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Speaker 1: This is Bloomberg Surveillance. We have to get back to

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Speaker 1: a point where we understand and believe that the interest

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Speaker 1: rates going up is actually good for the economy and

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Speaker 1: good for the stock market over long periods of time.

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Speaker 1: These smaller banks can and do deliver for their shareholders

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Speaker 1: if they're managed well. You can get a better portfolio

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Speaker 1: if you find a lot of attractive idiosyncratic opportunities, and

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Speaker 1: we think this is a pretty good environment for that.

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Speaker 1: Bloomberg Surveillance your link to the world of economics, finance,

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Speaker 1: and investment on Bloomberg Radio. Good morning everyone, Bloomberg Surveillance.

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Speaker 1: Who welcome all of you across this nation of Bloomberg

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Speaker 1: twe Boston, FM, Washington, Blomberg nine six Good early morning

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Speaker 1: in the Bay in San Francisco and eleven three oh

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Speaker 1: here in New York. Good morning. What a baseball game

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Speaker 1: last night? It was if it was the edge of

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Speaker 1: the playoffs into the World Series, the Mets the Nationals.

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Speaker 1: Mic I so much wanted to be there, I just

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Speaker 1: couldn't get out. Just city field four Noah synder Guard

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Speaker 1: ten strikeouts, seven shoutout, nine hits total besting Max Scherzer,

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Speaker 1: who you know struck out twenty in his last game

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Speaker 1: and just just you know, classic baseball in May. That

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Speaker 1: is very cool. Congratulations to the Medicine Nationals for that

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Speaker 1: display a year, the two of them as they play

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Speaker 1: out through the season. Just just congratulations. Used to be

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Speaker 1: with the emphasis on the word used to be Bloomberg surveillance.

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Speaker 1: This morning always brought you by Cone Resneck Accounting, Tax

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Speaker 1: Advisory and the affordable housing industry. Your business needs transformative

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Speaker 1: advice from the industry leading experts at Cone Resnick. Find

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Speaker 1: out why at Cone Resnick dot com. C O H

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Speaker 1: N R. E Z and I C. K. Sterling advances

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Speaker 1: a poll out saying they will remain up. They go,

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Speaker 1: I don't want to make too big a deal about it.

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Speaker 1: I mean it's up, but not, you know, not through

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Speaker 1: any resistance points that I would really greet. Stephen Klaus

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Speaker 1: Smith is out of European Equity reviewing strategy for JP

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Speaker 1: Morgan Asset Management. UM. He has looked at the back

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Speaker 1: in the fourth UM. Wonderful they have you on the show.

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Speaker 1: Can you be confident about being in equities now? With

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Speaker 1: all the distractions, whether it's Mats, Nationals baseball or it's druggy,

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Speaker 1: or it's a queen's speech, or they had to do

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Speaker 1: that thing at Manchester United where everybody had to leave

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Speaker 1: the stadium. Can I be confident in my equity strategy.

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Speaker 1: I think you can be. Um. The problem we've we've

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Speaker 1: got on the top of your here in Europe is

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Speaker 1: the political events that I'm asking the impervalent fundamentals. Domestic

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Speaker 1: European proctors sticking out nicely credits striking out nicely, but

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Speaker 1: the shadow being cast by the referendum UM means that

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Speaker 1: people are and they're not looking at the fundamentals. Yet

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Speaker 1: you mentioned Sterling in its move today. We think that

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Speaker 1: that the move in the Sterling Europe injury there's a

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Speaker 1: better measure of the lively outcome of the referendum than

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Speaker 1: the opinion polls are UM. Stirling is down by about

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Speaker 1: stand against the eurosince November, which is really to us

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Speaker 1: risk cream and being built in ahead of the referendum

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Speaker 1: because it's not justified by any movement can carry UM.

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Speaker 1: But I think that you know, there's bouncy you're seeing

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Speaker 1: today that is largely about a view that the lead

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Speaker 1: camp Um looks as if they are slightly seeding some

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Speaker 1: ground here to the remain camp. You know, I say

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Speaker 1: it's Mike within the you know, the emotion and the

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Speaker 1: headlines of the media Frenzy and Stephen. I noticed nest

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Speaker 1: Lee is a is a proxy of Europe. Is in

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Speaker 1: a horrific bear market, down four from its peak in

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Speaker 1: June the last year. Well, I mean, you know, ness

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Speaker 1: is hardly a European um stock. I mean it is

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Speaker 1: such an international company. H it's a Swiss based start

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Speaker 1: with less and one cent of itself in Switzerland. It's

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Speaker 1: more of a of a weather vane. Are depending what

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Speaker 1: continam sentiment was doing worldwide? Um? I think the you know,

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Speaker 1: the interestinct point about nesslay is that this is a

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Speaker 1: country company that is based in a strong currency country,

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Speaker 1: so they have to compete on quality rather than price,

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Speaker 1: and that's exactly what they've successfully done in the margins

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Speaker 1: had been really impressive. You mentioned earlier that politics is

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Speaker 1: nest and improvement of the fundamentals. The fundamentals for so

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Speaker 1: long in Europe were in uh, we're focused on austerity

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Speaker 1: and the impact that then had on the economies of

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Speaker 1: the European countries. Is that changing now? Are are we

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Speaker 1: starting to see government not take away from growth. Yes,

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Speaker 1: that's exactly what you're saying. And I think you know,

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Speaker 1: when people talk about about austerity and the fiscal measures

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Speaker 1: that were taken, there's there's a notion that austerity was

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Speaker 1: just about a sort of punishment regime. It wasn't. It

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Speaker 1: was about trying to improve the efficiency of public violences.

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Speaker 1: And in some countries where about that had got out

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Speaker 1: of control. You know, the great dividend the membership that

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Speaker 1: the membership but within the euro gave to some preval countries,

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Speaker 1: there was a drum at tech fall in the cost

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Speaker 1: of capital UM and you know, the coutorweight of that

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Speaker 1: needed to be in control of government expenditure. Where that

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Speaker 1: that failed to be the case, you know, a corrective

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Speaker 1: was applied by the market with an increase in spreads

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Speaker 1: against core Eurosin bond. That's now happened. I mean, we're

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Speaker 1: very unlikely to see a big expected defendative, partly because

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Speaker 1: coblem and finances are you know, they're they're pleased by

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Speaker 1: the the Stability Pact. But I do expect that um

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Speaker 1: the end to a contraction in government couples with an

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Speaker 1: improvement in credit is leading to an improvement in domestic

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Speaker 1: demrketing that evidence of that in places like Spain in

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Speaker 1: Italy where you know, in Italy, for instance, GDP growth

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Speaker 1: rates are fairly pedestrian, but consumer confidences are the sixteen

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Speaker 1: year high. How do you explain that? I would say

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Speaker 1: that it's all about It's all about reforms. Um. So

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Speaker 1: the reforms that have been put in place within Italy

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Speaker 1: as an example, are designed to make Italy a more

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Speaker 1: competitive country. You know, Italy as an economy, I think

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Speaker 1: it's a bad press. There are sections of the Italian

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Speaker 1: of the high quality engineering. Uh, they're extremely competitive, luxury goods. Um.

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Speaker 1: If you look at their market share of world exports,

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Speaker 1: it's actually unchanged at number four over the last ten

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Speaker 1: twenty years, which is extraordinary because of course emerging markets

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Speaker 1: are taken a much bigger share. So as everybody's seen

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Speaker 1: their market share contract, but literally hasn't. It's been held

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Speaker 1: back by a kind of ineffective system of government and

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Speaker 1: also by a banking sector that's not being really set

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Speaker 1: for purpose. And both of those things are being changed

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Speaker 1: by the Rensy government. So if if the outlook is improving,

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Speaker 1: is the outlook for companies for equities and and and

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Speaker 1: stark appreciations improving a sale basis. Look, you know, we're

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Speaker 1: active managers and loving active managers coming great opportunities. You know,

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Speaker 1: Europe is a very heterogeneous stock market. You know, it

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Speaker 1: doesn't all marks to the beat of the same dry

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Speaker 1: more or less more than whatever's going on in the world,

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Speaker 1: you can find an area of European stocks to investment

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Speaker 1: is going to beneffect from that and from our point

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Speaker 1: of view and our poants, we've been largely tilted towards

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Speaker 1: domestic European growth and away from global growth and emerging markets.

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Speaker 1: And that's worked pretty well. Didn't work in the first quarter,

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Speaker 1: but it's worked pretty well for most Last where are you?

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Speaker 1: Where are you on the European maltonatials a bigger visible

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Speaker 1: countries companies that Americans know. It really depends what what

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Speaker 1: industry they're in. You know, a lot of those names

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Speaker 1: would be a consumer defensive stucts. You know, you've mentioned Natale.

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Speaker 1: From our point of view, the exposure to emerging markets

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Speaker 1: has been an issue um and also the fact of

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Speaker 1: the dollar's been weakening in the last six to nine months.

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Speaker 1: In the trade rated basis. That's also an issue because

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Speaker 1: from the translation point of if they don't win. But

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Speaker 1: you know, where we're seeing real opportunities is in some

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Speaker 1: of the small mitcaps linear which are doing extremely well

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Speaker 1: as the domestic economy recovers. What about dividend grows? I mean,

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Speaker 1: if I look at siemens and I just again I'm

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Speaker 1: just using them as a visible proxy. Are you seeing

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Speaker 1: the board emphasis on double digit dividend growth or high

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Speaker 1: single digit divdend growth like we see in the United States? Um,

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Speaker 1: I think that that you know that the outlok for

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Speaker 1: divadend growth overall in the market is pretty unexciting this year.

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Speaker 1: But that's partly because you've got so much pressure on

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Speaker 1: dividend pots and the material sector mining materials and in energy,

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Speaker 1: you know, other other sect of the economy, and you're

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Speaker 1: you're think about the news on dividend and let's not

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Speaker 1: forget that there's one big area of the market where

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Speaker 1: davidend has been on the huge pressure on the last

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Speaker 1: four and that banks and as banks come to the

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Speaker 1: end of the restructuring process that they were involved in

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Speaker 1: through the trust test, more and more of them are

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Speaker 1: gating back to Penguin and said, does a new source

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Speaker 1: of dividend income that you're really my scripture. That's right,

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Speaker 1: we're wanting to go. I don't want to get you

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Speaker 1: in trouble with Mr diamond h this morning. But but

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Speaker 1: but Stephen, I look at the chart. I just put

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Speaker 1: this out folks on Bloomberg Radio, plus the Deutsche Bank Chartum,

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Speaker 1: these are ugly charts the last ten days of trading

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Speaker 1: for some of these beleaguered banks, big, small, whatever in Europe.

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Speaker 1: It really sobering. Do you assume it's a value trap

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Speaker 1: in European banking breaks the new laws or because this

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Speaker 1: is actually ultimate by the bid moment? You have to

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Speaker 1: look at all these stocks on on the basis of

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Speaker 1: their own merits. So you take Dodge Bank as an example.

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Speaker 1: Dodge Bank is not a large German retail bank. It's

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Speaker 1: a very large international investment bank. UM. So you know,

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Speaker 1: from that point of view, you you look at issues

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Speaker 1: that they had in a six business six thing come

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Speaker 1: currency trading business and thirst quarter um. Issues they've got

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Speaker 1: with the company structure. That's been rumors that they might

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Speaker 1: make rather more wholesale changes than than than they're so

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Speaker 1: far indicating. Um and you know, they had to have

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Speaker 1: a rights issue of fifteen sixteen months ago to radiate

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Speaker 1: in a half billion Europe. It's not clear totally that

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Speaker 1: that the fundraising phases announcement. But if you look for

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Speaker 1: a domestic franchise which is not for based on savings

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Speaker 1: and mortgages, a lot of those banks are doing pretty well. Well. Well,

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Speaker 1: we're going to come back to Stevens. Just want quick

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Speaker 1: question Stephen Michael Smith. Um is JP Morgan gonna buy

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Speaker 1: Deutsche Bank? Oh? I just wanted to be sure our listeners. Well,

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Speaker 1: he's listening right now, no doubt. Moving around Manhattan. We

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Speaker 1: will come back with Stephen maclos Smith. They don't cut

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Speaker 1: the cord in London. He is with JP Morgan Asset Management.

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Speaker 1: UH really really quite good on UH an opinion of

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Speaker 1: sectors and such within Europe. I like the idea of

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Speaker 1: Mikel's heterogeneous, that there's always an opportunity out there. Well,

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Speaker 1: if you're an act advantager and you better hope, so

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Speaker 1: you better hope there's something there, and certainly it is there.

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Speaker 1: A weaker euro this morning one three as we see

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Speaker 1: dollars strength not quite like what we saw earlier, but

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Speaker 1: there it is Brent forty nine O nine the Barrel.

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Speaker 1: Let's check out with Michael Barr and get the latest

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Speaker 1: world of national headlines. Mike, Tom, thank you very much.

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Speaker 1: Bernie Sanders, one of the Democratic primary in Oregon front run.

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Speaker 1: Hillary Clinton claimed victory in Kentucky in a razor of

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Speaker 1: finn contest. Clinton is just ninety two delegates shy of

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Speaker 1: winning the Democratic presidential nomination outright, including superdelegates. Donald Trump's

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Speaker 1: win of the Republican primary and Oregon put some just

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Speaker 1: seventy seven delegate shy of winning the nomination. Human Rights

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Speaker 1: Watch says Olivian city under Islamic state group control is

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Speaker 1: facing the same pattern of atrocities as similar areas in

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Speaker 1: Iraq and Syria. Abuses include beheadings, crucifixions, and floggings in

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Speaker 1: the city of Sirt. The six point seven earthquake has

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Speaker 1: said Ecuador, near the Pacific coast. The aftershock follows a

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Speaker 1: devastating quake last month. Global News twenty four hours a day,

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Speaker 1: powered by our twenty four hundred journalists more than a

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Speaker 1: hundred fifty bureaus around the world. Michael, Mike, I'm glad

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Speaker 1: you put the earthquake in there. I looked at it

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Speaker 1: carefully on the U S G S maps. I'm gonna

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Speaker 1: call it. And then the leadership of Ecuador has said

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Speaker 1: it's it's a quiet but sobering earthquake this morning. Not

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Speaker 1: a big deal, but nevertheless there it is six point seven.

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Speaker 1: This is Bloomberg Surveillance. The news update brought to you

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Speaker 1: business news twenty four hours a day at Bloomberg dot com,

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Speaker 1: the radio plus mobile lapp and on your radio. This

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Speaker 1: is a Bloomberg Business Flash and I'm Karen Moscow and

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Speaker 1: US dock index futures are extending declines this morning. Let's

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Speaker 1: go to the First Word Breaking news desk for today's

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Speaker 1: morning call. Here's Bill Maloney. Good morning Bill, Good morning Karen.

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Speaker 1: That's right. US features are under pressure and look for

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Speaker 1: retail weakness again as Target falls eight percent. Pre market

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Speaker 1: doubt if you just currently lower by thirty eight points,

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Speaker 1: SYSP dropped four and NAZAC Future declined by six the

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Speaker 1: US ten uel at one point seventy per cent on

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Speaker 1: the US economic front, IT ten thirty Energy inventories Edit

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Speaker 1: two p M f O m C minutes Regarding earnings

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Speaker 1: this morning, Staples Peach blows boosting your just EPs views,

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Speaker 1: steris EPs missed and target que to a just EPs

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Speaker 1: view missed estimates in other news, Anderson's rejected unsolicit offer

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Speaker 1: from h C two. Finally, some of your Wallstreet upgrades

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Speaker 1: and downgrades. X on Mobile race to buy over at Argus,

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Speaker 1: Discovery Communications cut to sell at City Group Children's Place,

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Speaker 1: and Tessa both raised by over at Woman Sachs and

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Speaker 1: vip shop cut the neutral over at JP. Morgan live

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Speaker 1: from the First Breaking News Desk on Boumloney Karen, thanks

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Speaker 1: Bill to hear live breaking news over your Bloomberg time

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Speaker 1: squawk to go on your terminal, that's s Q you

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Speaker 1: a w K go and that's a Bloomberg business flash,

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Speaker 1: Tom and Mike, Karen, thanks so much, bloombergs savanillance this morning.

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Speaker 1: Butch by Investco. Have you considered all of your investment alternatives?

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Speaker 1: your goals find out more investco dot com slash alternatives.

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Speaker 1: Stephen macil Smith was JP Morgan. Stephen, I have never

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Speaker 1: looked at the Borsa Atiliana and I guess it's the

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Speaker 1: foot see m IB index the Italian stock market. And

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Speaker 1: I say this within the backdrop of the interesting macroeconomics

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Speaker 1: and frankly cultural economics of Italy. Is Italy the mother

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Speaker 1: of all opportunities in Europe right now? I think if

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Speaker 1: the renting government succeeds in pushing through the reforms that

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Speaker 1: is trying to do, then you could see a relatively

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Speaker 1: dramatic change in the direction of the Italian economy of

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Speaker 1: the next time to twenty years. See if you look

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Speaker 1: back at the lost time attention ten timety years, they

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Speaker 1: suffered from extremely low levels of GDP grow, but a

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Speaker 1: lot's been holding them back. And one of those things

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Speaker 1: is the share cropcy of nonforming lens in the banking factor.

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Speaker 1: For the first time, they that Bunty package which has

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Speaker 1: a realistic chance of to address some of those short wings.

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Speaker 1: And you know, at the same time the ECB is

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Speaker 1: reducing the credit channel and trying to ensure the credit

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Speaker 1: the ten year track record this is in Euros folks

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Speaker 1: is a negative three percent per year, negative three point

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Speaker 1: one percent per year. That's enjoying dividends reinvestment. Without those dividends,

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Speaker 1: it's negative six point six per year. When you look

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Speaker 1: at an Italy is a rens the opportunity? What sector

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Speaker 1: do you look at to avoid that malaise of ten years? Well,

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Speaker 1: if ever you get down the market cat scale, it's

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Speaker 1: fair to say that bit more interesting companies you find.

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Speaker 1: So we can find and I was talking earlier about

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Speaker 1: opportunities and smaller netcats. We can see plenty of pos

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Speaker 1: in Italy, but the overall indexes is slightly strange in

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Speaker 1: its constitution because it's got a big old company that

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Speaker 1: it's got a big utility in that, it's got a

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Speaker 1: couple of big banks, it's got a big insurance company. UM.

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Speaker 1: But you don't get much exposed to the engineering and

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Speaker 1: real strength that you can see in some of the

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Speaker 1: smaller midcats, not through the headline and day. That's that's

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Speaker 1: good to be an active manager. He's been go down

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Speaker 1: the market cat scale and find the attractive opportunities. Yeah, Mike,

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Speaker 1: I'm I'm invested in the in the growny fund UM

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Speaker 1: that would be David Campari, Milano would be Core by

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Speaker 1: Core Holding. Well, I'm wondering what where the opportunity is

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Speaker 1: in Italy. Uh, in terms of sectors we keep hearing,

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Speaker 1: you know, European banks are toast and the worst of

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Speaker 1: the lot are the Italians. Yeah, I mean that there

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Speaker 1: are big issues within the Italian banking sets. But that

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Speaker 1: happened for you know, a very considerable period of time. UM.

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Speaker 1: But those issues are now in the process of being addressed.

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Speaker 1: So you have to uh, well, if I'll give you

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Speaker 1: three specific measures. One is the guarantee scheme to try

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Speaker 1: and close the gaps in the evaluation and mpls on

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Speaker 1: bank balance sheets and the secondary market. UM. The second

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Speaker 1: of the Atlanta san that's been put together in order

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Speaker 1: to recapitalize banks and buy npls. And the third is

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Speaker 1: an acceleration of the bankruptcy process so that you know,

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Speaker 1: easier to recover collateral on calling loans, recover collatteral on them.

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Speaker 1: You know, if those measures succeed in the way that

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Speaker 1: they're designed to UM, it would remove a big impediment

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Speaker 1: to growth of initially itself. Mike. Just so you know,

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Speaker 1: I'm doing my proper securities analysis. I saw the movie

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Speaker 1: Almost Famous for the fourteenth time again this weekend, and

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Speaker 1: I'm pleased to tell you that Kate Hudson is leading

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Speaker 1: the David Kompari calendar for two thousand sixteen. Moving Kompari forward.

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Speaker 1: That's my securities analysis for this morning, Kate Hudson. UH,

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Speaker 1: with high returns often comes high risk. I'm just wondering

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Speaker 1: if any of the periphery countries like Greece that have

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Speaker 1: been in the news so much present any investment opportunities

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Speaker 1: that you would in good conscience undertake at this point.

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Speaker 1: UM to be almost personally, we're not yet ready to

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Speaker 1: go back to Greece again, you know. I think those

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Speaker 1: problems are on the press as being of being thought about. UM.

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Speaker 1: I think that you know, things in in Greece can

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Speaker 1: perceived value positively over the next year or two years,

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Speaker 1: given the scale of the reforms that have been instint.

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Speaker 1: You know, the Greeks have been through a really, really

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Speaker 1: tough and difficult time. But if you look at the

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Speaker 1: flip side of the coin, um the grants that they

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Speaker 1: get in from the European Union through the solidarity programs

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Speaker 1: to fund infrastructure. They've been getting about five billion euros

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Speaker 1: a year into a one billion euro GDP economy um.

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Speaker 1: And if the younger plan comes off, that five billion

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Speaker 1: is going to increase. How does that shift if if

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Speaker 1: Madame Legarde gets a restructuring of Greece dead out to

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Speaker 1: two thousand forty UM. It depends what kind of restructuring

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Speaker 1: you're you're you're looking for. Greek dead has in a

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Speaker 1: sense already been somewhat restructured because the shape of the

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Speaker 1: loans that they get from from the Eurogroup interest free

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Speaker 1: for the first five years, and it means that the

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Speaker 1: debt payments to GDP are about the same level as

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Speaker 1: a country like France, rather than being up at four

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Speaker 1: pm for GDP as they are in a country like Portugal.

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Speaker 1: Thank you so much. Stephen mclows Smith, European Equity Strategy

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Speaker 1: GP Morgan Manager. That was just brilliant, Mike. That was

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Speaker 1: a great primer. And you know some of the mixture

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Speaker 1: there of actually trying to place capital, yeah, not to

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Speaker 1: get run over. And it's it's different in Europe because

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Speaker 1: you're dealing with governments on top of it, Yeah, as

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Speaker 1: opposed to the United States, where it's just you know,

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Speaker 1: the States and a company sales business, does business across

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Speaker 1: state lines. Yeah, we are getting uh more and more

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Speaker 1: depressed in the futures market here. Um as the morning

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Speaker 1: goes on. I'm not sure why the earnings reports that

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Speaker 1: I have seen have been better than forecast, which is

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Speaker 1: not unusual these But I think your point is well taken,

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Speaker 1: and not that I have it in front of me,

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Speaker 1: but the the stochastic, abrupt and brutal moves within lethargy,

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Speaker 1: not so much hour to hour, but every three days

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Speaker 1: this way that way, it's become a bit jarring in

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Speaker 1: the quiet, is how I would put it. In search

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Speaker 1: of economic data, and maybe in search of the headlines

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Speaker 1: Dudley and Fishers aking today Bloomberg of course, with their

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Speaker 1: road quality headlines on what they say coming up there.

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Speaker 1: With all due respect high I brought you by Landover

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