1 00:00:09,840 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jailey. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:32,560 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. David 5 00:00:32,560 --> 00:00:35,839 Speaker 1: Pearl were epic. Investments were thrilled to have him here. 6 00:00:35,920 --> 00:00:39,240 Speaker 1: There's are people that are legendary and trying to figure 7 00:00:39,280 --> 00:00:42,360 Speaker 1: out shareholder value, trying to figure out use of cash. 8 00:00:42,760 --> 00:00:45,880 Speaker 1: Is there a model at JP Morgan of use of cash? 9 00:00:46,080 --> 00:00:49,040 Speaker 1: Is there a Diamond way of doing use of cash? 10 00:00:49,240 --> 00:00:53,519 Speaker 1: Are they like every other big multinational Well, David, the 11 00:00:53,520 --> 00:00:56,520 Speaker 1: Mike's over here, it's radio. Yeah, there we go. So 12 00:00:57,240 --> 00:01:00,520 Speaker 1: they clearly have a strategy and it include it's a 13 00:01:00,600 --> 00:01:03,720 Speaker 1: very large return of capital. Uh, this is the big 14 00:01:03,840 --> 00:01:06,840 Speaker 1: change over the last few years. Because the regulatory environment 15 00:01:06,840 --> 00:01:09,880 Speaker 1: has gotten a lot more favorable, they're able to give 16 00:01:09,920 --> 00:01:13,000 Speaker 1: the capital back, which is creating a huge upside in return. 17 00:01:13,520 --> 00:01:15,840 Speaker 1: I don't think investors have really keyed in on this. 18 00:01:16,440 --> 00:01:19,080 Speaker 1: The you know, bank earnings have been up all year 19 00:01:19,200 --> 00:01:22,760 Speaker 1: and the performance has been very mediocre, so really evaluations 20 00:01:22,760 --> 00:01:26,039 Speaker 1: have calmed down. They've gotten cheaper. Uh, they're not getting 21 00:01:26,080 --> 00:01:29,280 Speaker 1: credit for a whole lot of things that their profitability 22 00:01:29,280 --> 00:01:31,760 Speaker 1: has increased all year with the tax cut, with being 23 00:01:31,800 --> 00:01:35,240 Speaker 1: more efficient, having a higher net interest margin holding your 24 00:01:35,280 --> 00:01:40,000 Speaker 1: deposits while rake goes up and you know it'll it'll come. John, 25 00:01:40,040 --> 00:01:41,440 Speaker 1: I don't have it in front of me because my 26 00:01:41,600 --> 00:01:43,920 Speaker 1: entourage didn't set up my computer are correctly. But the 27 00:01:43,959 --> 00:01:48,800 Speaker 1: statement from Mr Diamond was very Hey, regulations better, Yeah, 28 00:01:49,160 --> 00:01:51,880 Speaker 1: taxes are better, quite clear, and they opened their first 29 00:01:51,920 --> 00:01:54,559 Speaker 1: branch in Washington, d C. I think that this coal 30 00:01:54,680 --> 00:01:56,960 Speaker 1: lights on with Jamie Diamond is gonna be probably the 31 00:01:56,960 --> 00:01:59,520 Speaker 1: most listened to earnings coal of this code where it's 32 00:01:59,560 --> 00:02:02,200 Speaker 1: gonna be really interesting and it comes up. I think 33 00:02:02,320 --> 00:02:05,960 Speaker 1: it starts at about eight an ambassador, I don't know 34 00:02:05,960 --> 00:02:07,840 Speaker 1: about that. I don't know about that. Do you really 35 00:02:07,840 --> 00:02:10,079 Speaker 1: want to have that speculation right now? I'm just trying 36 00:02:10,120 --> 00:02:16,519 Speaker 1: to get I'm going to ask my real question is 37 00:02:16,560 --> 00:02:19,720 Speaker 1: you're asking the stupid ones at the moment. I don't 38 00:02:19,720 --> 00:02:22,119 Speaker 1: know where you're going with why what did they see 39 00:02:22,160 --> 00:02:25,800 Speaker 1: Milan losers somehow? Tom David, let's talk about the banks 40 00:02:25,840 --> 00:02:29,760 Speaker 1: record profitability still under performing the benchmark. When is everyone 41 00:02:29,760 --> 00:02:31,480 Speaker 1: else get the joke. I asked that to Mike Mayo, 42 00:02:31,480 --> 00:02:34,799 Speaker 1: who's very bullish on the banks as well, but it's 43 00:02:34,800 --> 00:02:37,320 Speaker 1: not shared. Why not, Well, the market has been on 44 00:02:37,360 --> 00:02:40,160 Speaker 1: a growth kick. They're paying up for revenue growth, not 45 00:02:40,280 --> 00:02:44,200 Speaker 1: for profits. The difference between the value benchmark and the 46 00:02:44,240 --> 00:02:47,840 Speaker 1: growth benchmark has never been wider. It's a growth market 47 00:02:48,320 --> 00:02:51,519 Speaker 1: and banks are the value sector. But if you look 48 00:02:51,560 --> 00:02:56,080 Speaker 1: at it just across the board, everything that is um 49 00:02:56,160 --> 00:03:00,480 Speaker 1: a value sector has underperformed great profitability. The question is 50 00:03:00,480 --> 00:03:02,880 Speaker 1: why it will turn, and I do think rates going 51 00:03:03,000 --> 00:03:06,120 Speaker 1: up is one of those reasons. Uh, there is this 52 00:03:06,200 --> 00:03:08,880 Speaker 1: view that the economy is going to eventually slow go 53 00:03:08,919 --> 00:03:11,200 Speaker 1: to recession. Of course it is, but not for the 54 00:03:11,240 --> 00:03:14,040 Speaker 1: next twelve to eighteen months. So banks are going to 55 00:03:14,080 --> 00:03:18,600 Speaker 1: continue to do well. Consumer credit has remained strong. That 56 00:03:18,760 --> 00:03:22,560 Speaker 1: is really important. It's when consumers start defaulting that banks 57 00:03:22,600 --> 00:03:25,079 Speaker 1: do poorly. So we've had some stability in the sanquity 58 00:03:25,120 --> 00:03:27,400 Speaker 1: market through this morning. But every time we get a 59 00:03:27,440 --> 00:03:30,200 Speaker 1: market route, any kind of correction, I get a lot 60 00:03:30,200 --> 00:03:32,120 Speaker 1: of people come on this program. Tom gets a lot 61 00:03:32,160 --> 00:03:34,600 Speaker 1: of people come in on Bloomberg TV saying that it's 62 00:03:34,639 --> 00:03:37,840 Speaker 1: time for value to take over from growth. I'm here 63 00:03:37,960 --> 00:03:41,640 Speaker 1: to get again. Why is now any different to February 64 00:03:42,200 --> 00:03:44,240 Speaker 1: or every single time we've had to draw down in 65 00:03:44,280 --> 00:03:47,880 Speaker 1: the year has gone by well. Certainly from a point 66 00:03:47,880 --> 00:03:52,080 Speaker 1: of price discovery, the valuation gap is just enormous. You 67 00:03:52,120 --> 00:03:56,200 Speaker 1: can buy semiconductor companies at seven times earnings, banks are 68 00:03:56,240 --> 00:03:59,080 Speaker 1: at ten or you know, just above book value. There's 69 00:03:59,240 --> 00:04:02,040 Speaker 1: really a lot of value. And what's going to happen 70 00:04:02,120 --> 00:04:05,920 Speaker 1: is non financial buyers will take advantage someone's gonna buy you, 71 00:04:06,440 --> 00:04:11,120 Speaker 1: like Broadcom buying a software company, uh, private equity taking 72 00:04:11,160 --> 00:04:15,120 Speaker 1: out a real estate company. There's a lot of activity 73 00:04:15,160 --> 00:04:19,080 Speaker 1: where people outside the financial market see these companies as undervalued. 74 00:04:19,160 --> 00:04:21,039 Speaker 1: So to bring it back here within all the up 75 00:04:21,360 --> 00:04:24,159 Speaker 1: just a final couple of questions, if we could, how 76 00:04:24,160 --> 00:04:27,640 Speaker 1: does a pro like you react to two hillacious days 77 00:04:27,760 --> 00:04:30,520 Speaker 1: in the market. Do you like to see the Rangers 78 00:04:30,520 --> 00:04:33,760 Speaker 1: lose another game? Or you know, what what do you do? 79 00:04:34,160 --> 00:04:36,799 Speaker 1: You know? Our view is the market in the short 80 00:04:36,920 --> 00:04:41,120 Speaker 1: term is very chaotic. You know, I don't even know 81 00:04:41,160 --> 00:04:45,520 Speaker 1: if someone told me insider information whether that was not discounted. 82 00:04:45,760 --> 00:04:48,720 Speaker 1: So in the short term the market just is very volatile, 83 00:04:49,080 --> 00:04:50,840 Speaker 1: not a lot of information. If you look at if 84 00:04:50,880 --> 00:04:53,560 Speaker 1: an engineer signal in the noise ratio, the noise and 85 00:04:53,640 --> 00:04:57,000 Speaker 1: the short term is very very high. The signal is 86 00:04:57,040 --> 00:04:59,880 Speaker 1: the earnings, the profitability over a long period of time. 87 00:05:00,440 --> 00:05:02,960 Speaker 1: The market gets the earnings. If you are a company 88 00:05:03,000 --> 00:05:06,799 Speaker 1: and you generate cash and you grow, somebody eventually figures 89 00:05:06,800 --> 00:05:09,120 Speaker 1: it out. Now it's been a long time where banks 90 00:05:09,160 --> 00:05:12,520 Speaker 1: and value is underperformed, but people are beginning to see that. 91 00:05:12,880 --> 00:05:16,320 Speaker 1: David Pearl EPIC, thank you so much, greatly appreciated this morning. 92 00:05:16,440 --> 00:05:31,440 Speaker 1: Working with William Priest. Now to touch in on twenty 93 00:05:31,480 --> 00:05:34,360 Speaker 1: five days, five hours, eleven minutes and eight seconds away 94 00:05:35,080 --> 00:05:38,200 Speaker 1: the election. Terry Haynes joins us with ever Corps. I 95 00:05:38,520 --> 00:05:42,520 Speaker 1: s I, Terry, you are nudging, I know, towards a 96 00:05:42,640 --> 00:05:48,840 Speaker 1: Democratic victory, but unlessers so democratic victory. Is that just 97 00:05:48,960 --> 00:05:52,000 Speaker 1: because of the uproar over Justice Kavanaugh or is there 98 00:05:52,040 --> 00:05:57,160 Speaker 1: something else going on? Well? I think Tom that basically 99 00:05:57,240 --> 00:05:59,880 Speaker 1: what's going on with the midterms is that, Yeah, you 100 00:06:00,040 --> 00:06:02,720 Speaker 1: got aull Ford and thirty five members of the House off. 101 00:06:02,720 --> 00:06:07,039 Speaker 1: You've got a very small Republican majority that that they're 102 00:06:07,040 --> 00:06:10,240 Speaker 1: trying to defend. And what you get at what I've 103 00:06:10,240 --> 00:06:12,080 Speaker 1: been getting for some time, and what a lot of 104 00:06:12,080 --> 00:06:16,560 Speaker 1: others get as well is a gain of about thirty 105 00:06:16,560 --> 00:06:18,760 Speaker 1: to thirty five seats, which is which is kind of 106 00:06:18,800 --> 00:06:21,880 Speaker 1: standard for the first presidential mid term that that's about 107 00:06:21,880 --> 00:06:25,320 Speaker 1: how much the president's party loses. So what you're what, 108 00:06:25,440 --> 00:06:27,800 Speaker 1: what you're ending up with is a is a very 109 00:06:27,839 --> 00:06:32,000 Speaker 1: small Democratic majority to begin with, and that's really before 110 00:06:32,080 --> 00:06:35,400 Speaker 1: we see uh what I've started to call Kavanaugh effect, 111 00:06:36,200 --> 00:06:39,159 Speaker 1: because what you're gonna get here is what you've had 112 00:06:39,480 --> 00:06:43,159 Speaker 1: is uh more intensity from Democratic voters and the Republican voters, 113 00:06:43,160 --> 00:06:45,839 Speaker 1: which is unusual from mid terms in the last couple 114 00:06:45,880 --> 00:06:48,159 Speaker 1: of decades. But now I think you're gonna get that 115 00:06:48,200 --> 00:06:51,120 Speaker 1: evened out. So you know, we may be saying the 116 00:06:51,160 --> 00:06:54,920 Speaker 1: high water mark of that. The tradition is that the 117 00:06:54,960 --> 00:07:00,200 Speaker 1: extremes of parties are there and then by assumption, you 118 00:07:00,279 --> 00:07:05,240 Speaker 1: migrate to the middle. I think we've broken that certitude, 119 00:07:05,360 --> 00:07:08,479 Speaker 1: that it's ended. Do you soon we get it back? 120 00:07:08,880 --> 00:07:12,000 Speaker 1: Do we get back to a four year cadence where 121 00:07:12,040 --> 00:07:15,160 Speaker 1: we're extreme because it's convenient and then as we get 122 00:07:15,200 --> 00:07:18,960 Speaker 1: to a presidential vote we migrate to the middle or 123 00:07:19,040 --> 00:07:23,760 Speaker 1: is that forever gone? Uh? Sometimes what I frequently what 124 00:07:23,840 --> 00:07:27,760 Speaker 1: I think about this is that the parties both uh 125 00:07:28,520 --> 00:07:31,680 Speaker 1: you know, in terms of salesmanship, sort of over emphasized 126 00:07:31,800 --> 00:07:36,720 Speaker 1: their contrasts. But you know what you've got on fiscal issues. 127 00:07:36,760 --> 00:07:40,000 Speaker 1: So the things that that markets care a lot about, particularly, 128 00:07:40,440 --> 00:07:44,040 Speaker 1: uh is a is a broad bipartisan middle and we've 129 00:07:44,040 --> 00:07:48,200 Speaker 1: had that for many years where we're both parties essentially 130 00:07:48,320 --> 00:07:53,680 Speaker 1: agree to maintain largely maintained status quo. And uh yeah. 131 00:07:53,680 --> 00:07:56,680 Speaker 1: So what I think is, I think people like you 132 00:07:56,760 --> 00:07:59,520 Speaker 1: and I, who who have paid close attention to all 133 00:07:59,560 --> 00:08:02,520 Speaker 1: the NOI is, feel overwhelmed by it sometimes. But I 134 00:08:02,560 --> 00:08:06,480 Speaker 1: think the uh, I think the voters don't really feel 135 00:08:06,520 --> 00:08:08,640 Speaker 1: that way at all. And you can see that in 136 00:08:08,680 --> 00:08:11,720 Speaker 1: a lot of different ways, one of which is by 137 00:08:11,760 --> 00:08:15,800 Speaker 1: how people self identify as independent, which keeps rising. Terry, 138 00:08:15,840 --> 00:08:17,680 Speaker 1: can we spend the best part of I'll give you 139 00:08:17,760 --> 00:08:20,200 Speaker 1: thirty seconds and then we can just leave it after that. 140 00:08:20,360 --> 00:08:23,960 Speaker 1: On celebrity endorsements, I do feel like the news flow 141 00:08:24,040 --> 00:08:26,840 Speaker 1: this week when has been hijacked by either Taylor Swift 142 00:08:27,600 --> 00:08:34,040 Speaker 1: or Kanye West. Terry, does any of this matter? No? 143 00:08:35,080 --> 00:08:39,679 Speaker 1: Uh yeah, I said on on the television side this 144 00:08:39,760 --> 00:08:42,280 Speaker 1: morning to Tom that the first time I see a 145 00:08:42,360 --> 00:08:45,319 Speaker 1: celebrity endorsement make a big difference in politics. Will be 146 00:08:45,400 --> 00:08:47,240 Speaker 1: the first time I see the celebrity endorsement make a 147 00:08:47,280 --> 00:08:50,079 Speaker 1: big difference in politics. And the reason why is that 148 00:08:50,280 --> 00:08:54,120 Speaker 1: for every person who who may think it's great the 149 00:08:54,240 --> 00:08:56,520 Speaker 1: Taylor Swift did what she did and maybe even regis 150 00:08:56,920 --> 00:08:59,520 Speaker 1: vote or vote based on that, there's gonna be somebody 151 00:08:59,559 --> 00:09:02,440 Speaker 1: else who who doesn't like that and pushes back. Okay, 152 00:09:02,520 --> 00:09:04,880 Speaker 1: so you know, I really think it washes out. I mean, 153 00:09:04,960 --> 00:09:07,760 Speaker 1: John wasn't paying attention to one of my properties this morning, 154 00:09:08,200 --> 00:09:10,839 Speaker 1: Terry Haynes, which you can understand, but you know, there 155 00:09:10,880 --> 00:09:12,959 Speaker 1: I was with my opening going she don't believe in 156 00:09:13,040 --> 00:09:16,880 Speaker 1: shooting stars, but she believes in shooting cars from Kane. 157 00:09:16,960 --> 00:09:20,160 Speaker 1: And you know, I look, Terry, you know, I look, 158 00:09:20,320 --> 00:09:22,800 Speaker 1: Terry at these celebrities. And let's take the other side 159 00:09:22,800 --> 00:09:29,200 Speaker 1: of John's good question. Do they harm a candidate? They 160 00:09:29,280 --> 00:09:34,319 Speaker 1: can sure, Uh, entirely dependent on who that celebrity is. 161 00:09:34,440 --> 00:09:36,599 Speaker 1: I mean, you know, let's let's not take either of 162 00:09:36,679 --> 00:09:40,800 Speaker 1: the two that you've mentioned. Let's take Dennis Rodman. Dennis 163 00:09:40,880 --> 00:09:44,640 Speaker 1: Rodman endorsement of anybody probably wouldn't be good, uh for 164 00:09:44,760 --> 00:09:49,400 Speaker 1: that particular candidate. But you know that's uh, yeah, you 165 00:09:49,440 --> 00:09:51,880 Speaker 1: know it very much depends on the on the candidate. 166 00:09:51,920 --> 00:09:57,160 Speaker 1: And the celebrity endorsements of certainly didn't help, did they 167 00:09:57,240 --> 00:10:00,440 Speaker 1: tell I'm looking at the words in this I are 168 00:10:00,440 --> 00:10:02,880 Speaker 1: you looking at the lyrics? I hope my kids you 169 00:10:03,000 --> 00:10:05,280 Speaker 1: carry on looking at the Kanye West lyrics. And Terry, 170 00:10:05,320 --> 00:10:06,920 Speaker 1: I want to get to the issue. I want to 171 00:10:06,920 --> 00:10:10,000 Speaker 1: get to the issue with Turkey. Um Andrew Brunson, the 172 00:10:10,120 --> 00:10:14,360 Speaker 1: preacher from North Carolina who was essentially detained by the 173 00:10:14,440 --> 00:10:17,679 Speaker 1: Turkish authorities and accused a ledger that he of being 174 00:10:17,760 --> 00:10:21,319 Speaker 1: involved in the co attempt. This has been at the 175 00:10:21,360 --> 00:10:23,880 Speaker 1: epicenter of some of the sanctions that have come down 176 00:10:24,000 --> 00:10:27,360 Speaker 1: from the United States on Turkey. UM Andrew Brunson has 177 00:10:27,400 --> 00:10:29,520 Speaker 1: his day in court. Terry, what's your base case on 178 00:10:29,600 --> 00:10:33,440 Speaker 1: how some of this is going to play out? Uh, 179 00:10:33,600 --> 00:10:36,760 Speaker 1: in terms of in terms of whether or not Brunson 180 00:10:36,800 --> 00:10:39,439 Speaker 1: gets released or not. I think your base does your 181 00:10:39,440 --> 00:10:43,840 Speaker 1: base case there and what that could mean for sanctions? Um? Well, 182 00:10:43,880 --> 00:10:46,480 Speaker 1: I think the I think the base case is that 183 00:10:46,880 --> 00:10:50,400 Speaker 1: Branson ends up getting released. It seems like it's moving 184 00:10:50,440 --> 00:10:53,920 Speaker 1: in that direction. And uh, and as a result. You know, 185 00:10:54,040 --> 00:10:57,240 Speaker 1: I think that the I think the sanctions get Bob 186 00:10:57,360 --> 00:10:59,280 Speaker 1: failed to some degree. I think they probably don't go 187 00:10:59,320 --> 00:11:02,839 Speaker 1: away complete, but they might get lessoned. Uh and uh. 188 00:11:03,280 --> 00:11:05,200 Speaker 1: And that's certainly been reported in the press as well. 189 00:11:05,280 --> 00:11:07,959 Speaker 1: It wouldn't surprisen me at all, Terry. Just to give 190 00:11:08,040 --> 00:11:09,800 Speaker 1: one more question in here, and this goes to j 191 00:11:09,920 --> 00:11:14,000 Speaker 1: pet Morgan's earnings, Mr Diamond and his statement mentioned different regulation. 192 00:11:14,120 --> 00:11:18,520 Speaker 1: He mentioned the tax reform is well, how long are 193 00:11:18,600 --> 00:11:22,920 Speaker 1: the benefits of the text bill that you personally brought forward? 194 00:11:23,320 --> 00:11:30,599 Speaker 1: How long do those benefits last? The political benefits, I 195 00:11:30,720 --> 00:11:34,240 Speaker 1: think they. I think they increased in the next two years. Frankly, 196 00:11:34,320 --> 00:11:36,880 Speaker 1: because you won't see the you won't see the full 197 00:11:36,960 --> 00:11:41,199 Speaker 1: flower of this really started working through the economy until 198 00:11:42,240 --> 00:11:45,320 Speaker 1: or so I tend to look at it. I tried 199 00:11:45,400 --> 00:11:50,480 Speaker 1: to resist making the fascal comparisons historical comparisons, but I look, 200 00:11:50,679 --> 00:11:53,120 Speaker 1: I look at this a lot the way that so 201 00:11:53,240 --> 00:11:56,600 Speaker 1: what happened in the first Reagan administration when when they 202 00:11:56,679 --> 00:11:59,160 Speaker 1: made the deal, but they didn't do well in the 203 00:11:59,200 --> 00:12:01,520 Speaker 1: mid terms, But by the time that the re elect 204 00:12:01,640 --> 00:12:05,640 Speaker 1: came around, the things we're really were really booming, and 205 00:12:06,080 --> 00:12:09,160 Speaker 1: that had a great impact on real life. Terry Anes, 206 00:12:09,240 --> 00:12:11,079 Speaker 1: thank you so much. We look forward to speaking to 207 00:12:11,120 --> 00:12:14,800 Speaker 1: you twenty five more times before the election. Terrynes with 208 00:12:14,960 --> 00:12:29,040 Speaker 1: ever Court. Gustavo Rano, chief economist for I N g 209 00:12:29,640 --> 00:12:33,880 Speaker 1: U in Latin America. This morning, Gustavo, thank you for 210 00:12:34,000 --> 00:12:37,160 Speaker 1: being with us. What is the state of the Latin 211 00:12:37,320 --> 00:12:40,959 Speaker 1: m economy if you were to advise a major too 212 00:12:41,000 --> 00:12:44,200 Speaker 1: big to fail American bank, is it a different Latin 213 00:12:44,280 --> 00:12:49,839 Speaker 1: America than it was in previous expansions. Well, good morning, 214 00:12:50,200 --> 00:12:54,439 Speaker 1: happy to be here. Well, it's what is critically important 215 00:12:54,600 --> 00:12:58,960 Speaker 1: for for foreigners, for an investor to understandable Latin America 216 00:12:59,000 --> 00:13:01,800 Speaker 1: is the fact that it now none of the big 217 00:13:02,160 --> 00:13:07,199 Speaker 1: Latin and Latin American countries, be that Brazil, Mexico, Colombia, Chile, Peru, 218 00:13:07,440 --> 00:13:10,679 Speaker 1: they have the the the vulnerabilities that the likes of 219 00:13:10,840 --> 00:13:15,160 Speaker 1: Argentina that Turkey have, meaning they have accumulated during the 220 00:13:15,320 --> 00:13:18,640 Speaker 1: good years, during the boom years of the commodity cycle, 221 00:13:18,720 --> 00:13:22,439 Speaker 1: they have accumulated a lot of effects reserves, a lot 222 00:13:22,520 --> 00:13:25,480 Speaker 1: of refractive reserves. In the case of Brazil, for instance, 223 00:13:25,880 --> 00:13:30,199 Speaker 1: they have more dollars than the total amount of external 224 00:13:30,360 --> 00:13:34,080 Speaker 1: debt held by locals, be that the government, the court sector. 225 00:13:34,240 --> 00:13:39,559 Speaker 1: So this is a huge, huge change, a sea change, 226 00:13:39,600 --> 00:13:41,520 Speaker 1: i would say, for lack of time, so they are 227 00:13:41,640 --> 00:13:45,920 Speaker 1: not vulnerable to effects volatility as they used to be. 228 00:13:46,240 --> 00:13:49,880 Speaker 1: So balance of payment crisis won't happen. There tell us 229 00:13:50,040 --> 00:13:54,240 Speaker 1: of Brazil the election and that balance of payments dynamic 230 00:13:54,440 --> 00:13:58,320 Speaker 1: right now, balance of payments of Brazil, they are steller 231 00:13:58,600 --> 00:14:02,959 Speaker 1: and there's there there's a point stellar exactly. There is 232 00:14:03,040 --> 00:14:07,960 Speaker 1: barely uh a corent account deficit. There's a huge surface 233 00:14:08,080 --> 00:14:11,640 Speaker 1: on on on foreign direct investment, so there's much more 234 00:14:11,720 --> 00:14:15,360 Speaker 1: dollars coming in than dollars going out of Brazil. So 235 00:14:15,679 --> 00:14:21,080 Speaker 1: it's very good position to be. The elections have triggered 236 00:14:21,320 --> 00:14:24,480 Speaker 1: a lot of uncertainty, of course, because Brazil instead of 237 00:14:24,520 --> 00:14:27,640 Speaker 1: balancing payments problems, Brazil has a fiscal problem that needs 238 00:14:27,720 --> 00:14:30,320 Speaker 1: to be dealt next year. And this is what is 239 00:14:30,360 --> 00:14:33,480 Speaker 1: hanging the balance here. So we have right now a 240 00:14:33,600 --> 00:14:38,080 Speaker 1: candidate that is this is the right wing called candidate 241 00:14:38,240 --> 00:14:42,080 Speaker 1: that is decided to have decided to tackle the problem, 242 00:14:42,600 --> 00:14:44,800 Speaker 1: and that we have a left wing candidate that has 243 00:14:44,880 --> 00:14:48,600 Speaker 1: decided to ignore the problem. And and the market have 244 00:14:48,800 --> 00:14:51,520 Speaker 1: reacted very well over the past couple of weeks because 245 00:14:51,600 --> 00:14:55,440 Speaker 1: the right wing candidate is one the first round that 246 00:14:55,560 --> 00:14:58,440 Speaker 1: we just had and it's lead and it's leading the 247 00:14:58,600 --> 00:15:01,720 Speaker 1: post dramatic when it comes to the second round that 248 00:15:01,800 --> 00:15:03,960 Speaker 1: we're going to have at the end of October. So 249 00:15:04,080 --> 00:15:06,760 Speaker 1: it's very good result for the market for investors in general. 250 00:15:06,880 --> 00:15:10,720 Speaker 1: So Gustava, that right wing candidate is Bolsonaro, and Balsonaro 251 00:15:10,840 --> 00:15:16,720 Speaker 1: himself seems to have deferred the economic policy to an advisor, 252 00:15:17,040 --> 00:15:20,280 Speaker 1: and that advisor is pretty much the individual that everyone 253 00:15:20,280 --> 00:15:23,200 Speaker 1: in the market has defined both Scenaro's economic policy buiyas 254 00:15:23,800 --> 00:15:25,800 Speaker 1: Um and I'm just trying to understand whether that is 255 00:15:25,840 --> 00:15:27,400 Speaker 1: the correct way of looking at this and what is 256 00:15:27,440 --> 00:15:31,640 Speaker 1: actually the economic policy of Bolsonaro, not his economic advisor, 257 00:15:31,840 --> 00:15:36,720 Speaker 1: but of the man himself. Well, I I would say 258 00:15:37,040 --> 00:15:41,480 Speaker 1: it's not so bad to have a president that uh 259 00:15:41,760 --> 00:15:45,520 Speaker 1: differs to experts. You know, we've had in the past 260 00:15:45,560 --> 00:15:49,040 Speaker 1: in Brazil, especially with the last president to Husaf, who 261 00:15:49,200 --> 00:15:51,240 Speaker 1: was a president that thought that she knew a lot 262 00:15:51,280 --> 00:15:54,720 Speaker 1: about economic policy and ended up resulting in the big 263 00:15:54,840 --> 00:15:58,200 Speaker 1: mess at Brazil is right now, meaning a very deep 264 00:15:58,680 --> 00:16:02,440 Speaker 1: that's deficit, a lot of big expansion in the size 265 00:16:02,480 --> 00:16:05,840 Speaker 1: of the state. So the fact that he is humble 266 00:16:06,240 --> 00:16:10,160 Speaker 1: about his lack of economic policy knowledge is actually a 267 00:16:10,320 --> 00:16:13,800 Speaker 1: good thing. It's not necessarily a bad thing, and it 268 00:16:13,880 --> 00:16:16,160 Speaker 1: shows that he is a leader that is willing to 269 00:16:16,400 --> 00:16:20,080 Speaker 1: to to delegate in areas that he is not really 270 00:16:20,200 --> 00:16:23,000 Speaker 1: knowledgeable about. Gritopher, I agree with you, but I think 271 00:16:23,040 --> 00:16:26,000 Speaker 1: the issue that is important to sort of explore is 272 00:16:26,280 --> 00:16:29,640 Speaker 1: if you are going to defer your economic policy to someone, fine, 273 00:16:29,720 --> 00:16:32,120 Speaker 1: that is absolutely fine, But I'm trying to understand how 274 00:16:32,240 --> 00:16:34,920 Speaker 1: fluid his own policies are because you can defer to 275 00:16:35,040 --> 00:16:37,600 Speaker 1: one individual one set of opinions, then several months down 276 00:16:37,600 --> 00:16:40,800 Speaker 1: the line defer to someone else with radically different opinions. 277 00:16:40,840 --> 00:16:42,920 Speaker 1: Are we sure that he's going to have this consistent 278 00:16:43,000 --> 00:16:48,320 Speaker 1: approach to economic policy. We can only hope. What we 279 00:16:48,440 --> 00:16:52,840 Speaker 1: can tell you is that he's been very um uh 280 00:16:54,280 --> 00:16:59,640 Speaker 1: consistent and in in in his political campaign, in the 281 00:16:59,720 --> 00:17:04,240 Speaker 1: proper aganda whatever. He's been very consistent in in invoicing 282 00:17:04,640 --> 00:17:08,840 Speaker 1: the policies that are supported by his advisor. And this 283 00:17:09,080 --> 00:17:12,200 Speaker 1: is a big, big novelty in Persil. We've never in 284 00:17:12,320 --> 00:17:16,680 Speaker 1: Brazil had a candidate that has voiced right wing economic 285 00:17:16,800 --> 00:17:20,200 Speaker 1: policy views. We've never had a candidate that has talked 286 00:17:20,240 --> 00:17:24,520 Speaker 1: about the privileges of the public sector employees. We've never 287 00:17:24,640 --> 00:17:29,000 Speaker 1: had a candidate that talked openly and defended privatization. So 288 00:17:30,119 --> 00:17:34,320 Speaker 1: I'm I'm super optimistic in the sense that he's not 289 00:17:34,560 --> 00:17:37,320 Speaker 1: shied away from these topics that in the past have 290 00:17:37,480 --> 00:17:40,920 Speaker 1: been taboo, that if you said things like that in 291 00:17:41,000 --> 00:17:44,000 Speaker 1: the past, you would not be limited. And now he's 292 00:17:44,040 --> 00:17:47,800 Speaker 1: saying out in public, and it's not like he's hiding 293 00:17:47,880 --> 00:17:50,320 Speaker 1: these things. He's saying out in public, and and and 294 00:17:50,480 --> 00:17:53,840 Speaker 1: that is a quite interesting things. We have to leave. 295 00:17:54,640 --> 00:17:57,360 Speaker 1: And now thank you so much Chief Economists for Latin 296 00:17:57,440 --> 00:18:12,359 Speaker 1: America with I am gen doing an excellent job as 297 00:18:12,400 --> 00:18:14,840 Speaker 1: well with p WC. Mitchell Show with us with an 298 00:18:14,920 --> 00:18:17,919 Speaker 1: update on a real estate and it's a different view. 299 00:18:18,000 --> 00:18:20,600 Speaker 1: It's much more about investment dynamics. And I love a 300 00:18:20,680 --> 00:18:23,600 Speaker 1: single sentence you've got, which is I guess Dallas is 301 00:18:23,640 --> 00:18:28,880 Speaker 1: a booming investment economy for real estate and number two 302 00:18:29,840 --> 00:18:33,080 Speaker 1: is Brookburg, New York, Brooklyn, New York. I mean, I 303 00:18:33,400 --> 00:18:36,359 Speaker 1: would think with the slowdown in New York, maybe that's 304 00:18:36,440 --> 00:18:40,119 Speaker 1: ebbed a little bit, but it's not. Tom. I was 305 00:18:40,200 --> 00:18:43,600 Speaker 1: surprised honestly when Brooklyn came in at number two, because 306 00:18:43,800 --> 00:18:46,119 Speaker 1: the big cities in New York in particular has been 307 00:18:46,200 --> 00:18:49,760 Speaker 1: out for a while in terms of being out of popularity. 308 00:18:50,280 --> 00:18:54,560 Speaker 1: But what's interesting is there's population growth, there's the right 309 00:18:54,680 --> 00:18:58,720 Speaker 1: mix of workers, um and companies actually want to be 310 00:18:58,920 --> 00:19:02,120 Speaker 1: there because the workers are there, and the market, while 311 00:19:02,680 --> 00:19:06,200 Speaker 1: very pricey, is really undersupplied from a commercial real estate 312 00:19:06,240 --> 00:19:09,240 Speaker 1: perspective in terms of office and believe it or not, warehouses. 313 00:19:09,320 --> 00:19:11,520 Speaker 1: So that's what it was hot. I mean, I'm looking 314 00:19:11,560 --> 00:19:13,560 Speaker 1: on Street Easy and just to be clear, folks, so 315 00:19:13,680 --> 00:19:17,959 Speaker 1: everybody understands it's a hitter like John Farrell. I mean 316 00:19:18,080 --> 00:19:20,359 Speaker 1: he wants to be in Brooklyn to be cool, right, 317 00:19:20,359 --> 00:19:22,119 Speaker 1: I mean that's all this comes down to, and the 318 00:19:22,280 --> 00:19:26,000 Speaker 1: money's following the cool people like John Farrell. John doesn't 319 00:19:26,040 --> 00:19:29,040 Speaker 1: have a beard though, well he's sort of it needs 320 00:19:29,040 --> 00:19:30,880 Speaker 1: to grown a little bit longer for me to sort 321 00:19:30,880 --> 00:19:35,520 Speaker 1: of become Brooklyn esque. Five on a fixed mortgage, right fixed, 322 00:19:35,560 --> 00:19:37,879 Speaker 1: Not to make a difference, Mitch, Now, the five, the 323 00:19:38,040 --> 00:19:41,960 Speaker 1: five handle doesn't freak too many people out. Five and 324 00:19:42,000 --> 00:19:44,639 Speaker 1: a half closing in on six maybe, but let's just 325 00:19:44,760 --> 00:19:46,920 Speaker 1: remember what's happening in housing. There isn't a lot of 326 00:19:46,920 --> 00:19:50,000 Speaker 1: supply in terms of new construction, and people aren't putting 327 00:19:50,000 --> 00:19:52,240 Speaker 1: their houses on the market for sale the way they 328 00:19:52,320 --> 00:19:55,359 Speaker 1: had historically, so we don't have enough supply. There is 329 00:19:55,440 --> 00:19:57,600 Speaker 1: tremendous demand, and I can talk about that in a bit. 330 00:19:58,040 --> 00:20:01,400 Speaker 1: So prices are going up. So if the higher cost 331 00:20:01,520 --> 00:20:05,440 Speaker 1: of debt starts to cool the rapid year over year 332 00:20:05,480 --> 00:20:08,560 Speaker 1: price increases, that's probably actually a good thing for the market, 333 00:20:08,680 --> 00:20:10,600 Speaker 1: so that we don't get into bubble tears. Let's talk 334 00:20:10,600 --> 00:20:14,360 Speaker 1: about residential in Manhattan. Most people would conclude that looks 335 00:20:14,400 --> 00:20:16,679 Speaker 1: soft right now? Are you saying it isn't, Mitch? Now, 336 00:20:16,840 --> 00:20:20,800 Speaker 1: I'm talking more nationally. The story in Manhattan is really 337 00:20:21,160 --> 00:20:25,000 Speaker 1: the absence of foreign buyers who had been coming into 338 00:20:25,080 --> 00:20:27,960 Speaker 1: New York and droves, and that was happening long before 339 00:20:28,160 --> 00:20:31,960 Speaker 1: the administration's view on trade. It's just that foreign buyers 340 00:20:32,040 --> 00:20:34,360 Speaker 1: didn't like it. Now the US dollars so expensive, they're 341 00:20:34,359 --> 00:20:36,879 Speaker 1: backing off so um. But the rest of the country 342 00:20:37,080 --> 00:20:40,960 Speaker 1: is really undersupplied with new housing stock. Can you help 343 00:20:41,000 --> 00:20:43,000 Speaker 1: me out with something? Why? Whenever I walk around the 344 00:20:43,080 --> 00:20:47,640 Speaker 1: Upper east Side, downtown, Midtown, up Lexington Avenue, there's all 345 00:20:47,680 --> 00:20:51,720 Speaker 1: these empty storefronts, nobody's there. I mean, we can go 346 00:20:51,840 --> 00:20:54,439 Speaker 1: for a walk just outside. We could just walk up 347 00:20:54,480 --> 00:20:56,760 Speaker 1: the roads for ten minutes. But surely price has got 348 00:20:56,840 --> 00:20:59,680 Speaker 1: to adjustice some point. Yeah, and and part of that 349 00:20:59,840 --> 00:21:06,520 Speaker 1: is landlord's unwillingness to to meet Yeah and there. What 350 00:21:06,680 --> 00:21:10,159 Speaker 1: will happen is when they can't make mortgage payments and 351 00:21:10,240 --> 00:21:13,840 Speaker 1: their lenders start to pressure them to cut the rent 352 00:21:13,920 --> 00:21:16,920 Speaker 1: in half. That's when it will happen. But other things 353 00:21:16,960 --> 00:21:18,520 Speaker 1: that are coming on in that building. So you're looking 354 00:21:18,560 --> 00:21:21,119 Speaker 1: at the street front, look at the floors above that 355 00:21:21,359 --> 00:21:24,280 Speaker 1: have had massive rent inflation so that they can afford 356 00:21:24,359 --> 00:21:26,680 Speaker 1: to welka the storm on the ground floor. But do 357 00:21:26,840 --> 00:21:29,200 Speaker 1: you this is a critical question for Coast to coast 358 00:21:29,240 --> 00:21:33,600 Speaker 1: serious exemp Channel one. Do you have confidence those empty 359 00:21:33,800 --> 00:21:38,800 Speaker 1: store funds will discover a new price and will be occupied. 360 00:21:39,240 --> 00:21:41,400 Speaker 1: I think they will discover a new price, and they'll 361 00:21:41,440 --> 00:21:44,320 Speaker 1: probably discover a new use. And if you look at 362 00:21:44,480 --> 00:21:47,440 Speaker 1: the trend across the country, you had strip malls that 363 00:21:47,520 --> 00:21:50,560 Speaker 1: we've all seen across America that had big, massive vacancies. 364 00:21:50,920 --> 00:21:53,359 Speaker 1: A lot of those spaces have been repurposed with something 365 00:21:53,440 --> 00:21:57,240 Speaker 1: in the healthcare space. Urgent care being a big retail use, 366 00:21:57,760 --> 00:22:01,760 Speaker 1: you're gonna start to see alternative uses for that space. Um. 367 00:22:01,880 --> 00:22:04,239 Speaker 1: That starts to make sense. But the bid that they 368 00:22:04,320 --> 00:22:07,200 Speaker 1: have for rent may be considerably lower than the landlords. 369 00:22:07,440 --> 00:22:10,040 Speaker 1: I want to come back and talk about the regional 370 00:22:10,200 --> 00:22:12,480 Speaker 1: the cities. This whole trend of the kids can't afford 371 00:22:12,520 --> 00:22:14,560 Speaker 1: New York, so they're moving, you know, Boston wherever, and 372 00:22:14,560 --> 00:22:17,080 Speaker 1: they're moving to other cities. But to stay on the 373 00:22:17,119 --> 00:22:21,240 Speaker 1: big cities anymore, what's the investment dynamic right now into 374 00:22:21,280 --> 00:22:24,960 Speaker 1: the autumn into the winter. We're gonna take occupancy next 375 00:22:25,000 --> 00:22:27,760 Speaker 1: August or whatever on a new building. What's that dynamic 376 00:22:27,920 --> 00:22:31,679 Speaker 1: right now? Um? Right now, the price is getting pretty 377 00:22:31,720 --> 00:22:35,560 Speaker 1: pretty frothy. Um. And if tennants start to back off 378 00:22:35,600 --> 00:22:38,440 Speaker 1: a little bit, you're gonna find landlords starting to have 379 00:22:38,560 --> 00:22:43,240 Speaker 1: to make more concessions. That's why you find investors, commercial 380 00:22:43,359 --> 00:22:45,560 Speaker 1: state investors want to stay away from those big cities 381 00:22:45,640 --> 00:22:48,720 Speaker 1: because it's just become very, very very pricey. Feel because 382 00:22:48,760 --> 00:22:51,080 Speaker 1: I just it feels to me like every single block 383 00:22:51,240 --> 00:22:55,000 Speaker 1: in Manhattan has a seven floor project going up a 384 00:22:56,080 --> 00:22:59,760 Speaker 1: lot of if you know what, it's interesting. I don't 385 00:23:00,040 --> 00:23:03,200 Speaker 1: see it as much as others do because I have 386 00:23:03,359 --> 00:23:05,879 Speaker 1: this long term view, and I remember when there were 387 00:23:05,880 --> 00:23:07,679 Speaker 1: a lot more cranes in the city than there are 388 00:23:07,840 --> 00:23:11,600 Speaker 1: right now. And I just got back from Boston, and boy, 389 00:23:11,720 --> 00:23:13,600 Speaker 1: on the south side of Boston there are a ton 390 00:23:13,720 --> 00:23:16,480 Speaker 1: of cranes. So when I compare it to New York, 391 00:23:16,520 --> 00:23:18,919 Speaker 1: New York doesn't work so bad. What's your show with us? 392 00:23:18,960 --> 00:23:21,320 Speaker 1: Love having with u? P WC got a huge response 393 00:23:21,359 --> 00:23:31,160 Speaker 1: when he's on Thanks for listening to the Bloomberg Surveillance podcast. 394 00:23:31,560 --> 00:23:36,440 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 395 00:23:36,640 --> 00:23:40,920 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom 396 00:23:41,040 --> 00:23:44,879 Speaker 1: Keane before the podcast. You can always catch us worldwide. 397 00:23:45,400 --> 00:23:46,440 Speaker 1: I'm Bloomberg Radio.