WEBVTT - Surveillance: Global Growth Is Bottoming, Cantrill Says 0:00:09.840 --> 0:00:13.880 Welcome to the Bloomberg Surveillance Podcast. I'm term Keene jay Leie. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.400 Bloomberg dot Com, and of course, on the Bloomberg. On 0:00:27.480 --> 0:00:29.960 October eleventh, the United States signal did it had a 0:00:30.000 --> 0:00:32.600 Phase one trade deal with China. This was the President 0:00:32.600 --> 0:00:34.920 of the United States in the Oval Office with the 0:00:35.000 --> 0:00:37.680 Chinese delegation. He said, we have come to a deal 0:00:37.800 --> 0:00:40.479 pretty much subject to getting it written. It will take 0:00:40.520 --> 0:00:43.640 probably three weeks, four weeks or five weeks. That was 0:00:43.680 --> 0:00:46.680 five weeks ago. Five weeks later, and the Financial Times 0:00:46.760 --> 0:00:49.040 is reporting that both sides are still struggling to close 0:00:49.080 --> 0:00:51.159 the gap. They write that, according to people close to 0:00:51.200 --> 0:00:55.000 the talks, Trump administration officials are frustrated that China has 0:00:55.000 --> 0:00:58.279 not offered enough concessions to justify reduction in US tariffs 0:00:58.280 --> 0:01:01.560 on Chinese goods, along ending demand from Beijing that has 0:01:01.600 --> 0:01:05.560 become further entrenched in recent weeks. And yet, just as 0:01:05.640 --> 0:01:09.399 Larry Cudlow insist, we are coming down to the short strokes, 0:01:09.480 --> 0:01:12.480 we are in communication with them every single day, right 0:01:12.520 --> 0:01:15.200 now apparently that is enough to keep us at all 0:01:15.240 --> 0:01:17.520 time high school. But there was a news of the 0:01:17.720 --> 0:01:19.280 in the last dare too that they still haven't even 0:01:19.319 --> 0:01:22.640 agreed upon soybeans. I thought soybeans was the easy part 0:01:22.640 --> 0:01:25.080 of the deal. I thought intellectual property and other big 0:01:25.080 --> 0:01:27.080 issues were there going to be the really tough parts. 0:01:27.080 --> 0:01:30.559 But soybeans. The optimistic view of this market is unbelissable, 0:01:30.600 --> 0:01:33.080 isn't it? Here in New York City? I'm police to say, 0:01:33.120 --> 0:01:36.360 Howard Ward, give Belly Funds, Sea Hio of Growth Equities, 0:01:36.360 --> 0:01:38.560 a man that you were struggle to find on Wall 0:01:38.600 --> 0:01:40.360 Street at the moment, a man that doesn't believe in 0:01:40.480 --> 0:01:43.280 much of this and isn't getting behind the recent risk 0:01:43.360 --> 0:01:47.720 on rally. Howard, what's going on? Well, I think you've 0:01:47.760 --> 0:01:50.680 described the recent market action very accurately, But I do 0:01:50.800 --> 0:01:52.960 I think it's time for Larry Cover when the White House, 0:01:53.000 --> 0:01:56.200 to put up or shut up and stop manipulating the 0:01:56.240 --> 0:01:59.600 market by tweet and comment about how how good the 0:01:59.640 --> 0:02:02.200 talks are going. When the talks are done, tell us 0:02:02.280 --> 0:02:05.960 what you have. In the meantime, please keep quiet. This 0:02:06.080 --> 0:02:09.320 is really not, I think a professional way to be 0:02:09.400 --> 0:02:12.480 handling this situation. So is it sits here the market. 0:02:12.520 --> 0:02:14.799 It seems to be pricing in a phase one type 0:02:14.840 --> 0:02:16.360 of deal. We're not even sure what a phase one 0:02:16.360 --> 0:02:19.359 type of deal really will look like. So in the interim, 0:02:19.720 --> 0:02:24.960 how are you positioning yourself in the market? So um 0:02:25.040 --> 0:02:27.880 on the growth side, really, we've been pretty defensively positioned 0:02:27.919 --> 0:02:29.919 for the last year, and actually for all but the 0:02:30.000 --> 0:02:31.799 last five weeks or so. That's been a very good 0:02:31.800 --> 0:02:34.480 place to be on the last five weeks. So really 0:02:34.520 --> 0:02:38.360 going back to the announcement of the phase one deal 0:02:38.440 --> 0:02:43.079 that so seems so imminent five weeks ago. Uh. Since then, 0:02:43.120 --> 0:02:46.240 the defensives have underperformed. In the more cyclical stocks have 0:02:46.320 --> 0:02:48.280 done well. But I think we're at a point now 0:02:48.480 --> 0:02:52.160 where the pro cyclical rally over the last five six 0:02:52.200 --> 0:02:56.120 weeks is probably premature. I don't think the economics slow 0:02:56.160 --> 0:02:59.080 down has bottomed. I think we're we're looking at slower 0:02:59.080 --> 0:03:02.520 growth in the United States, in Japan, and Europe for 0:03:02.600 --> 0:03:06.160 next year. That's actually the consensus forecast, and earnings have 0:03:06.200 --> 0:03:08.959 stalled out. Earnings have contracted for the last couple of quarters. 0:03:08.960 --> 0:03:11.600 They're probably going to be flat to down this quarter. 0:03:11.639 --> 0:03:14.680 We're in an earnings recession. Meanwhile, the stocks are priced 0:03:14.720 --> 0:03:18.440 at seventeen eighteen times earnings, which is pretty full and 0:03:18.520 --> 0:03:20.639 market capp as a percentage of GDP is that an 0:03:20.639 --> 0:03:22.520 all time high, higher than it was at the peak 0:03:22.520 --> 0:03:25.600 in two thousand, which was the strongest bull market in history. 0:03:25.720 --> 0:03:26.959 With all that in mind, how and how do you 0:03:27.000 --> 0:03:29.600 position your staff gun into them. We've had so many 0:03:29.600 --> 0:03:31.720 people talking about buying the rest of the world load 0:03:31.800 --> 0:03:34.960 up on beta, by Europe, by Asia, by e M. 0:03:35.320 --> 0:03:36.680 What do you say back to them? What do you so? 0:03:36.920 --> 0:03:38.920 I think that you know, as a general rule, when 0:03:38.920 --> 0:03:40.680 the p M s and I want to say p 0:03:40.840 --> 0:03:43.160 M I s, I'm talking about the manufacturing p M 0:03:43.200 --> 0:03:45.240 I s because that they're the ones that give you 0:03:45.280 --> 0:03:47.880 the value added as an indicator, as a leading indicator. 0:03:47.920 --> 0:03:52.080 They create the beta in the economy and earnings and 0:03:52.520 --> 0:03:55.360 have been very helpful leading indicators when they're below fifty 0:03:55.680 --> 0:03:58.640 as they are and in downtrends. Okay, so maybe you 0:03:58.640 --> 0:04:01.200 had a minor uptick in the last month or two, 0:04:01.240 --> 0:04:05.240 there's still below fifty in down trends, and when earnings installed, 0:04:05.360 --> 0:04:08.520 this tends to be a dangerous time for stocks. So 0:04:08.640 --> 0:04:12.240 I would recommend that people not go after beta because 0:04:12.320 --> 0:04:15.000 when the p m izer declining, for example, the JP 0:04:15.200 --> 0:04:17.599 Morgan or Market m A r k I T Global 0:04:17.640 --> 0:04:20.200 Manufacturing p m I, when it's in a downtrend and 0:04:20.240 --> 0:04:23.960 below fifty, you tend to get pe compression. You tend 0:04:24.000 --> 0:04:27.080 to have stocks go down, and you want lower beta. 0:04:27.120 --> 0:04:29.680 You don't want higher beta when that when that indicator 0:04:29.720 --> 0:04:32.880 and is a downtrend, UH low beta tends to outperform. 0:04:33.320 --> 0:04:35.680 So I would stick with the low beta. And you know, 0:04:35.760 --> 0:04:38.560 all year long the emerging markets have underperformed, I wouldn't 0:04:38.560 --> 0:04:41.160 go after that. I wouldn't chase that. Particularly with what's 0:04:41.160 --> 0:04:43.520 going on in Hong Kong and China right now, we 0:04:43.600 --> 0:04:45.479 don't know how that's going to play out. China start 0:04:45.560 --> 0:04:47.560 up between a rock and a hard place. If they 0:04:47.640 --> 0:04:50.040 really clamped down in a military way with Hong Kong, 0:04:50.080 --> 0:04:52.240 that's gonna send a really chilling message to the world 0:04:52.240 --> 0:04:55.200 about doing business in Hong Kong. And if they back 0:04:55.279 --> 0:04:58.520 off and a seed to the demands of the demonstrators, 0:04:58.640 --> 0:05:00.680 well that sends perhaps a sets them up for some 0:05:00.720 --> 0:05:02.960 trouble in mainland China, which they don't want to invite. 0:05:03.240 --> 0:05:05.480 So they're in a really difficult situation. They're a little 0:05:05.480 --> 0:05:07.320 bit of a tight rope walk. We'll see how that 0:05:07.320 --> 0:05:09.240 plays out. So hard. I'm glad you brought up the 0:05:09.279 --> 0:05:11.280 p M s and the weakening p M e s. 0:05:11.520 --> 0:05:13.640 It kind of goes right back to the consumer puts 0:05:13.640 --> 0:05:16.440 more and more pressure on the consumer in this economy 0:05:16.440 --> 0:05:18.719 to keep things going. What's your view of the consumer 0:05:18.800 --> 0:05:21.040 right now? Well, the consumer has been a source of strength, 0:05:21.080 --> 0:05:23.680 and as you know, the labor market has been strong. 0:05:23.760 --> 0:05:27.320 It's been we've we've seen the unemployment rate it's sixty 0:05:27.400 --> 0:05:30.600 year lows, and the weekly unemployment claims have been bouncing 0:05:30.600 --> 0:05:33.400 along the bottom for several months. I do think it's 0:05:33.760 --> 0:05:37.200 it's it's exactly the time in this cycle, based on 0:05:37.240 --> 0:05:40.200 an analysis of the Fed funds rate with a two 0:05:40.240 --> 0:05:43.440 and a half year advance. That's because as the interest 0:05:43.520 --> 0:05:46.120 rate lags as considerable here in the market, we are 0:05:46.200 --> 0:05:48.640 exactly at the point in time when we should see 0:05:48.640 --> 0:05:51.680 an increase in weekly unemployment claims and right on q 0:05:52.360 --> 0:05:55.200 in the last two weeks we've seen increase five thousand 0:05:55.400 --> 0:05:58.480 two weeks ago, ten thousand or more this week, and 0:05:58.520 --> 0:06:01.320 the reading this week was the high reading since late June. 0:06:01.680 --> 0:06:03.720 It's a bit of a breakout in four week moving 0:06:03.760 --> 0:06:06.960 average technically bottomed in April but hasn't had much of 0:06:07.000 --> 0:06:09.960 an increase incident, but it is beginning to move higher now. 0:06:10.240 --> 0:06:13.040 If that number continues to advance, that is a real 0:06:13.080 --> 0:06:16.440 red flag for stocks because there's a strong negative correlation 0:06:16.560 --> 0:06:19.599 between weekly unemployment claims and the stock market. How would 0:06:19.640 --> 0:06:21.760 you think, and this would be a very contrarian cool 0:06:21.800 --> 0:06:23.520 at this point, that we might have seen a cyclical 0:06:23.560 --> 0:06:26.800 peak in the labor market in the United States of America. 0:06:27.600 --> 0:06:31.000 Oh absolutely, I think we're forming that as we speak, 0:06:31.120 --> 0:06:34.200 and look at the JOLTS data. Job opening data again 0:06:34.560 --> 0:06:37.360 is consistent with what would be arise and claims because 0:06:37.400 --> 0:06:40.080 the numbers for job openings have rolled over in recent weeks, 0:06:40.080 --> 0:06:42.320 consistent with full employment or a cyclical peak in the 0:06:42.400 --> 0:06:46.800 labor market, because those two things can be quite different. Well, 0:06:47.160 --> 0:06:50.320 full employment, of course is tricky because that gets you know, 0:06:50.440 --> 0:06:52.400 what is real full employment? When? When do you want 0:06:52.440 --> 0:06:54.400 to look at the labor participation rate which has been 0:06:54.480 --> 0:06:59.960 very sticky around seemingly forever. Uh, it has not increase 0:07:00.080 --> 0:07:01.719 the way you would have expected it to, you know, 0:07:01.880 --> 0:07:05.640 this far into an economic expansion, So cyclical peak, I 0:07:05.680 --> 0:07:07.840 think in employment is probably what we're a fun A 0:07:07.880 --> 0:07:11.040 word from you, then, Howard conviction call going into what 0:07:11.080 --> 0:07:13.120 do you do if you want to stay defensive the 0:07:13.200 --> 0:07:15.120 risk reward looking at the price of that story at 0:07:15.160 --> 0:07:17.280 the moment over the last six months or so, that 0:07:17.320 --> 0:07:20.480 story got quite expensive. What do you do? It's healthy. 0:07:20.600 --> 0:07:23.880 I think the healthcare sector, particularly the parts of health 0:07:23.880 --> 0:07:28.400 care that lagged this year, uh for political reasons HMS 0:07:28.480 --> 0:07:31.600 for example, and pharma fear of medicare for all. I 0:07:31.640 --> 0:07:34.440 don't think that's going to happen. And therefore I think 0:07:34.440 --> 0:07:36.680 there is some very good value in the United health 0:07:36.680 --> 0:07:39.200 cares and the humans and the Bristol Myers of the world. 0:07:39.360 --> 0:07:41.960 Howard would always great set thoughts, really thoughtful stuff as 0:07:41.960 --> 0:07:44.720 always get Ballly fund seat io of growth equities a 0:07:44.800 --> 0:07:47.120 test on equity market. But one man there, Paul Sweeney, 0:07:47.360 --> 0:07:50.320 the things you should still remain defensive because it's a 0:07:50.360 --> 0:07:53.920 little too premature to call the end of this global slump. 0:07:54.560 --> 0:07:58.440 Very very reasonable points Howard made, and uh, you know, clearly, 0:07:58.680 --> 0:08:00.560 I think it kind of comes down to the summer here. 0:08:00.560 --> 0:08:02.480 We know where the FED is, we know where earnings 0:08:02.520 --> 0:08:06.480 are um and you know, barring some major move on 0:08:06.520 --> 0:08:08.760 the trade front. Um, you know, it comes down to 0:08:08.840 --> 0:08:12.000 what can the you know this really this trade talks 0:08:12.200 --> 0:08:29.440 really deliver for the market. Do you remember the auto 0:08:29.520 --> 0:08:31.880 tariffs on Europe? What happened to them? We were meant 0:08:31.920 --> 0:08:34.640 to get an announcement on that this week. I haven't 0:08:34.679 --> 0:08:37.800 seen an announcement whatsoever. In fact, I've seen several reports 0:08:37.800 --> 0:08:40.280 that suggests the United States may well delay any decision 0:08:40.320 --> 0:08:42.840 on it. But I've seen nothing official from the administration. 0:08:42.880 --> 0:08:44.319 Not in the market for a new car, so I'm 0:08:44.600 --> 0:08:47.000 on that. Letby Cantroll, not on the market for a 0:08:47.040 --> 0:08:50.080 new car, Pimco's head of public policy. Let's be very 0:08:50.120 --> 0:08:53.760 little clarity on anything over the last five weeks except 0:08:54.080 --> 0:08:57.240 we're getting closer. We're getting closer, and we have heard that. 0:08:57.400 --> 0:08:59.400 We've heard that before. I mean, if you remember back 0:08:59.440 --> 0:09:02.640 in the spring, we were there to a to a 0:09:02.720 --> 0:09:05.880 much bigger and more comprehensive deal. Now we're just talking 0:09:05.880 --> 0:09:09.080 about a much skinnier deal. But even then, and this 0:09:09.160 --> 0:09:12.679 is what I've told our our clients that the things 0:09:12.720 --> 0:09:15.320 that we're asking China to do, even in sort of 0:09:15.360 --> 0:09:18.640 this scale down deal, are things that they've been very 0:09:18.640 --> 0:09:22.040 resistant to do. And um, I think it's a bit 0:09:22.160 --> 0:09:24.760 naive to think that they're going to change that posture, 0:09:24.840 --> 0:09:27.560 especially given that at least their perception is of the 0:09:27.559 --> 0:09:31.160 president that he's he's weaker domestically. They want to sort 0:09:31.160 --> 0:09:33.680 of wait this out, so they don't really have any 0:09:33.800 --> 0:09:36.839 incentive to give on these bigger structural issues. And it's 0:09:36.920 --> 0:09:39.320 those issues. I mean, there's a lot of press about 0:09:39.320 --> 0:09:42.120 the soybeans, but it's about i P enforcement, It's about 0:09:42.120 --> 0:09:44.640 forced technology transfer. It's these big things that have been 0:09:44.640 --> 0:09:47.679 the hang ups to to previous deals, um, that are 0:09:47.720 --> 0:09:49.600 still continue to be outstanding. Let me just take at 0:09:49.600 --> 0:09:51.600 each how those client conversations are going at the moment. 0:09:51.640 --> 0:09:54.520 For me, either investors thinking agreement with still materializes, or 0:09:54.559 --> 0:09:57.319 they just think that global growth bottoming. Isn't that dependent 0:09:57.360 --> 0:09:58.960 on a trade truce. What do they sink back to 0:09:58.960 --> 0:10:01.040 you in those conversation. Yeah, and you know, I think 0:10:01.080 --> 0:10:03.080 we would probably take issue with this idea that global 0:10:03.080 --> 0:10:05.199 growth is bottoming. Um. I mean, we think we still 0:10:05.200 --> 0:10:08.960 continue to see a deceleration. I think our view, at 0:10:09.040 --> 0:10:11.040 least in the US is that growth will probably bottom 0:10:11.440 --> 0:10:13.760 uh more in the first half of next year than 0:10:13.840 --> 0:10:15.960 it is now. But um, you know, with that with 0:10:16.000 --> 0:10:18.480 that aside. You know, I think I think the expectation 0:10:18.600 --> 0:10:20.360 right now, and I think where the market is priced 0:10:20.520 --> 0:10:23.480 is that we will get some sort of Phase one deal. Now, 0:10:23.559 --> 0:10:25.800 the way that I'm characterizing this with our clients is 0:10:25.840 --> 0:10:28.760 this is much more a reprieve from escalation than a 0:10:28.840 --> 0:10:31.200 de escalation. I mean, remember, we still have tariffs on 0:10:31.200 --> 0:10:33.920 three hundred sixty billion dollars of goods that is still 0:10:34.200 --> 0:10:38.760 impacting the real economic growth um and probably will continue 0:10:38.800 --> 0:10:40.959 to be a source of uncertainty for the markets as well. 0:10:41.000 --> 0:10:43.200 So even if we get a Phase one deal, I 0:10:43.200 --> 0:10:47.080 don't think uncertainty and tensions with China going away anytime soon, 0:10:47.400 --> 0:10:49.959 certainly not with this president, but even with a democratic president. 0:10:50.120 --> 0:10:52.400 So I think what we're saying is, yeah, this is 0:10:52.440 --> 0:10:54.319 you know, might be welcomed in terms of again a 0:10:54.440 --> 0:10:57.640 reprieve of escalation, but it still doesn't do anything, most 0:10:57.679 --> 0:11:00.320 likely about those you know, existing tariffs on that huge 0:11:00.320 --> 0:11:04.040 bulk of Chinese imports oliby. We still see these jarring 0:11:04.080 --> 0:11:06.720 in images coming out of Hong Kong, the unrested there. 0:11:06.760 --> 0:11:09.080 It seems to be not only not going away, but 0:11:09.120 --> 0:11:12.120 maybe even escalating. What does that do for China and 0:11:12.280 --> 0:11:15.200 their view of a trade deals. I gotta think it 0:11:15.240 --> 0:11:16.880 makes it maybe a little bit more pressure on them 0:11:16.880 --> 0:11:18.760 and maybe get something done. Yeah, And I think it's 0:11:18.760 --> 0:11:21.079 a it's a great point. And honestly, you know, I 0:11:21.120 --> 0:11:23.800 don't know how much the market has been focused on it. 0:11:23.800 --> 0:11:25.560 I think the market should be more focused on it, 0:11:26.200 --> 0:11:30.600 because this feels like, you know, a possible source of 0:11:30.640 --> 0:11:33.520 disruption honestly in terms of getting to the phase one deal, 0:11:34.200 --> 0:11:37.559 only because there's a bill that's making its way through Congress. 0:11:37.559 --> 0:11:40.400 It's already past the House. It's now something called you know, 0:11:40.440 --> 0:11:43.480 it's hotlined in the senate's expedited in the Senate for consideration. 0:11:43.960 --> 0:11:46.080 And and the reason why this is important is because 0:11:46.120 --> 0:11:48.640 the Chinese have said that they will retaliate if the 0:11:48.880 --> 0:11:51.679 you know, if Congress does pass this um. But to 0:11:51.720 --> 0:11:54.880 your point, does this make you know, President she you know, 0:11:54.960 --> 0:11:57.720 even more inclined for a deal. Maybe. But I also 0:11:57.760 --> 0:12:00.320 think it makes him probably more inclined not to look 0:12:00.360 --> 0:12:02.720 weak on the world stage. And I think that's actually 0:12:02.760 --> 0:12:05.000 attention for President Trump as well. I think they're both 0:12:05.280 --> 0:12:07.760 having some ways the same kind of domestic, you know, 0:12:07.800 --> 0:12:10.760 political pressures that they want sort of a deal for 0:12:10.800 --> 0:12:13.720 their both kind of economic purposes and their political purposes, 0:12:14.040 --> 0:12:16.040 but that neither of them can a forelooking weak either. 0:12:16.240 --> 0:12:18.080 Is there recognition on the China side though, that if 0:12:18.120 --> 0:12:20.439 they do go in, they send the troops into Hong Kong, 0:12:20.880 --> 0:12:22.720 that it blows up the prospect of getting a face 0:12:22.760 --> 0:12:26.640 one to temperate China's approach, that this trade truce is 0:12:26.679 --> 0:12:28.439 still lingering, that we don't have it yet, does it 0:12:28.520 --> 0:12:30.719 temper their approach? And you know from our folks who 0:12:30.760 --> 0:12:32.760 are on the ground and in Hong Kong, I mean 0:12:32.760 --> 0:12:35.319 they they've said that. I think you know they said that. Also, 0:12:35.559 --> 0:12:38.040 she has you know, a different set of um, you know, 0:12:38.080 --> 0:12:40.760 pressures not to go into from a fam military perspective 0:12:40.760 --> 0:12:43.400 as well. So it's not just because of the US 0:12:43.480 --> 0:12:46.199 China trade discussions, but I'm sure that is absolutely a factor. 0:12:46.360 --> 0:12:48.199 Let me super smart as always and always great to 0:12:48.200 --> 0:12:50.080 catch out with you. Let me cancel their pimpco head 0:12:50.320 --> 0:13:07.880 of public policy on the latest in Hong Kong, wrapping 0:13:07.960 --> 0:13:09.480 up all the numbers for us on places to say 0:13:09.520 --> 0:13:10.720 do you want to go stay in New York City? 0:13:10.720 --> 0:13:13.000 Blinberg corporate finance reporter and Molly Smith, what a wait 0:13:13.080 --> 0:13:15.720 we've had? We have, and it's not just investment grade, 0:13:15.720 --> 0:13:18.480 it's high yield too. It's the busiest weekend two months 0:13:18.520 --> 0:13:20.480 in the high yield market. And I think a lot 0:13:20.520 --> 0:13:23.840 of this goes to show that, uh, you know, it's 0:13:23.880 --> 0:13:25.880 just comes into all in borrowing costs at the end 0:13:25.880 --> 0:13:28.320 of the day, of course, and that you can say 0:13:28.360 --> 0:13:30.680 all that you want to, like companies have too much debt, 0:13:30.760 --> 0:13:32.920 leverage is so high, but when it's so cheap, like 0:13:33.000 --> 0:13:35.000 you kind of have to look at a corporate treasure 0:13:35.000 --> 0:13:37.000 of the CFO and say, why not can we talk 0:13:37.000 --> 0:13:40.280 about Emvy thirty billion dollars worth? Just how wow did 0:13:40.280 --> 0:13:42.360 that price? How big was that order? But what were 0:13:42.360 --> 0:13:45.000 your thoughts on that particular issue. So when we see 0:13:45.040 --> 0:13:47.160 these M and A deals come now, they're so well 0:13:47.200 --> 0:13:49.760 telegraphed that everyone and their moms knows this is coming. 0:13:50.000 --> 0:13:53.120 So we've been ready for Abby since last week and 0:13:53.400 --> 0:13:57.320 the orders definitely definitely reflected that and the price talk 0:13:57.360 --> 0:13:59.319 as well. So I think a lot of us were 0:13:59.320 --> 0:14:03.080 thinking that price talk at the onset was pretty tight actually, 0:14:03.120 --> 0:14:05.679 and I would say the order book fairly reflected that. 0:14:05.720 --> 0:14:07.800 We saw that it was about two and a half 0:14:07.880 --> 0:14:11.920 times oversubscribed, which seems pretty good, right, seventy seven billion 0:14:11.960 --> 0:14:14.880 dollars of orders on a thirty billion dollar offering, But 0:14:15.240 --> 0:14:18.160 we've seen some of these go way way higher, usually 0:14:18.160 --> 0:14:20.400 when the price talk comes with a lot bit more 0:14:20.400 --> 0:14:22.400 of a premium to investors. So I think this one 0:14:22.520 --> 0:14:24.960 was well telegraphed from the beginning, and that's why you 0:14:25.000 --> 0:14:27.040 didn't see the book blow up the way you see 0:14:27.080 --> 0:14:29.760 some of the other ones do. Who's buying this stuff? 0:14:30.200 --> 0:14:35.080 So this is, uh, I mean, pretty widely bought. When 0:14:35.120 --> 0:14:37.320 you see a huge issuance like this, there's so much 0:14:37.320 --> 0:14:40.520 pressure for the investment community to own it, especially if 0:14:40.520 --> 0:14:42.600 you're an index buyer, that this is going to make 0:14:42.680 --> 0:14:45.440 up however much percent of your benchmark now, and if 0:14:45.480 --> 0:14:48.000 you're not in it, I mean you're really missing out. 0:14:48.040 --> 0:14:50.040 So you have to be in on these orders. Somewhat 0:14:50.080 --> 0:14:52.320 counterintuitive for people outside of the market, isn't it that 0:14:52.320 --> 0:14:54.000 when a big issue with like this comes through the 0:14:54.040 --> 0:14:57.760 Molday issue, typically the more demand they will get. Molly, Yes, definitely, 0:14:57.960 --> 0:15:00.360 and it especially helps as well that this is a 0:15:00.440 --> 0:15:03.680 very high quality issue and also a mergery that makes 0:15:03.720 --> 0:15:05.640 sense to a lot of people. When we see a 0:15:05.720 --> 0:15:08.200 lot of these acquisition financing. A lot of people will 0:15:08.280 --> 0:15:10.080 roll their eyes and be like, you know, does this 0:15:10.160 --> 0:15:13.200 combination really makes sense? Should this one company be buying another? 0:15:13.480 --> 0:15:16.840 Are these expected synergies and cost cuts really going to 0:15:16.840 --> 0:15:18.680 be realized? And there's kind there can be a lot 0:15:18.680 --> 0:15:21.000 of doubt, but I think on this one, you know, 0:15:21.040 --> 0:15:23.200 I saw a lot of people in the investor community 0:15:23.200 --> 0:15:25.000 and the rating side as well, there's a lot of 0:15:25.000 --> 0:15:27.320 confidence that this is a really good tie up for 0:15:27.360 --> 0:15:29.720 Abby and Allergan, that it makes sense for both of them. 0:15:29.800 --> 0:15:31.920 If you've ever heard me on Bloomberg TV or Bloomberg 0:15:31.960 --> 0:15:33.760 Radio talk about the triple bs and break down a 0:15:33.760 --> 0:15:37.440 load of numbers, I stole those numbers from Molly Smith. Molly, 0:15:37.520 --> 0:15:39.480 you did some fantastic work in the last couple of 0:15:39.520 --> 0:15:42.040 years talking about how big that particular area the market 0:15:42.320 --> 0:15:45.320 has become. Was an interesting year for much of the 0:15:45.400 --> 0:15:47.760 year because many people turned around and said, at least 0:15:47.760 --> 0:15:49.800 the Waltons in the market turned around and said, you 0:15:49.800 --> 0:15:52.080 know what, there's no worry here. They'll get this sorted, 0:15:52.080 --> 0:15:54.120 they'll address it. And we started to talk about what 0:15:54.160 --> 0:15:56.960 people cheer of academy security is called a debt diet. 0:15:57.480 --> 0:15:59.400 What happened to the debt diet in the back half 0:15:59.440 --> 0:16:01.760 of this year, so it's a little mixed. And the 0:16:01.800 --> 0:16:05.000 main companies that needed to go on this diet have 0:16:05.280 --> 0:16:07.920 the biggest issuers in the index, the ones that have 0:16:07.960 --> 0:16:09.560 taken on the most amount of debt in the last 0:16:09.560 --> 0:16:15.000 several years, exactly A T and T InBev, Verizon, uh CVS, 0:16:15.080 --> 0:16:17.479 all of these ones. They're doing it. They are absolutely 0:16:17.480 --> 0:16:21.160 cutting their debt levels, getting leverage down. Being incredibly communicative 0:16:21.200 --> 0:16:23.720 of that, and a lot of that also coming because 0:16:23.920 --> 0:16:26.960 shareholders of all people are asking these companies to cut 0:16:26.960 --> 0:16:29.800 their debt levels. So a nice rare time when shareholder 0:16:29.800 --> 0:16:32.480 and bond interests are aligned. Do you never see this happen? 0:16:32.520 --> 0:16:35.240 The bond holders love it. But and but the thing 0:16:35.320 --> 0:16:37.880 is is that while these guys are kind of like 0:16:38.000 --> 0:16:41.320 Bellweathers for the whole index because they are just so huge, 0:16:41.600 --> 0:16:45.120 the index at a larger level, leverage is still broadly 0:16:45.280 --> 0:16:48.520 unchanged from a year ago. And that's when we look at, well, yes, 0:16:48.560 --> 0:16:51.160 we are still seeing all this issuance because rates are 0:16:51.160 --> 0:16:54.120 still so low, and why not keep issuing debt? Why 0:16:54.120 --> 0:16:57.120 not keep refinancing? So you mentioned the hield market in 0:16:57.200 --> 0:17:01.360 another big strong week here, So investors in that market, 0:17:01.640 --> 0:17:04.600 I guess they're pretty constructive on the economy because if 0:17:04.800 --> 0:17:07.360 if we do see an economy rollover next year, those 0:17:07.359 --> 0:17:09.199 are the kinds of companies that are going to be 0:17:09.320 --> 0:17:12.800 impacted first, higher leverage, less room. Right. Well, that's why 0:17:12.800 --> 0:17:15.160 we've definitely seen an up and quality trade and high 0:17:15.200 --> 0:17:17.879 yield for sure, and that double Bees that's the highest 0:17:17.960 --> 0:17:21.199 ratings tier in high yield, has been so rich and 0:17:21.240 --> 0:17:23.800 a lot of people would say it's just very overpriced 0:17:23.880 --> 0:17:27.359 right now, a really crowded trade. So that's getting a 0:17:27.400 --> 0:17:29.640 little bit tight right now. And I think you see 0:17:29.680 --> 0:17:32.480 more people looking for value in single Bees, which is 0:17:32.520 --> 0:17:35.560 that next ratings tier down. You see fewer people though, 0:17:35.640 --> 0:17:38.840 going for triple c's, that's the lowest ratings bucket in 0:17:39.080 --> 0:17:41.400 high yield. But as we were just talking about, we 0:17:41.400 --> 0:17:44.800 were speaking with Colin Robertson of Northern Trusts this week 0:17:44.880 --> 0:17:47.280 and he's saying, look, if you think the economy still 0:17:47.280 --> 0:17:49.199 got room to run, which he does, this is a 0:17:49.240 --> 0:17:51.800 great time to buy triple c's, that the weakest credits 0:17:51.960 --> 0:17:54.600 should be boosted by an economy that's still running. He's 0:17:54.600 --> 0:17:56.440 had some pretty contribuing cols over in the last couple 0:17:56.440 --> 0:17:58.120 of years. Remember, we came on one of the problegrams 0:17:58.160 --> 0:18:00.840 with me maybe about eighteen months ago, said one fifty 0:18:01.080 --> 0:18:02.880 US ten year, and we were in and around three 0:18:02.880 --> 0:18:05.480 percent at the time, and we came down to one fifty. 0:18:05.640 --> 0:18:07.920 So I want to how his credit call turns out. Molly, 0:18:07.960 --> 0:18:10.040 great to catch up. Whether your great workouts are always 0:18:10.119 --> 0:18:13.080 always making us all smarter here at Bloomberg, Bloomberg Corporate 0:18:13.080 --> 0:18:29.560 Finance reporter Molly Smith there line for the Bloomberg Interactive 0:18:29.560 --> 0:18:31.719 BROCA studios here in New York City. And let's get 0:18:31.760 --> 0:18:34.800 you some Bloomberg opinion, shall we? The only word you 0:18:34.840 --> 0:18:38.399 need to explain emerging markets China. It's fear of a 0:18:38.480 --> 0:18:41.720 Minsky moment is driving a tectonic shift in the availability 0:18:41.720 --> 0:18:44.119 of money. And how about this for a lead, Let's 0:18:44.440 --> 0:18:49.120 get liquid. Isn't that fantastic? John Author's Bloomberg Opinion columnists 0:18:49.160 --> 0:18:51.080 joining us on the phone. I'm pleased to say, John, 0:18:51.119 --> 0:18:53.720 talk to me about it, explore it a little bit 0:18:53.720 --> 0:18:57.359 further for us. Right, What is very interesting, given how 0:18:57.440 --> 0:19:00.240 much time we spent talking about geo politics, treat wars 0:19:00.280 --> 0:19:03.480 and stuff, is that, in fact, if you just look 0:19:04.280 --> 0:19:09.359 at straightforward provision of liquidity across the world. It's that's 0:19:10.080 --> 0:19:13.919 very obviously complained, explains the great majority of everything that 0:19:13.960 --> 0:19:16.879 we've been seeing in markets this year. In a NUTSHELLUS 0:19:17.000 --> 0:19:20.919 we generally know developed markets, you've seen a big turnaround, 0:19:20.920 --> 0:19:24.240 a huge extra turning on of the tap of liquidity 0:19:24.240 --> 0:19:28.239 in the last few months. What is less appreciated is 0:19:28.320 --> 0:19:32.240 that you're seeing the exact reverse in emerging markets. And 0:19:32.240 --> 0:19:35.439 the critical thing here is China. At the beginning of 0:19:35.480 --> 0:19:40.920 the year, there was this strong belief over strong bet 0:19:41.040 --> 0:19:43.119 that the p VOC, the People's Bank of China, was 0:19:43.160 --> 0:19:45.000 going to turn on the taps again, as it's done 0:19:45.280 --> 0:19:49.959