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Speaker 1: Good morning.

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Speaker 2: It's Wednesday, the twenty ninth of November here in London.

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Speaker 2: This is the BlueBag Daybreak Here podcast. I'm Caroline Hepcare.

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Speaker 1: And I'm Stephen Carroll. Coming up today. Charlie Munger, the

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Speaker 1: man who helped Warren Buffett bils Berkshire Hathaway into an empire,

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Speaker 1: has died at the age of ninety nine.

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Speaker 2: Two fed hawks hint at a rate hold. As Bill

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Speaker 2: Ackman tells Bloomberg he believes a cut is coming soon.

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Speaker 1: Plus credit who the eighty one bond market bounces back

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Speaker 1: after its credit sweet induced implosion.

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Speaker 2: Let's start with a roundup of our top stories. The

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Speaker 2: famed investor Charles Munger has died at the age of

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Speaker 2: ninety nine. As Warren Buffett's right hand man for almost

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Speaker 2: sixty years, he helped transform Berkshire Hathaway from a failing

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Speaker 2: textile maker into a global conglomerate. Bloomberg Intelligence Is senior

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Speaker 2: analyst Matthew Palazzola remembers the pair's special relationship.

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Speaker 3: For the company that they've built. You know, they talk

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Speaker 3: about it actually being quote easy, you know, which is

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Speaker 3: I guess a very humble understatement. But I think they

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Speaker 3: buy good companies. They let them run, and you know,

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Speaker 3: this machine they've built will will go on for you know,

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Speaker 3: all time.

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Speaker 2: Really, Bloomberg Intelligence is Matthew Pallazola. They're talking about Charlie

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Speaker 2: Munger's impact on Berkshire Hathaway. Between nineteen sixty five and

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Speaker 2: twenty twenty two, the firm's share price rose by three

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Speaker 2: point eight million percent. That's compared to a gain of

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Speaker 2: almost twenty five thousand percent for the S and P.

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Speaker 1: Five hundred two of the Federal Reserve's most hawkish rate

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Speaker 1: setters have signaled that they could be comfortable holding steady

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Speaker 1: for now. The comments reinforcing expectations that the Central Bank's

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Speaker 1: current hiking cycle is over. Here's what Governor Christopher Waller

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Speaker 1: told the American Enterprise Institute in Washington.

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Speaker 4: I am increasingly confident the policy is currently well positioned

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Speaker 4: to slow the economy and get inflation back to two percent.

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Speaker 1: Whileer's view is echoed by fellow FYMC member Governor Michelle Bowman,

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Speaker 1: who says she remains willing to support rate hikes if

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Speaker 1: inflation progress stalls, but stopped short of endorsing an increase

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Speaker 1: next month.

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Speaker 5: Well.

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Speaker 2: Meanwhile, the billionaire investor Bill Ackman is betting that the

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Speaker 2: FED will begin cutting interest rates sooner than markets are

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Speaker 2: predicting and policymakers are signaling. Speaking to David Rubinstein for Bloomberg,

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Speaker 2: the Pershing Square founder said that such a move could

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Speaker 2: happen in the coming months.

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Speaker 6: I think there's a risk of a hard landing if

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Speaker 6: the FED doesn't start cutting rates, you know, pretty soon.

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Speaker 6: So I think the market expects sometime middle of next year.

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Speaker 6: I think it's more likely, probably as early as key one.

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Speaker 2: Bill Ackman's comments are at odds with traders who are

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Speaker 2: fully pricing in a first rate cut in June, with

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Speaker 2: the chance of a cut in May at about eighty percent.

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Speaker 2: The activist investor also told David Rubinstein's Peer to Peer

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Speaker 2: Conversation that he's already seeing evidence of a weakening US economy.

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Speaker 1: Sadi Prince al Walid bin Talal has sold a four

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Speaker 1: hundred and fifty million dollar stake in City Group to

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Speaker 1: his investment company, Kingdom Holdings. The share persons purchase raises

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Speaker 1: the Kingdom's stake in the bank to two point two percent.

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Speaker 1: Al Willide's relationship with City Group dates back to nineteen

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Speaker 1: ninety one, when he invested five hundred and ninety million

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Speaker 1: dollars to become the bank's largest shareholder. His stature on

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Speaker 1: the global investment stage has faded since twenty seventeen, when

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Speaker 1: he was temporarily imprisoned without charge as part of an

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Speaker 1: anti corruption drive by the Sadi Crown Prince.

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Speaker 2: Israel says that Harmas has turned over twelve more hostages

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Speaker 2: to the Red Cross. The release comes despite earlier competing

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Speaker 2: claims of violations of the temporary truce in the war.

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Speaker 2: That agreement has been extended by two days and is

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Speaker 2: now due to end tomorrow morning. This Gaza residence says

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Speaker 2: he wants the ceasefire to continue.

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Speaker 3: I'm hard to give him together.

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Speaker 4: Thank goodness.

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Speaker 5: Now we're in the truce and hopefully the truth will

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Speaker 5: be the long one. To be honest with you, Gaza

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Speaker 5: has become uninhabitable.

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Speaker 2: The voice of someone living in Gaza. U s Fifis

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Speaker 2: are seeking to further extend the ceasfar and hostage releases.

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Speaker 2: Sector of Saint Anthony Blincoln is due to visit Israel

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Speaker 2: and the West Bank later this week.

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Speaker 1: Morgan Stanley is trying to overturn a French court ruling

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Speaker 1: ordering it to pay one point four million euros in

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Speaker 1: bonuses to a banker who quit the firm. The case

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Speaker 1: at the Paris Court of Appeals is considering whether or

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Speaker 1: not the bank can refuse to pay a bonus once

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Speaker 1: an employee has resigned. The ruling could have major repercussions

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Speaker 1: for other top banks in France. Lawyers for the former

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Speaker 1: employee say the bonus is performance based and that French

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Speaker 1: law prevents requiring staff to stay on in order for

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Speaker 1: it to be paid.

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Speaker 2: And finally, London's iconic black cabs will be available on

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Speaker 2: Uber for the first time. Bluebigs tia Adebayo as the details.

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Speaker 7: Once sworn enemies. London's cabbies have consistently protested against Uber's

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Speaker 7: presence in the city. Hundreds of black cab drivers demonstrated

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Speaker 7: in London in twenty fourteen as part of europe wide

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Speaker 7: protests against the app, citing loss of business and safety issues.

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Speaker 7: But from next year, Uber will offer customers the option

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Speaker 7: of choosing a black cab and it's more than fifteen

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Speaker 7: thousand taxi drivers. Steve McNamara, general secretary of trade body

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Speaker 7: the Licensed Taxi Drivers Association, criticized the plans, saying no

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Speaker 7: taxi trade groups were consulted before the announcement. The move

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Speaker 7: is the latest step in the company's aspirations to become

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Speaker 7: a one stop transportation destination in London. Tiwa Adubayo, Bloomberg Radio.

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Speaker 1: Now in a moment we'll be discussing the revival of

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Speaker 1: a market that many had presumed dead, the riskiest banking

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Speaker 1: debt eighty one's or back Switzerland's at the heart of it.

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Speaker 1: Will be speaking to our credit reporter Tasos Vassos about

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Speaker 1: that in just a moment. But first the investment world,

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Speaker 1: of course, mourning the loss of Charlie Munger, the man

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Speaker 1: who helped build Berkshire Hathaway over almost sixty years. Also

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Speaker 1: king of the one liners, as we heard from so

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Speaker 1: many of those investment meetings in ours as well, casino

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Speaker 1: and drag. He once described derivt as trading deaths, as

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Speaker 1: he talked about digital assets being partly fraud and partly delusion.

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Speaker 2: Which is just amazing, isn't it? What a quip?

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Speaker 1: Yeah, I mean, look at he was somebody who was

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Speaker 1: very well known to those who invested in Berkshire Hathaway,

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Speaker 1: those in the investment community, but also the groupies. As

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Speaker 1: he described them those who believes to turn out for

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Speaker 1: the Berkshire Hathaway agms and in Nebraska every year, we've

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Speaker 1: got Bloomberg's Charlie Wells with us, who's been looking into

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Speaker 1: this story for us. An extraordinary life, Charlie. That Charlie

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Speaker 1: Munger had sharp wit, ability to deliver outside returns too.

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Speaker 4: Yeah, you know, in the end it goes back to poker.

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Speaker 4: I think that really is the strategy that helped make

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Speaker 4: Charlie Munger so successful. So born in Omaha in nineteen

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Speaker 4: twenty four, famously the same hometown as Warren Buffett, he

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Speaker 4: was stationed in Nome, Alaska during World War Two, and

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Speaker 4: that is where he learned this game and the strategy,

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Speaker 4: and I think that's really informed his business strategy going

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Speaker 4: forward was sort of twofold. If you need a fold,

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Speaker 4: fold early, he said, but if you have the upper hand,

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Speaker 4: keep it and go even bigger. And you really see

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Speaker 4: that from the time he was in World War Two

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Speaker 4: to the time that he died yesterday, looking for companies

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Speaker 4: that were not just undervalued but also excellent, that had

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Speaker 4: pricing power, that really could you know, have brand recognition,

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Speaker 4: and this you know, ranges from the likes of Seas Candies,

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Speaker 4: and that is a confectioner that I grew up with

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Speaker 4: in California that they invested in nineteen seventy two to

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Speaker 4: the likes of Coca Cola.

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Speaker 6: Yeah.

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Speaker 2: Absolutely, Look, it helps that he was a maths genius, right.

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Speaker 2: He talked about being able to ace pretty much any

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Speaker 2: maths course when he was a young man. It is

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Speaker 2: one I think of any business journalists sort of enormous

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Speaker 2: misses if you didn't manage to get to Omaha, Nebraska

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Speaker 2: and see one of those huge events with thousands of

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Speaker 2: Berkshire Hathaway investors there, just to sort of get close

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Speaker 2: to that magic, that magic duo really of Charlie Munger

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Speaker 2: and Warren Buffett. What do you think is investing philosophy

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Speaker 2: was How different was it to Buffett's because he's seen

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Speaker 2: very much also as someone who is the foiled to

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Speaker 2: Buffett too.

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Speaker 4: Yeah, one time Buffett actually called Manger the abominable no

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Speaker 4: man because he, you know, said no to a lot

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Speaker 4: of things, and he in a lot of ways.

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Speaker 1: Could keep Buffett focused.

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Speaker 4: You know, Warren Buffett famously likes attention and he's okay

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Speaker 4: to be front and center, whereas Munger, you know, from Omaha,

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Speaker 4: relocates to Los Angeles and stays there for much of

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Speaker 4: his life. I mean, actually passed away in a hospital

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Speaker 4: in Santa Barbara. But as far as our philosophy, I

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Speaker 4: think it was keeping each other honest. And from the

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Speaker 4: moment that they met in sort of a chance encounter

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Speaker 4: in Omaha in nineteen fifty nine, you know, really until

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Speaker 4: the day that he died, they spoke almost daily on

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Speaker 4: the phone for hours, and Buffett has said that, you know,

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Speaker 4: they could really finish each other's sentences. So I think

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Speaker 4: it was keeping each other honest, having difficult conversations with

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Speaker 4: each other, even though their views very often from investing

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Speaker 4: to politics, were very different.

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Speaker 1: Yeah, was there ever tension in that relationship, Charlie, That's

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Speaker 1: a really good point.

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Speaker 4: I mean they never had an argument famously, but they

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Speaker 4: did disagree, and there were often points when Munger would

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Speaker 4: tell Buffett, you know, I'm right and you're smart, and

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Speaker 4: so that's sort of you know, it sounds positive, but

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Speaker 4: it also sounds negative. And I think, you know, the

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Speaker 4: ability to kind of seek out investments and to kind

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Speaker 4: of like change Warren Buffett's investment strategy. So when he

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Speaker 4: started out, Buffett himself said he sort of invested in

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Speaker 4: what would be thought of as cigarette butt companies. So

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Speaker 4: these sort of failing firms that weren't that were cheap,

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Speaker 4: and Munger famously helped kind of pivot that strategy, basically

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Speaker 4: saying to Buffett, forget what you know about buying fair

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Speaker 4: companies at wonderful prices. You need to look for wonderful

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Speaker 4: companies at fair prices.

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Speaker 2: Yeah, and didn't they make unbelievable returns with that strategy.

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Speaker 2: I mean, over a course of close to sixty years,

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Speaker 2: to double the return every single year of what the

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Speaker 2: S and P five hundred average was is pretty staggering. Charlie,

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Speaker 2: thank you so much for being with us this morning.

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Speaker 2: Looking back at the life of Charlie Munger. Of course,

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Speaker 2: that the man who helped to build Berkshire Hathaway into

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Speaker 2: the well one of the most well known successful firms

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Speaker 2: in the US.

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Speaker 1: Okay, that's Binberg's Charlie Wells. There now to a story

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Speaker 1: about risky bonds that were decimated by the implosion of

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Speaker 1: credit swees but are now back the market for European banks.

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Speaker 1: Junior bank debt has been on fire this month at

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Speaker 1: Switzerland's ubs ending the cycle that began with the rescue

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Speaker 1: deal for Credit Sweese requiring the wipeout of billions of bonds.

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Speaker 1: We've got Bloomberg credit market reporter Vassos with us now

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Speaker 1: for more tasaus. Good morning to you. Why are these

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Speaker 1: bonds all the rage now?

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Speaker 5: Good morning, thanks for having me. Well, the very short

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Speaker 5: term answer to that thirty six billion dollars. And that's

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Speaker 5: the amount of orders that ubs IS deal received with

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Speaker 5: the first company to the market, which is unheard of

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Speaker 5: by any bond standards really, So this showed that demand

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Speaker 5: was there, people were waiting to buy at the right price,

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Speaker 5: that we're just waiting for the right time, and UBSKME

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Speaker 5: gave people this extraordinary number, which involved in another banks

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Speaker 5: to come through, so we had other banks from Barclay

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Speaker 5: Santander coming to the market as well, and the response

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Speaker 5: was very similar. Billions of dollars of orders based again

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Speaker 5: for these bonds that people thought they were dead earlier

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Speaker 5: this year.

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Speaker 7: Yeah.

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Speaker 2: Absolutely, it's so different from the start of the year.

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Speaker 2: I mean we remember reporting on the Swiss authorities imposing

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Speaker 2: the losses on Credit Suisse bondholders.

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Speaker 1: I mean it was.

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Speaker 2: Quite kind of tense that moment. Wasn't it. There was

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Speaker 2: a lot of reporting around what was going to happen

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Speaker 2: to credit SUITEE bond holders. So how is it so

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Speaker 2: different earlier this year.

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Speaker 5: Well, actually I remember people saying that the eighty one

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Speaker 5: market is dead, and just really quickly that market was

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Speaker 5: introduced a global financial crisis. We had other iterations of

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Speaker 5: weird bonds back in the day in order to provide

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Speaker 5: capital for banks. But during the global financial crisis around

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Speaker 5: Lehman burstons, they failed to shield taxpayers. Taxpayers were on

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Speaker 5: the hook for that. So the global minds came together

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Speaker 5: and said, let's create a new bond eighty one and

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Speaker 5: that's it. We don't need to create anything else. Credit

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Speaker 5: riers came up and people thought, well that failed as well,

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Speaker 5: we need to come up with something else. So for

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Speaker 5: three months you actually had no issues in the market.

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Speaker 5: Then you started seeing banks coming back and people were

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Speaker 5: getting more comfortable that credit switch was a one off

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Speaker 5: related just to this bank and not to this type

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Speaker 5: of bond. But you needed a splash out there, and

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Speaker 5: ironically that came from UBS, which comes from in jurisdiction

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Speaker 5: where people said I don't like Switzerland anymore from what

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Speaker 5: for what they imposed to me back in March, and

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Speaker 5: to see that kind of demand for that, just as

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Speaker 5: you said before, just ends the cycle that began in March.

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Speaker 1: Why does all this matter to banks, then, Tasaus.

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Speaker 5: Well, it's because regulators impose capital requirements to banks, so

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Speaker 5: they have to pull some money aside in order just

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Speaker 5: to cover some shower trade loans. So in order to

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Speaker 5: do that, they can use equity, or they can use

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Speaker 5: what people call weird stuff. Weird stuff can, for example, additional.

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Speaker 3: Tier one bonds.

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Speaker 5: These tend to be cheaper than equity, So the profitability

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Speaker 5: of a bank gets a boost on the basis of

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Speaker 5: that if they can't use it. If they can't use

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Speaker 5: eighty one and it can only use equity, then the

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Speaker 5: cost of capital becomes higher, profit profitability goes lower, and

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Speaker 5: that could have adverse effects for the economy as a

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Speaker 5: whole if sustained over a long period of time. So

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Speaker 5: the fact that eighty one are back in people buying

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Speaker 5: it is actually quite good for the banks.

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Speaker 2: Okay, that's interesting about what it matters to banks then,

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Speaker 2: So then is there not the risk that over credit

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Speaker 2: Swiss style wipe out happening. I mean, suppose there's always

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Speaker 2: the risk of it happening, but what do avest to

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Speaker 2: think about it?

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Speaker 5: While there's also the interminable experience in the market, something

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Speaker 5: bad happens, we do everything to fix it, and then

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Speaker 5: something else that is bad happens in the future. Level

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Speaker 5: was unexpected, and it feels that we are heading towards

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Speaker 5: that direction as well. So the thing that triggered the

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Speaker 5: losses and people in seventeen billion dollars of prediuce responds

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Speaker 5: went up in smoking and then never coming back is

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Speaker 5: the feature called permanent tried down. That is something that

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Speaker 5: people hated that were stung back in March. They asked

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Speaker 5: ubs to remove it. Ubs took steps to remove it,

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Speaker 5: and nobody else is a permanent rider out there in

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Speaker 5: the market. So the thing is that if we see

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Speaker 5: another Credit Swiss permanent right down style loss, no, the

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Speaker 5: problem is we can see something else that's unexpected. And

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Speaker 5: the eighty one bonds have so many levers out there

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Speaker 5: and so many features that you're never really sure where

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Speaker 5: you're going to get hit.

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Speaker 3: So that is the.

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Speaker 5: Main risk in the market. Whether a bank is going

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Speaker 5: to fail and you're among big banks, people say no,

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Speaker 5: at least not in the near term. Maybe people looking

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Speaker 5: at the mid size and smaller banks. But yeah, that's

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Speaker 5: the main risk in the market. As always, we're stung

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Speaker 5: by Credit Swiss. Nobody expects another exact example like Credit Swiss,

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Speaker 5: but something else when to come in the future.

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Speaker 1: This is Bloomberg Daybreak Europe, your morning brief on the

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Speaker 4: Mm hmm