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Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters.
Speaker 1: I'm Katherine Cowdery. The stock market is rebounding from a
Speaker 1: two day sell off sparked by the British vote to
Speaker 1: leave the European Union. There's optimism that policymakers are committed
Speaker 1: to limit the fallout from the UK's exit. European Central
Speaker 1: Bank President Mario Draggy said there is a common responsibility
Speaker 1: to address the world's economic weaknesses. Both the Bank of
Speaker 1: England and European Central Bank pledged to increase liquidity. We
Speaker 1: take the markets every fifteen minutes throughout the trading day.
Speaker 1: Down industrial average is up two hundred fifty two points
Speaker 1: one and a half percent, trading at seventeen thousand three
Speaker 1: d smp F I founded up thirty four points one
Speaker 1: point seven percent to two thousand thirty four. Then AZDAC
Speaker 1: is hired by ninety four points, a gain of two percent.
Speaker 1: It's trading at eighty eight less. Texas intermediate crude oil
Speaker 1: up a dollar fifty eight to barrel three point four percent.
Speaker 1: Spot gold is down eight dollars ten cents announced at
Speaker 1: thirteen sixteen sixty and a tenure treasury is down six
Speaker 1: thirty seconds with the yield of one point four five
Speaker 1: And that's Lumberg business flash. Catherine Cowderie, thank you so
Speaker 1: very much. Stocks haven't quite a bounce back today, Bonds
Speaker 1: holding in with just as some small losses, keeping that
Speaker 1: benchmark tenure note yield down at one point four six percent.
Speaker 1: That's not a very good way to earn income, is it.
Speaker 1: That's why we are returning now to Catherine Cowdery in
Speaker 1: our daily e t F Report to look at earning
Speaker 1: income from dividend pairs in e t s. As the
Speaker 1: Brexit fueled turmoil continues in global markets, investors might want
Speaker 1: to consider income oriented e t s. That's a word
Speaker 1: from Todd Rosenwood, director of et F Research for SMP
Speaker 1: Global Market Intelligence. His advice look for dividend paying e
Speaker 1: t s with limited exposure to Europe. He suggests considering
Speaker 1: the pro shares SMP MidCap four hundred dividend Aristocrat et
Speaker 1: F taker R e g L MidCap companies tend to
Speaker 1: be more insulated from the economic nstrategy. That's that's taken
Speaker 1: place in Europe, that's taking place in Japan and other
Speaker 1: markets as a whole, so good growth potential with an
Speaker 1: income component as well. Rosen Bluth also likes the wisdom
Speaker 1: Tree Small Cap Dividend Fund. It has exposure to financial
Speaker 1: services companies, industrial companies, consumer strestionary companies that are currently
Speaker 1: paying dividend and, according to the wisdom Tree approach to
Speaker 1: selecting securities, have room for dividend growth. That e t
Speaker 1: F trades under the assemble d e S and has
Speaker 1: one point three billion dollars in total assets. That's your
Speaker 1: Bloomberg ETF report. I'm Katherine Cowdery. You're listening to Taking
Speaker 1: Stock with pim Box at Jacolin Hays on Bloomberg Radio.
Speaker 1: Brexit the impact on stocks, Uh, well, it's faded at
Speaker 1: least for tow, but we don't know if it's really faded.
Speaker 1: After two days of pounding after the vote, US equities
Speaker 1: are now up, as you just heard Catherine Cattery reporting
Speaker 1: anywhere from one and a half to two percent across
Speaker 1: the board on the major market indexes. But you know,
Speaker 1: if you've been watching the market lately or even for
Speaker 1: a long time, you know you can't let one day
Speaker 1: of rebound. Fool you. Headlines, of course are a big
Speaker 1: vulnerability to the stock market and to the bond market.
Speaker 1: Now Peter Cheer joins this now head of macro strategy
Speaker 1: at Breen Capital right here in New York City, And
Speaker 1: of course just to explain that little bit more, Peter,
Speaker 1: because you know, when I say headlines, I mean headline risk.
Speaker 1: I mean everybody's watching Brexit. What's Agleamarkell going to say
Speaker 1: the Chancellor of Germany about her willingness to let the
Speaker 1: EU negotiate a deal that's favorable. What's going to happen
Speaker 1: within the Labor Party? So many ifs? What is what
Speaker 1: is the expectation right now? Do you think in global
Speaker 1: markets that could be upended by an unexpected turn on
Speaker 1: the politics side? You know, I think for the last
Speaker 1: twenty four hours, all of a sudden, I think people
Speaker 1: are realizing a little bit that maybe Brexit isn't quite
Speaker 1: as an immediate thing as they thought. You know, it's
Speaker 1: kind of termed okay Brexit, and then there's almost a
Speaker 1: sense that it's an immediate reaction, it's immediate filing. And
Speaker 1: I think quickly we're finding out one this is going
Speaker 1: to be delayed. Right, there's Cameron's already stepped down, so
Speaker 1: they're gonna have to find a new leader. There's a
Speaker 1: chance maybe there'll be a new election in England to
Speaker 1: determine this. There's how does the ECB play out its
Speaker 1: role in this? It seems like the ECB today into
Speaker 1: that maybe promising more quie in the future if needed.
Speaker 1: And then as Mirke going to continue a hardline, is
Speaker 1: you're going to be aggressive against England? Or is there
Speaker 1: the small chance that they start using this as a
Speaker 1: way to back up because if you look countries, even
Speaker 1: Merkel has that our own trouble in Germany about the
Speaker 1: immigration issue. This immigration issue is not just you know,
Speaker 1: a northern England issue. It's kind of hit all of Europe.
Speaker 1: So this might be the chance to back up a
Speaker 1: little bit and create a better union. All right, let's
Speaker 1: say that we get through this, we get further, Maybe
Speaker 1: she backs up, the UK calls a general election. Uh,
Speaker 1: they get ready to elect their next prime minister. And
Speaker 1: it seems that this really is heading towards the next step.
Speaker 1: Can't go back, you can only go down the road.
Speaker 1: Uh what about the dominoes that this could cause to
Speaker 1: start falling. What is the risk there? What is the
Speaker 1: pattern you see? And I think the pattern there would
Speaker 1: be you know, Spain, they muddled through their election and
Speaker 1: they came out okay, it actually wasn't as bad as
Speaker 1: some feared. But I think you would see this kind
Speaker 1: of ongoing demand from countries people to hey, let's challenge
Speaker 1: whether we want to be part of this. And again,
Speaker 1: I think England's actually the relatively easy part because they're
Speaker 1: not part of the common currency, so it's actually much
Speaker 1: easier to separate. If you start talking to with Spain
Speaker 1: and Italy and they start threatening to pull out or
Speaker 1: they want out, that becomes much much more complicated, and
Speaker 1: I think that grinds things to a halt much faster
Speaker 1: even than anything that's going on the UK. So I
Speaker 1: think that's the real fear that you get this domino effect.
Speaker 1: And I think within that, one thing we're all very
Speaker 1: concerned about is had the central banks kind of lost
Speaker 1: their mojo? Do they really have the ability to support this.
Speaker 1: I think the FED lost a lot of credibility when
Speaker 1: they put June on the table and then didn't have
Speaker 1: the data to support that. So I think we're at
Speaker 1: this real fragile state where if you start seeing these
Speaker 1: dominoes in place that slow the global economy and this
Speaker 1: lack of faith in these central bankers, you could have
Speaker 1: a pretty severe sell off. And you know, we looked
Speaker 1: potentially down to the S and P if we get
Speaker 1: that scenario. I think to get there first we have
Speaker 1: to see a that the dominoes are coming and be
Speaker 1: there's just too many shorts in the market. I think
Speaker 1: part of the reason today we're getting this big rally
Speaker 1: is there were so many people prepared for Brexit that
Speaker 1: it wasn't as damaging it could have been otherwise. And
Speaker 1: now you're kind of getting the short squeeze lied led
Speaker 1: by the VIX, which is going down dramatically. All the
Speaker 1: VIX vts I think are buying back stock effectively or
Speaker 1: implicitly through their actions. So that's part of the reason
Speaker 1: we're getting this rally. It's not that it's over. We're
Speaker 1: getting a bit of a short squeeze hedging, you say,
Speaker 1: but there's a lot of hedging behind this stock market.
Speaker 1: And even though it had to down days uh, it
Speaker 1: could have been worse. That the declines really haven't taken
Speaker 1: this that much lower than the market was before Brexit.
Speaker 1: What is going on there? And again, I think we've
Speaker 1: had this period time really since the February rally started
Speaker 1: that no one's really liked this rally. And I think
Speaker 1: we got lucky as a marketplace that we were pretty
Speaker 1: close to the highs we are two thousand and seventy.
Speaker 1: I think the Friday before the Brexit vote was occurring,
Speaker 1: so you know, not last Friday, but the Friday before,
Speaker 1: and I think that gave people out of confidence. Hey,
Speaker 1: you know what, I'm not going to bet on Brexit
Speaker 1: winning or on Remain winning because what's the upside. So
Speaker 1: I think we got very lucky that this has been
Speaker 1: a market that has not been well loved. I think
Speaker 1: people are under invested. Cash balances remain very high. You've
Speaker 1: seen all this options activity, but call ratios were very high,
Speaker 1: and you've seen all these inflows into these zix et
Speaker 1: s and e t N. So I think people were
Speaker 1: very very well prepared for this Brexit vote, which is
Speaker 1: why originally we only went from twenty thousand and down
Speaker 1: to twenty thousand and fifty and even you know, two
Speaker 1: thousand and ten, So it hasn't been that dramatic sort
Speaker 1: of pull out because everyone wasn't positioned off sides. And
Speaker 1: for myself, when I look at the Macel world, I'm
Speaker 1: always looking at how people are positioned. I think the
Speaker 1: fact that people are positioned so lightly on risk was
Speaker 1: a relatively saving grace. And is letting us get this
Speaker 1: rally today? Your single largest fear, everybody listened to Peter cheers,
Speaker 1: single largest fear. I think that it's Junker in them.
Speaker 1: Continue to talk, really show a EU that is completely
Speaker 1: out of touch with reality, that the you know, politically light,
Speaker 1: continue to elite, pretend to be or continue to act elite,
Speaker 1: and I think that will drive this faster than they realize.
Speaker 1: And you will very quickly see people pushing against Brussels,
Speaker 1: wanting out. And I don't think the economic system is
Speaker 1: sustainable right now, and if all these hedges get squeezed out,
Speaker 1: that will be the worst. So I will be looking
Speaker 1: tonight to see our hedges going down. Do you see
Speaker 1: shares outstanding and some of these vix ets come down.
Speaker 1: If you see that coupled with an adamant you know, EU,
Speaker 1: or a EU that's out of touch, then yeah, I
Speaker 1: think we have trouble. John Claude Jinger is the President
Speaker 1: of the European Commission. That's why his words are so important.
Speaker 1: What about a possible wave of credit losses in the
Speaker 1: investment grade market? And you know, to me, if we
Speaker 1: start this next wave of selling off, I am very
Speaker 1: concerned that it starts hitting the investment grade space, not
Speaker 1: necessarily because there will be default, but because there will
Speaker 1: be marked market losses. And how I look at the world,
Speaker 1: I look at a little bit through I call it
Speaker 1: Maslow's hierarchy of credit bubbles. And we've kind of already
Speaker 1: seen high yield sell offs and we've had a couple
Speaker 1: in the past year. And what happens in hiw yield
Speaker 1: sell offs we get volatilely in the equity market, but
Speaker 1: it's usually contained. And the reason for that is I
Speaker 1: think most people invest in high yield with their eyes
Speaker 1: wide open, as they understand, hey, you know what, I
Speaker 1: might lose five percent, but I'm trying to make eight
Speaker 1: or nine percent, so I'll deal with that volatility. It's
Speaker 1: the investment grade where people are only trying to make
Speaker 1: three or four percent, where all of a sudd maybe
Speaker 1: see this big spread widening and people lose two or
Speaker 1: three percent, that all of a sudden, they question whether
Speaker 1: they want to be in there, they sell. I think,
Speaker 1: you know, just before us, they were talking about, you know,
Speaker 1: dividend stocks, same sort of thing. There's been this huge
Speaker 1: flight into so called safe stocks, all this yield hungry investments,
Speaker 1: and I think they're very crowd of trade, and if
Speaker 1: it starts selling off, I'm not sure who the buyer
Speaker 1: of this is. So that's why this chips into investment grade,
Speaker 1: which is a much bigger problem for the equity market.
Speaker 1: Fifteen seconds. Your second biggest fear is that the stock
Speaker 1: buyout blackout period starts, companies won't buy back stocks, and
Speaker 1: that's a big issue potentially. Yeah, and I think that's
Speaker 1: part of what happened in January February. Is one of
Speaker 1: the big drivers of this market has been some companies
Speaker 1: buying back their own stocks, are selling puts against their stocks,
Speaker 1: and as they come into earning period, they get blacked out,
Speaker 1: so they cannot do that during earning period. So again,
Speaker 1: very susceptible to a January February type time frame exactly
Speaker 1: as they start July, well, the j months, there's some
Speaker 1: some potential pitfalls there. Thanks so much to Peter Cheer,
Speaker 1: He's head of macro strategy at breen A Capital. He's
Speaker 1: coming back. Dave Wilson are Stocks Editor to look at
Speaker 1: movers and shakers with me. I'm Kathleen Hayes As is
Speaker 1: taking stock on Bloomberg Radio.