:14.800 they used to dealing with grand coalition. Charles Moore, writing 0:15:14.800 --> 0:15:17.240 on the Telegraph, had a bar chart of like who's 0:15:17.280 --> 0:15:22.280 for who's against? Regionally, basically only London's for. It is 0:15:22.280 --> 0:15:25.920 the summary. I actually thought Prime Minister May's address yesterday 0:15:25.960 --> 0:15:29.800 was something she should have said years ago, Catherine. I mean, 0:15:29.960 --> 0:15:31.960 at the end of the day, this wasn't across party lines. 0:15:32.320 --> 0:15:34.040 They should have got together a long long time ago. 0:15:34.080 --> 0:15:35.800 Why did it take so long to get together and 0:15:35.840 --> 0:15:39.240 talk about a compromise. I think there's a couple of reasons. 0:15:39.280 --> 0:15:42.560 Partly to do with Theresa May's personality that she is 0:15:42.600 --> 0:15:47.400 not a particularly collaborative individual. And secondly, in the UK 0:15:47.840 --> 0:15:52.400 politics are very polarized. It's very party politics based, and 0:15:52.440 --> 0:15:56.480 it's also very tribal. People stick with their own tribe 0:15:56.600 --> 0:15:59.640 come what may, and so the idea that you actually 0:15:59.680 --> 0:16:02.080 have some sort of grand coalition, as you might have 0:16:02.200 --> 0:16:06.160 in Germany is totally anathma to our system. On the 0:16:06.160 --> 0:16:08.800 other hand, it would have been strategically clever to have 0:16:08.840 --> 0:16:12.120 actually got chatting to the other side from the summer 0:16:12.120 --> 0:16:15.040 of six because then they would have been forced to 0:16:15.320 --> 0:16:18.080 buy into whatever was produced. It would be very hard 0:16:18.360 --> 0:16:20.200 for them to vote against, so we wouldn't have been 0:16:20.200 --> 0:16:22.600 where we are now. So, Professor, I think one question 0:16:22.640 --> 0:16:24.920 that I've been asked again and again and again over 0:16:24.960 --> 0:16:26.800 here in New York is when is the real deadline? 0:16:26.800 --> 0:16:30.040 When do we have that grease type crisis moments summit 0:16:30.160 --> 0:16:32.880 over in Europe where it hits midnight and I can't 0:16:32.960 --> 0:16:35.360 kick the can down a road any longer? Professor? Is 0:16:35.360 --> 0:16:40.640 it this week? Possibly possibly Wednesday night? Because this is 0:16:40.680 --> 0:16:45.960 the EU emergency EU summit And if they say no 0:16:46.240 --> 0:16:49.480 to us, if remember the mayor or an extension to 0:16:49.800 --> 0:16:52.360 the June. If they say no to us, you can't 0:16:52.400 --> 0:16:55.360 have any more extensions, then there really will be a crime. 0:16:57.080 --> 0:16:58.880 Can you give us? Can you give us like eight 0:16:58.920 --> 0:17:04.199 or ten pm ones night? Yeah? Absolutely, I'll come and 0:17:04.240 --> 0:17:07.480 tell you, but that that really is a country that 0:17:07.520 --> 0:17:10.320 the odd thing is although actually with due to leave 0:17:10.440 --> 0:17:13.320 the EU without a deal on Friday at eleven pm 0:17:13.320 --> 0:17:17.119 on Friday, there's not a sense of crisis at the moment, 0:17:17.240 --> 0:17:19.760 So I think most people think that you will give 0:17:19.800 --> 0:17:22.760 us an extension. The million dollar question is what's the 0:17:22.840 --> 0:17:26.080 data that extension. Will it be only to the twenty 0:17:26.080 --> 0:17:28.480 second of May, Why is that important? That's the day 0:17:28.520 --> 0:17:30.600 of the European poem to elections, which at the moment 0:17:30.600 --> 0:17:35.360 we're not participating in. Or will it be unlikely that's 0:17:35.359 --> 0:17:38.240 what Truason they want unlikely? Or will it be a 0:17:38.320 --> 0:17:41.119 year hence, and that's what Donalds could be present of 0:17:41.119 --> 0:17:44.200 the European Council talking about. Well, I must admit Fox, 0:17:44.280 --> 0:17:48.080 my observation of ten pm at night watching this in 0:17:48.160 --> 0:17:51.159 London is totally different than from the distance of the 0:17:51.240 --> 0:17:55.960 United States of America. There's something about late night parliamentary meetings. 0:17:56.000 --> 0:17:58.639 It's like did you enjoy that? It was like I 0:17:58.680 --> 0:18:01.960 did not enjoy it, but no, it was not like theater. 0:18:02.040 --> 0:18:04.280 It was like exhaustion. I always forget one of one 0:18:04.280 --> 0:18:07.359 issue country the UK has become, and then I go 0:18:07.480 --> 0:18:09.840 back and realize and I'm reminded of it. Catherine, I 0:18:09.920 --> 0:18:12.159 just wonder the Labor Party has actually done quite a 0:18:12.200 --> 0:18:13.879 decent job of trying to make it more than just 0:18:13.920 --> 0:18:16.199 about one issue. In fact, maybe that explains some of 0:18:16.200 --> 0:18:19.080 the success that Jeremy Corbyn had in the previous election. 0:18:19.359 --> 0:18:21.359 If we went to another election, would it be in 0:18:21.400 --> 0:18:25.040 one issue election? Well, that's a million dollar question because 0:18:25.160 --> 0:18:28.600 Jeremy Corbyn has really tried to talk about other things 0:18:28.600 --> 0:18:34.919 apart from Brexit. Brexit has completely convulsed the Conservative Party. UM. 0:18:35.320 --> 0:18:37.840 But if there is a general election, there's not one 0:18:37.920 --> 0:18:41.240 due to two but most people think it's likely to 0:18:41.280 --> 0:18:44.560 occur Before that, the parties will have to write manifestos 0:18:44.640 --> 0:18:46.879 to say what they want. And the manifestos won't just 0:18:46.960 --> 0:18:49.560 have one issue on at Brexit, but it also have 0:18:50.400 --> 0:18:55.640 issues about the health service, education, public spending and so forth. UM. 0:18:55.760 --> 0:18:58.640 But in reality there's a good chance that it will 0:18:58.680 --> 0:19:01.520 be on Brexit because they'll have to write a paragraph 0:19:01.680 --> 0:19:03.480 or two to say what do we want out of 0:19:03.480 --> 0:19:07.400 the future relationship. One final question, Professor, and this goes 0:19:07.440 --> 0:19:12.000 to your expertise. Explain to our audience what European parliamentary 0:19:12.080 --> 0:19:15.399 votes mean. What what are the British people vote? Who's 0:19:15.480 --> 0:19:19.280 voting in Britain for EU parliament votes? Is that the 0:19:19.400 --> 0:19:24.320 nation votes? Yeah, So there's European parlant elections every five 0:19:24.440 --> 0:19:27.680 years when all of the states or of the EU 0:19:27.760 --> 0:19:31.280 twenty seven or EU twenty eight will send m ep 0:19:31.480 --> 0:19:35.240 s members of the European Parliament to sit in Strasbourg 0:19:35.920 --> 0:19:39.000 and the elections take place pretty much on the same 0:19:39.080 --> 0:19:42.240 day sent me around the same weekend across Europe. And 0:19:42.320 --> 0:19:45.760 at the moment, the UK's seventy odd seats in the 0:19:45.800 --> 0:19:50.480 European Parliament have been partially redistributed to the EU seven 0:19:50.520 --> 0:19:54.480 to the remaining member state, but that needs to be unpicked. 0:19:54.720 --> 0:19:59.040 If we have an extension beyond June, we will have 0:19:59.080 --> 0:20:02.840 to participate in European Poems elections and we will steats 0:20:02.840 --> 0:20:05.919 will have to be retained for the UK. And the 0:20:05.920 --> 0:20:08.679 European Poems is actually rather important body now. At the 0:20:08.680 --> 0:20:10.359 beginning when it was set up, it was nearly a 0:20:10.359 --> 0:20:13.240 sort of assembly and a talking shop. Now it's what's 0:20:13.280 --> 0:20:17.280 called a co legislature in most areas, so it's got 0:20:17.320 --> 0:20:22.480 really significant powers in making EU legislation which is binding 0:20:22.480 --> 0:20:27.800 on the most valuable Catherine Bernard, thank you so Cambridge 0:20:27.880 --> 0:20:32.560 University just immensely enjoy speaking to her other real expertise 0:20:32.680 --> 0:20:45.320 versus the country. Try. Okay, here's the ballet fogs. If 0:20:45.320 --> 0:20:48.240 you work for a firm and you're doing a deal, 0:20:48.400 --> 0:20:50.960 it makes complete sense that if you're directly involved with 0:20:51.000 --> 0:20:54.280 that deal, you can't comment on it in the media. 0:20:55.080 --> 0:20:58.560 And then, far more importantly, if you're tangential to a 0:20:58.680 --> 0:21:03.560 transaction under way, it's usually very clear that you cannot 0:21:03.600 --> 0:21:06.720 talk about it in the media. And then there's the 0:21:06.840 --> 0:21:09.639 idea of this is Bloomberg's surveillance, and we spread we 0:21:09.680 --> 0:21:13.360 respect the pressure that our guests under So even if 0:21:13.359 --> 0:21:16.040 he was tangential, and even if he was as brilliant 0:21:16.040 --> 0:21:18.520 as he is, we wouldn't be rude to Bob Michael 0:21:18.520 --> 0:21:21.959 and asked him about the Saudi transaction. We would we 0:21:22.000 --> 0:21:24.520 would not do that as he is with JP Morgan, 0:21:24.560 --> 0:21:26.879 and of course JP Morgan out trying to do the 0:21:26.880 --> 0:21:30.840 book on this uh huge and historic transaction. Bob. What 0:21:30.920 --> 0:21:34.760 I can do is ask you in fixed income about 0:21:35.000 --> 0:21:40.440 globally the insatiable demand for paper Boy does it ring 0:21:40.520 --> 0:21:44.600 of two thousand and six? Is it the same? Good 0:21:44.600 --> 0:21:49.200 Morning Tom? It does? And this is both a good 0:21:49.200 --> 0:21:52.200 time and a challenging time to be a bond investor. 0:21:52.840 --> 0:21:56.080 The good part of it are the central banks tostill 0:21:56.320 --> 0:21:59.240 have taken a lot of pressure off of the market, 0:21:59.680 --> 0:22:02.479 so you don't have to worry about yields continuing to 0:22:02.520 --> 0:22:05.680 go higher and the balance sheet running down. The bad 0:22:05.880 --> 0:22:08.640 is that this is all you're gonna get. You're gonna 0:22:08.720 --> 0:22:12.960 get two and a half percent ten year treasury and 0:22:13.119 --> 0:22:15.600 you're going to get credit spreads. If you look at 0:22:15.640 --> 0:22:18.719 some of these new TRANSACTIONSY referenced in the market at 0:22:18.720 --> 0:22:21.520 a hundred basis points over, but you've got to buy it. 0:22:21.560 --> 0:22:23.639 There's not a lot of inflation out there. There's not 0:22:23.680 --> 0:22:26.360 a lot of inflation, and there's not a lot of substitutes. 0:22:26.560 --> 0:22:29.359 Now I don't mean and again, Mr Michael, seriously, folks 0:22:29.720 --> 0:22:32.840 can't talk about this transaction. But there seems to be 0:22:32.960 --> 0:22:36.199 an idea in fixed income that I need to buy bills, 0:22:36.240 --> 0:22:40.680 notes and paper because I don't trust dividend yield. I mean, 0:22:40.800 --> 0:22:43.760 what's the what's the dialectic if you would almost between 0:22:44.200 --> 0:22:46.760 fixed income people looking at a dividend, is a is 0:22:46.800 --> 0:22:52.040 a yield proxy? Well of course we do, but but 0:22:52.160 --> 0:22:56.120 you've got to look at a company's ability to continue 0:22:56.520 --> 0:23:00.760 to increase its dividend on an annual basis. Because the 0:23:00.760 --> 0:23:03.439 one thing we know about fixed income you have the 0:23:03.520 --> 0:23:07.679 reinvestment and compounding of interest. I think that for us, 0:23:07.720 --> 0:23:10.720 the interesting dynamic and fixed income is so much money 0:23:10.720 --> 0:23:13.280 has gone into cash and short duration over the last 0:23:13.320 --> 0:23:16.800 three years. That's waiting on the sidelines, waiting to come 0:23:16.880 --> 0:23:19.520 into the fixed income markets. And what is so important 0:23:19.520 --> 0:23:21.720