WEBVTT - Surveillance: Happy 2019 For CPTPP Countries, Sumpter Says 0:00:02.640 --> 0:00:13.040 Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.400 Bloomberg dot Com, and of course, on the Bloomberg US 0:00:27.440 --> 0:00:29.600 economic growth is set to slow to two and a 0:00:29.680 --> 0:00:33.479 half percent, down from two point nine percent as according 0:00:33.520 --> 0:00:37.760 to Goldman Sachs. They cite fading fiscal stimulus as well 0:00:37.800 --> 0:00:41.160 as multiple rate hikes. Let's find out more from Brett Ryan. 0:00:41.280 --> 0:00:44.640 He is Deutsche Banks senior economist and he joins me 0:00:44.680 --> 0:00:47.240 in studio. Brett, thanks very much for being here. Happy 0:00:47.280 --> 0:00:51.120 New Year to you. Maybe just explain from your perspective 0:00:51.280 --> 0:00:55.600 why it is that so many analysts economists are actually 0:00:55.760 --> 0:01:00.480 pulling down their estimates for economic growth. No wars, thank 0:01:00.520 --> 0:01:03.960 you for having mere of the program. Um. Basically, uh, 0:01:04.000 --> 0:01:07.000 you know, I think everybody expects the the economy is 0:01:07.080 --> 0:01:09.640 slow next year as as the fiscal stimulus starts to 0:01:09.680 --> 0:01:13.360 come off. Would agree, I would agree with that. Uh, 0:01:13.800 --> 0:01:16.959 But the main thing is that consumer spending is still 0:01:17.000 --> 0:01:20.520 the engine of the economy. It's still se of GDP. Uh. 0:01:20.680 --> 0:01:24.199 Everybody expects housing to remain weak because mortgage rates are high, 0:01:24.240 --> 0:01:26.760 the Fed's hiking rates UM. But the housing is only 0:01:26.800 --> 0:01:29.119 three point one percent of the economy compared to six 0:01:29.160 --> 0:01:32.039 percent where it was in the last cycle, and we 0:01:32.040 --> 0:01:34.440 don't we certainly don't have the leverage on it um. 0:01:34.760 --> 0:01:39.280 Non residential investment, which is CAPEX business spending that's been 0:01:39.440 --> 0:01:41.080 that was on a tear in the first half of 0:01:41.120 --> 0:01:45.640 this year of CAPEX is software and technology, so that 0:01:45.680 --> 0:01:48.440 should continue at a healthy pace, but not as strong 0:01:48.480 --> 0:01:50.600 as it was last year. Because why us that? Why 0:01:50.600 --> 0:01:52.680 do you feel that there's going to be less spending? 0:01:52.760 --> 0:01:55.320 And you know you mentioned housing. Okay, that's interest rates, 0:01:55.320 --> 0:01:57.400 We'll get to that in a second. But why less 0:01:57.720 --> 0:02:01.880 Why less spending on on investment and software? And right, well, 0:02:01.920 --> 0:02:04.400 I think there was there was an initial rush in 0:02:04.440 --> 0:02:07.520 the wake of the tax bill. UM. Certainly it seems 0:02:07.520 --> 0:02:10.720 that we're in these little mini cycles with CAPEX that 0:02:10.800 --> 0:02:16.160 are like accelerated depreciation. Yeah, it's exactly bonus appreciation UM. 0:02:16.320 --> 0:02:18.119 And it seems like we're in like two to three 0:02:18.160 --> 0:02:22.480 year cycles now for CAPEX. So I wouldn't our forecast 0:02:22.560 --> 0:02:25.720 is fairly conservative. I think we're we have capex growing 0:02:25.720 --> 0:02:29.560 it around three percent next year. But really it's it's 0:02:29.600 --> 0:02:32.560 it's the question is, you know, do we slow from 0:02:33.120 --> 0:02:37.080 three point one percent growth in eighteen to two percent 0:02:37.680 --> 0:02:40.839 next year or is it more of a gradual three 0:02:40.880 --> 0:02:43.960 percent to two and a half, you know, two point four, 0:02:44.080 --> 0:02:46.359 which is what what our number is. And that's kind 0:02:46.360 --> 0:02:48.160 of going to determine where the where the FED is 0:02:48.200 --> 0:02:51.160 going to shake out this year, next next year. Okay, 0:02:51.160 --> 0:02:54.560 So with a two point four percent estimate for economic 0:02:54.639 --> 0:02:58.720 growth in how many rate hikes and what are the 0:02:58.800 --> 0:03:02.560 path to those rate hikes? Well, I mean, in our 0:03:02.680 --> 0:03:05.280 view it should be it should be three rate hikes, um, 0:03:05.400 --> 0:03:07.480 if we're gonna be growing at two point four percent 0:03:07.600 --> 0:03:12.040 next year. Uh and core inflation um being above the 0:03:12.040 --> 0:03:15.280 Fed's target. That's the other key there. Um. It's it's 0:03:15.320 --> 0:03:17.240 pretty easy to get to two point one percent on 0:03:17.400 --> 0:03:21.000 core core PC inflation. I think in you know, it 0:03:21.400 --> 0:03:24.320 becomes obviously it's a little bit more in doubt now 0:03:24.400 --> 0:03:27.960 the markets not pricing any FED hikes for next year, 0:03:28.120 --> 0:03:31.359 and some parts of the curve or inverted um telling 0:03:31.360 --> 0:03:33.800 you that the market is now expecting rate cuts two 0:03:33.840 --> 0:03:38.880 point five for the two year and point five for 0:03:39.080 --> 0:03:41.200 the three year al right, so they're saying I'm not 0:03:41.240 --> 0:03:43.560 gonna be hiking much at all, um, But you know, 0:03:43.680 --> 0:03:47.600 these things can change quickly. Uh. And I think the 0:03:47.680 --> 0:03:51.119 risk markets and yields may have gotten head of where 0:03:51.200 --> 0:03:55.080 the economic data have been. Um. Case in point, the 0:03:55.160 --> 0:03:57.840 Chicago p m I last week was at sixty five. 0:03:58.640 --> 0:04:01.600 That's still a very healthy leve manufacturer. But I can 0:04:01.680 --> 0:04:04.680 I can you know, I can see your Chicago fed 0:04:04.760 --> 0:04:07.720 with the Kansas City FED report and raise you of 0:04:07.800 --> 0:04:11.600 Philadelphia or an Empire manufacturing report. Right, so I'll give you, 0:04:11.640 --> 0:04:15.840 I'll give you a filliant Philly and phillion. New York 0:04:15.920 --> 0:04:19.320 have slow, but there's still firm firmly in growth territory. 0:04:19.360 --> 0:04:22.400 The Richmond was the one that really kind of surprised 0:04:22.400 --> 0:04:24.240 people last week. But I would say that Richmond was 0:04:24.279 --> 0:04:27.880 more locally driven. Um. But yeah, it's to the extent 0:04:27.960 --> 0:04:31.400 that do finite the tightening that does the fight tightening 0:04:31.400 --> 0:04:35.000 of financial conditions. Right now, how much does that lead 0:04:35.360 --> 0:04:38.440 bleed over into the real economy. And that's that's really 0:04:38.440 --> 0:04:40.480 what people are doing right now in terms of the 0:04:40.520 --> 0:04:44.080 growth forecast. Now, even the thing that I find it's 0:04:44.120 --> 0:04:48.279 not an intercessily stock market, it's investment grade credit spreads, 0:04:48.720 --> 0:04:51.120 and that's what really the Fed's gonna be watching. That's 0:04:51.120 --> 0:04:54.440 what we're watching, um. And right now, Yeah, if if 0:04:54.520 --> 0:04:59.000 the credit spreads say wide where they are, let's call it, 0:04:59.080 --> 0:05:00.839 you know, a hundred and fifth two d and sixty 0:05:00.839 --> 0:05:05.239 basis points over treasuries, Yeah, you could seek growth slowing 0:05:05.360 --> 0:05:08.039 to a low two percent as opposed to a mid 0:05:08.080 --> 0:05:13.400 two percent range. Are lenders being compensated for this spread? Um? 0:05:13.440 --> 0:05:17.360 You know? At this point, I think when you look 0:05:17.400 --> 0:05:20.919 at imbalances out there the economy, it's not like the 0:05:20.920 --> 0:05:24.560 household last time. It's corporate debt and so at a 0:05:25.040 --> 0:05:28.400 level right at record levels. But from the FED Senior 0:05:28.440 --> 0:05:32.680 Loan Officer to survey, they're still easing lending standards two corporates. 0:05:32.760 --> 0:05:35.640 So I don't know if lenders are being compensated just yet. 0:05:35.720 --> 0:05:40.080 Does that concern you? Um? Actually, is the fact that 0:05:39.800 --> 0:05:44.080 that there's still there's still be easing credit standards to 0:05:44.160 --> 0:05:48.280 corporates is a positive for cap bacs. And you know 0:05:48.520 --> 0:05:51.480 it's not like there you know, there's been a ton 0:05:51.520 --> 0:05:56.320 of demand out there. UM. So earlier on in for 0:05:56.440 --> 0:06:00.240 exactly earlier on in the cycle. So UM, you know, 0:06:00.279 --> 0:06:03.680 there's still profits are still at least in the deeper 0:06:03.760 --> 0:06:06.760 profits are up ten percent year over a year. Companies 0:06:06.760 --> 0:06:10.800 are doing fairly well, and you know, risk markets seem 0:06:10.880 --> 0:06:14.159 to have have sort of priced in now zero to 0:06:14.240 --> 0:06:16.960 negative profit growth next year. I think it's just gotten 0:06:16.960 --> 0:06:19.560 a little ahead of itself. The reality is probably somewhere 0:06:19.560 --> 0:06:22.200 in between. It's not going to be great, but it's 0:06:22.240 --> 0:06:24.840 not going to be off a cliff either. Speak a 0:06:24.920 --> 0:06:29.200 little bit about job growth and wage I guess you 0:06:29.240 --> 0:06:32.760 could call it inflation, but not really. What do you see? 0:06:33.000 --> 0:06:34.880 I mean, does that make it more difficult to do 0:06:34.960 --> 0:06:37.680 your job when you see almost full employment in the 0:06:37.720 --> 0:06:42.040 economy and yet you don't see a surge in acceleration 0:06:42.040 --> 0:06:44.960 and inflation? Yeah, I mean this has been you know, 0:06:45.040 --> 0:06:47.760 this has been the case throughout this cycle, and it's 0:06:47.800 --> 0:06:50.400 been sort of you know, confounded economists. Why is the 0:06:50.400 --> 0:06:53.960 Phillips curve so flat in this cycle versus other cycles? 0:06:53.960 --> 0:06:57.760 And you know, there are many arguments for that. I 0:06:57.800 --> 0:07:00.359 think the main thing to keep it not key in 0:07:00.440 --> 0:07:02.640 perspective here is that you know, at three point seven 0:07:02.640 --> 0:07:06.720 percent unemployment rate, we're generating non farm payroll growth in 0:07:06.880 --> 0:07:09.640 the private sectors one point nine percent year every year. 0:07:10.200 --> 0:07:13.680 With three percent wage inflation and thirty four and a 0:07:13.720 --> 0:07:17.360 half hours worked on average, that's generating four point nine 0:07:17.360 --> 0:07:20.600 percent year over year nominal income growth. So you know, 0:07:20.680 --> 0:07:24.000 not only nominal income growth is what what you make 0:07:24.080 --> 0:07:27.600 is then what you spend, right, and the combination of 0:07:27.720 --> 0:07:31.960 hours and wages and job growth, what you're gonna see 0:07:32.080 --> 0:07:35.240 is job growth slow because we're getting near the kind 0:07:35.240 --> 0:07:39.320 of the limits in terms of labor supply and wage growth. 0:07:39.560 --> 0:07:41.960 You're starting to see now take up and grind higher. 0:07:42.240 --> 0:07:46.840 UM three percent is generally what FED officials would consider 0:07:47.240 --> 0:07:51.360 um consistent with two percent core pc inflation targets. So 0:07:51.560 --> 0:07:56.760 it's taken a while, and it's but finally, yes, yes, 0:07:56.880 --> 0:07:59.160 but we're finally getting to a point where you're seeing 0:07:59.240 --> 0:08:03.160 their response in wages to a tight labor market. It's 0:08:03.200 --> 0:08:06.240 not roaring, but you know you're seeing the response. Do 0:08:06.240 --> 0:08:09.240 you think you could characterize it as a lost decade, 0:08:09.360 --> 0:08:12.920 just as there was a lost decade in Japan? Um? No, 0:08:13.280 --> 0:08:18.320 certainly not. Japan has had seven recessions over the last 0:08:18.680 --> 0:08:21.880 thirty years. Um. You know, the US has managed to 0:08:21.920 --> 0:08:24.720 avoid that. Uh, And all the while the US has 0:08:24.720 --> 0:08:26.880 been able to raise interest rates, so Japan has been 0:08:26.880 --> 0:08:30.120 stuck at zero. So I would I would certainly wouldn't 0:08:30.120 --> 0:08:32.040 say it's a bit of lost decade. And you know, 0:08:32.520 --> 0:08:35.680 it's quite impressive that we've come from a ten percent 0:08:35.760 --> 0:08:39.240 unemployment rate down to three point seven percent now, even 0:08:39.240 --> 0:08:42.120 though it took you know, initially a long while to 0:08:42.160 --> 0:08:45.080 get started. What do you think is the biggest challenge 0:08:45.120 --> 0:08:48.640 for the US economy in t I think it's it's 0:08:48.720 --> 0:08:51.800 it's really it's on the policy front. UM. I think 0:08:51.920 --> 0:08:54.280 we have you know, the things that are weighing on 0:08:54.360 --> 0:08:59.679 the market right now are one trade China US trade 0:08:59.679 --> 0:09:02.920 issue is UH, if you do if talks do not, 0:09:03.280 --> 0:09:07.720 you know, produce something on March one, and those tariffs 0:09:07.760 --> 0:09:11.600 go to two fifty billion goods, that's a seventy billion 0:09:11.640 --> 0:09:15.360 dollar tax on on US and that's gonna get passed 0:09:15.360 --> 0:09:19.200 onto businesses and consumers. UM. So that certainly hurts with 0:09:19.920 --> 0:09:23.640 in terms of investment or the uncertainty causes UM causes 0:09:23.640 --> 0:09:28.079 you to pause on capex plans, UH, that sort of thing. UM. 0:09:28.400 --> 0:09:34.559 Second I would say would be you know, obviously international Italy, Brexit, UM. 0:09:34.840 --> 0:09:37.640 Those issues that are kind of been been a constant 0:09:38.040 --> 0:09:43.680 you know in the background destabilizing issues. Um, and then 0:09:44.240 --> 0:09:46.960 you know, the last thing I would say is, uh, 0:09:47.040 --> 0:09:49.760 you know, really a corporate loss of confidence would be 0:09:49.880 --> 0:09:53.120 would be the the main thing where corporation is to say, 0:09:53.160 --> 0:09:55.600 you know, with all the policy and certainty, that's it. 0:09:55.720 --> 0:09:59.600 I'm I'm you know, hunkering down and not investing in 0:09:59.640 --> 0:10:01.560 my busines this or of being a layoff workers. But 0:10:01.559 --> 0:10:03.880 it doesn't seem we're far from that point. I mean 0:10:03.880 --> 0:10:07.920 the labor market there is nothing. There is very little 0:10:07.960 --> 0:10:11.280 signs that's slowly all right, thanks very much, really well done. 0:10:11.280 --> 0:10:13.079 I appreciate it. All three of those things going to 0:10:13.160 --> 0:10:16.400 be front and center. Appreciated that. Brett Ryan is Deutsche 0:10:16.440 --> 0:10:20.000 Bank's senior US economists, joining us here in the Bloomberg 0:10:20.040 --> 0:10:27.040 Interactor Brokers Studios mergers and acquisitions. The hallmark, perhaps foreen 0:10:27.160 --> 0:10:29.200 is going to be the mega deal. Those are the 0:10:29.240 --> 0:10:33.520 deals that have valuations of five billion dollars or more. 0:10:33.840 --> 0:10:36.560 Here to tell us what to expect in twenty nineteen, 0:10:36.720 --> 0:10:40.680 having learned everything about the mergers and acquisitions industry because 0:10:40.679 --> 0:10:43.880 he basically helped to create it, is Robert Profusak. He 0:10:44.200 --> 0:10:48.640 is the global chair of Mergers and Acquisitions at Jones Day. 0:10:48.880 --> 0:10:52.440 Thanks very much for being here, Rob Profusak much appreciated. 0:10:52.760 --> 0:10:55.360 Happy New Year to you. Happy New Year too, it was. 0:10:55.520 --> 0:10:57.120 It was a pretty happy new year for the world 0:10:57.120 --> 0:10:59.640 emerges and acquisitions, wasn't it too? Yeah, But it was 0:10:59.679 --> 0:11:01.760 sort of a tale of two halves. The first half 0:11:01.920 --> 0:11:06.040 was record setting, it was fabulous, and the third quarter 0:11:06.160 --> 0:11:08.600 started to get bumpy a little bit, I think, mostly 0:11:08.679 --> 0:11:13.000 because of the trade issues um and uncertainty about evaluation. 0:11:13.040 --> 0:11:15.000 And of course the last month or so has been 0:11:15.559 --> 0:11:18.880 very bumpy with all the volatility, but it's it was 0:11:18.920 --> 0:11:22.720 still a third third highest year ever, almost four trillion 0:11:22.760 --> 0:11:27.600 dollars of transactions. That's a mind boggling You can't even 0:11:27.920 --> 0:11:29.760 I don't know what I mean. Four trillion. Couldn't line 0:11:29.800 --> 0:11:32.040 up four trillion things, And actually I have no idea 0:11:32.080 --> 0:11:35.520 what it really means. A lot, a lot I like that. 0:11:35.520 --> 0:11:38.920 That's the technical term. You mentioned, the word valuation, and 0:11:39.000 --> 0:11:43.000 I want to call upon your expertise and your experience 0:11:43.000 --> 0:11:46.080 in the world of valuation, because when we quote daily 0:11:46.240 --> 0:11:48.880 stock prices or the price of any asset on a 0:11:49.000 --> 0:11:53.480 daily basis, it is not for the whole entity, whereas 0:11:53.520 --> 0:11:57.360 when a company or a buyout firm puts forth an 0:11:57.440 --> 0:12:00.800 offer to purchase an entire company. It's like buying a 0:12:00.840 --> 0:12:04.280 car versus buying the steering wheel. There's a whole different 0:12:04.360 --> 0:12:07.840 valuation process that is involved, and I'm just wondering if 0:12:07.840 --> 0:12:11.840 you could share a little detail about that. Yes, well, 0:12:12.920 --> 0:12:16.679 the valuation the M and A setting is different. It's 0:12:16.800 --> 0:12:19.319 very different. If you talk to your average analyst about 0:12:19.320 --> 0:12:22.760 on Wall Street, it's a multiple of earnings. It's earnings 0:12:22.840 --> 0:12:26.240 growth that sets them multiple. They look at that. That's 0:12:26.240 --> 0:12:28.880 not so important in M and A is it's a 0:12:28.920 --> 0:12:33.200 more fundamental valuation. It looks at the cash flow of 0:12:33.240 --> 0:12:36.440 the business and if we pay this and we spend 0:12:36.440 --> 0:12:38.920 that much capital, what return are we getting on our 0:12:38.960 --> 0:12:44.080 capital investment. In a sense, it's it's similar, but it 0:12:44.160 --> 0:12:46.880 really is a function of the return on the investment 0:12:46.920 --> 0:12:50.479 you're making. M and A really is just the alternative 0:12:50.559 --> 0:12:54.360 to building something yourself. So you could build that car 0:12:54.400 --> 0:12:56.000 if you bought a steering wheel, and you bought the 0:12:56.000 --> 0:12:59.240 tires and you bought all this stuff, But it would 0:12:59.240 --> 0:13:01.200 be pretty hard to do. You know, you'd have to 0:13:01.640 --> 0:13:03.360 spend a lot of time and you really wouldn't know 0:13:03.360 --> 0:13:05.719 what you were doing, and you weren't sure what you'd 0:13:05.720 --> 0:13:07.719 get when you came out with it. Out of it. 0:13:08.000 --> 0:13:09.960 If you go to the dealership and buy that car, 0:13:10.040 --> 0:13:11.719 you know what you're getting, so you're willing to pay 0:13:11.720 --> 0:13:14.920 a premium for that. That's what companies do. So the 0:13:15.240 --> 0:13:18.880 valuation in a sense is more fundamental. The markets are 0:13:19.600 --> 0:13:23.080 more fickle. Uh, they're They're just based on I'm willing 0:13:23.120 --> 0:13:26.160 to invest this much on the assumption somebody will buy 0:13:26.160 --> 0:13:29.040 it for more. That's it. It isn't a question of 0:13:29.480 --> 0:13:31.760 really and a hope that I got to return on 0:13:31.840 --> 0:13:34.199 my capital. But as we've seen in the last quarter, 0:13:34.480 --> 0:13:38.320 you know, it is what it is. Well, if it 0:13:38.440 --> 0:13:41.200 is what it is in the last quarter, what do 0:13:41.280 --> 0:13:45.120 you think the change in stock market valuations has done, 0:13:45.120 --> 0:13:50.040 if anything, to those efforts to buy and sell companies? 0:13:50.120 --> 0:13:53.760 Well things things look, the fundamentals of M and A 0:13:53.760 --> 0:13:57.280 are driven by this investment decision. Am I better off 0:13:57.400 --> 0:14:00.160 investing in a new plant or buying one? And to 0:14:00.240 --> 0:14:04.480 make it simple, um, and usually it's better to to 0:14:04.640 --> 0:14:07.360 buy than to build. You've got it happens quicker, you've 0:14:07.360 --> 0:14:11.400 got more certainty, you know what you're getting, at least 0:14:11.480 --> 0:14:13.160 you think you know what you're getting. Let me about 0:14:13.200 --> 0:14:16.760 it that way. Um, the by versus build decisions very simple. 0:14:17.400 --> 0:14:21.840 Um So, but when and M and A is driven 0:14:21.840 --> 0:14:23.840 in these in this world, that's why basis becomes so 0:14:23.920 --> 0:14:29.320 fundamental by technology and globalization. It isn't really the credit 0:14:29.360 --> 0:14:31.640 markets does that and the other thing stuff that guys 0:14:31.680 --> 0:14:34.800 like me talk about. Yeah, on the fringes that matters, 0:14:35.160 --> 0:14:39.200 but it's a more fundamental process than that. Um Right now. 0:14:39.520 --> 0:14:42.040 You know with with evaluation is being uncertain. If you're 0:14:42.040 --> 0:14:45.680 a seller and your ten percent higher a month ago, 0:14:45.800 --> 0:14:48.560 you're gonna say I better wait. So it will have 0:14:48.680 --> 0:14:51.360 a short term effect, not a long term effect. Now, 0:14:51.680 --> 0:14:53.480 some of the other things that are going on the 0:14:53.520 --> 0:14:58.080 headline issues probably will be stimulative. If there is a 0:14:58.120 --> 0:15:01.600 deal with China or if there's we say there's a 0:15:01.640 --> 0:15:04.080 deal with China, and there's a difference between saying it 0:15:04.120 --> 0:15:06.960 and having one. I think, um, you're gonna have a 0:15:07.000 --> 0:15:10.960 real spirit of activity. China was a big player in 0:15:11.000 --> 0:15:15.040 North American seen that door was it's safe to say, 0:15:15.080 --> 0:15:19.880 really slam shut in. It went from three hundred billion 0:15:20.000 --> 0:15:24.360 dollars of transactions in North America to just just a 0:15:24.360 --> 0:15:28.040 tiny fraction of that last year. If that door is reopened, 0:15:28.360 --> 0:15:32.479 there'll be a blizzard of activity here because Chinese companies, 0:15:32.960 --> 0:15:36.960 despite putting all the politics aside, want the market, they 0:15:37.000 --> 0:15:39.840 want the technology, they want to know how, they want 0:15:39.880 --> 0:15:43.080 all those things, and right now they are foreclosed from 0:15:43.080 --> 0:15:47.720 doing it. You know, the Broadcom situation last year was 0:15:48.040 --> 0:15:52.240 really important symbolically. It meant we need to reset this balance. 0:15:52.440 --> 0:15:55.440 What one thing that I find interesting is this sort 0:15:55.480 --> 0:15:59.680 of inner dynamics of this year's morgers and acquisitions, small 0:15:59.680 --> 0:16:02.880 deals one out Goldman Sacks one, for example, with being 0:16:03.000 --> 0:16:07.800 the top advisor by dealing with small deals, not big deals. 0:16:07.960 --> 0:16:09.720 Do you think that will continue next year as it 0:16:09.760 --> 0:16:11.880 becomes more politically fraught to get some of these big 0:16:11.920 --> 0:16:16.280 deals done. Well, it's hard to tell. This administration is 0:16:16.400 --> 0:16:19.560 much more accommodating in terms of anti trust issues. Um, 0:16:19.800 --> 0:16:22.960 much more accommodating. Now that isn't to say unless it's 0:16:22.960 --> 0:16:27.160 from China, right, or anything from China, um. But in 0:16:27.280 --> 0:16:31.960 terms of the China influence, it's the doors is shut. 0:16:32.080 --> 0:16:34.800 And you can say that's political if you want, doesn't matter. 0:16:34.920 --> 0:16:38.480 It's shut. So who cares? Who shut it? You know? Um? 0:16:38.560 --> 0:16:41.440 And I think if you know you there's going to 0:16:41.520 --> 0:16:44.840 be some sort of resolution of that. Whether that door 0:16:44.960 --> 0:16:49.040 is wide open or just partially opened, I don't know. Um, 0:16:49.080 --> 0:16:53.440 But there were fewer bigger deals. Um. There were a 0:16:53.480 --> 0:16:56.320 lot of big deals in the first half of the year. UM, 0:16:56.440 --> 0:16:59.000 and that was mostly I think because the sense of 0:17:00.120 --> 0:17:03.040 people like me, which you can get. You can get 0:17:03.080 --> 0:17:07.840 big deals through this administration, whereas the Obama's administration, especially 0:17:07.840 --> 0:17:11.080 in the end of it, was very difficult. So what 0:17:11.200 --> 0:17:14.920 we'll see, you know, I think there's there's so much capital, 0:17:15.040 --> 0:17:17.240 and there's so there's so much to do with it. 0:17:17.720 --> 0:17:20.639 I don't think it's it's right to look at a 0:17:20.720 --> 0:17:25.960 particular segment of a particular period and come to some conclusion. Um, 0:17:26.280 --> 0:17:31.720 you know, that's what we do. I know. The overall 0:17:31.800 --> 0:17:34.360 number of deals is still down year over year this year, 0:17:34.400 --> 0:17:37.040 which is kind of an interesting statistic, even though the 0:17:37.160 --> 0:17:41.120 third biggest year ever in terms of dollar volume. Talk 0:17:41.160 --> 0:17:44.920 if you can about activist investors and their role in 0:17:45.080 --> 0:17:48.280 mergers and acquisitions, Well, it's a we're in this we're 0:17:48.280 --> 0:17:51.280 in a quiet period of activism, so to speak. There 0:17:51.359 --> 0:17:54.080 is a without getting real technical about it, we're just 0:17:54.119 --> 0:17:56.240 about to enter a period that if an activist wants 0:17:56.280 --> 0:17:58.800 to nominate somebody to a board of directors, they get 0:17:58.800 --> 0:18:02.640 the right to do that. It's generally January and into 0:18:02.720 --> 0:18:05.040 part of February. You're going to see a lot of that. 0:18:05.119 --> 0:18:07.920 And you know, this story is easier with this decline 0:18:07.920 --> 0:18:11.680 in the marketplace. You know, show me the money and 0:18:11.800 --> 0:18:15.320 do something with it. Now. You know, the traditional refrain 0:18:15.359 --> 0:18:17.840 of the activists has been level up your balance, she 0:18:17.960 --> 0:18:19.959 pay out the cash. Well, companies have been doing that. 0:18:20.080 --> 0:18:23.480 I mean, last we're gonna have a trillion dollars buybacks 0:18:23.520 --> 0:18:26.159 this year. A trillion again once again, that number that 0:18:26.240 --> 0:18:28.040 we can't even fathom. We don't know what it means. 0:18:28.640 --> 0:18:30.800 So that's not so much. But there's still a lot 0:18:30.960 --> 0:18:34.240 to do. A lot of the story about activism probably 0:18:34.280 --> 0:18:36.960 will be sell the company, break it up, meaning more 0:18:37.080 --> 0:18:39.920 M and A. What are the top industries that are 0:18:40.000 --> 0:18:46.280 going to get beset by mergers and acquisitions in it's easy, 0:18:46.520 --> 0:18:50.080 it's easier to say which businesses won't be that active. 0:18:50.240 --> 0:18:52.679 I don't think we're gonna see we have despite the 0:18:52.720 --> 0:18:55.680 precipitous decline in oil prices. I don't think I think 0:18:55.640 --> 0:18:57.159 we're gonna a rush of M and a in the 0:18:57.440 --> 0:19:00.600 oil PA in the fracking patch, because it already happened, Yeah, 0:19:00.640 --> 0:19:02.959 it happened. It already happened to media, and they're not 0:19:03.040 --> 0:19:05.520 as levered as they were, you know, when this happened 0:19:05.600 --> 0:19:07.280 last time. So I don't think you're gonna have a 0:19:07.320 --> 0:19:08.800 lot of it and people are gonna look at the 0:19:08.840 --> 0:19:12.080 prices and say, not a good time to sell. Um. 0:19:12.119 --> 0:19:14.560 Everybody else is in about the same boat, you know, 0:19:14.600 --> 0:19:18.480 the oil the oil stocks are are different. I think 0:19:18.480 --> 0:19:20.840 you're gonna see a huge amount of technology that's just 0:19:20.920 --> 0:19:22.960 the name, that's just the name of the game and technology. 0:19:22.960 --> 0:19:26.000 When you look at the big tech companies, they are 0:19:26.080 --> 0:19:28.760 Bill Weathers for what goes on in the industry in general. 0:19:28.800 --> 0:19:31.480 You've got to keep buying things. You've got to get 0:19:31.600 --> 0:19:34.560 mark you've got to get additional name brands and all 0:19:34.600 --> 0:19:38.399 that stuff as part of your portfolio. Industrial companies are 0:19:38.440 --> 0:19:41.160 still are still globalizing. So you're going to see that 0:19:42.760 --> 0:19:45.879 Europe is a little bit less certain. I and think 0:19:45.960 --> 0:19:48.480 until we have some greater clarity on what Brexit means, 0:19:48.760 --> 0:19:51.600 hard to tell. It really is hard to tell. Thank 0:19:51.640 --> 0:19:53.840 you very much for being with us, Always a pleasure. 0:19:54.160 --> 0:19:56.359 Thanks for your thoughts and your insight and happy new 0:19:56.400 --> 0:19:59.480 year to Robert Profuseck. He is the global chair of 0:19:59.560 --> 0:20:03.480 Mergers and Acquisitions for Jones Day, giving us not only 0:20:03.520 --> 0:20:07.240 his outlook for but a little bit of description on 0:20:07.320 --> 0:20:12.240 what happened in We are broadcasting from the Bloomberg Interactor 0:20:12.280 --> 0:20:15.720 Broker's studios. And here's an acronym for you. C P 0:20:16.520 --> 0:20:21.680 t p P the Comprehensive and Progressive Agreement for Trans 0:20:21.880 --> 0:20:26.600 Pacific Partnership. It entered into force yesterday. Seven of the 0:20:26.640 --> 0:20:31.200 eleven members have ratified. This practice reduces tariffs among countries 0:20:31.200 --> 0:20:35.880 such as Mexico, Japan, New Zealand, Canada, Australia and Vietnam. 0:20:35.880 --> 0:20:40.040 Here to help us understand the implications, Meredith Sumter, Eurasia 0:20:40.119 --> 0:20:44.439 Group Head of Research, Strategy and Operations. Meredith, thank you 0:20:44.520 --> 0:20:47.399 very much for being with us. Happy new year to you, 0:20:48.040 --> 0:20:50.040 and will it be a happy new year for those 0:20:50.280 --> 0:20:54.280 member states that have actually ratified this agreement? What will 0:20:54.320 --> 0:21:00.240 happen as a result? Thanks for having met him. We 0:21:00.320 --> 0:21:02.760 should expect that it will be a happy new year 0:21:02.800 --> 0:21:07.080 and happy between nineteen four those member countries. We should 0:21:07.119 --> 0:21:12.280 expect a massive rush of immediate liberalization among those countries. 0:21:12.320 --> 0:21:15.320 As you said initial cuts. The majority of the initial 0:21:15.480 --> 0:21:19.639 cuts went into effect UM yesterday, but the substantial amount 0:21:19.840 --> 0:21:23.879 over of terrors will either be cut or eliminated by tomorrow. 0:21:24.359 --> 0:21:26.840 We're at the start of the process by which the 0:21:26.880 --> 0:21:29.800 remaining tariff lines for these countries will be drawn down 0:21:29.920 --> 0:21:32.560 annually over a period of several years. And when it's 0:21:32.560 --> 0:21:35.960 all said and done, perhaps over the next five or 0:21:35.960 --> 0:21:40.280 six years, we could see most cpt p P member 0:21:40.400 --> 0:21:46.280 countries will see nearly of tariffs amongst them eliminated. So 0:21:46.320 --> 0:21:49.400 will this be enough to I guess, create a new 0:21:49.480 --> 0:21:52.040 superpower or do kind of alliance when it comes to 0:21:52.080 --> 0:21:56.120 trade that does not include the US. It certainly will 0:21:56.320 --> 0:21:59.800 be an economic force. And the key question is when 0:22:00.000 --> 0:22:03.760 a Washington wake up to realizing that it is outside 0:22:04.320 --> 0:22:08.639 of what is likely to be the most high value, generating, 0:22:08.640 --> 0:22:13.520 cutting edge trade pacts UH that the twenty one century 0:22:13.840 --> 0:22:17.000 so far will see. This is it the third largest 0:22:17.000 --> 0:22:22.359 trade pack behind NAFTA and UH the European UM Single Market. 0:22:22.680 --> 0:22:26.960 But at the same time it comprises UH important crucial 0:22:27.160 --> 0:22:31.720 rules that are meant to address many of the industrial 0:22:31.880 --> 0:22:36.320 market access concerns of the compan administration. They're important chapters 0:22:36.320 --> 0:22:40.040 on leveling that the playing field with state owned enterprises. 0:22:40.640 --> 0:22:45.879 There are also critical new rules UH concerning trade and 0:22:46.040 --> 0:22:49.320 investment related to the digital economy. Now this is important 0:22:49.359 --> 0:22:52.200 because the digital economy, of course, is where economic activity 0:22:52.280 --> 0:22:56.320 is headed. But it's also notable that these sorts of 0:22:56.400 --> 0:23:01.560 rules don't necessarily exist elsewhere, either in international UH institutions 0:23:01.600 --> 0:23:04.600 like the w t O or another notable trade pacts. 0:23:05.240 --> 0:23:08.160 If the US wanted in, if they, using your words, 0:23:08.200 --> 0:23:11.520 wake up to what they are missing out on, would 0:23:11.560 --> 0:23:18.120 this pact have them? So there are certain several members 0:23:18.119 --> 0:23:21.840 that really do want the US to come back, because 0:23:22.000 --> 0:23:26.000