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Speaker 1: Global business news twenty four hours a day at Bloomberg

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Speaker 1: dot Com, the Radio plus mobile last, and on your radio.

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Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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Speaker 1: I'm Katherine Cowdery. The stock market is rebounding from a

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Speaker 1: two day sell off sparked by the British vote to

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Speaker 1: leave the European Union. There's optimism that policymakers are committed

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Speaker 1: to limit the fallout from the UK's exit. European Central

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Speaker 1: Bank President Mario Draggy said there is a common responsibility

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Speaker 1: to address the world's economic weaknesses. Both the Bank of

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Speaker 1: England and European Central Bank pledged to increase liquidity. We

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Speaker 1: take the markets every fifteen minutes throughout the trading day.

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Speaker 1: Down industrial average is up two hundred fifty two points

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Speaker 1: one and a half percent, trading at seventeen thousand three

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Speaker 1: d smp F I founded up thirty four points one

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Speaker 1: point seven percent to two thousand thirty four. Then AZDAC

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Speaker 1: is hired by ninety four points, a gain of two percent.

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Speaker 1: It's trading at eighty eight less. Texas intermediate crude oil

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Speaker 1: up a dollar fifty eight to barrel three point four percent.

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Speaker 1: Spot gold is down eight dollars ten cents announced at

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Speaker 1: thirteen sixteen sixty and a tenure treasury is down six

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Speaker 1: thirty seconds with the yield of one point four five

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Speaker 1: And that's Lumberg business flash. Catherine Cowderie, thank you so

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Speaker 1: very much. Stocks haven't quite a bounce back today, Bonds

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Speaker 1: holding in with just as some small losses, keeping that

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Speaker 1: benchmark tenure note yield down at one point four six percent.

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Speaker 1: That's not a very good way to earn income, is it.

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Speaker 1: That's why we are returning now to Catherine Cowdery in

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Speaker 1: our daily e t F Report to look at earning

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Speaker 1: income from dividend pairs in e t s. As the

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Speaker 1: Brexit fueled turmoil continues in global markets, investors might want

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Speaker 1: to consider income oriented e t s. That's a word

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Speaker 1: from Todd Rosenwood, director of et F Research for SMP

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Speaker 1: Global Market Intelligence. His advice look for dividend paying e

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Speaker 1: t s with limited exposure to Europe. He suggests considering

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Speaker 1: the pro shares SMP MidCap four hundred dividend Aristocrat et

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Speaker 1: F taker R e g L MidCap companies tend to

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Speaker 1: be more insulated from the economic nstrategy. That's that's taken

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Speaker 1: place in Europe, that's taking place in Japan and other

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Speaker 1: markets as a whole, so good growth potential with an

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Speaker 1: income component as well. Rosen Bluth also likes the wisdom

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Speaker 1: Tree Small Cap Dividend Fund. It has exposure to financial

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Speaker 1: services companies, industrial companies, consumer strestionary companies that are currently

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Speaker 1: paying dividend and, according to the wisdom Tree approach to

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Speaker 1: selecting securities, have room for dividend growth. That e t

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Speaker 1: F trades under the assemble d e S and has

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Speaker 1: one point three billion dollars in total assets. That's your

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Speaker 1: Bloomberg ETF report. I'm Katherine Cowdery. You're listening to Taking

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Speaker 1: Stock with pim Box at Jacolin Hays on Bloomberg Radio.

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Speaker 1: Brexit the impact on stocks, Uh, well, it's faded at

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Speaker 1: least for tow, but we don't know if it's really faded.

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Speaker 1: After two days of pounding after the vote, US equities

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Speaker 1: are now up, as you just heard Catherine Cattery reporting

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Speaker 1: anywhere from one and a half to two percent across

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Speaker 1: the board on the major market indexes. But you know,

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Speaker 1: if you've been watching the market lately or even for

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Speaker 1: a long time, you know you can't let one day

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Speaker 1: of rebound. Fool you. Headlines, of course are a big

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Speaker 1: vulnerability to the stock market and to the bond market.

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Speaker 1: Now Peter Cheer joins this now head of macro strategy

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Speaker 1: at Breen Capital right here in New York City, And

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Speaker 1: of course just to explain that little bit more, Peter,

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Speaker 1: because you know, when I say headlines, I mean headline risk.

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Speaker 1: I mean everybody's watching Brexit. What's Agleamarkell going to say

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Speaker 1: the Chancellor of Germany about her willingness to let the

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Speaker 1: EU negotiate a deal that's favorable. What's going to happen

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Speaker 1: within the Labor Party? So many ifs? What is what

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Speaker 1: is the expectation right now? Do you think in global

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Speaker 1: markets that could be upended by an unexpected turn on

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Speaker 1: the politics side? You know, I think for the last

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Speaker 1: twenty four hours, all of a sudden, I think people

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Speaker 1: are realizing a little bit that maybe Brexit isn't quite

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Speaker 1: as an immediate thing as they thought. You know, it's

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Speaker 1: kind of termed okay Brexit, and then there's almost a

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Speaker 1: sense that it's an immediate reaction, it's immediate filing. And

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Speaker 1: I think quickly we're finding out one this is going

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Speaker 1: to be delayed. Right, there's Cameron's already stepped down, so

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Speaker 1: they're gonna have to find a new leader. There's a

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Speaker 1: chance maybe there'll be a new election in England to

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Speaker 1: determine this. There's how does the ECB play out its

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Speaker 1: role in this? It seems like the ECB today into

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Speaker 1: that maybe promising more quie in the future if needed.

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Speaker 1: And then as Mirke going to continue a hardline, is

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Speaker 1: you're going to be aggressive against England? Or is there

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Speaker 1: the small chance that they start using this as a

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Speaker 1: way to back up because if you look countries, even

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Speaker 1: Merkel has that our own trouble in Germany about the

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Speaker 1: immigration issue. This immigration issue is not just you know,

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Speaker 1: a northern England issue. It's kind of hit all of Europe.

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Speaker 1: So this might be the chance to back up a

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Speaker 1: little bit and create a better union. All right, let's

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Speaker 1: say that we get through this, we get further, Maybe

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Speaker 1: she backs up, the UK calls a general election. Uh,

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Speaker 1: they get ready to elect their next prime minister. And

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Speaker 1: it seems that this really is heading towards the next step.

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Speaker 1: Can't go back, you can only go down the road.

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Speaker 1: Uh what about the dominoes that this could cause to

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Speaker 1: start falling. What is the risk there? What is the

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Speaker 1: pattern you see? And I think the pattern there would

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Speaker 1: be you know, Spain, they muddled through their election and

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Speaker 1: they came out okay, it actually wasn't as bad as

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Speaker 1: some feared. But I think you would see this kind

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Speaker 1: of ongoing demand from countries people to hey, let's challenge

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Speaker 1: whether we want to be part of this. And again,

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Speaker 1: I think England's actually the relatively easy part because they're

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Speaker 1: not part of the common currency, so it's actually much

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Speaker 1: easier to separate. If you start talking to with Spain

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Speaker 1: and Italy and they start threatening to pull out or

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Speaker 1: they want out, that becomes much much more complicated, and

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Speaker 1: I think that grinds things to a halt much faster

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Speaker 1: even than anything that's going on the UK. So I

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Speaker 1: think that's the real fear that you get this domino effect.

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Speaker 1: And I think within that, one thing we're all very

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Speaker 1: concerned about is had the central banks kind of lost

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Speaker 1: their mojo? Do they really have the ability to support this.

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Speaker 1: I think the FED lost a lot of credibility when

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Speaker 1: they put June on the table and then didn't have

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Speaker 1: the data to support that. So I think we're at

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Speaker 1: this real fragile state where if you start seeing these

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Speaker 1: dominoes in place that slow the global economy and this

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Speaker 1: lack of faith in these central bankers, you could have

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Speaker 1: a pretty severe sell off. And you know, we looked

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Speaker 1: potentially down to the S and P if we get

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Speaker 1: that scenario. I think to get there first we have

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Speaker 1: to see a that the dominoes are coming and be

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Speaker 1: there's just too many shorts in the market. I think

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Speaker 1: part of the reason today we're getting this big rally

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Speaker 1: is there were so many people prepared for Brexit that

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Speaker 1: it wasn't as damaging it could have been otherwise. And

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Speaker 1: now you're kind of getting the short squeeze lied led

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Speaker 1: by the VIX, which is going down dramatically. All the

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Speaker 1: VIX vts I think are buying back stock effectively or

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Speaker 1: implicitly through their actions. So that's part of the reason

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Speaker 1: we're getting this rally. It's not that it's over. We're

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Speaker 1: getting a bit of a short squeeze hedging, you say,

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Speaker 1: but there's a lot of hedging behind this stock market.

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Speaker 1: And even though it had to down days uh, it

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Speaker 1: could have been worse. That the declines really haven't taken

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Speaker 1: this that much lower than the market was before Brexit.

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Speaker 1: What is going on there? And again, I think we've

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Speaker 1: had this period time really since the February rally started

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Speaker 1: that no one's really liked this rally. And I think

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Speaker 1: we got lucky as a marketplace that we were pretty

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Speaker 1: close to the highs we are two thousand and seventy.

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Speaker 1: I think the Friday before the Brexit vote was occurring,

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Speaker 1: so you know, not last Friday, but the Friday before,

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Speaker 1: and I think that gave people out of confidence. Hey,

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Speaker 1: you know what, I'm not going to bet on Brexit

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Speaker 1: winning or on Remain winning because what's the upside. So

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Speaker 1: I think we got very lucky that this has been

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Speaker 1: a market that has not been well loved. I think

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Speaker 1: people are under invested. Cash balances remain very high. You've

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Speaker 1: seen all this options activity, but call ratios were very high,

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Speaker 1: and you've seen all these inflows into these zix et

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Speaker 1: s and e t N. So I think people were

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Speaker 1: very very well prepared for this Brexit vote, which is

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Speaker 1: why originally we only went from twenty thousand and down

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Speaker 1: to twenty thousand and fifty and even you know, two

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Speaker 1: thousand and ten, So it hasn't been that dramatic sort

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Speaker 1: of pull out because everyone wasn't positioned off sides. And

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Speaker 1: for myself, when I look at the Macel world, I'm

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Speaker 1: always looking at how people are positioned. I think the

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Speaker 1: fact that people are positioned so lightly on risk was

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Speaker 1: a relatively saving grace. And is letting us get this

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Speaker 1: rally today? Your single largest fear, everybody listened to Peter cheers,

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Speaker 1: single largest fear. I think that it's Junker in them.

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Speaker 1: Continue to talk, really show a EU that is completely

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Speaker 1: out of touch with reality, that the you know, politically light,

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Speaker 1: continue to elite, pretend to be or continue to act elite,

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Speaker 1: and I think that will drive this faster than they realize.

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Speaker 1: And you will very quickly see people pushing against Brussels,

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Speaker 1: wanting out. And I don't think the economic system is

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Speaker 1: sustainable right now, and if all these hedges get squeezed out,

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Speaker 1: that will be the worst. So I will be looking

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Speaker 1: tonight to see our hedges going down. Do you see

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Speaker 1: shares outstanding and some of these vix ets come down.

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Speaker 1: If you see that coupled with an adamant you know, EU,

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Speaker 1: or a EU that's out of touch, then yeah, I

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Speaker 1: think we have trouble. John Claude Jinger is the President

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Speaker 1: of the European Commission. That's why his words are so important.

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Speaker 1: What about a possible wave of credit losses in the

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Speaker 1: investment grade market? And you know, to me, if we

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Speaker 1: start this next wave of selling off, I am very

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Speaker 1: concerned that it starts hitting the investment grade space, not

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Speaker 1: necessarily because there will be default, but because there will

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Speaker 1: be marked market losses. And how I look at the world,

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Speaker 1: I look at a little bit through I call it

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Speaker 1: Maslow's hierarchy of credit bubbles. And we've kind of already

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Speaker 1: seen high yield sell offs and we've had a couple

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Speaker 1: in the past year. And what happens in hiw yield

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Speaker 1: sell offs we get volatilely in the equity market, but

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Speaker 1: it's usually contained. And the reason for that is I

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Speaker 1: think most people invest in high yield with their eyes

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Speaker 1: wide open, as they understand, hey, you know what, I

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Speaker 1: might lose five percent, but I'm trying to make eight

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Speaker 1: or nine percent, so I'll deal with that volatility. It's

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Speaker 1: the investment grade where people are only trying to make

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Speaker 1: three or four percent, where all of a sudd maybe

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Speaker 1: see this big spread widening and people lose two or

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Speaker 1: three percent, that all of a sudden, they question whether

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Speaker 1: they want to be in there, they sell. I think,

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Speaker 1: you know, just before us, they were talking about, you know,

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Speaker 1: dividend stocks, same sort of thing. There's been this huge

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Speaker 1: flight into so called safe stocks, all this yield hungry investments,

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Speaker 1: and I think they're very crowd of trade, and if

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Speaker 1: it starts selling off, I'm not sure who the buyer

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Speaker 1: of this is. So that's why this chips into investment grade,

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Speaker 1: which is a much bigger problem for the equity market.

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Speaker 1: Fifteen seconds. Your second biggest fear is that the stock

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Speaker 1: buyout blackout period starts, companies won't buy back stocks, and

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Speaker 1: that's a big issue potentially. Yeah, and I think that's

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Speaker 1: part of what happened in January February. Is one of

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Speaker 1: the big drivers of this market has been some companies

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Speaker 1: buying back their own stocks, are selling puts against their stocks,

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Speaker 1: and as they come into earning period, they get blacked out,

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Speaker 1: so they cannot do that during earning period. So again,

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Speaker 1: very susceptible to a January February type time frame exactly

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Speaker 1: as they start July, well, the j months, there's some

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Speaker 1: some potential pitfalls there. Thanks so much to Peter Cheer,

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Speaker 1: He's head of macro strategy at breen A Capital. He's

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Speaker 1: coming back. Dave Wilson are Stocks Editor to look at

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Speaker 1: movers and shakers with me. I'm Kathleen Hayes As is

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Speaker 1: taking stock on Bloomberg Radio.