WEBVTT - P&L: How Zara Is Dominating The Fast Fashion World

0:00:04.760 --> 0:00:08.080
<v Speaker 1>Welcome to the Bloomberg P and L Podcast. I'm pim Fox.

0:00:08.119 --> 0:00:11.200
<v Speaker 1>Along with my co host Lisa Abramowitz. Each day we

0:00:11.280 --> 0:00:14.480
<v Speaker 1>bring you the most important, noteworthy, and useful interviews for

0:00:14.520 --> 0:00:16.560
<v Speaker 1>you and your money, whether you're at the grocery store

0:00:16.800 --> 0:00:19.960
<v Speaker 1>or the trading floor. Find the Bloomberg pm L podcast

0:00:20.000 --> 0:00:29.040
<v Speaker 1>on iTunes, SoundCloud and at Bloomberg dot com. You know,

0:00:29.120 --> 0:00:31.200
<v Speaker 1>Lisa Zara said to be part of the fast fashioned

0:00:31.200 --> 0:00:33.200
<v Speaker 1>part of the retail market that's kind of really figured

0:00:33.200 --> 0:00:35.559
<v Speaker 1>out how to give consumers exactly what they want with

0:00:35.560 --> 0:00:37.760
<v Speaker 1>a deep dive at what Zara is doing and why

0:00:37.800 --> 0:00:41.279
<v Speaker 1>they don't like that fast fashion description to what they're doing.

0:00:41.280 --> 0:00:44.760
<v Speaker 1>Stephanie Baker is senior writer at Bloomberg Markets and she

0:00:44.880 --> 0:00:48.520
<v Speaker 1>joins us from our London bureau. Stephanie Um the story

0:00:48.560 --> 0:00:51.280
<v Speaker 1>in Bloomberg Business Week, which is online and on newsstands.

0:00:51.360 --> 0:00:53.680
<v Speaker 1>Love the story, just say, I really love it. I

0:00:53.720 --> 0:00:55.600
<v Speaker 1>do too, because I think we all know about Zara

0:00:55.840 --> 0:00:57.760
<v Speaker 1>and we often hear about when we look at the

0:00:57.760 --> 0:01:01.480
<v Speaker 1>retail sector. Stephanie, this is one of the retailers fashion

0:01:01.520 --> 0:01:04.400
<v Speaker 1>retailers that seems to have figured out how to do it.

0:01:04.440 --> 0:01:09.000
<v Speaker 1>Talk to us about Um internally how it works. Yes,

0:01:09.040 --> 0:01:12.000
<v Speaker 1>I was really fascinated by Zara how they managed to

0:01:12.040 --> 0:01:15.240
<v Speaker 1>get it right time and time again UM in terms

0:01:15.240 --> 0:01:19.319
<v Speaker 1>of coming up with designs that people want UM And

0:01:19.400 --> 0:01:22.320
<v Speaker 1>I was curious when I started this, who is their

0:01:22.400 --> 0:01:25.600
<v Speaker 1>chief designer? And I asked around and apparently they don't

0:01:25.680 --> 0:01:28.760
<v Speaker 1>have one, which makes them quite unique in the retail space.

0:01:29.440 --> 0:01:32.800
<v Speaker 1>You know, the likes of Gap, Um, Prime, Mark H

0:01:32.800 --> 0:01:36.960
<v Speaker 1>and M they all have chief designers. Zara doesn't have one,

0:01:37.480 --> 0:01:41.080
<v Speaker 1>partly because they are pushing out new designs so quickly

0:01:41.120 --> 0:01:44.320
<v Speaker 1>that there's no way they could channel them up through

0:01:44.720 --> 0:01:48.720
<v Speaker 1>a hierarchy like that and turn around new fashions as

0:01:48.800 --> 0:01:51.800
<v Speaker 1>quickly as they do. Fashion democracy isn't it? It is?

0:01:51.960 --> 0:01:54.160
<v Speaker 1>And I saw it in action when I was there,

0:01:54.200 --> 0:01:57.360
<v Speaker 1>and I found it really impressive because it's kind of

0:01:57.400 --> 0:02:01.680
<v Speaker 1>designed by consensus. If if everyone likes it, and you know,

0:02:01.720 --> 0:02:05.200
<v Speaker 1>perhaps the top men's wear buyer women's wear buyer doesn't,

0:02:05.240 --> 0:02:08.080
<v Speaker 1>well he's outvoted. He or she is outvoted. And I

0:02:08.120 --> 0:02:11.079
<v Speaker 1>thought that was a really clever way of doing it.

0:02:11.160 --> 0:02:15.000
<v Speaker 1>They have a very flat management structure and they're very

0:02:15.080 --> 0:02:19.840
<v Speaker 1>much focused on process, on looking at data from the stores,

0:02:19.960 --> 0:02:22.239
<v Speaker 1>talking to store managers trying to figure out what is

0:02:22.280 --> 0:02:25.640
<v Speaker 1>the feedback, what are people wanting? And they don't just

0:02:25.840 --> 0:02:29.120
<v Speaker 1>churn out, you know, big sellers and just make more

0:02:29.160 --> 0:02:31.240
<v Speaker 1>of them, because they know we all don't want that.

0:02:31.320 --> 0:02:33.680
<v Speaker 1>We don't want to rock up to a party with

0:02:33.720 --> 0:02:36.639
<v Speaker 1>the same dress that someone else is wearing. There. They

0:02:36.680 --> 0:02:39.800
<v Speaker 1>then tweak the design, make it different, but you know,

0:02:39.919 --> 0:02:42.840
<v Speaker 1>kind of channel the same types of themes that are

0:02:42.840 --> 0:02:45.120
<v Speaker 1>working well well. Um. One thing that I thought was

0:02:45.160 --> 0:02:48.239
<v Speaker 1>so compelling in your story was that Zara's parent company

0:02:48.240 --> 0:02:52.399
<v Speaker 1>has virtually no ad budget apart from social media marketing.

0:02:52.840 --> 0:02:55.480
<v Speaker 1>Can you talk about how they make their social media

0:02:55.560 --> 0:03:00.680
<v Speaker 1>presence so effective? That's another surprise I had. I assumed

0:03:00.720 --> 0:03:02.480
<v Speaker 1>that they did, and then I looked at it and

0:03:02.520 --> 0:03:06.360
<v Speaker 1>I realized, No, they don't advertise in the fashion magazines

0:03:06.480 --> 0:03:11.760
<v Speaker 1>or in newspapers, or they don't do billboards any of that. Um.

0:03:11.880 --> 0:03:15.720
<v Speaker 1>They have they decided it's not worth the money that. Um.

0:03:15.720 --> 0:03:20.959
<v Speaker 1>What they're doing is, you know, pulling ideas from consumers

0:03:21.240 --> 0:03:24.320
<v Speaker 1>and as opposed to what traditional fashion retailers do is

0:03:24.360 --> 0:03:27.680
<v Speaker 1>they dream up a design, they dream up a fashion

0:03:27.720 --> 0:03:31.040
<v Speaker 1>campaign three months in advance, and then market it heavily

0:03:31.080 --> 0:03:36.760
<v Speaker 1>through um lots of advertising dollars to consumers. Um. You know,

0:03:36.800 --> 0:03:39.720
<v Speaker 1>they are clever about how they use social media, but

0:03:39.840 --> 0:03:42.920
<v Speaker 1>they don't spend on advertising. And it's interesting too that

0:03:43.000 --> 0:03:44.640
<v Speaker 1>you know, they don't have to write. I feel like

0:03:44.840 --> 0:03:47.040
<v Speaker 1>what an interesting error were living at. Donald Trump right

0:03:47.320 --> 0:03:50.440
<v Speaker 1>has been very smart using social media. He hasn't He

0:03:50.480 --> 0:03:52.560
<v Speaker 1>didn't really have to spend a lot on traditional ad

0:03:52.560 --> 0:03:57.440
<v Speaker 1>dollars with networks and so on and so forth. And similarly, Czar,

0:03:57.640 --> 0:04:01.920
<v Speaker 1>like some of the customers you know, create Twitter accounts

0:04:01.960 --> 0:04:04.680
<v Speaker 1>on on various items. You've got you writing your story about.

0:04:04.800 --> 0:04:07.080
<v Speaker 1>Is it a blue coat that got its own Twitter

0:04:07.080 --> 0:04:11.240
<v Speaker 1>account and everybody started just posting pictures of the coat? Well,

0:04:11.520 --> 0:04:15.720
<v Speaker 1>this isn't Why doesn't everyone copy them? Well, this is

0:04:15.760 --> 0:04:18.960
<v Speaker 1>the other question I had, which was they're not so

0:04:19.000 --> 0:04:23.440
<v Speaker 1>easily copied. Uh. This is a culture and a vertical

0:04:23.480 --> 0:04:28.000
<v Speaker 1>supply chain that has been built up over four decades UM.

0:04:28.040 --> 0:04:31.880
<v Speaker 1>Six of their production is at factories that are close

0:04:31.920 --> 0:04:36.640
<v Speaker 1>to their headquarters, so Spain, Portugal, Morocco, um. And you

0:04:36.680 --> 0:04:40.440
<v Speaker 1>know it's that's not an easy model to copy. If

0:04:40.480 --> 0:04:43.279
<v Speaker 1>you're an H and M or a GAP. I think

0:04:43.320 --> 0:04:47.040
<v Speaker 1>it's that that's probably why they have broken ahead of

0:04:47.080 --> 0:04:51.120
<v Speaker 1>the pack. Stephanie Baker, senior writer for Bloomberg Markets, talking

0:04:51.160 --> 0:04:55.800
<v Speaker 1>to us from the London bureau of Bloomberg LP. Fascinating

0:04:55.839 --> 0:05:00.160
<v Speaker 1>look at Zara and it's incredible democratic strategy for are

0:05:00.160 --> 0:05:03.880
<v Speaker 1>getting fashions out quickly and distributing them through social media.

0:05:03.920 --> 0:05:05.800
<v Speaker 1>At least a brown boys here with Carol Masser. This

0:05:06.080 --> 0:05:21.360
<v Speaker 1>is Blueberg. Chris Whalen, I'm so glad that you could

0:05:21.360 --> 0:05:23.880
<v Speaker 1>be with us today. Chris Whalen, Senior Managing Director at

0:05:23.920 --> 0:05:27.560
<v Speaker 1>the Kroll Bond Rating Agency. I hope you had a

0:05:27.560 --> 0:05:33.160
<v Speaker 1>wonderful Thanksgiving. Oh my gosh, congratulations. UM. I want you

0:05:33.200 --> 0:05:35.600
<v Speaker 1>to talk a little bit about your view on financials,

0:05:35.600 --> 0:05:37.599
<v Speaker 1>which is a little bit of a contrarian take to

0:05:37.720 --> 0:05:40.320
<v Speaker 1>the pretty tremendous rally that we've seen over the past

0:05:40.360 --> 0:05:44.800
<v Speaker 1>few weeks. Well, financials much neglected sector. You know, you

0:05:44.839 --> 0:05:47.479
<v Speaker 1>can recall back in the mid two thousand's when it

0:05:47.560 --> 0:05:50.840
<v Speaker 1>was the biggest sector in the SMP. I think it's

0:05:50.920 --> 0:05:53.840
<v Speaker 1>number three now and a lot of managers have been

0:05:53.920 --> 0:05:57.200
<v Speaker 1>dying to own these names for years. So as soon

0:05:57.240 --> 0:06:00.400
<v Speaker 1>as there's a hint of change in term, so as

0:06:00.440 --> 0:06:03.359
<v Speaker 1>you guys were just discussing that interest marchin things of

0:06:03.400 --> 0:06:07.840
<v Speaker 1>that nature, maybe different regulatory environment. Everybody cheered and they

0:06:07.920 --> 0:06:11.119
<v Speaker 1>rushed in, But you know, it takes a long time

0:06:11.240 --> 0:06:14.800
<v Speaker 1>to fix uh, seven eight years of very very low

0:06:14.839 --> 0:06:19.239
<v Speaker 1>interest rates, because your typical bank rolls anywhere from fifteen

0:06:20.560 --> 0:06:22.760
<v Speaker 1>of its balance sheet each year. So it's going to

0:06:22.839 --> 0:06:25.960
<v Speaker 1>take a long time to get the benefit of higher rates.

0:06:25.960 --> 0:06:28.000
<v Speaker 1>And I think we are going to see higher rates

0:06:28.000 --> 0:06:31.279
<v Speaker 1>over the next few years. How much higher? Like what's

0:06:31.279 --> 0:06:35.159
<v Speaker 1>the trajectory Chris, that you may be are you know,

0:06:35.320 --> 0:06:38.640
<v Speaker 1>kind of factoring into your models. Well, it's interesting. I'm

0:06:38.680 --> 0:06:42.000
<v Speaker 1>doing a mortgage piece for Monday. Um in this nice

0:06:42.080 --> 0:06:46.000
<v Speaker 1>quiet black Friday, and um, you know, the mortgage bankers

0:06:46.000 --> 0:06:49.080
<v Speaker 1>are looking at a five handle for a thirty year

0:06:49.120 --> 0:06:52.520
<v Speaker 1>mortgage two years out. Wow, that's that's up from what

0:06:52.720 --> 0:06:56.760
<v Speaker 1>three in a couple that's right. And just between the

0:06:56.839 --> 0:07:00.480
<v Speaker 1>end of October and kind of now, in the mortgage market,

0:07:00.520 --> 0:07:03.800
<v Speaker 1>we went from a three percent coupon for Fannie and

0:07:03.839 --> 0:07:06.240
<v Speaker 1>Freddie's that's kind of a reference point for where the

0:07:06.279 --> 0:07:09.520
<v Speaker 1>mortgage market is to a three and a half. So

0:07:09.600 --> 0:07:12.800
<v Speaker 1>that's a big move. You know, most mortgage bankers try

0:07:12.840 --> 0:07:15.800
<v Speaker 1>and hedge, you know, three quarters of a point maybe

0:07:15.840 --> 0:07:18.960
<v Speaker 1>a point in market move for a year, and we

0:07:19.040 --> 0:07:22.640
<v Speaker 1>saw that in three weeks. So rate risk is now

0:07:22.680 --> 0:07:25.320
<v Speaker 1>back on the table. And as I've been saying, you

0:07:25.360 --> 0:07:27.320
<v Speaker 1>know for the past couple of days, we put a

0:07:27.400 --> 0:07:30.000
<v Speaker 1>piece out about the banks last week. That's up on

0:07:30.240 --> 0:07:33.320
<v Speaker 1>our website. But you know, there could be some surprises

0:07:33.360 --> 0:07:36.360
<v Speaker 1>in the fourth quarter that are different from the surprises

0:07:36.440 --> 0:07:38.440
<v Speaker 1>we had back in the first quarter. You remember that

0:07:38.520 --> 0:07:41.880
<v Speaker 1>when the market was very quiet, but everybody was assuing

0:07:42.000 --> 0:07:45.040
<v Speaker 1>bound rates, and in fact, even with the Fed maybe

0:07:45.120 --> 0:07:49.360
<v Speaker 1>raising some of their benchmarks, we were still assuming market

0:07:49.440 --> 0:07:52.440
<v Speaker 1>rates would stay down with a flat yield curve. Now

0:07:52.480 --> 0:07:55.720
<v Speaker 1>we have a steepening curve. You know, things have changed

0:07:55.800 --> 0:07:58.520
<v Speaker 1>rather dramatically. Well, and one point in your note was

0:07:58.600 --> 0:08:01.920
<v Speaker 1>that you know, banks maybe more exposed duration or longer

0:08:02.040 --> 0:08:05.960
<v Speaker 1>term treasuries and mortgages that sell off in this period

0:08:05.960 --> 0:08:08.280
<v Speaker 1>of rising rates and could actually end up being a

0:08:08.320 --> 0:08:10.680
<v Speaker 1>liability for the banks in the short term. I mean,

0:08:11.320 --> 0:08:13.320
<v Speaker 1>isn't this sort of what the banks have gotten out

0:08:13.360 --> 0:08:17.520
<v Speaker 1>of the business of doing, is owning big piles of

0:08:18.720 --> 0:08:22.120
<v Speaker 1>risk your securities. And I understand the treasuries and agency

0:08:22.120 --> 0:08:25.840
<v Speaker 1>back mortgages aren't considered risky, but certainly the duration is. Well,

0:08:26.080 --> 0:08:28.400
<v Speaker 1>this is the thing. Yeah, you're right under the vocal rule,

0:08:28.560 --> 0:08:31.200
<v Speaker 1>which is kind of a halfway step back the glass

0:08:31.280 --> 0:08:34.160
<v Speaker 1>eagle if you think about it. They're not supposed to

0:08:34.240 --> 0:08:37.280
<v Speaker 1>trade for their own account, so all of their portfolio

0:08:37.360 --> 0:08:40.160
<v Speaker 1>is supposed to be hedged in terms of price, but

0:08:40.280 --> 0:08:43.320
<v Speaker 1>they still have a big investment books. They also have

0:08:43.600 --> 0:08:47.079
<v Speaker 1>a mortgage lending where you have to manage the incoming

0:08:47.200 --> 0:08:50.400
<v Speaker 1>cash each month versus the number of mortgages you have

0:08:50.559 --> 0:08:53.400
<v Speaker 1>to fund, and that rate lot desk is a very

0:08:53.440 --> 0:08:57.600
<v Speaker 1>important position, both for banks and non banks. So you know,

0:08:57.720 --> 0:09:00.679
<v Speaker 1>if you were sitting near mid October and you thought

0:09:00.720 --> 0:09:03.200
<v Speaker 1>you had a pretty good handle on your overall risk

0:09:03.640 --> 0:09:07.040
<v Speaker 1>and then the yield curve moves half a point, you

0:09:07.120 --> 0:09:09.640
<v Speaker 1>know you have a lot of people who may have

0:09:09.720 --> 0:09:13.360
<v Speaker 1>gotten hit really hard in terms of just managing their risk.

0:09:13.440 --> 0:09:16.760
<v Speaker 1>And remember, when you look at the projections from the

0:09:16.760 --> 0:09:20.560
<v Speaker 1>mortgage bankers for next year, they're assuming the prepayments of

0:09:20.600 --> 0:09:24.679
<v Speaker 1>mortgages are going to plummet. They're talking about refinancing volumes,

0:09:24.679 --> 0:09:27.240
<v Speaker 1>which are about half of the market this year. We're

0:09:27.240 --> 0:09:29.880
<v Speaker 1>going to do two trillion and mortgages this year. Half

0:09:29.920 --> 0:09:32.600
<v Speaker 1>of that was refinancings. They're talking about cutting that in

0:09:32.679 --> 0:09:35.360
<v Speaker 1>half next year. You know, you you talk about kind

0:09:35.360 --> 0:09:37.280
<v Speaker 1>of these tremendous moves that we've seen in the fixed

0:09:37.280 --> 0:09:40.079
<v Speaker 1>income market. Chris um And I think in your note

0:09:40.080 --> 0:09:42.600
<v Speaker 1>you include something about, like watch the fourth quarter that

0:09:42.760 --> 0:09:46.040
<v Speaker 1>how many financial firms, banks in particularly the Wall Street banks,

0:09:46.120 --> 0:09:49.320
<v Speaker 1>you know, got caught off guard by the volatility and

0:09:49.320 --> 0:09:53.600
<v Speaker 1>the moves up that we saw in treasuries following the election,

0:09:53.640 --> 0:09:56.320
<v Speaker 1>and that could have a financial impact on them. A

0:09:56.360 --> 0:09:58.560
<v Speaker 1>lot of these people are younger than I am, and

0:09:58.679 --> 0:10:01.400
<v Speaker 1>they may not remember the name nineties when we have

0:10:01.600 --> 0:10:05.200
<v Speaker 1>things like Kidderpabuddy and long term capital management, and that

0:10:05.240 --> 0:10:09.640
<v Speaker 1>whole notion of a mortgage bond because of changes in

0:10:10.080 --> 0:10:13.319
<v Speaker 1>refinancings and pre payments going from a two year average

0:10:13.360 --> 0:10:16.720
<v Speaker 1>life to an eat year average life, and when that happens,

0:10:16.760 --> 0:10:21.160
<v Speaker 1>the volatility of that bond increases dramatically, and also the

0:10:21.240 --> 0:10:23.959
<v Speaker 1>pricing because you're suddenly pricing it off the ten year

0:10:24.320 --> 0:10:26.600
<v Speaker 1>or the thirty year instead of off the two year

0:10:26.679 --> 0:10:30.120
<v Speaker 1>treasury note. And that duration risk, what we call option

0:10:30.200 --> 0:10:33.520
<v Speaker 1>adjusted duration is a big deal which people haven't had

0:10:33.520 --> 0:10:35.600
<v Speaker 1>to think about in a decade. Well, but so, Chris,

0:10:35.679 --> 0:10:38.640
<v Speaker 1>do you think that the financial stocks are poised for

0:10:38.679 --> 0:10:42.120
<v Speaker 1>some sort of correction. I think that we could have

0:10:42.240 --> 0:10:46.120
<v Speaker 1>some short term surprises before we see the medium term

0:10:46.200 --> 0:10:48.920
<v Speaker 1>benefits a higher race. How do we do that? How

0:10:48.960 --> 0:10:52.160
<v Speaker 1>serious would the surprises be? We don't know, because you know,

0:10:52.240 --> 0:10:54.840
<v Speaker 1>ultimately it comes down to how well the bank or

0:10:54.840 --> 0:10:58.760
<v Speaker 1>the non bank is managing their rate risk and how well.

0:10:59.080 --> 0:11:01.120
<v Speaker 1>And let put to you this way, if in the

0:11:01.120 --> 0:11:04.360
<v Speaker 1>middle of October you were assuming a flat curve and

0:11:04.480 --> 0:11:07.280
<v Speaker 1>stable market rates regardless of what the f O m

0:11:07.320 --> 0:11:10.600
<v Speaker 1>C did right, and suddenly you get the reverse. If

0:11:10.640 --> 0:11:13.080
<v Speaker 1>you were a little light on your hedge, if you

0:11:13.120 --> 0:11:15.440
<v Speaker 1>were kind of trying to get your margins up a

0:11:15.440 --> 0:11:18.440
<v Speaker 1>bit by not being fully hedged on your investment book,

0:11:18.679 --> 0:11:21.240
<v Speaker 1>you could have gotten hurt. Or to put it another way,

0:11:21.480 --> 0:11:25.120
<v Speaker 1>you know, a lot of mortgage shops got annihilated in

0:11:25.160 --> 0:11:27.800
<v Speaker 1>the first quarter in the second quarter because the value

0:11:27.840 --> 0:11:31.160
<v Speaker 1>of their mortgage business kept getting marked down by the accountants,

0:11:31.200 --> 0:11:33.480
<v Speaker 1>but they were making money on the hedge. Now you

0:11:33.480 --> 0:11:36.600
<v Speaker 1>have the opposite. Things like mortgage servicing rights are going

0:11:36.640 --> 0:11:39.840
<v Speaker 1>to go up in value this quarter because the duration

0:11:39.880 --> 0:11:43.040
<v Speaker 1>of these portfolios is going to extend. People are going

0:11:43.080 --> 0:11:46.160
<v Speaker 1>to be slower to prepay their mortgages, so those cash

0:11:46.160 --> 0:11:48.880
<v Speaker 1>flows are worth more, but you could lose it on

0:11:48.920 --> 0:11:51.600
<v Speaker 1>the hatch. So it's a dramatic reversal of what we

0:11:51.600 --> 0:11:53.480
<v Speaker 1>were dealing with in the first half of the year.

0:11:53.760 --> 0:11:56.640
<v Speaker 1>So Chris got about thirty seconds or forty seconds left here.

0:11:56.679 --> 0:12:00.600
<v Speaker 1>Your advice to investors at this point sit tight or what? Look?

0:12:00.640 --> 0:12:03.679
<v Speaker 1>I we we love the smaller banks. You know, we're

0:12:03.679 --> 0:12:06.480
<v Speaker 1>a credit shop. We don't do equities, but we have

0:12:06.559 --> 0:12:08.920
<v Speaker 1>been working with a lot of smaller institutions and they

0:12:08.960 --> 0:12:12.280
<v Speaker 1>generally have really attractive yields both on their debt and

0:12:12.320 --> 0:12:15.520
<v Speaker 1>their equity. So I would be patient, but I would

0:12:15.720 --> 0:12:18.240
<v Speaker 1>just you know, caution people who have been focused on

0:12:18.280 --> 0:12:23.199
<v Speaker 1>the equity markets. Don't underestimate the potential for surprises as

0:12:23.240 --> 0:12:26.120
<v Speaker 1>we go in the fourth quarter earnings. Chris Whale, and

0:12:26.160 --> 0:12:28.080
<v Speaker 1>thank you so much for being with us as you

0:12:28.120 --> 0:12:31.079
<v Speaker 1>marinate and the smells if you're wonderful home cooking for

0:12:31.080 --> 0:12:34.120
<v Speaker 1>this Thanksgiving Chris left over? Yeah good. Left Over is

0:12:34.160 --> 0:12:36.880
<v Speaker 1>Chris Whale and senior managing director at the Kroll Vond

0:12:37.040 --> 0:12:40.160
<v Speaker 1>Rating Agency. They'll throw a little bit of cold water

0:12:40.280 --> 0:12:44.120
<v Speaker 1>on the latest rally in financial smart thoughtful, right, because

0:12:44.160 --> 0:12:46.959
<v Speaker 1>we're just watching the big moves and I just thought

0:12:47.000 --> 0:12:49.040
<v Speaker 1>it was really thoughtful. I would agree. I think it's

0:12:49.040 --> 0:13:07.679
<v Speaker 1>an important thing to remember. Duration this is Blooper. We're

0:13:07.720 --> 0:13:11.319
<v Speaker 1>gonna turn our sights overseas because it's turning out to

0:13:11.320 --> 0:13:14.560
<v Speaker 1>be an interesting super election cycle if you look at

0:13:14.600 --> 0:13:17.240
<v Speaker 1>what's going on around the globe. Next up France on Sunday,

0:13:17.240 --> 0:13:20.480
<v Speaker 1>Francis Republican Party will choose its candidate for the presidential

0:13:20.520 --> 0:13:22.480
<v Speaker 1>election next spring. Let's find out what we need to know.

0:13:22.559 --> 0:13:26.040
<v Speaker 1>Joining us right now, government reported Greg Vescuzzi of Bloomberg News,

0:13:26.080 --> 0:13:28.719
<v Speaker 1>joining us on the phone from Paris. Greg, nice to

0:13:28.760 --> 0:13:30.040
<v Speaker 1>have you here with us. What do we need to

0:13:30.040 --> 0:13:33.439
<v Speaker 1>know right now about what's happening in France. Well that

0:13:33.520 --> 0:13:36.040
<v Speaker 1>there's the second round of the primary on Sunday. The

0:13:36.080 --> 0:13:38.280
<v Speaker 1>French Showays do elections in two rounds. The first round,

0:13:38.320 --> 0:13:40.679
<v Speaker 1>anyone runs. Anyone who can get on the ballot runs.

0:13:40.679 --> 0:13:43.400
<v Speaker 1>They were seven of them running last Sunday. The top

0:13:43.440 --> 0:13:47.160
<v Speaker 1>two people now face off on still on this Sunday,

0:13:47.480 --> 0:13:50.800
<v Speaker 1>and one was expected On Lingupe of the mayor, former

0:13:50.880 --> 0:13:53.440
<v Speaker 1>prime minister mayor of Bordeaux. Um, he'd been the front

0:13:53.480 --> 0:13:55.559
<v Speaker 1>runner most of the time, but everyone thought that he

0:13:55.600 --> 0:13:58.440
<v Speaker 1>would run off against Nicholas Sarkozy, who the former president

0:13:58.480 --> 0:14:00.199
<v Speaker 1>is said he got eliminated in the first round. Then

0:14:00.240 --> 0:14:03.200
<v Speaker 1>it's for another former prime minister of Francois Fillon will

0:14:03.200 --> 0:14:06.880
<v Speaker 1>be running, who were running against pay Um So Um,

0:14:06.920 --> 0:14:09.319
<v Speaker 1>it's Sunday, and it's it's fifth Sunday, and it's two

0:14:09.360 --> 0:14:12.280
<v Speaker 1>thousand and sixteen. So I won't make any predictions because

0:14:12.320 --> 0:14:17.360
<v Speaker 1>every other breation not very good. How much has the

0:14:17.360 --> 0:14:20.320
<v Speaker 1>the election of President Trump in the US on November eighth,

0:14:20.600 --> 0:14:25.040
<v Speaker 1>how much of that is trickling into the discourse in

0:14:25.160 --> 0:14:28.240
<v Speaker 1>France right now? Well interestingly and it's it has and

0:14:28.320 --> 0:14:30.360
<v Speaker 1>it's hard to say what the effect has been. M

0:14:30.560 --> 0:14:34.880
<v Speaker 1>Marine Lapin, A Marine Lapin, who's the leader of the

0:14:34.880 --> 0:14:37.840
<v Speaker 1>far right National Front. Um. You know, she's the one

0:14:37.880 --> 0:14:41.000
<v Speaker 1>that's most most compared to Trump in there not exactly

0:14:41.040 --> 0:14:44.280
<v Speaker 1>the same, but um, you know, populist, anti immigration, anti

0:14:44.320 --> 0:14:48.400
<v Speaker 1>free trade, the European Union, anti European Union exactly. Um,

0:14:48.840 --> 0:14:50.640
<v Speaker 1>she thought this is great news. I mean she she

0:14:50.840 --> 0:14:53.280
<v Speaker 1>she's been going on and on. This just shows that

0:14:53.400 --> 0:14:55.360
<v Speaker 1>the you know, the people are taking back control and

0:14:55.400 --> 0:14:57.240
<v Speaker 1>you know, what happened in America can happen here. It

0:14:57.240 --> 0:15:00.400
<v Speaker 1>happened in Britain. Um. On the other hand, something was

0:15:00.440 --> 0:15:02.200
<v Speaker 1>never very popular in France. It was a real shock

0:15:02.280 --> 0:15:04.200
<v Speaker 1>for most of for most of the population. I mean,

0:15:04.200 --> 0:15:06.280
<v Speaker 1>the polls show that when they pull people on it,

0:15:06.400 --> 0:15:09.640
<v Speaker 1>like people say that day they wish he hadn't won.

0:15:09.720 --> 0:15:12.520
<v Speaker 1>So you could almost say that it's caused sort of

0:15:12.720 --> 0:15:17.200
<v Speaker 1>a reaction amongst some centrists or center right voters who

0:15:17.320 --> 0:15:19.840
<v Speaker 1>maybe might have been tempted to to vote for Lapin.

0:15:20.000 --> 0:15:22.200
<v Speaker 1>So I mean, again, it's really hard to say. The

0:15:22.200 --> 0:15:25.320
<v Speaker 1>election is not till April, next April, the real election

0:15:25.360 --> 0:15:27.400
<v Speaker 1>is not till next April, so it's very hard to

0:15:27.440 --> 0:15:29.080
<v Speaker 1>say how it will turn out. We also don't know

0:15:29.160 --> 0:15:32.320
<v Speaker 1>how Donald Trump's going to turn out between now in April. UM.

0:15:32.440 --> 0:15:35.640
<v Speaker 1>So there's not it's it's it's it's gone both ways.

0:15:35.640 --> 0:15:39.280
<v Speaker 1>She certainly marine Lapin certainly sees it as a plus. Um.

0:15:39.960 --> 0:15:42.640
<v Speaker 1>I think the other parties would sort of see it

0:15:42.680 --> 0:15:45.080
<v Speaker 1>as a warning and that it works in their favor.

0:15:45.160 --> 0:15:46.880
<v Speaker 1>So we'll have to see how that turns out, Greg

0:15:47.240 --> 0:15:49.120
<v Speaker 1>you said what you initially said about you know, I

0:15:49.160 --> 0:15:50.920
<v Speaker 1>don't want to have to predict because we certainly feel

0:15:50.920 --> 0:15:54.120
<v Speaker 1>your pain about predicting anything at this point. Um, how

0:15:54.200 --> 0:15:59.160
<v Speaker 1>engaged is the French voter? Well, well, for general elections

0:15:59.240 --> 0:16:02.160
<v Speaker 1>quite a lot. I mean only about vote so, um,

0:16:02.200 --> 0:16:04.800
<v Speaker 1>you know it's it's a much higher rate in the US.

0:16:04.840 --> 0:16:07.120
<v Speaker 1>This is a primary and it's the first time that

0:16:07.360 --> 0:16:10.280
<v Speaker 1>the center right party, the Republicans, have held a primary,

0:16:10.360 --> 0:16:12.720
<v Speaker 1>and the big question has turned out. Many more people

0:16:12.800 --> 0:16:15.640
<v Speaker 1>voted last Sunday. They were expected. They were people thought

0:16:15.640 --> 0:16:17.520
<v Speaker 1>that maybe two to three million people would show up

0:16:17.520 --> 0:16:20.240
<v Speaker 1>and vote. In the end it was little over four million. Um,

0:16:20.280 --> 0:16:22.160
<v Speaker 1>there's not much. You only have to pay two euros,

0:16:22.160 --> 0:16:24.280
<v Speaker 1>which is equivalent about two dollars and sign a paper

0:16:24.320 --> 0:16:26.400
<v Speaker 1>saying that you share the values of the party, and

0:16:26.400 --> 0:16:28.160
<v Speaker 1>that was it in order to vote in it. So

0:16:28.160 --> 0:16:30.320
<v Speaker 1>it was open to anyone, which meant but there actually

0:16:30.320 --> 0:16:33.320
<v Speaker 1>was some tactical voting. There were some leftists who there

0:16:33.320 --> 0:16:35.480
<v Speaker 1>were some people who normally vote for the socialists, vote

0:16:35.480 --> 0:16:38.920
<v Speaker 1>for leftist parties who voted last Saturday, and they just

0:16:39.120 --> 0:16:41.760
<v Speaker 1>they they wanted to make sure that that Sarkozy did

0:16:41.800 --> 0:16:44.280
<v Speaker 1>not um was not the non there was not the

0:16:44.320 --> 0:16:47.200
<v Speaker 1>candidate because they were they were afraid of next April

0:16:47.240 --> 0:16:49.160
<v Speaker 1>or next May having to make a choice between Sarkoz

0:16:49.320 --> 0:16:51.560
<v Speaker 1>and le Pen, which is the choice that that anyone

0:16:51.560 --> 0:16:52.920
<v Speaker 1>on the center of the left did not want to

0:16:52.920 --> 0:16:54.840
<v Speaker 1>have to make, to have to sort of fairly right

0:16:54.880 --> 0:16:57.600
<v Speaker 1>wingers running ast each other. So we don't know if

0:16:57.600 --> 0:17:00.400
<v Speaker 1>those people are gonna go back this Sunday since Sarcuase

0:17:00.520 --> 0:17:02.840
<v Speaker 1>has now been eliminated, We really just don't know. I mean,

0:17:02.960 --> 0:17:05.520
<v Speaker 1>there were people who voted for fill last time because

0:17:05.520 --> 0:17:07.160
<v Speaker 1>they thought that that would be maybe the best way

0:17:07.160 --> 0:17:09.960
<v Speaker 1>to eliminate Sarquas. They may now vote for as you Pay,

0:17:10.119 --> 0:17:11.920
<v Speaker 1>I mean, you know, as you pay people since he

0:17:11.960 --> 0:17:13.880
<v Speaker 1>did rather badly in the first round, may be discouraged

0:17:13.920 --> 0:17:15.720
<v Speaker 1>and not come back to Sunday. We really don't know.

0:17:15.800 --> 0:17:17.920
<v Speaker 1>It all comes down to turn out, and that that's

0:17:18.040 --> 0:17:20.919
<v Speaker 1>one other reason why making predictions for this to this

0:17:21.000 --> 0:17:23.400
<v Speaker 1>Sunday is kind of fool Hardy, well, can you talk

0:17:23.440 --> 0:17:27.720
<v Speaker 1>a little bit about the breakdown in the French population

0:17:27.800 --> 0:17:31.280
<v Speaker 1>with respect to the right leaning Republicans and the other party?

0:17:31.320 --> 0:17:34.120
<v Speaker 1>I mean, is it pretty much no no, not at all,

0:17:34.160 --> 0:17:35.760
<v Speaker 1>because you've left the whole, You've left the whole left

0:17:35.760 --> 0:17:37.480
<v Speaker 1>wing to the problem is that is that is that

0:17:37.560 --> 0:17:40.560
<v Speaker 1>President Holland has been in office for five years now

0:17:40.600 --> 0:17:43.040
<v Speaker 1>and whether fairly or not, his his term in office

0:17:43.080 --> 0:17:45.159
<v Speaker 1>has generally been considered a failure. And he's at very

0:17:45.240 --> 0:17:48.240
<v Speaker 1>very low approval ratings. Is depending on how the depending

0:17:48.240 --> 0:17:50.440
<v Speaker 1>on the poster, his approval ratings are, they're they're they're

0:17:50.480 --> 0:17:53.000
<v Speaker 1>down in the teams and in some cases low teams. So,

0:17:53.720 --> 0:17:56.120
<v Speaker 1>as I said, in France, it's a two round elections.

0:17:56.119 --> 0:17:58.000
<v Speaker 1>Of two rounds. You always have a first round where

0:17:58.040 --> 0:18:00.320
<v Speaker 1>a bunch of candidates run and then the up to

0:18:00.440 --> 0:18:03.760
<v Speaker 1>run off. And did they run off in the second round? Um?

0:18:03.800 --> 0:18:08.439
<v Speaker 1>I mean generally Frances split sort of kind of fifty

0:18:08.520 --> 0:18:10.560
<v Speaker 1>fifty between left and right. But the problem is is

0:18:10.600 --> 0:18:13.000
<v Speaker 1>that a far right, the National Front, has suddenly emerged

0:18:13.000 --> 0:18:14.640
<v Speaker 1>and taken a lot of votes out of the more

0:18:14.680 --> 0:18:18.720
<v Speaker 1>traditional center right, let's say. Um. Meanwhile, support for the

0:18:18.800 --> 0:18:22.399
<v Speaker 1>left has tumbled um because of Halland and it's also

0:18:22.520 --> 0:18:25.240
<v Speaker 1>led to some some some renegade left is saying they're

0:18:25.240 --> 0:18:28.399
<v Speaker 1>gonna run against him. Um on the far left. So

0:18:28.440 --> 0:18:31.159
<v Speaker 1>I mean it's it's very very fragmented right now. I mean,

0:18:31.200 --> 0:18:33.080
<v Speaker 1>on the whole, I would say that the spectrum is

0:18:33.160 --> 0:18:35.040
<v Speaker 1>much wider than the US. It goes from much further

0:18:35.119 --> 0:18:36.919
<v Speaker 1>to the left and much further to the right. But

0:18:37.000 --> 0:18:38.879
<v Speaker 1>there's many more parties. It's not just two parties, you know,

0:18:38.880 --> 0:18:41.600
<v Speaker 1>playing Also parties come and go in this country. So

0:18:41.680 --> 0:18:44.199
<v Speaker 1>it's very hard to you know, it's not like the

0:18:44.280 --> 0:18:46.840
<v Speaker 1>U S. It's had to to two same parties that

0:18:46.840 --> 0:18:48.760
<v Speaker 1>that have been in there for over a hundred years.

0:18:48.760 --> 0:18:50.679
<v Speaker 1>And you know, I have sort of switched sides over

0:18:50.720 --> 0:18:53.480
<v Speaker 1>those hundred years. Um, in France, parties they're born, they die,

0:18:53.600 --> 0:18:56.480
<v Speaker 1>they they're reborn, new parties emerged, Greg, just real quickly

0:18:56.520 --> 0:18:59.480
<v Speaker 1>five seconds. Is there a number one issue? Is it immigration?

0:18:59.720 --> 0:19:03.119
<v Speaker 1>Is it's economy? Economy, It's economy. It's definitely the conny unemployment,

0:19:03.119 --> 0:19:05.080
<v Speaker 1>that's number one. All right, we gotta run. We'll be

0:19:05.119 --> 0:19:08.560
<v Speaker 1>watching though as really, as I mentioned, a super election

0:19:08.600 --> 0:19:12.200
<v Speaker 1>cycle around the world and certainly unpredictable on many levels.

0:19:12.200 --> 0:19:15.040
<v Speaker 1>Greg the Scoozy government reporter at Bloomberg News, joining us

0:19:15.040 --> 0:19:17.640
<v Speaker 1>on the phone from Paris on this Friday. If you're

0:19:17.640 --> 0:19:20.400
<v Speaker 1>listening to Bloomberg Markets Carol Masser, along with Lisa Bramwitz

0:19:20.480 --> 0:19:29.840
<v Speaker 1>and Mrs Bloomberg. Thanks for listening to the Bloomberg pen

0:19:29.960 --> 0:19:34.760
<v Speaker 1>L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud,

0:19:34.960 --> 0:19:39.160
<v Speaker 1>or whatever podcast platform you prefer. I'm pim Fox. I'm

0:19:39.160 --> 0:19:42.120
<v Speaker 1>out there on Twitter at pim Fox. I'm out there

0:19:42.119 --> 0:19:45.440
<v Speaker 1>on Twitter at Lisa Abramo. It's one before the podcast.

0:19:45.440 --> 0:19:48.160
<v Speaker 1>You can always catch us worldwide on Bloomberg Radio