WEBVTT - Tobacco Giants Philip Morris, Altria To Reunite 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Panel Podcast. I'm Paul swing you, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:22.160 at Bloomberg dot com. Time to check in with Bloomberg Opinion. 0:00:22.280 --> 0:00:26.160 We're joined by opinion columnist Tara la Chapelle. She covers deals, 0:00:26.160 --> 0:00:28.840 telecomm and media for Bloomberg Opinion. She joins us here 0:00:28.840 --> 0:00:31.040 on our Bloomberg Interacted Brokers studio, and we're here to 0:00:31.040 --> 0:00:33.839 talk about this merger Philip mars is and talks to 0:00:33.960 --> 0:00:39.520 reunite with Altria UH in an all stock deal. So, Tara, 0:00:39.720 --> 0:00:43.960 is you know what's the rationale for be behind putting 0:00:43.960 --> 0:00:47.040 these companies back together after years of them being apart. So, 0:00:47.080 --> 0:00:49.960 as we know, fewer people are smoking, especially in the US, 0:00:50.080 --> 0:00:52.880 and both of these companies have been working on remaking 0:00:52.880 --> 0:00:54.840 their images in recent years. If you go to either 0:00:54.880 --> 0:00:57.120 of their websites right now, you will be hard pressed 0:00:57.120 --> 0:00:59.920 to find any mention of cigarettes. Of Marlborough anything like that. 0:01:00.400 --> 0:01:03.840 It's all about reduced risk smoking and quote smoke free 0:01:03.840 --> 0:01:07.280 products which are on the Philip Morris side of products 0:01:07.280 --> 0:01:10.240 called I Coast. It's I q O S and that is. 0:01:15.640 --> 0:01:16.960 And it's funny because it looks like it would be 0:01:16.959 --> 0:01:19.120 an anagram for something, but the companies say it isn't. 0:01:19.160 --> 0:01:22.440 Some people have uh interpreted to me, um, I quit 0:01:22.560 --> 0:01:24.880 ordinary smoking, but they say there's really no meaning behind it. 0:01:24.959 --> 0:01:28.080 So I Coast is this product that Philip Morris, which 0:01:28.680 --> 0:01:31.360 is in the international markets, launched it there. It heats 0:01:31.400 --> 0:01:33.680 tobacco instead of burning it, so they kind of market 0:01:33.720 --> 0:01:35.840 it is something a little bit safer than cigarettes, but 0:01:36.160 --> 0:01:39.080 that's disputable of course. Um next month they are going 0:01:39.080 --> 0:01:41.560 to be launching that in the US market, starting in Atlanta, 0:01:41.959 --> 0:01:44.959 and for the US business all Tria gets to market 0:01:45.000 --> 0:01:47.840 that product here. So I think the goal is to 0:01:48.680 --> 0:01:51.920 join forces, unite their cash flow around these smoke free 0:01:51.920 --> 0:01:56.240 products to try to combat the sort of uh shrinking 0:01:56.320 --> 0:01:59.080 rates of smoking here and push more people to these 0:01:59.080 --> 0:02:01.360 newer products that they have of I am actually looking 0:02:01.360 --> 0:02:05.560 at the websites now and they look like hospital webs exactly. Genuinely, 0:02:05.880 --> 0:02:09.880 it's all about not smoking, designing a smoke free future, 0:02:10.040 --> 0:02:13.960 reducing risk, expanding choice. Who are we How long will 0:02:14.000 --> 0:02:16.480 P M I be in the cigarette business, whether the 0:02:16.560 --> 0:02:19.519 state of health? I mean, really, what do these companies 0:02:19.560 --> 0:02:22.799 actually sell? You be hard pressed to find cigarettes here. 0:02:23.200 --> 0:02:25.440 So I guess that the question is, is the idea 0:02:25.520 --> 0:02:28.400 that they have reduced their liability to such a degree 0:02:28.400 --> 0:02:30.680 when it comes to a political front that they're not 0:02:30.720 --> 0:02:33.800 going to be extra big targets if they joined forces. 0:02:34.160 --> 0:02:36.320 I think so. And I think also just the growth. 0:02:36.360 --> 0:02:39.919 I mean obviously, like of their operating income comes from cigarettes. 0:02:39.960 --> 0:02:42.400 Still it's still the huge driver of their businesses, but 0:02:42.560 --> 0:02:46.160 that is slowly shrinking. Their stock prices are no longer 0:02:46.280 --> 0:02:48.440 the tough one that they once were. So I think 0:02:48.440 --> 0:02:51.200 what we're seeing is they realize that the growth markets 0:02:51.240 --> 0:02:54.560 are these vaping products, the cigarettes like Jewel, despite the 0:02:54.600 --> 0:02:57.960 controversies around that and also pot Uh they've invested in 0:02:58.200 --> 0:03:00.480 marijuana companies. So I think what they're doing is if 0:03:00.520 --> 0:03:02.280 they unite forces, you know, they have that power of 0:03:02.320 --> 0:03:05.040 scale and they can kind of keep pushing these products 0:03:05.080 --> 0:03:08.320 and and kind of monopolize that market. If you keep 0:03:08.320 --> 0:03:13.720 going on the website. Corporate responsibility progress Report Health effects 0:03:13.800 --> 0:03:17.160 of smoking, you know, talking about uh, you know, supporting 0:03:17.160 --> 0:03:19.440 twenty one is the legal aged purchase to bacque products. 0:03:19.480 --> 0:03:24.760 These genuinely look like advocacy against smoking websites, yet they 0:03:24.840 --> 0:03:30.600 still sell billions of cigarettes from yes, exactly, like outside 0:03:30.600 --> 0:03:33.760 of the US, are there still growth markets for smoking? 0:03:34.200 --> 0:03:36.120 I think so. But I think the bigger thing is 0:03:36.480 --> 0:03:39.640 not looking at just traditional smoking, but looking at these 0:03:39.640 --> 0:03:42.120 newer products like the est eggs and and like these 0:03:42.160 --> 0:03:44.960 heating sticks that they're selling, like icos um, And I 0:03:45.000 --> 0:03:47.040 think that's where that sort of they're you know, they're 0:03:47.040 --> 0:03:49.080 calling it the innovation for the market, and I think 0:03:49.120 --> 0:03:51.200 that's where the focus is right now and when investors 0:03:51.240 --> 0:03:53.520 have been looking to hear more from them on But again, 0:03:53.560 --> 0:03:56.560 those are such a small portion of the business in 0:03:56.680 --> 0:03:59.120 terms of their financials that it's not really helping their 0:03:59.120 --> 0:04:01.760 stock prices right now. Putting them together might do a 0:04:01.800 --> 0:04:04.560 little bit to kind of re excite investors to these companies. 0:04:04.960 --> 0:04:08.600 Let's talk pot. How does this sort of increase their 0:04:08.760 --> 0:04:13.160 position when it comes to uh, making marijuana products more 0:04:13.200 --> 0:04:16.000 mainstream and is this on their agenda? I think so. 0:04:16.080 --> 0:04:19.120 I mean, obviously, right now, marijuana is legalizing Canada, and 0:04:19.160 --> 0:04:21.560 that's a relatively small market versus the US. But I 0:04:21.600 --> 0:04:24.240 think all of these companies that have invested in these 0:04:24.279 --> 0:04:27.880 Canadian pot producers, such as Constellation Brands, which is a 0:04:28.080 --> 0:04:31.919 US boost congomerate, and then Altria going after Chronos, I 0:04:31.920 --> 0:04:35.720 think that those investments were made with an eye toward 0:04:35.800 --> 0:04:37.400 the US market, and I think they see it as 0:04:37.400 --> 0:04:40.520 eventually it's going to become legal federally. And obviously, what 0:04:40.760 --> 0:04:43.920 industry is more powerful when it comes to sort of 0:04:43.960 --> 0:04:47.120 lobbying the US government, it's the cigarette industry. So I 0:04:47.160 --> 0:04:49.640 think that they see themselves as in a position, even 0:04:49.640 --> 0:04:51.360 though they're kind of the slow movers in it, to 0:04:51.520 --> 0:04:54.680 get into into marijuana and turn that into sort of 0:04:54.720 --> 0:04:57.280 their growth avenue. Are they Are they waiting for federal 0:04:57.400 --> 0:04:59.440 US legislation because I know we've got a dozen or 0:04:59.480 --> 0:05:01.520 so states of legalized marijuana. Are I think waiting for 0:05:01.600 --> 0:05:05.039 federal Yeah? I think you need federal because otherwise it's 0:05:05.040 --> 0:05:07.760 just not a big enough market for them to really pursue. 0:05:07.880 --> 0:05:10.680 But they are obviously looking into It's something they've studied 0:05:10.720 --> 0:05:13.480 for decades, we know, even quietly behind the scenes, So 0:05:13.760 --> 0:05:15.960 it's definitely something they're interested in, but not until is 0:05:16.000 --> 0:05:18.520 it federal legal for them to really make a business 0:05:18.520 --> 0:05:20.400 push this time. Is this deal going to go through? 0:05:20.720 --> 0:05:22.479 I think so yeah. I mean I've been writing about 0:05:22.480 --> 0:05:25.159 this deal happening for years and it never did. And 0:05:25.320 --> 0:05:27.160 I think it makes sense. I they think it was 0:05:27.200 --> 0:05:29.040 only a matter of time, and with the launch of 0:05:29.080 --> 0:05:31.440 I coos next month, it seems like they're really serious. 0:05:32.000 --> 0:05:34.480 Sara La Chapelle, thank you so much for being with us. 0:05:34.520 --> 0:05:37.320 As always. Charla Chapelle as deals, telecom and media columnist 0:05:37.400 --> 0:05:40.520 for Bloomberg Opinion. Read her columns and all the other 0:05:40.560 --> 0:05:44.800 columnists columns on Bloomberg dot Com, Slash Opinion or O 0:05:45.000 --> 0:05:48.479 P I n Go on the Bloomberg. I am going 0:05:48.520 --> 0:05:50.640 to have a lot of fun for using these websites 0:05:50.680 --> 0:05:53.679 to even have the same colors, and there are hospital colors. 0:05:53.680 --> 0:05:55.840 I'm really looking at this sort of you know, sort 0:05:55.839 --> 0:06:01.480 of darker blue and the red and the just everything 0:06:01.520 --> 0:06:04.400 about it. It feels so healthy, It feels so healthy. 0:06:04.480 --> 0:06:06.640 I mean, these are absolutely you know, they would be 0:06:06.680 --> 0:06:11.240 they would be hospital websites if they weren't advertising cigarettes. 0:06:25.600 --> 0:06:27.960 Joining us right now is Jack Divine, former chief of 0:06:28.040 --> 0:06:31.920 CIA's worldwide operations and founding partner and president of the 0:06:32.040 --> 0:06:35.080 ark And Group. Jack, thanks so much for being with 0:06:35.200 --> 0:06:37.680 us again. I'm not sure where to start, but let's 0:06:37.680 --> 0:06:40.240 start with a Ran. Um. You know, we just had 0:06:40.279 --> 0:06:43.120 the G seven wrap up. What is your sense of 0:06:43.240 --> 0:06:46.600 kind of where we are with a RAN right now? 0:06:46.640 --> 0:06:48.200 It seems to be one of the issues on the 0:06:48.200 --> 0:06:52.360 front burner right This is a one of those issues 0:06:52.400 --> 0:06:54.720 that have troubled me all along. How do we deal 0:06:54.800 --> 0:06:58.320 with Iran? I think somehow we get along and maybe 0:06:58.320 --> 0:07:00.320 we won't get a break with North Korea, but Ron 0:07:00.440 --> 0:07:03.200 is really a contentious issue and we could have end 0:07:03.240 --> 0:07:05.920 up with some sort of military conflict. I'm not saying war. 0:07:05.960 --> 0:07:08.560 I don't think that will happen. What do you have? 0:07:08.600 --> 0:07:12.320 Are two really lunch and strong positions now in the 0:07:12.320 --> 0:07:16.360 Iranian government, and they're very good negotiators, as you know, Uh, 0:07:16.480 --> 0:07:19.360 we tend to underestimate foreigners and their ability to do 0:07:19.480 --> 0:07:21.880 negotiations in the art of the deal, which is true 0:07:21.920 --> 0:07:24.680 with North Korea as well. They've been negotiating and I 0:07:24.720 --> 0:07:27.760 think they did a really good job last time. So 0:07:27.880 --> 0:07:32.080 to go to the table right now, um, I think 0:07:32.080 --> 0:07:35.480 it's going to be hard for them. Um. They are 0:07:35.520 --> 0:07:38.120 in their latest messages saying you have to lift the 0:07:38.240 --> 0:07:41.040 sanctions now Trump, There's no ways Trump is going to 0:07:41.160 --> 0:07:44.880 raise the take away the sanctions. It's just not going 0:07:44.920 --> 0:07:49.160 to happen. So the positions are sort of recalculate trend. 0:07:49.280 --> 0:07:53.840 Strong positions that both side for domestic reasons and as 0:07:53.880 --> 0:07:59.760 well as national security interests can't find big, big concessions. However, 0:08:00.720 --> 0:08:05.200 as a footnote, I do think there's there. It is 0:08:05.240 --> 0:08:08.000 wise to try and bring leaders together if you can, 0:08:08.240 --> 0:08:10.720 sometimes you get a breakthrough. So up when the U 0:08:10.840 --> 0:08:14.640 N Session takes place, I wouldn't be surprised if there 0:08:14.720 --> 0:08:19.440 is a sidebar discussion despite all the strong posturing that 0:08:19.440 --> 0:08:23.360 that won't happen with Andrump. All right, I just sort 0:08:23.360 --> 0:08:24.960 of taking a step back. Do you think that we 0:08:25.000 --> 0:08:28.560 are in a more dangerous or less dangerous place than 0:08:28.600 --> 0:08:30.880 we were a year ago when you were writing your 0:08:30.920 --> 0:08:34.720 summer intelligence report, Then well, I think we're in a 0:08:34.760 --> 0:08:38.319 more dangerous place because I think the Iranian situation has 0:08:38.400 --> 0:08:44.200 become increasingly more desperate economically. Uh, they've made military gestures 0:08:44.200 --> 0:08:47.040 shooting down drones. In fact, one of the key developments 0:08:47.080 --> 0:08:50.880 for the year for me is the fact that the 0:08:50.880 --> 0:08:54.079 President Trump did not take a stronger action when the 0:08:54.160 --> 0:08:57.120 drone was shot down. Why because I think there's some 0:08:57.400 --> 0:09:02.839 very strong, howckey sentiments in the Trump administration, Uh to 0:09:03.040 --> 0:09:06.319 have uh to push the runtings as hard as you can. 0:09:06.440 --> 0:09:12.200 That showed more temperance and more probably possibilities, if you will, 0:09:12.240 --> 0:09:15.680 by not doing that, despite the pressure from elements into 0:09:15.720 --> 0:09:19.960 his administration. So um, I think he would like to 0:09:20.000 --> 0:09:23.880 have an arrangement with the Iranians. I just don't see 0:09:23.960 --> 0:09:26.760 how you get to a deal that works for both sides. 0:09:27.679 --> 0:09:31.959 He's easily. Are you concerned that the Americans seem to 0:09:32.000 --> 0:09:35.839 be going about this alone without some of the other 0:09:36.160 --> 0:09:40.520 European countries that are signatories to the original deal. Well, 0:09:40.559 --> 0:09:43.199 I think it's always better to have everybody with you. 0:09:44.000 --> 0:09:46.360 Having said that, sometimes you get everybody with you if 0:09:46.360 --> 0:09:50.280 you take the lowest common denomen or fees. Once we 0:09:50.400 --> 0:09:53.040 decided to tear up the deal, and as I said, 0:09:53.080 --> 0:09:54.599 it wasn't thrilled with the deal, but I thought it 0:09:54.640 --> 0:09:58.719 was an okay deal, I probably would have recommended against it. Well, 0:09:59.160 --> 0:10:03.240 once you tear up, then to get back to the table, uh, 0:10:03.600 --> 0:10:07.120 you know, if you're gonna it's really impossible for trumping 0:10:07.160 --> 0:10:09.319 me back with the same arrangement. There has to be 0:10:09.400 --> 0:10:13.400 a new deal, so uh, the Europeans on the other side, 0:10:13.440 --> 0:10:16.120 if it need to make accommodations with the US. It's 0:10:16.160 --> 0:10:19.080 such an We're such an important part of everyone's game 0:10:19.160 --> 0:10:23.079 plan that they're trying to do workarounds with Iran and 0:10:23.360 --> 0:10:26.520 that's not working out so well in Iranni and oil 0:10:26.520 --> 0:10:30.640 production is still very low. Internally, economic problems are quite severe. 0:10:31.400 --> 0:10:33.720 There's a lot to be said for putting his maximum 0:10:33.760 --> 0:10:36.160 pressure on Iran to get to the table. Don't put 0:10:36.320 --> 0:10:40.320 maximum pressure to have a regime change because that doesn't 0:10:40.320 --> 0:10:41.920 seem to be in the cards and you do not 0:10:42.120 --> 0:10:45.880 know what will happen when and uprising occurs. Let's just 0:10:46.880 --> 0:10:49.080 flip up a little bit and head to China, because 0:10:49.080 --> 0:10:54.640 certainly we talk every day about US China trade discussions, tradespats, tweets, etcetera. 0:10:55.440 --> 0:10:59.559 How worried are you that the situation will escalate beyond 0:10:59.640 --> 0:11:03.920 trade to something more military? There? I give that low prospects. 0:11:04.200 --> 0:11:09.160 I mean, I'm not anticipating the military uh clash between 0:11:09.200 --> 0:11:13.800 the US and the Chinese and the foreseeable future. Okay, 0:11:14.960 --> 0:11:19.719 that we will have a Cold War tense relationships with them. 0:11:20.640 --> 0:11:22.839 It seems like we're heading more and more in that 0:11:23.360 --> 0:11:27.640 that direction. I do think it's hard to find places 0:11:27.720 --> 0:11:30.800 where there's common agreement, but on China there is a 0:11:30.960 --> 0:11:34.280 sense of we really need to do something about China. 0:11:34.600 --> 0:11:37.079 How you go about it is open to dispute. I 0:11:37.120 --> 0:11:41.439 don't see it getting anywhere near a military confrontation. I 0:11:41.520 --> 0:11:44.920 think that Chinese have long range goals to some degree 0:11:45.200 --> 0:11:48.000 in terms of their military might. They're meeting those goals. 0:11:48.960 --> 0:11:51.839 I don't see where there's bones of contention, as in 0:11:51.880 --> 0:11:55.600 the case of Iran with the Straits of or Motes, 0:11:56.160 --> 0:11:59.400 we we are going to have opportunities to shoot at 0:11:59.480 --> 0:12:02.280 each other, Okay, we're in the case of the Chinese, 0:12:02.360 --> 0:12:05.520 I don't see that happening. And we're both major powers today. 0:12:05.640 --> 0:12:08.520 They have nuclear weapons, so I think the prospects are 0:12:08.600 --> 0:12:13.319 really pretty low. It's more in your area, especially economic conditions, 0:12:13.360 --> 0:12:16.840 that I think represent the greatest challenge to the relationship. 0:12:17.360 --> 0:12:19.480 Do you think that the U S should have pulled 0:12:19.480 --> 0:12:22.199 out of the Transportacific Partnership the t p P and 0:12:22.360 --> 0:12:24.400 and kind of again once again going and alone and 0:12:24.480 --> 0:12:27.440 discussions UH with China, or did we have more leverage 0:12:27.480 --> 0:12:30.880 being part of that group. Yeah. Again, I tend to 0:12:30.960 --> 0:12:34.600 line line up in the direction of keeping these things together. 0:12:34.880 --> 0:12:37.520 But all of them were flawed. The randeal was flawed, 0:12:38.200 --> 0:12:42.560 the the trade agreement was flawed. So you keep working 0:12:42.640 --> 0:12:46.319 the issues at a certain point. For example, with the 0:12:46.400 --> 0:12:51.400 Russians on the the nuclear arms arrangement, that was so 0:12:51.600 --> 0:12:53.839 dead that you eventually have to walk away from it. 0:12:53.920 --> 0:12:55.760 I don't think that was true. In the other cases, 0:12:55.800 --> 0:13:01.360 you keep working with them. I do think multilateral approaches 0:13:01.480 --> 0:13:06.080 thing are the best. However, I do see that we've 0:13:06.280 --> 0:13:10.199 drifted into a soft multilateral Someone has to take charge 0:13:10.240 --> 0:13:13.920 with a stronger multilateral thing. Will Trump prevail and bring 0:13:14.040 --> 0:13:16.800 the others to his side? That's the That's the question 0:13:16.920 --> 0:13:19.520 for me. Jack Devine, thank you so much for being 0:13:19.559 --> 0:13:21.640 with us. As always, we really appreciate you being here. 0:13:21.720 --> 0:13:25.160 Jack Divine, founding partner and president of the Arkan Group, 0:13:25.360 --> 0:13:29.679 former chief of CIA's worldwide operations, joining us here in 0:13:29.880 --> 0:13:49.720 our Blomberg Active Broker studios. Well, the rising trade tensions 0:13:49.760 --> 0:13:53.360 between the US and China are clearly royaling financial markets 0:13:53.480 --> 0:13:57.360 around the globe, and that includes investing directly in China itself. 0:13:57.600 --> 0:14:00.000 To get the latest. We welcome our next guest, Brendan A. Hearne, 0:14:00.160 --> 0:14:03.120 Chief Investment Officer of Crane Chairs. H Crane Chairs is 0:14:03.160 --> 0:14:04.880 based in New York City. Brendan, thanks so much for 0:14:05.000 --> 0:14:08.120 joining us. So again, we've seen, you know, the ups 0:14:08.160 --> 0:14:11.280 and downs of the trade tensions and the tweets kind 0:14:11.280 --> 0:14:14.120 of whips all markets. What about you know, the folks 0:14:14.200 --> 0:14:16.720 that actually are investing in China. What are we seeing 0:14:17.120 --> 0:14:20.760 in that activity? So the first forms nice for the 0:14:20.760 --> 0:14:24.080 opportunity to connect Paul Um. You know, I think day 0:14:24.080 --> 0:14:26.360 to day we become somewhat you almost have to become 0:14:26.400 --> 0:14:28.480 immune to some of the things that you can't control, 0:14:28.600 --> 0:14:33.840 if it's tweets or media headlines. Ultimately, the fundamentals China 0:14:33.880 --> 0:14:36.000 has been slowing for a number of years, but but 0:14:36.280 --> 0:14:41.480 it's it's it's really trading um high growth with high 0:14:41.600 --> 0:14:45.120 leverage for slower, healthier growth. And we're seeing that on 0:14:45.240 --> 0:14:47.240 on the corporate earning side as well. We're where corporate 0:14:47.280 --> 0:14:50.240 earnings were in really the meat of of corporate earning 0:14:50.320 --> 0:14:53.720 season for Hong Kong Us and mainland listed companies and 0:14:53.800 --> 0:14:56.840 the results have been surprisingly strong. So so we maintain 0:14:56.920 --> 0:15:00.480 our optimism is growth in China truly healthy at this point, 0:15:00.680 --> 0:15:04.240 given the fact that the PBOC has engaged or I 0:15:04.280 --> 0:15:09.360 should say re engaged in a releveraging of the economy, well, 0:15:09.640 --> 0:15:13.000 I think you know what what the PBOC is attempting 0:15:13.040 --> 0:15:15.240 to do is is really goes back to this thesis 0:15:15.320 --> 0:15:16.920 of a tale of to China, is that part of 0:15:17.000 --> 0:15:20.920 China doesn't need necessarily need lower interest rates, and yet 0:15:21.000 --> 0:15:23.440 there are parts of the economy that do need help. 0:15:23.560 --> 0:15:27.200 If it's your export driven manufacturing um at the same 0:15:27.240 --> 0:15:31.560 time that the consumption story is alive and well, um 0:15:31.640 --> 0:15:34.640 in a broad braced interest rate cut, you know basically 0:15:34.720 --> 0:15:37.640 could fuel bubble in in that that consumption. But but 0:15:38.320 --> 0:15:39.760 I think that you need to get help to the 0:15:39.800 --> 0:15:42.160 parts of the economy that are struggling under the weight 0:15:42.200 --> 0:15:46.240 of the trade war. So Brendon happens. You know, the 0:15:46.320 --> 0:15:48.720 unrest we're seeing in Hong Kong, it it doesn't seem 0:15:48.800 --> 0:15:51.880 to be going away. The demonstrators continue to you know, 0:15:51.960 --> 0:15:55.000 weekend after weekend, Uh come out into into the streets. 0:15:55.200 --> 0:15:57.520 What are you hearing from investors as to gees? That 0:15:57.600 --> 0:15:59.640 just adds another level of uncertainty in that part of 0:15:59.640 --> 0:16:01.480 the world. It maybe you know, I might sit on 0:16:01.520 --> 0:16:05.040 the sidelines as it released allocating more capital. There certainly 0:16:05.080 --> 0:16:08.440 investors setiment around Hong Kong. If you one looks at 0:16:08.480 --> 0:16:12.040 the Hang Sang has been very very depressed. Uh, certainly, 0:16:12.200 --> 0:16:14.960 you know, it does appear that it's very unlikely you'll 0:16:15.040 --> 0:16:21.240 see a military type intervention. Um. I suspect Carrie Lamb 0:16:21.920 --> 0:16:25.520 will be removed at some stage. That the populace in 0:16:25.600 --> 0:16:30.520 Hong Kong has become um very disenfranchised to her leadership. 0:16:31.320 --> 0:16:33.760 But I do think the hope is that if you 0:16:33.840 --> 0:16:35.800 just leave it alone, it will go away. But it 0:16:35.920 --> 0:16:39.200 teems to be quite persistent, and certainly the local populace 0:16:39.520 --> 0:16:42.960 is worried just about how is China going to react? 0:16:43.040 --> 0:16:45.240 But I think they maintain the hands off approach as 0:16:45.280 --> 0:16:48.720 we've seen thus far. Brandon, at what point in a 0:16:48.840 --> 0:16:52.480 potential escalation of the trade skirmish between the US and China, 0:16:52.960 --> 0:16:57.040 would you grow more bearish on China? Well, I think 0:16:57.080 --> 0:16:59.480 a lot of the pessimism has already been built in 0:16:59.640 --> 0:17:02.200 least if one looks at the pe ratios for both 0:17:02.320 --> 0:17:06.560 mainland China as well as Hong Kong or US listed companies, 0:17:06.640 --> 0:17:10.720 the valuations are about as pessimistic as I've seen them unfortunately, 0:17:11.280 --> 0:17:12.720 so I think a lot of that is built in. 0:17:12.840 --> 0:17:15.200 I think I think the bigger worry, if you step 0:17:15.280 --> 0:17:17.840 back and say big picture, would be that this is 0:17:17.960 --> 0:17:21.040 China being pushed into some sort of enemy role. That's 0:17:21.080 --> 0:17:23.840 something for those who do business there. I don't see that, 0:17:24.240 --> 0:17:27.479 I don't ever feel that, but increasingly, you know, China's 0:17:27.520 --> 0:17:29.440 being put on that pedestal. I think I think that's 0:17:29.600 --> 0:17:31.879 the big worry. So Brendan, what are you see in 0:17:32.000 --> 0:17:35.040 terms of the fund that flows into say like China 0:17:35.119 --> 0:17:36.760 E t F and things like that, are people Are 0:17:36.800 --> 0:17:39.720 you seeing it slow down or are people still engaged? 0:17:41.080 --> 0:17:45.800 We're definitely Uh. The US China et F industry is 0:17:46.640 --> 0:17:50.320 getting outflows. We've seen we actually had the largest China 0:17:50.400 --> 0:17:52.080 E t F here in the US lost a hundred 0:17:52.080 --> 0:17:54.840 million dollars overnight. At the same time, we did have 0:17:55.000 --> 0:17:59.879 MSCIS inclusion last night where we had um net uh 0:18:00.080 --> 0:18:03.720 one point five seven billion dollars of foreign buying in 0:18:04.000 --> 0:18:06.560 Chinese a share. So so the E t F s 0:18:06.600 --> 0:18:09.119 are react. The China E t s are seeing outflows. 0:18:09.119 --> 0:18:10.840 At the same time because of the m s c 0:18:10.960 --> 0:18:14.719 I inclusion, we are getting inflows in that regard, How 0:18:14.840 --> 0:18:17.480 does the u N factor in here? We are seeing 0:18:17.680 --> 0:18:20.359 a pretty significant depreciation in the u N, crossing the 0:18:20.440 --> 0:18:24.240 seven per dollar threshold and then going beyond. How bunch 0:18:24.280 --> 0:18:26.879 of an issue is that going to be both in 0:18:27.080 --> 0:18:29.800 terms of companies repaying their dollar debt as well as 0:18:29.840 --> 0:18:34.040 their ability to sort of compete internationally. The the un 0:18:34.200 --> 0:18:37.840 depreciation has been somewhat mild, I mean relative to the 0:18:38.000 --> 0:18:40.320 e m f X. It's it's in line, what what 0:18:40.480 --> 0:18:43.159 what what we've seen um At the same time, I 0:18:43.200 --> 0:18:46.440 think it's very different than August, where I've got some 0:18:46.520 --> 0:18:49.160 wrinkles on my forehead from from that particular, a month 0:18:49.200 --> 0:18:53.400 where you had a very unexpected decline because because people 0:18:53.480 --> 0:18:55.159 kind of expect, you know, one, you have a very 0:18:55.240 --> 0:18:58.960 strong dollar at the same time you have China is slowing, 0:18:59.080 --> 0:19:02.199 So some some weakness is expected in the REAMBI as 0:19:02.240 --> 0:19:04.639 long as in a controlled manner, I think we're okay. 0:19:05.560 --> 0:19:07.600 Thank you so much for being with us. Brendan Hern, 0:19:07.640 --> 0:19:24.560 chief investment officer at Crane Shares. Let's talk about a 0:19:24.680 --> 0:19:28.160 particularly risky segment of the market, Argentina. We can look 0:19:28.200 --> 0:19:31.840 in at bonds where the implied yields are currently fifty 0:19:31.960 --> 0:19:36.560 five on short dated notes. Kind of shocking and investors 0:19:36.600 --> 0:19:39.640 are flocking to the nation to check it all out. 0:19:40.160 --> 0:19:43.680 But let's talk about what the prospects of default, recovery 0:19:43.920 --> 0:19:46.520 and actual yield is. Damian sass Our, chief Emerging Markets 0:19:46.520 --> 0:19:49.200 credit strategist joining us here in our Bloomberg inter Active 0:19:49.200 --> 0:19:53.440 Broker Studios. So whether Argentina, what is the bull case 0:19:53.560 --> 0:19:55.680 and what is the bear case? Goodness, Okay, well the 0:19:55.720 --> 0:19:58.520 bull cases we hear something good out of at Buenos 0:19:58.640 --> 0:20:00.760 Arts today. We have Aljandra War, owner of the IMF, 0:20:00.880 --> 0:20:03.119 visiting this week and his contingent is going to decide 0:20:03.160 --> 0:20:05.399 when they're not to make a five point four billion 0:20:05.480 --> 0:20:08.080 dollar disbursement next month. That would be the third dispersement 0:20:08.119 --> 0:20:10.040 of the i m F loan. If we get good 0:20:10.080 --> 0:20:12.200 news there and the i m F doesn't hold that back, 0:20:12.280 --> 0:20:14.399 that would definitely give some comfort to markets. We have 0:20:14.520 --> 0:20:17.520 seen the pace of stabilizes it around fifty five. But 0:20:17.680 --> 0:20:20.840 that's the short term bullish case. The bearrish cases obviously 0:20:21.000 --> 0:20:24.680 that boats are fernandez Um is indeed elected and sort 0:20:24.720 --> 0:20:26.639 of goes off the rails. And basically, I mean we 0:20:26.760 --> 0:20:30.240 were talking about possible debt, restructuring, government control over grain prices. 0:20:30.320 --> 0:20:33.800 We're talking about multiple FX regimes locally. UM, that would 0:20:33.800 --> 0:20:36.720 all be very very bad. But look, Fernandez is on 0:20:36.800 --> 0:20:39.960 the tape this week, UM saying he stands by the 0:20:40.080 --> 0:20:42.200 I m F mandate. Um, they both stand for the 0:20:42.240 --> 0:20:44.680 same thing. And so far as Argentina's concerned, economic growth, 0:20:45.240 --> 0:20:49.040 lower unemployment, UM, lower debt and so forth, and so look, 0:20:49.119 --> 0:20:51.679 you know, you know there is some reason to be optimistic. 0:20:51.720 --> 0:20:53.719 I know our friends at Morgan Stanley are UM, they 0:20:53.760 --> 0:20:56.760 actually moved Argentina from underweight to market weight this week. 0:20:57.400 --> 0:20:59.400 They think at call it forty cents on the dollar, 0:20:59.560 --> 0:21:02.399 that UM there, the Argentine dollar dead is actually a 0:21:02.520 --> 0:21:05.120 buy here. UM. But you know, from the stress investors 0:21:05.160 --> 0:21:06.640 that I've talked to, and those are really the only 0:21:06.720 --> 0:21:08.159 ones that are going to go near that paper at 0:21:08.240 --> 0:21:10.200 current levels, you know, they'd want to see it coming 0:21:10.240 --> 0:21:12.399 a little bit more down into the thirties. So you know, 0:21:12.480 --> 0:21:14.080 the verdict is still add us to whether or not 0:21:14.160 --> 0:21:16.560 it's a buy yet. But UM, certainly, you know we 0:21:16.640 --> 0:21:18.760 need to see more news uh from the I m 0:21:18.840 --> 0:21:21.200 F in order to really discern that has the trouble. 0:21:21.200 --> 0:21:23.040 We've seen in Argentina. Is that had been a little 0:21:23.040 --> 0:21:25.600 bit of contagion around Latin America or is it kind 0:21:25.600 --> 0:21:28.280 of confined to that country. Well, you know, it's that's interesting. 0:21:28.359 --> 0:21:31.000 I mean, contagion is it takes many different forms. So 0:21:31.040 --> 0:21:33.520 if it's if it's real economy, real risk contagion, where 0:21:33.520 --> 0:21:35.359 you see something on the order of, you know, early 0:21:35.480 --> 0:21:37.640 last year, when you know all of emerging markets sort 0:21:37.680 --> 0:21:39.920 of caved. I don't think we're going to see that 0:21:40.000 --> 0:21:41.920 this time. Position is not nearly as heavy, it's not 0:21:42.000 --> 0:21:44.280 nearly as concentrated as it once where. But we've seen 0:21:44.320 --> 0:21:47.800 some really big losses from from some very UM venerable 0:21:47.840 --> 0:21:50.440 portfolio managers over the past month with the with the 0:21:50.520 --> 0:21:53.240 the client in the RG pace, so including our friends 0:21:53.280 --> 0:21:55.960 at Franklin Templeton, and so we wrote to that this morning. Look, 0:21:56.040 --> 0:21:59.439 the risk of contagion would be more of I think 0:21:59.440 --> 0:22:02.280 it'd be more are isolated to e M dollar credit, 0:22:02.359 --> 0:22:05.720 specifically high yield credit, because let's be clear, if people 0:22:05.800 --> 0:22:07.920