tv Bloomberg Daybreak Americas Bloomberg August 13, 2019 7:00am-9:00am EDT
large -- selling argentina. investors unload with fears of a possible default. panic and chaos. that's how hong kong leader carrie lam describes airport protests as credit growth slows in the economy overall. and buying bonds. yields continue to drop, with the u.s. 30 year near an all-time low and european corporate bonds going negative for the first time. welcome to "bloomberg daybreak" on this tuesday, august 13. i'm david westin, here with taylor riggs. alix steel is off today. was off last week, and came in monday morning, and it felt like there was no longer a slow august. this news flow has really ramped up. you see those risks we talked about in the global markets play out in the s&p market this morning. you have s&p futures lower again today.
my eyes are all on the bond market, both the 10 year and 30 year perhaps approaching the record low. i'm taking a look at cathay pacific shares. we had reports about the airport in hong kong, whether flights or canceled -- flights were canceled or not. right now it looks like only check ins were canceled. dollar-yen continues to strengthen come of strongest yen has been in the last 18 months or so -- strengthen, the strongest yen has been in the last 18 months or so. david: we are joined by bloomberg's marty schenker and sarah ponczek. let's start with argentina. a chart here shows the price of credit default swaps in argentina. you don't need to know calculus to know that is not a good thing. so why are people so nervous about mr. macri going out of office?
marty: because they are very protectionist, and everybody is heading for the exits. taylor: i spoke to damian who covers aerday, lot of the emerging markets, and asking him what gauge measures the risk the most. what in your area you are researching has investors nervous the most? sarah: i would say cds. you just saw the spike on the screen. traders are pricing in about a 75% chance of a fault, up from about 5050 at the end of last week. you add it all up, you look at the decline we saw yesterday, 48% in dollar terms. that's the second word decline
-- that's the second largest world default. david: we've seen argentina default in the not-too-distant past. mr. macri was trying to accommodate the imf. what happens next? marty: there's this hope that somehow macri, and he himself , but itill will win is unlikely. so you will get the imf to come in. you will see negotiations and the threat of default, and ultimately you may see that, some sort of default of argentine bonds yet again. -- taylor: as we talk about that again, this is our 30 year yield heading lower and lower.
atknow the record was 2.0882. is this a safe haven trade, a lack of inflation trade? sarah: it seems like investors are looking for safe havens. u.s. is thee cleanest shirt and a dirty load of laundry. you look at what is happening in the bond market, and you think about everything as it relates to trade, even yesterday as we saw in hong kong. at all comes back to the fact that people are worried about global growth. bank of america put out their most recent fund manager survey, and 1/3 said they are concerned about a recession in the next 12 months, the highest probability since 2011. that is showing up in the bond market as investors look for safe havens. we are seeing a flattening of the yield curve. wos-tens is the flattest
since 2011. david: when we look for global growth, we look to china. at the same time, numbers overnight said their credit is growing more slowly than they thought. we will put a chart up that shows some alarm about how much flexibility beijing really has. marty: the question is what tools they have left. given the trade war with the u.s., the unrest in hong kong, xi is under a lot of pressure here. they can't afford a significant slowdown because of internal political reasons. what they have in their tool chest is really the question for investors. taylor: are we awaiting more fiscal stimulus? marty: there's some thought that that is the tool china has gone to in the past, but i slowdown in credit growth speaks against that. that is really the question. what do they do in case the
economy does really slow down? david: how dependent is the rest of the world, particularly u.s. markets, on what happens in china? are we sensitive to the sort of things we see with credit? sarah: we are absolutely sensitive to what is happening with credit. there are a lot of seasonal factors over the summer, but if you are seeing a slow down from the most recent credit data -- we had seen the pickup a month before -- it comes into question whether seasonal factors were at play. the china economy and rest of the economy is now very dependent as it relates to trade, but even as you look at everything related to hong kong, we are seeing it affect assets around the globe because now it is all about how does this affect the global economy. if you are seeing this affect travel around the world, especially as we see the suspensions at the airport, it doesn't just affect people traveling in hong kong. it affects what businesses are doing, what other people around the world are doing with their money. david: we didn't need one more
uncertainty added to all the others. thank you so much to marty schenker and sarah ponczek. now we want to go over to hong kong and talk to yvonne man come markets:mberg sia" correspondent. that is a loudspeaker, coming out with these announcements quite frequently now. this is what we know so far. all check and service for departure flights has been suspended as of 4:30 p.m. local time, about two and a half hours ago. other departures and arrivals flights will continue. anyone who checked in before 4:30, those- before should be able to take off, but anyone else who wasn't able to
check in, they are now saying to leave terminal one and contact your respective airline for what to do next. david: we are looking at live pictures right now of protesters in the airport. do you have a sense whether that number is growing, shrinking, remaining the same? what are the authorities doing at the same time? yvonne: at this point there are thousands of people here. i think it could match what we saw monday, which ultimately led to the airport canceling those remaining flights. airport authorities are still trying to figure out how to relay all this information. we are speaking to some passengers who are very frustrated and confused about what was the status of their flight. protestswe saw these start from the arrival halls and spread to departure gates. the protesters were actually sitting in and blocking passengers from cutting in.
additionally, we saw passengers climbing over to try to get through. we heard from airport authority that both gates were closed. been using these airport trolleys to block some of these gates as well. it seems like at this point, they've made a cut off time at 4:30 this afternoon to tell to end their day here may be, but they are still trying to get flights off the ground. marketshat is "numbered -- that is "bloomberg markets" a sia anchor yvonne man. coming up, on the cusp of a full-blown financial crisis. more on the situation in argentina following the shock election results. this is bloomberg.
david: argentine markets reacted with a vengeance to president macri's loss in primary elections sunday. with us now is laird landmann, manager, and bloomberg's damian sassower. so what happened? concern was that he had very little regard for offshore creditors. what we saw last night was a little bit of a carrot for creditors saying we are not going to default on short-term seven days. argentina is in a very bad
place. creditors were basically dumping everything yesterday. we saw implied to default possibilities run-up. definitely a cause for alarm among creditors. taylor: come into the terminal here at gtv because it is now all about the sentry bonds. clearly the bond markets, if you believe that is where the smart money is, doesn't believe that this guy will pay back the debt. do we have any indication that he really will be paying back the bonds? damian: i think it is really structural. a lot of what fernandez said last night is true. current the administration, i wouldn't say they were courting speculators, but some of the things we see in places like nigeria,, that really prevent short-term speculation really needed to be in place earlier.
ofm my perspective, some this is good, but the markets really aren't buying this. remember, argentina is the fifth largest issuer of sovereign debt globally. a lot of investors and fund managers just don't have the stomach for it. , --d: on the sentry bond the century bond, people were remarking before how low the bond had gone. how much of this is a correction, and how much a general fear that they may default? the cds spiked yesterday. laird: it sure did, but i think this is just fractal behavior. i've been long enough to see three cycles in argentinian debt. i don't necessarily think that i would buy the 100 year bond. you will probably get a trading bounce, but this is going in a bad direction fundamentally for
the long-term. wouldn't lend to homeowners willing to put equity down on their homes. i wouldn't lend to argentina for the long term. certainly the hedges can make money in the short-term, but if you are fundamental bond investor, this is a dangerous place to be because they do have a habit of repudiating the debt. taylor: so would you not buy at all? laird: we are not involved at all. rem team has been getting out for the most part -- our e.m. team has been getting out for the most part. you want to be playing this from the short side at this point. doesn't mean there won't be some nice trades here and there, but that is not the sort of investor that tcw is today. is a long-term bond investor, it must be tough right now because there's not a lot of yield around. it must be tempting where you get some high-yield. laird: there's not a lot of yield around, and what active bond managers always forget at the end of the cycle is we look
for yield, we take a lot of risk , and i think we forget that we make all this money during the leveraging cycle that has gone on now for 10 years. when that cycle turns, the vast majority of active managers get back all their gains. i think right now as an active bond manager, particularly at tcw, we are holding onto the gains we've made. don't disappoint plants has we go to this deleveraging cycle which we think is beginning now, and be ready with dry powder to participate in what will probably be a real opportunity. taylor: you've written a lot about this. within argentina, is there a case to be made that dollar denominated be safer than a local currency play? damian: you have to look at the short-term maturities first and foremost. there's no bid for local currency whatsoever.
everyone is staying away from it right now. if anyone is going to trade into that market, it is going to be in the ultrashort end. dollar-denominated, maybe you could get a coupon. we are at the stress levels here , and a lot of bid for some of that yield at these levels, but not just yet. this is different than last year. in my opinion, a lot of investors, it was the biggest overweight in most portfolios going into last year. a lot of people got flushed out of that. worked their way out of overconcentration in those portfolios. taylor: would you agree this is an isolated argentina story, or can you see a ripple effect? laird: tcw's outlook since last
been we were going to have some issues economically, and i think argentina is more a symptom of that following their normal playbook. mistake,he famous mill which is we assume the familiar is the optimal choice. i think they are assuming the familiar is the optimal choice. our fed is assuming the familiar is the optimal choice. i think the markets are very skeptical. you have flat yield curves all around the world. europe is a bit of a basket case, if i'm allowed to say that on the air. housing in the u.s. is problematic. you've got this whole problem with the patch and housing markets in terms of who is going to finance lower income owners going forward. so there's a lot of macro issues behind this, and argentina is more of a symptom. they are just following what
they know down there, and repeating to get just as we are in assuming that taking interest rates lower, potentially two negative levels, following the japan model, that that is going to somehow cure the economic ills out there. we are not quite as sure of that at tcw. taylor: bloomberg intelligence's damian sassower, thank you so much. laird landmann of tcw, you will stay with us. coming up, the outlook for china's credit growth. this is bloomberg. ♪
they've been in talks on and off for years. the exchange ratio in an all stock transaction has stalled the latest negotiations. a deal could be announced today. another sign verizon is dismantling its online empire, the wireless empire agreed to sell the blogging platform ownerr to publishing site automatic. sold for ats tumblr fraction of the $1.1 billion it fetched. shares of cathay pacific kept falling, closing down more than 2% a day after hitting a two-year low. thisy canceling hungered -- canceling hundreds more flights as protests continue at the hong kong airport. taylor: thank you. that story about cathay pacific, biggesthina's
investment arms downgrading cathay pacific in part because of the protests and the unrest we are seeing within the hong kong airport. we had some conflicting reports. we saw that all the flights were canceled. now it seems that maybe check ins were postponed. we have a lot going on with hong kong. some of that can now translate back into china. we've been discussing a lot about china's weak credit growth. it fell to the lowest in july, according to data released overnight. weak credit demand is one of the reasons pressure is on chinese officials to boost stimulus. still with me is laird landmann of tcw. as you look at credit demand and loan demand, can we firmly make the case that either monetary or fiscal authorities need to see more stimulus? laird: i think it is hard to make the case for the monetary authorities.
we've been doing this for 30 years, getting back to the idea that familiar is optimal, and we've been creating asset bubbles. i think china has pushed on that credit lever for the last 20 years very hard. it is hard to make a case that the next unit of credit growth necessarilygoing to create a lot of effective stimulus. how does credit stimulate an economy over the long term? it basically goes into productive resources, and if it doesn't, it makes the asset price go up. that is certainly a concern not just in china, but the u.s. as well and in europe. we think china is going to become less of an impact on global growth going forward. it almost has to. it has been 50% of global growth, if you look back a couple of years ago. that's got to slow overtime. , the toolsir levers and stimulus become necessarily
less complex. david: china has done better than a lot of the world would have expected in smoothing the slope down of the growth in gdp. the familiar would have been infrastructure, more buildings and bridges. do they have other things they can try on the fiscal side? laird: i think bloomberg published the story of a study showing that these autocratic economies tend to misrepresent their gdp numbers. people have studied aerial photos at night suggesting that these particular economies like are overstating their growth numbers. it has certainly been a very important story, but i think it's been overstated. tool isthe monetary just overused around the world. we want to follow the chapter toanification, or do we want try new policies as we go forward?
i think china could be a good place where they look for new policies because they will not be as familiar as we are with these. taylor: we only have about 30 seconds or so. within your experience, how concerned are you about china compared to other crises? laird: i am concerned because they are not following their normal course. standard was you can never let the world know how strong china is. he has taken a different approach. if things accelerated in a bad way, that will hurt trade going forward, more than trump. david: coming up, u.s. 30 year bond yields are teetering on the verge of record. we will talk about that next. this is bloomberg. ♪ from the couldn't be prouders
designed to save you money. save up to $400 a year on your wireless bill. plus get $250 back when you pre-order a new samsung note. click, call or visit a store today. taylor: this is "bloomberg daybreak." we've been talking so much on this program about a global risk off trade. we are continuing to see that filter through the equity markets this morning.
the s&p1% selloff in 500 yesterday, a smaller drop, about 2/10 of 1%. tech getting harder as concerns from asia continue to spread over. in the russell, those are the to mystically focused stocks, big underperformers on the year to date and a one year basis. continuing to selloff again. vic's is higher. higher.vix is you are seeing elevation of the vix index. for me it is all about the bond markets. that 30 year at a record low. we will see if we eventually get that today. we are just going to thank negative yields abroad. at -61 basis points. my jaw is still on the floor. alix with herke
oil, and i've got taylor with her bonds. viviana hurtado is here with first word news. viviana: protesters in hong kong have forced the airport to pause check ins, jamming the airport for the fifth straight day. hundreds of flights have already been canceled. have of protest in moscow become the biggest challenge to president lender prudent since 2012 and has led to thousands of -- president vladimir putin since 2012 and has led to thousands of arrests. and russia have fallen for five straight years. wall street regulators are set to take a major step towards over falling -- towards ty toauling banks' abili trade on their own funds. they can work on a rework of the rule that would loosen
restriction on banks investing their own money in private equity and hedge funds. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. and evian or tonto -- i'm viviana hurtado. this is bloomberg. david: bond yields continue their downward spiral. we welcome now from washington dougie collins -- from washington peggy collins. landmann of tcw group is still with us as well. typically at the long end of the bond yield curve, what does future growth look like? if you believe this, what does it tell us about where we are headed, particularly a recession? peggy: investors really do look to bonds in terms of how close we could be getting to a recession, and typically look at that inverted yield curve. it is astounding to me that even the 10 year's at 1.6%.
in general, we are seeing people look at low bond yields not only in the u.s., but negative in europe, and think to themselves and others we are in some sort of world economic slowdown, and projections for a recession potentially coming closer. taylor: does the tenure look or is the 164 offend -- does the 10 year look attractive, or is the 164 look offensive? u.s. rates would indicate a strong, healthy economy, but instead u.s. rates will come down. there are still gains to be made in treasuries and i think people should probably hold onto their duration in their portfolios right now. this will all become its own bubble.
says in a colleague piece in the bloomberg right now they have four criteria for a classic bubble. if you look at the bond market, there could be an argument that we are headed towards a bubble. they are basically cheap money, a rise in the debt level, expensive valuation, and a compelling narrative. what is the argument for and against a bubble? peggy: certainly the cheap money is an argument for the bubble. howard marks was telling bloomberg last week that if you continue to allow this cheap money to go on and potentially lower rates even more, you are just fueling asset prices and potentially creating an even bigger bubble. i think the argument is that potentially we are in a different time period in terms of aging demographics around the world and how that is affecting asset prices. and, the rise of technology how automation is changing the
workforce, particularly affecting wage inflation. aroundre the forces trade and how that is affecting business investment around the world. taylor: we talked about three nowhs, 10 year, twos-tens below five basis points. do you get nervous at the inversion? laird: we've been nervous for a month about this as we've been flattening and coming closer and closer to an inversion. having areas of the curve that are inverted, what is that doing two profitability? how have negative interest rates worked out for european banks these trends are not positive? . i tend to agree with howard -- howard marks's
outlooks. the effective lower bound is important. do those factors really create inflation down the road? we don't think so. we think we are falling again for that mill mistake. we are treating the familiar as the optimal solution, and it may not be. david: i love that saying. let's go at this for a moment. we have betsy gray sick at morgan stanley last week saying, "while we anticipated low 10-year gilts, we did not expect the move to happen so quickly, inh our prior models baking a midpoint for 2020. the banks have been selling off. they really did not do well in financials. peggy: that's right, and it is
quite a dramatic shift from last year, where investors were saying that's where the gains are going to be. we saw bank earnings come in in july, and banks repeatedly say they were lowering outlook for profits on net interest income because they are not earning enough in terms of the raises they are getting. i do think this is an overhang on banks as we change the outlook for how long rates are going to be lower. taylor: laird, fold this into your bond world. both u.s. banks and european banks, and the last few weeks i have heard u.s. spreads have the potential to go negative. are u.s. banks at risk of becoming european banks? that would be a very unfortunate thing to transpire. i think europe is struggling to
figure out, how do we do this? ?ow do we implement them these are government policies that end up with winners and losers. some people will be charged for negative deposits. some people will not. from a u.s. perspective, do we want policymakers making winners cisions for us, or would we rather have the free market dewitt? i am hopeful we will figure out this is not the correct path forward to create the inflation and vibrant economy we want. what therespective of government does in washington, is there self corrective mechanism within the market that compares the s&p dividend yield to the 10 year treasury? you can do better just on the .ividend investors do see
always reaching for yield, and that has been a concern for people for years. as you said, as people look to their bond portfolio and they are not gaining as much as they are, they will take more risk. we've seen pension funds do that , go out and look for more yield and risk. the dividend paying stocks have been a boon for investors. that should push people more into those risk buying assets. big equities the selloff, dividend yields look more attractive, and there's still more price appreciation to capture. where is that rotation? laird: it's very hard to know where it is going to be. it's not working well for my bank stocks these days. [laughter] laird: we've added a caveat to my expertise. you should be playing for the
total return that is going to occur as rates come down, and playing for liquidity. moment whereo that it was clear the credit cycle is turning, now 10 plus years old. when it does turn, we had higher had.aged then we've pick up the 10 basis points of cheapness in the bbb bonds. you will need liquidity and quality when this turns. we would love to have you back to continue that conversation. that was laird landmann of tcw and bloomberg's peggy collins. esgng up, how one company's fund accidentally bought into gun stocks. and if you have a bloomberg terminal, check us out on tv . watch us online, click on charts and graphics, and amtrak's with us to directly. this is bloomberg.
viviana: this is "bloomberg daybreak." coming up in the next hour, russell's investment's chairman and ceo. this is "bloomberg daybreak." a federal judge reinforcing an order against american airlines mechanics and other airport workers to end an alleged work slowdown. the airline says the workers have had a devastating effect on flights ring the busy summer travel season. the judge ordered the mechanics union to stop encouraging workers to delay aircraft repairs due to a contract
dispute. united parcel service expanding a push to hire outsiders. long-term texico chairman brian newman will become the ceo next .onth ceo david at me -- david abney has added three executives from other companies to the management committee. the owner of taco bell, kfc, and pizza hut once to get bigger. yum! brands' ce says the ceoanyo -- yum! brands' says the committee would consider partnerships and even a new restaurant brand. that is your bloomberg business flash. taylor: thanks, viviana. we now turn to wall street beat to cover three things wall street is buzzing about this morning. first up, wall street watchdogs are set to overhaul the volcker rule, including easy trading
rules by banks. and a hedge funds star who lost his way. blue mountain capital's andrew feldstein is selling his credit firm for $160 million. vanguard put gun stocks in a gun free fund. fund accidentally bought stocks in ruger and held them for more than a month. david: they've been talking about revamping volcker. baby now it is finally going to get here. maybe, but even if they were to get rid of all the trading restrictions, how are the banks going to pay for the talent like the use to? we are in an era where margins are really trimmed away and desks have been cut to be pretty slim right now. taylor: we've been talking about the volcker rule and prop trading ever since 2008.
there's been mixed consensus on do we want more regulation or not. what's been the bank reaction? sonali: banks are pretty thrilled by this. everyone thinks one of the big winners will be goldman sachs because of lighter trading regulations and regulations on principal investment. goldman really preparing to make a kkr type vehicle within goldman sachs. assuming appears to be -- sonali: it could end up in the courts for several years. there are a lot of critics of this rule. believe that it exists in a significant way still. we do see $100 million loss here and there, but still nothing like the multibillion-dollar
losses. taylor: generally, what are the regulators saying? sonali: the banks love it, critics hate it. they think the banks are going to dive back into risk. regulators in this administration are ok with this, but they want to get it done before the next election cycle. taylor: that is very true. another story we are taking a look at, blue mountain capital management originally made a ton of moan me -- a ton of money. now unfortunately, as we've seen with a lot of hedge funds, just a big decline in his performance a now trying to selloff his firm for probably less than he wants. sonali: what a we saw yesterday. andrew feldstein was a harvard law professor of obama. he was a star credit trader. this is a lot about what was happening in the industry, but i loom mountain also.
strayed away from his but at blue mountain capital, he strayed away from his original strategy. one of the things i didn't know or remember was jamie dimon actually called him in and said, please advise me on how to unwind these trades. shows the incredible volatility of positions in this business. sonali: that's right. he was also one of the largest credit derivatives counterparties, and reduced that around that time, too.. taylor: the broader hedge fund industry has been under massive pressure for returns and fees. what's the take on generally the consensus about the industry?
sonali: a lot of people are saying it has kind of leveled off a bit. , thiskets get traffic creates the opportunity for people to come back into the gate. others do that, but for the most part these are coming down, and people are going into private assets or other places. we have vanguard coming out to say, we have a great fun for you so you are not invested in anything you don't want. it is a great warning sign that passives can't always be completely passive. largest geoof the run funds. so while it was only a little over a month and not very much money, i'm warning that our analysts would say it is so much
for that initial strategy. taylor: an etf his passive, but if you are looking at the stocks or being a stock ticker to make sure, are we active or passive? sonali: the definition is definitely changing. most big asset managers do something in between because the ultimate idea is to keep these lower. david: it is not totally beta, but beta with plus. esg is indexed with your thumb on the scale. sonali: it is the same with quant. people think it is automatic, but people have to sort things out to make sure their portfolios work out. we haven't heard from very many clients, so we do have a lot of analysis. our own analysts have also said
you need to look at what you are buying. david: that's what i would expect, that when you go in there would be a lot more questions to ask, the fine print really going over -- really gone over by the investor to see what they are agreeing to. me about theto social good. i got in trouble because i thought esg was a fraud, at least in muni bonds, for example. esg doesn't really differentiate you from being a normal investor. in the stock world, it is different though. sonali: it is the new hot strategy. to me it is whether it makes money. taylor: right. david: we just have to be careful about having regular definitions. fsg, weone person's
the white sea, a nuclear cruise missile they were testing that went wrong. president trump says we are learning an awful lot about what they are doing. "we have things like that better more sophisticated than theirs are." this incident was "the worst since chernobyl." i got my lesson from the hbo show "chernobyl," which i found fascinating. it really talks about the radiation levels and how scary it is, and then you had the run on iodine and some of the hospitals, which prevent your lymph nodes from of zo being it -- from absorbing it. and then you have the political story as well with the president tweeting about it. david: and demonstrations in moscow because of moscow city elections. they had tens of thousands cleared, and there really having trouble there. there's uncertainty about mr.
putin. his approval ratings have gone down from 90% to 65%. taylor: they actually got a bond upgrade, which surprised me. they did say that the sanctions took off one notch from their --rent rate, and here david: russia is doing ok, according to markets. coming up, chet and i -- coming herehetan ahya will be with us on bloomberg. ♪ ♪
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investors unload just about everything in the wake of stunning macri's defeat, with fears rising of a possible default. hong kong's carrie lam describes protests continuing at the airport and the economy slows overall. and yields continue to drop come up with the u.s. 30 year near all-time low. inflation?e u.s. cpi numbers out 30 minutes from now. welcome to "bloomberg daybreak" on this tuesday, august 13. welcome, taylor. great to have you with us. we've had a lot of uncertainty in hong kong about executive what is going on in the airport. taylor: so much uncertainty. you mentioned in the open about argentina and hong kong. we were getting completing reports that we thought all departure flights were being canceled. now we know it was just check their time,0 p.m.
were you couldn't check in. david: if you checked in before that time, you were fine. if that is representative, it looks pretty calm been theeally it has last 72 hours or so that the protests have reheated up. we heard carrie lam talk out and perhapsut hong kong going into the abyss. we are awaiting any economic fallout from hong kong as well. i think they will look at the luxury goods sector, property markets, any payout that could start to hit if these protests continue. david: we will see if it spreads thatd in economically. cathay pacific is a stock we are continuing to look at after china's largest lender, their investment banking arm downgraded that stock to a strong cell. to .5 percent today.
cathay pacific fell almost 5% yesterday. you are seeing the global economic risk trade full back futures. 10 year looking flat right now at 1.65%. my job was floored when we hit 2%, so that blew me out of the water. we are looking at dollar weakness yell at him to rent strength dashed again strength. thus the strongest -- weakness to yen strength. that's the strongest reading we've had. negative yields across most of europe. david: there's also something going on in argentina. carnage is what people expected when markets opened yesterday come on that's pretty much what they got. the peso and stocks way down and bond yields way up. we welcome now bloomberg's managing editor for economy and government in latin america.
what happened yesterday in argentina? do we expect it to continue? reporter: big question. yesterday we had comments from the presidential candidate about finance and reassuring people, but he did not reinsure much. what are the steps he would take. that it ishe said currently in default, which is not really true. we will see how the market reacts, but i don't think those comments were very reassuring. david: probably because of his running mate and what she did in office. proble -- juan pablo: her reaction was very clear.
taylor: you are from argentina. you've been covering this market for 20 years. looking back over your decades of coverage, what feels different today for this crisis versus all of the others we have .een pro businesshave a government, and then back to interventionist. it has always been an issue of the external debt. we think argentina spends too much, and we have to finance that was debt. it gets to a point where people start thinking, well, is that we end up inthen default. taylor: certainly pricing and a lot, especially the potential of default as well, so thank you. that was bloomberg's one
published in neto -- was ablo.berg's juan p erickson, now is lisa u.s. bank wealth management head investments.l do you just stay out because you don't know how to manage the political uncertainty right now? lisa: we think it is difficult to handicap these situations. generally what we would advise our clients to do right now is to look at emerging markets as a biu that basket as thated to ash and buy basket -- and buy that basket as opposed to individually. there's always that geopolitical
risk. right now, our assessment is that the contagion really is going to be more contained in the markets. that specific market. think that's what you saw in the action yesterday. very there were some volatile market moves within argentina, if you look at emerging markets as a whole it performed pretty well. the emerging markets index more closely track to the s&p as opposed to experiencing a broad beta drop. even when you look at things like credit default spreads, the really severe action was more constrained just to that country as opposed to broadly across emerging markets. taylor: what are your calls for heading into emerging markets, along with continued dollar strength? do you go bullish because you like dollar strength, despite some of the political uncertainty and spikes of inflation we see abroad? lisa: i appreciate you bringing up the dollar issue because in general, that's one of the key factors that sexually keeping us
at more of a neutral view on emerging-market equities -- key factors that is actually keeping us at more of a neutral view on emerging-market equities. while there are some attractive features in terms of potentially some price drops because it is a more volatile asset class, the u.s. dollar, the fact it has remained strong and is a little bit difficult to discern the direction, is a risk factor keeping us had more of that balanced view right now as opposed to saying you want to take any type of directional benefit at this point. david: explain what i find a bit of a puzzle with the u.s. dollar. the fed has taken an economic approach like much of the world. we have numbers out from the united states that were beyond what we had last year, like it hundred $75 billion, at $1 trillion of deficit. usually you would think a
currency would weaken, wouldn't you? lisa: absolutely. with the fed easing in the twin deficits, it is not a good backdrop for the u.s. dollar. there are other factors that are causing that dollar to remain elevated. one is that if you look at it in the context of a relative global basis as opposed to u.s. only, you do have a situation where, while the fed is easing, other central banks are moving down as well. again, relatively our economy has shown some resilience. the fed is easing, but may be just in lockstep with others. so that relative resilience is really helping the dollar stay stronger. taylor: as we talk about em, how much does a slowing china economy have ripple effects into other em countries? lisa: china is a key risk factor we are looking at. that is one of the other key factors keeping us at more of a balanced view in addition to the
u.s. dollar uncertainty. when we look at china and our proprietary check index, what we see is while there are other parts outside of argentina that are actually starting to show the data is beginning to turn up a little bit, china is in the opposite direction. given china's huge influence on the asian economy and that being a very large part of the emerging markets index overall, that is a note of caution for us. taylor: lisa erickson of u.s. bank wealth management, you will stay with us. thank you. coming up, u.s. 30 year yields are tearing on the edge of a record low. are we in a bond market low? we will discuss. this is bloomberg. ♪
viviana: this is "bloomberg daybreak." investors are waiting to see if cbs and viacom actually agreed to merge. the two media companies are both controlled by the redstone family investment vehicle. they's been in talks on and off for years. the exchange ratio in an all stock transaction has stalled the latest negotiations. a deal could be announced today. another sign verizon's dismantling its online empire, the wireless provider agreeing to sell the blogging platform tumblr to automatic. verizon says terms were not material. that suggests tumblr sold for a fraction of the 1.1 billion dollars it fetched in 2013. shares of hong kong-based cathay pacific closing down more than 2% a day after hitting a 10 year low.
cafe canceling hundreds -- cathay canceling hundreds more flights as protests continue at the hong kong airport. david: thank you so much. bond yields around the world continue to fall, with the exception of argentina. we welcome now chetan ahya. lisa erickson of u.s. bank wealth management is still with us. we put this curve up for the 30 year. what is that telling us? normally you look at that long bond and say, that is nothing good for growth. damian: i think first, there is a concern on growth outlook. there's a growth on inflation outlook. thirdly, this has been on for the longer term, that we've been seeing this decline in neutral interest rates. central banks are not being able to stimulate the economy in an environment where neutral
interest rates are low. i asked this question in the last hour over at tcw -- last hour to our guest over at tcw. price assume further depreciation as yields continue to fall so you can still be a buyer with yields at this level? --lisa: we are really telling investors to stand pat on their fixed income. generally we are not viewing those as attractive rates. with a more moderate growth environment and continued concerns, and more of a risk off appetite, there is an opportunity if you go down. what we are really advising is that you continue to hang onto fixed income allocation where you normally would for strategic allocation, and look for further opportunities across asset classes. david: let me ask you the
question that a colleague of ours posed today on the bloomberg. are we in a bond bubble? he put up four criteria. cheap money, a buildup of debt, extended valuation, and a narrative piece will -- a narrative people believe. what are the chances that bonds are overbought? damian: we don't think so right now -- chetan: we don't think so right now. particularly on the growth outlook, we are highlighting that the risk of global recession are rising. the outlook will be a bubble, if you think the global economy is going to recover anytime soon. we don't think so, and therefore we don't think bond yields are right right now. taylor: talk to me about the twos-tens. do you assume you have to be
inverted at -20 basis points for four weeks before you get a recession? at what level and for how long do you get nervous a recession is sooner rather than later? 10tan: the fed looks at minus three, and will generally say it needs to be there for a reasonable period of time, for months. it looks like it already is, so we definitely think that is sickening a signal. so we definitely think that is sending a signal. we are about 14 minutes away from the cpi in the u.s. does the monetary policy at this point a flip -- at this point affect inflation at all? that if are believing
you look at what is going on in the u.s. and globally, we have a more modest growth environment. i think the one potential trigger point is the labor market. employment has been tight for tom time -- for some time, and yet wages have not risen. we think there are broader forces that are causing inflation to stay more modest even within the employment market such as aging population, dropping productivity, and more with raising the wages. taylor: you believe the fed has to act quicker and more swiftly, i.e. 50 basis points, to act fast? chetan: in the last meeting, i was on the show arguing why the fed needs to cut by 50 basis points in the first, because then they can get ahead of the
curve. unfortunately for the fed, these reeds that are coming through our external risks. it is a little harder for them to get ahead of the curve on these external risks, which is essentially trade tensions. nevertheless, the fed is not able to get ahead of the curve viviana: -- ahead of the curve. taylor: pun intended. [laughter] david: as you look at that 30 year approaching record low yields, how much of that is just trade uncertainty? if you listen to jay powell, he talks about that a fair amount. are there other factors as well that we are getting blamed on trade, but there are other things going on? lisa: i think trade risk is a big part of it. i also think people are focused on the domestic situation and wondering how long this modest expansion can plug along.
still believe that we can have more of a soft landing on going, but as your other guests have been talking about, the risk of recession are rising. when we look again at our data not just in the u.s., but around the globe, we have continued to see down trends in the data across all kinds of economic indicators. oure are rising in terms of concern, although right now our base case scenario is that we are able to retain that modest expansion. taylor: in the last hour, i said viewers could interact with us if they were nice. so we have a viewer question for you. do you think central banks can make an economy immune to recession? chetan: if there is domestic risk, the fed would be able to act fast and defend this slowdown. you seen that in the past, which is what jay powell was
indicating in his last conference. we have seen that in 1988 and 1995. after that you got the economy back up. midcycle,truly in which we don't think so -- we think we are in late cycle -- the central bank can get ahead of the curve and save the economy from recession, but today situation is different. think we are in late cycle, and the fed has not been moving ahead of the curve. ahya of morgan stanley and lisa erickson of u.s. bank wealth will be staying with us. coming up, verizon plans to sell tumblr. this is bloomberg. ♪
verizon with reports that they are selling tumblr, their big move all the way back to mercer mayor and yahoo!. it appears they are selling it for scraps, not worth much anymore. taylor: you wonder if this is verizon's way of saying let's focus on 5g. that's been a big push for them. they've already written down those assets on their balance sheet. david: it's a u-turn from media. taylor: i'm going to take a look at the second story i'm looking at. you cannot go a day here without talking about huawei. you are a lawyer, so you are going to bail me out on this segment. huawei had a law firm helping them talk about the u.s. government cases. david: they actually brought a constitutional challenge in texas challenging the ban on
them. taylor: now they are looking at lobbying, which is a very interesting turn. lobbying can do very well here in u.s.. so this law firm certainly seems to be winning as they are now expanding their role from representing them on the legal case to now some of the lobbying services. david: it is a political problem, not a legal problem. for the third company we are looking at ups. joining us is brooke sutherland. so, new cfo. going outsidere the fold and bringing in brian newman, who's going to take over , the brainsperez behind this $20 billion investment push they've made that they are doing to try to keep pace with amazon. packages has been the
mainstay of ubs for years. it is interesting to see them -- to maybes have a bit of a different perspective. sorry, breaking news. of 0.6925. rate yesterday we were talking about an even lower price than that. , it iseen told is coming coming. the head of cbs took them to court to try to stop it. brooke: now you have the interim ceo, who's more amenable to these deal conversations, and they are able to get a deal done here. david: and sherry redstone owns both companies, and has decided she wants to merge the
co -- the companies. brooke: they were together, and they broke up, and now they are being put back together. do any antitrust questions come up here? david: it is hard to imagine after disney buying fox. brooke: and everybody is trying to compete against netflix. taylor: david, you nailed this. you were looking at the story this morning. you nailed this call. david: brooke sutherland, thanks so much for being with us. coming up, we have u.s. cpi numbers. this is bloomberg. ♪
we are talking a lot about global risk overseas. you are seeing that filter out in the u.s. market. seeing a .2% drop in the s&p today. it is all about those small caps . domestic stocks being hit the hardest. underperformance relative to large docs on year to date on the one-year basis and some of the nervousness from europe as well with a 1% drop in the dax. we have breaking news. david: the cpi numbers. month over month there up .3% and the survey was .3%. -- if you energy translate year-over-year it is as opposed to a survey of 1.7%. energy cpi ex food and is probably the one that that 2% --at more, to part 2.2%. does this change anything for the fed?
chetan: i think these are lagging indicators. what we have to look at is what we have to do for demand and that does not look good. i do not think this is good enough evidence we will get to that 2%. lisa, you're quick reaction on some of this economic data. it seems right in line with estimates. does this change anything for you as we look forward to the fed or they still in the wait and see mode? lisa: we think this set of numbers is confirming our outlook that growth is moderately expanding. inflation remains contained, and because of that, interest rates will be able to be at moderate levels. in terms of the picture ongoing for where our positioning should be, we would continue to advocate staying solidly in your long-term allocations and again
looking for further opportunities based on break out of fundamental data or valuation opportunity. david: at the same time we talk about steady growth, and if we look at the recession odds, they are spiking up. i will put up a chart. it is the new york fed probability of recession. the highest since 2007. that is not a good date. chetan: this is heavily influenced by the yield curve dynamic. the framework from the outlook perspective we are looking at is the two areas people are talking about is being defensive -- one is the labor market globally, and second is that the u.s., because the central bank has fire in the armory, people think the u.s. will be able to withstand the global slowdown much better. when you look the actual data,
look at the labor market momentum, even in the u.s. it has slowed significantly. you should look not just of the monthly job additions but also at the weekly work hours. when you look the aggregate work hours, they have seen a significant decline. 2012 and dropped below 2015 lows. this will weigh on consumer confidence and spending because jobs momentum is slowing, work hours is slowing. you thinke time, when about the exposure of the consumer generally, you look at the rest of the world, consumer is already slow. look at all of the discretionary spending. even nondiscretionary spending is slowing. we think the labor market and consumer will see the impact. we will see the u.s. will also see the impact. taylor: when we talk about the odds of recession you can argue the u.s. has appointed a recession because of the strength of the consumer.
how does your outlook for a weaker consumer factor in your global economic view? chetan: the way people think about the consumer is they look at the balance sheet and say the balance sheet is fine. the way we have to look at spending is what is happening to the income outlook. we have seen a slowdown in business investment in the u.s. business investment declined .6% in the second quarter. we think the slowdown in the corporate confidence being impacted by uncertainty on trade policy and political risks in emerging markets, this will take down the business confidence further an impact the capex trade in the u.s. further and you should see the impact on the labor market and the consumer going forward. david: lisa, what is your read on the u.s. consumer? do you see cracks in the u.s. consumer? lisa: we continue to see the consumer as very strong.
we do see some slowing in the data. our caveat is that it is office door prize. if you look at some of the employment -- it is off historic highs. 99%, 100%dings in the relative to history. even those are dipping down a few percentage points, it is off absolute highs. we continue to believe the consumer can continue to bolster the economy. when we look at our broader set of indicators, it is a similar's tory. .- it is a similar story starting at lower levels. while there are down traps in the data, the absolute levels are ok. we look at the u.s. economy as decelerating from 75 miles per hour to 55 but still in decent territory. ?avid: what about that it may be coming down but it is
coming down from a high level. chetan: the momentum is what i would look at. it looks worrying. when you think about the framework, why the momentum has been lost is because capex is slowing. i do not get confidence corporate confidence will recover from here. it only looks like it will deteriorate further. you will see deterioration in the capex outlook, in the job outlook, and further impact on the consumer. one thing i must highlight is that this is the cycle in which the leverage is in the corporate balance sheet. not only the u.s. but other parts of the world. particularly in the u.s., the leverage is in the corporate balance sheet and funded through nonbanks. at some point in time, this continued slow down and the impact on corporate confidence will become nonlinear. that is a time when you have to worry about what happens to corporate credit outlook. for example, if you were to see
tariffs increasing to 25% on the imports,300 billion of we think it could have a impact on corporate confidence, and then lead to job loss and that will have a significant impact on corporate credit outlook. it is hard to the timing of when the nonlinearity occurs, but the risk is still there. we are conscious of that recession risk. david: on that sobering note, chetan ahya of morgan stanley and lisa erickson. thank you both for being with us. bloomberg over now to markets: asia and anchor yvonne man. what has happened since we talked last? yvonne: it is not a complete standstill like what we saw monday. some flights coming out and some
coming in. quite a bit of passengers walking through here in the arrival hall. we have seen some cancellations. a couple hundred or so are still canceled today on this tuesday. certainly what we have seen is that these people are not backing down. these crowds have grown in the last couple of hours and what we have been hearing is that the check in services, all of which have been suspended as of 4:30 p.m. this afternoon. anyone coming afterwards has to leave the airport, or contact their respective airlines to see what is going on. this is the second day of dramatic disruptions at the airport. frustrated passengers are getting into clashes with protesters trying to get through some of the dates. inone point, there was a sit and they were blocking both of those dates -- those gates.
taylor: how long does carrie lam hold onto her job? yvonne: that is the key question. we heard from her in the press conference and did not hear much of anything different. she continued to support the police. reporters continue to ask questions about whether she would resign, which is a key request from the protesters. she sidestepped all the questions. no concrete plans to try to ease people's fears at the moment. at this point, they are still sticking to their strategy of waiting this out until things blow over and then potentially they can start talking. david: bloomberg anchor yvonne man. thank you so much for your continued great reporting from hong kong. now let's turn back to the media. we may finally have a deal. cbs and viacom reportedly have
agreed to exchange ratio of port 95625 and all stock merger. is our us from london bloomberg reporter. what does this exchange ratio tell us? there was tough back and forth. we were talking about a higher rate than this. ratio values viacom at around current market rates. viacom shareholders not getting much of a premium. last year they did agree on a higher ratio, but that was based on management teams then. a few things have changed. viacom will argue that they've gotten stronger since then. then tong its ceo since a slew of sexual harassment allegations. what cbsalk me through and viacom get from this merger. >> the big thing they get is scale.
that is the buzzword in media these days, especially when they're trying to compete against the netflix of this world. netflix is spending more than $13 billion in its programming. it is difficult to compete with players like that. cbs and viacom will be combining paramount studios, nickelodeon, ,bs all access, cbs networks the number one most-watched tv network in america. number ones the network in america. at the same time, paramount studios has been having a tough time. even nickelodeon has been struggling. does it compare with the disneys of the world? is the big>> that hope that this gives the company is a chance to compete with the disneys of the world. viacom has struggled, but paramount has had a few hits and their working on movies for some the streaming services. they have been making movies for
netflix, making content for facebook and they've been ramping that up, which gives them another avenue to generate .evenue also, the scale allows these companies to compete better and negotiate better when they're are talking to distributors or advertisers. taylor: you have been coming the deals market long enough to know that a merger does not exist. there is always someone in charge and someone who is not in charge. with this, who is actually in charge? >> the different thing about these companies as they are controlled by the same owner. that is shari redstone's company. the redstone company has been in charge of these companies for ages. it is a little different from that aspect. the viacom ceo will become the new ceo of the combined company, and shari redstone will take the chairman position. for her, it is a big coup. she has been wanting to do this for a number of years, since
they separated these companies in 2006. taylor: wonderful recap of that. racing to the camera just in time to get it. we appreciate it. on the brink of a shakeout. we look at the pressures facing the asset management issue. russell management ceo joins us next in today's follow the lead. this is bloomberg. ♪
this is bloomberg daybreak. here is your bloomberg business flash. one of the world's biggest manufacturers of smart phones and other devices reported second-quarter net income that beat estimates. vanguard admits it made a mistake. the firm put shares of a gun company and a gun free etf. errorason, it mimicked an in the benchmark contract. vanguard bought about $9,000 purse of lugar. russell index bought ruger stock in june by mistake. it has now shown -- it has now sold the shares. that is your bloomberg business flash. ,avid: time for follow the lead a deep darkness stories making headlines in moving markets with insights from industry veterans and insiders. today we look the asset management industry and its biggest challenges with one of the leaders. michelle seitz is russell
investment chairman and ceo. of $200is a manager trillion under it by smith. we welcome her to bloomberg. a lot of talk about passive these days. a lot of people saying that is the way to go, that is where the direction is. is that right? what is the argument on the other side? michelle: the thing to know about us is we are agnostic. we are all about delivering solutions to the clients that can come from anywhere in the world, any type of manager, and it can be in factors. we are a pioneer in fact are investing in systematic investing, and it can be in passive and active. we are believers in active management. value, added tremendous taking some of the best managers in the world. active is not dead. it is going through a rebirth. the metamorphosis that has to occur is to be focused on the
outcomes and the solutions at the client level. we are going through massive pivot in the industry, not just around passive versus active or decompression. this has largely been an institutional asset management industry. the pivot is to the individual at the pivot is also two outcomes versus components of a solution. taylor: part of the problem going into the active management industry was rising tide slipping all boats. rising, rising, bonds hard to justify raising the stock when you could go into an index fund and know it would go up. now with all of the uncertainty, is this your time does john -- is this your time to shine? michelle: our time to shine is in any market. we are customizing around individual outcomes. having said that, your key point
is active management does have a place in the ecosystem of the industry. nominateeed to be the -- doesn't need to be the dominant part of the industry and it may not be. with this heightened degree of geopolitical uncertainty, inefficiencies to provide opportunity for active management and that is where you are seeing many managers start to add value. going toorms are not work as much as they did historically. hugging benchmarks and being so andnt and compartmentalized how you deliver to your clients is under scrutiny, and rightly so. david: the general trend has been a move toward passive inflows. we will put a chart up that indicates it has been up and down, but overall passive has been gaining. you say it could become dominant. as you are picking horses for courses, how do you pick?
your fees are higher when you are an active manager. michelle: we look for the most inefficient asset classes and the best managers we can partner with to determine the value to our client. it is not static. we are a dynamic manager. we are in investment centric, client centric firm. the most important thing to us, whether it be in private, whether it be in alternatives is we deliver value in sustainable forms about the creation. -- of alpha creation. we recently reorganized our entire firm, reorienting around outcomes. agnostic to the types of managers, asset classes, geographic regions, making sure we can deliver in various environment. taylor: you talked about inefficient markets. if you can say he will go passive and large-cap and active in small cap, where you can find
as inefficiencies. is it more complicated than that or is that something you're working on as well? michelle: another part of the ecosystem that is changing pretty rapidly is that i do not think slicing things by cap sizes is a sustainable way to differentiate yourself into the future. we can find a large cap ideas, large cap concentrated managers. it is more about the process and the insight, irrespective of the geographic region or the size. trying to outperform static-passive indices, that is what is a dying breed to have long-term sustainable outperformance. find that interesting because there's a tendency to think with a large cap there are more people analyzing. the inefficiencies are harder to find. where you find the market in deficiencies that an active manager can take advantage of
the larger corporations? michelle: these are insights. just because money is following does not mean it has an original point of view. you see that. chicago, one of my sons is going to university of chicago and one would say active management should have been dead long ago, and it is not. a lot of behavioral economists have shed light on the fact that not all individuals at all market participants act rationally to the same set of news. in a period of heightened uncertainty, our primary focus is on making sure people understand their long-term goals and objectives and making sure you have a tactical, dynamic allocation that adjusts to the market environment, but by far the most important thing is to understand the liability your matching. that to us is the other pivotal thing to understand. we have an 80 join dollar retirement crisis.
it will grow to $400 trillion if we do nothing differently. let's assume we continue having, generally speaking, upward markets. we continue doing ok on behalf of the clients, we continue driving costs down, we will still have a $400 trillion problem that has to be solved and our industry is critically important to solving that problem and it is not by chasing large-cap versus small. it is about making sure your delivering for the client. taylor: michelle seitz of russell investment, thank you for joining us. coming up, flirting with a record low. a closer look at bonds in yields. more on what i'm watching. if you're having your car, check out bloomberg radio on sirius xm channel 119 and also bloomberg business app. this is bloomberg. ♪
it is all about bonds. we saw that in the cpi data we got. right in line. does not move the needle. the conversation goes back to the massive rally in the bond market. we have had some great conversations. morgan stanley, tcw, assuming prices go up. surewas saying she is not she is buying into this rally even further. david: nobody seems to think it will turnaround anytime soon, or dramatically. we are still three basis points or so above the record low. coming up, bloomberg -- the open with lisa abramowicz has great guests coming up including michael cushman. this is bloomberg. ♪
up, dark clouds continuing to hang up or risk assets and the turmoil in hong kong and argentina punishing sentiment. with the trade war expanding its bite, singapore and japan posting disappointing results. the argument for further rate cuts taking a hit. the thread before -- between short and long-term treasuries narrowing. 30 minutes until the opening bell. we see futures down .2%. the euro versus the dollar basically unchanged. 10-year gilts unchanged. spread continuing to narrow. economic data and political uncertainty weighing on the move this morning. investors fearing a global recession might be in the cards. >> recession risks are on the rise. >> risec