WEBVTT - Algebris' Gallo Sees Weak UK Recovery, Even If 'Remain'(Audio)

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<v Speaker 1>Broadcasting live to New York Bloomberg eleven, Rio to Washington,

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<v Speaker 1>d C, Bloomber to Boston, Bloomberg Well Under to San Francisco,

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<v Speaker 1>Bloomberg to the Country is at Damn General one nineteen

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<v Speaker 1>and around the globe the Bloomberg Radio Plus athen Bloomberg

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<v Speaker 1>dot com. This is taking Stock. I'm Kathleen Hayes along

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<v Speaker 1>with pim Fox. Two days to the big Brexit vote.

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<v Speaker 1>Will the United Kingdom vote to leave the European Union?

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<v Speaker 1>The polls suggests that the vote will be heading towards

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<v Speaker 1>remain stay in the EU. Nevertheless, markets and central banks

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<v Speaker 1>around the world remain on high alert. PIM and We're

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<v Speaker 1>gonna go to look now not just at what the

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<v Speaker 1>vote means on Friday, but but the longer term consequences

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<v Speaker 1>will be Yes, We've got Alberto Galla, portfolio manager ahead

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<v Speaker 1>of macro strategies at Algebra Investments. Right now, let's go

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<v Speaker 1>to Charlie Pellet and the Bloomberg news room for a

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<v Speaker 1>Bloomberg business flash. I thank you him, Thank you Kathleen.

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<v Speaker 1>Stocks fluctuating right now the now. The SMP nez dank

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<v Speaker 1>all advancing. We do have the SMP five hundred Index

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<v Speaker 1>up seven points to two thousand ninety, a gain of

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<v Speaker 1>four tenths of one percent. Town Industrials up forty five,

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<v Speaker 1>a gain of three tenths of one percent, as stack

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<v Speaker 1>up three points to gain of point one percent. FED

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<v Speaker 1>Chair Janet Yellen today signaling more caution on the economic

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<v Speaker 1>outlook for comments coming in testimony that we carried live

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<v Speaker 1>right here on Bloomberg Radio. Equities of zig zagged as

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<v Speaker 1>energy producers rose for a third session, the longest in

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<v Speaker 1>two months, even as crude prices dropped. West Texas Intermediate

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<v Speaker 1>Crew down now by fifty two cents and Barrel a

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<v Speaker 1>drop there of one percent. Apple shares their climbing by

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<v Speaker 1>one percent, leading tech shares higher. Now, what about the

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<v Speaker 1>big picture in terms of the economy. Peter Orzag is

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<v Speaker 1>managing director at Lazard and former direct sure of the

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<v Speaker 1>Office of Management and Budget. He's also a Bloomberg View columnist. Well,

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<v Speaker 1>here's the thing. The economy is kind of math to

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<v Speaker 1>use a technical term. It's not great, it's not terrible.

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<v Speaker 1>And the problem is with growth rates that are you know,

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<v Speaker 1>one and a half to two percent. Uh, you can

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<v Speaker 1>have really bad offensibly really bad numbers that are close

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<v Speaker 1>to zero, much more likely than if we were growing

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<v Speaker 1>at three, when a bad number would then be, you know,

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<v Speaker 1>a one and a half percent rate. So one of

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<v Speaker 1>the dimensions here is that we're kind of skirting effectively.

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<v Speaker 1>The plane is just barely flying, and that's a dangerous situation.

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<v Speaker 1>And to thirty two on Wall Street. Now, let's take

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<v Speaker 1>a look at other news from around the world on

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<v Speaker 1>Bloomberg Radio. Thank you Charlie from the Bloomberg News Room.

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<v Speaker 1>My Rami in a censio. This news update is brought

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<v Speaker 1>to you by Willoughby Since New York City's boutique camera

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<v Speaker 1>Willoby's corner of Fifth Avenue and thirty first Street. Hillary

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<v Speaker 1>Clinton's campaign is attacking Donald Trump's economic strategy. In a

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<v Speaker 1>speech in Ohio today, Clinton said Trump's tax plan will

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<v Speaker 1>only put our country in more debt. According to the

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<v Speaker 1>Independent Tax Policy Center, it would increase the national debt

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<v Speaker 1>by more than thirty trillion dollars over twenty years. That's trillion.

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<v Speaker 1>With a team, Donald Trump is making his first direct

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<v Speaker 1>email pitch for campaign donations He's vowing to match up

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<v Speaker 1>to two million dollars in contributions. Up until now, Trump

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<v Speaker 1>has largely funded his Republican presidential primary campaign with his

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<v Speaker 1>own money, spending about forty six million dollars over the

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<v Speaker 1>past year. The White House is slamming the Senate for

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<v Speaker 1>rejecting a series of gun control measures in the wake

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<v Speaker 1>over the Orlando mass shooting. Press Secretary Josh Ernest as

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<v Speaker 1>lawmakers are all talk when it comes to keeping a

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<v Speaker 1>gun out of the hands of suspected terrorists. Continue to

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<v Speaker 1>protect a loophole that allows individuals who are suspected of

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<v Speaker 1>having ties with terrorism to be able to walk into

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<v Speaker 1>a gun storm by gun and authorities, saying eviction warrant

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<v Speaker 1>has led to the discovery of a massive counterfeit designer

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<v Speaker 1>goods operation on Long Island. Newsday reports Nassau police found

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<v Speaker 1>three thousand boxes stuffed with clothes and merchandise at a

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<v Speaker 1>five thousand square foot warehouse in Newcastle. Global News twenty

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<v Speaker 1>four hours a day, powered by more than journalists and

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<v Speaker 1>analysts in more than one hundred twenty countries. I'm Rami

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<v Speaker 1>and Asensio. This is Bloomberg, Charlie and again recapping stocks

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<v Speaker 1>higher smp ops seven now to two thousand ninety, a

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<v Speaker 1>gain of four tenths of one percent. I'm Charlie Peloton.

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<v Speaker 1>That's of Bloomberg Business Flash. This is Taking Stock with

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<v Speaker 1>Kathleen Hayes and Pim Fox on Bloomberg Radio. Two days

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<v Speaker 1>to go until the United Kingdom votes on whether or

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<v Speaker 1>not to stay or go, whether or not to leave

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<v Speaker 1>the European Union. This is the famous Brexit vote. In fact,

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<v Speaker 1>today the polls getting very close again between the remains

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<v Speaker 1>and the Brexits. Those in the latest i G Servation

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<v Speaker 1>poll in the UK put the remain vote at and

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<v Speaker 1>leave with forty four percent. The last few days the

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<v Speaker 1>polls had swung more in the direction of Remain. We

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<v Speaker 1>are now going to take an in depth look at

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<v Speaker 1>where this vote is, where it's heading, and what it

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<v Speaker 1>means for the UK, for the European Union and the

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<v Speaker 1>markets with our Alberto Gallo, not only author of the

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<v Speaker 1>Silver Bullet, a great read on the markets around the world,

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<v Speaker 1>he is portfolio manager and head of macro Strategies at

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<v Speaker 1>Algebra's Investments. Alberto, welcome and congratulations on your new role.

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<v Speaker 1>Thanks to me Hi so we're all watching the polls

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<v Speaker 1>uh and you know, the base case we have is

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<v Speaker 1>that there's gonna be a small victory for main but

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<v Speaker 1>obviously the swings can be the last minute wings can

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<v Speaker 1>be very large, as we have learned from past referendums

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<v Speaker 1>here in the UK, So belt is there a macro

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<v Speaker 1>credit trade to be put on in anticipation of what

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<v Speaker 1>you describe. Look, the most people have gone on the sideline,

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<v Speaker 1>so there's a lot of cash and portfolios. So if

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<v Speaker 1>there is a remain obviously you're going to have a

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<v Speaker 1>rally in stocks, and you're probably gonna have a bit

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<v Speaker 1>more rally and sterling towards one and a half one

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<v Speaker 1>point five versus the dollar. But we also want to

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<v Speaker 1>have some hedges because even though it's a low probability,

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<v Speaker 1>you know, less than fifty percent, it's still very possible

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<v Speaker 1>that you have a leave vote and that could unleash

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<v Speaker 1>a series of political consequences. It would it would make

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<v Speaker 1>for periphery risks come back. So Greece Portugal, you know,

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<v Speaker 1>look relatively weak fundamentally, and also especially in case of

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<v Speaker 1>Brexit and and on, these government balls would would go

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<v Speaker 1>up and yield by at least one percent. UH in case,

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<v Speaker 1>but if not more so, we're you know, we're cautiously

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<v Speaker 1>optimistic here, but we're still keeping some hedges, particularly Greece

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<v Speaker 1>and Portual in particular, looks like the weak link in

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<v Speaker 1>the thirty three. It's kept in the ECB Quantity Division

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<v Speaker 1>program only by one rating agency. Well, of course, I

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<v Speaker 1>think that the broader fear for central banks, and of

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<v Speaker 1>course the European Central Bank has made it clear that

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<v Speaker 1>it's ready to take steps, and in fact there's the

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<v Speaker 1>six currency swap arrangement is in play apparently, so there

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<v Speaker 1>could be big steps to support the pound if the

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<v Speaker 1>vote is to leave and the pound gets hammered. Uh,

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<v Speaker 1>you call the relationship between you can eat you a

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<v Speaker 1>troubled love story. You note that the UK has already

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<v Speaker 1>had but four opt outs if they go Alberto. This

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<v Speaker 1>is not just they leave tomorrow. This takes a while.

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<v Speaker 1>What does that mean for financial markets? If if Britain votes,

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<v Speaker 1>if there's a two year period of complete uncertainty, during

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<v Speaker 1>which there would be negotiations around the exit, which needs

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<v Speaker 1>to be voted by EU member countries. During this period, Also,

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<v Speaker 1>the UK will have to negotiate freight agreements with over

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<v Speaker 1>a hundred countries on its own. Uh and UM, you

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<v Speaker 1>have really two scenarios here, a good friendly exit where

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<v Speaker 1>the UK would be allowed and on some leeway by

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<v Speaker 1>the EU, but also bad exit where Germany could and

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<v Speaker 1>France could toughen the rules also withdraw some banks from

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<v Speaker 1>London that d c B could not allow clearing of

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<v Speaker 1>euro government bonds in London for example, in some other restrictions,

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<v Speaker 1>and all of this could mean a big loss for

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<v Speaker 1>the UK economy. This is the most likely scenario if

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<v Speaker 1>Leave gets voted, that you have a slow downing growth.

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<v Speaker 1>I also have to say all these all this comes

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<v Speaker 1>into a situation where the UK recovery is already is

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<v Speaker 1>already slowing down. There's been a lot of spending in

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<v Speaker 1>the first years of the of the Commeron Osborne government.

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<v Speaker 1>But after election, Uh, there needs to be in after

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<v Speaker 1>fifteen we're looking at austerity. We're looking at cuts and spending.

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<v Speaker 1>We're looking at higher taxes and slow down in housing prices.

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<v Speaker 1>So the UK has a twin deficit, very high deficit.

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<v Speaker 1>It relies on capital coming to the UK is a

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<v Speaker 1>safe and the more entertainly you introduced, the more votes,

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<v Speaker 1>the more uncertain situation is. The less capital is going

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<v Speaker 1>to come here and and and this is going to

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<v Speaker 1>really affect the UK economy negatively. So you know, a

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<v Speaker 1>live vote is really bad. Even without a lead vote,

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<v Speaker 1>wild remain stilled, recovery is going to be weak. Albert Ill,

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<v Speaker 1>just give you about thirty seconds here morning, if you

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<v Speaker 1>could tell us sovereign credits, government bonds around the world

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<v Speaker 1>that you favor for investors. Okay, I think that, um,

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<v Speaker 1>we're gonna be in a in a que infinity low

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<v Speaker 1>yield environment for a long time. You know, treasury is

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<v Speaker 1>will go lower, inflation is nor where it should be.

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<v Speaker 1>I think Greece is on a past recovery. It's going

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<v Speaker 1>to be volatile during the vote here in the UK

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<v Speaker 1>as as a sort of proxy rich country, but I

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<v Speaker 1>think Greece is recovering, and Spain as well. It has

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<v Speaker 1>elections next weekend, but I think it's gonna be a

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<v Speaker 1>better vote and they will be able to form a government.

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<v Speaker 1>Thank you very much for spending time with us. Alberto Gallop,

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<v Speaker 1>his portfolio manager and head of a macro Strategies at

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<v Speaker 1>Algebra's Investments, based in London, speaking about the Brexit vote,

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<v Speaker 1>which takes place this Thursday, June the twenty three, we'll

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<v Speaker 1>find out whether the United Kingdom will remain united with

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<v Speaker 1>Europe or whether it will vote to leave. You're listening

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