UK’s Tax Cuts Trigger Crash

You can also listen to our radio show at two PM eastern time on Bloomberg radio or watch us on Youtube. Search Bloomberg Clobal News. Well, Liz trush's government has set out the most radical package of tax cuts for the UK since nineteen seventy two, reducing levies both on worker pay and companies in an effort to boost the long term potential of the economy. The package is going to

cost a hundred and sixty one billion dollars. It's aimed at stimulating the economy, but economists say that measures will add to inflation and debt. Very pleased with us this afternoon to have Philip Aldrich, senior UK economics reporter for Bloomberg News, joining us on the phone from London. Feel

good to have you with us. Appreciate you staying up late on a Friday to join us on Bloomberg Business Week to lay out for us exactly what happened in exactly what's in this package and why markets are reacting the way they are. Yeah, so the big the big measures was a bunch of tax cuts. That we that we had some personal tax cuts Um. There was a surprise cut in the top rate of tax um for the wealthiest one percent of earners. We had a cut

in the basic rate of income tax Um. There's also a change in payroll taxes and employers were given money off through corporation taxes and and also this this national insurance contribution tax cut. That there was also a tax cut on property transactions, and it was really quite an

extraordinary sort of collection of tax cuts. And the idea was to accompany that with some with some sort of supply side reforms, these kind of these these regulatory deregulation agenda of the of the new government because of course, to be in power for about three weeks. So so what happens in a situation like this? I mean, you know, and not to not to totally show off my ignorance as an American, but with an understanding of how the

British government works. If the prime minister says it is, so is it, so you've got to go so this. This will all go through the legislature. So, Um, much of this will have to have to be approved in law. So there will be votes on it. In reality, this trust has got a stalking majority in parliament, so the Tories will be able to get through everything she wants

if they support her. But the problem is a lot of these policies because they're more of the libertarian wing of the Tory Party, Um, and that isn't, you know, the mainstream centrist part of the of the of the party. So she may face rebellion amongst her own truths, amongst her own MPs, but you know she will be these these tax cuts will be voted on and the regulatory

reforms on planning and banking deregulation. They will be voted on and she's probably going to bathe more difficulty on the planning and the regulation stuff that she will on on the Finance Bill, which is the straightforward tax cuts. But you know, it's been a big, crazy day the markets have really reacted negatively to this. So you know,

anything's on the table at the moment. Well, let's talk about what, at least George Saravellos of Geutsia Bank things should be on the table from the Bank of England. I got this note in my inbox earlier. The subject was what needs to be done and George Saravellos, he is currency strategists over at Geutsa Bank. He's calling for a quote large Inter meeting rate hike from the bank limp England as soon as next week. I was pretty surprised to see this. Philip, is there any chance of

this actually happening? I doubt it. I don't think there would be. I mean, if it was, it would basically be a signal that, you know, a policy instetitions, a panicky Um. So I think it's unlike and he said that George was warning about Um, you know, the pound collapse a week or two ago and he was being dismissed.

And then, of course, today we had three percent all and stirring against the dollar and that followed a series of other falls and the pounds fell below one dollar nine cents at one point, which is you know, astonishing. And you know people are now talking about parity with the dollar, which you know we we ta close to that in Um, you know, in the plaza. Of course stuff is happening, but the UH, you know, that would be absolutely astonishing, if you know, if we hit, if

we hit parody with the dollar. But it doesn't look unfeasible any longer. Um. I don't think there will be an into, an into inter rate meeting, emergency rate hike, but you know, anything is possible at the moment. It's the marks. have been digesting this for for literally eight hours. So I think there would be some calmer responses next week.

And is there any chance that you the trust government is looking at the widespread, uh just I don't even know what to call it, wildness in markets right now and rethinking at all? Uh. I would be hugely humiliating to have to rethink a policy after just a few hours. Actually quietly, quiet selling the chancellor who laid all of this stuff out. He Um, he did say that. You know, markets will do what they do. We're thinking for the

longer term here. Um. So I don't think they were expecting a route the kind of massive self that we've seen, you know, sterling being guilt yields Um you know, rising where amongst the UK government broacasts are now amongst that that sort of euros own periphery, the Portuguese and Spanish government bond yields. So it doesn't it really doesn't look

good at the moment. But the reason why they would reconsider things would be if there is an internal Tory rebellion and will not be based on the market reactions. That would be based on a calculation on their on their own elector elect electability in their constituencies, which will, you know, there will be poles about whether the whether these tax cuts for the super rich and non awful lot to the people on the incomes and that might not go down particularly well. Philip Aldric, really great to

have you joined us this afternoon. Thank you so much that senior UK economics reporter Philip Aldrick joining us on the phone from London. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg radio. Well, in the new issue of Bloomberg Business Week magazine there's a story about social media companies. In fact, more than seventy lawsuits have been filed this year against such social

media companies. We're talking about companies like Meta platforms, the company formerly known as Facebook, snap Tiktok, which is owned by byte dance, and Google, which owns YouTube. The lawsuits center on claims from adolescence and young adults who say they've suffered anxiety, depression, eating disorders and sleeplessness as a result of their addiction to social media. The story written by Joel Rosenblatt, legal reporter for Bloomberg News. Joel joining

us this afternoon on the phone from San Francisco. Joel, good to have you with us. I gotta tell you reading this piece, the anecdotes at the top would make the stomach turn of really anyone, about kids who have died by suicide, kids who are addicted to social media. Um, I'm wondering, though, about liability here. Our social media companies reliable for what their users do? Well, thanks for having me. That's what these suits are going to get at and

we're going to find out. The companies have, for a very long time, I mean decades now, stood behind a section to thirty of the Communications Decency Act, which holds that's a law that that provides. That showed. That says that the these companies can't be treated as a publisher or speaker of any information provided by or generated by a third party. So that you know, the argument being that these companies can't be held responsible for the content

of what what what, what kids are seeing. So that's the big hurdle. Um, they have a novel argument. These lawsuits do. That's a little bit different from anything that I've seen and we can talk about that if you want, but that's that's the big question. That's the big hurdle. A live bility. Talk about that a little bit. Yeah, well,

so the what they're doing. What's different about one student in particular that I write about is that they are they're targeting the algorithms that these companies are using and so instead of saying, Oh, this content is what created the problem or created the depression or or problems, it's the algorithms that you've designed, that you Meta have designed intentionally to Hook my kids to your platform, and so it's not the other users who've posted this or interacting

with with people that way, it's it's the algorithm. What the Algorithm is actually serving to these kids exactly, and they claim is that it's designed intentionally that way, you know, by those companies, to keep them hooked and down this kind of spiral, are these holes of information that take

them to these dark places. Okay, well, you make a parallel to cigarettes in here, and I want to bring in Katie Greifeld, my co anchor here, because, and this is I mean in all seriousness, when she had covid, she came back from from covid and said, you said, Katie, that you had fallen into this Tiktok hole about and and had talked about how well the algorithm got to know you and like, served you content that you would

just eat up. It's actually a joke on tiktok. When really specific videos go viral, all the comments are to the effect of the Algorithm knows me too well, and people joke all the time that I'm so glad that social media wasn't around when I was younger. I have to say I am so glad that Tiktok was not around when I was younger. But, Joe, I'm curious to hear about what some of the law professors that you spoke to for this piece are saying in terms of

the social media companies defenses. Well, I it's kind of a split. I mean mostly you have law professors, Uh Eric Goldman is is one in particular, is really expert in this area at Santa Clara University, who points out that the section to thirty defense is just going to be too difficult to get over explain. Because, yeah, the section to is the is the Communications Decency Act that we talked a little bit before, which they just say,

they're just saying we're not responsible for the content. We can't, we can't be held reliable for the content. We're just delivering. We're just a delivery service, you know, we're just giving you the platform and we're we can't be held liable as the publisher or speaker of the content that you're seeing. So He's saying that that's, first of all, just a huge problem for these lawsuits. The second problem is that Professor's point out is that you can't you can't just

point to Um, social media as a problem alone. In other words, isolating social media as the cause of depression, anxiety or even suicide is just too difficult. Let's take any number of things including, say, you know, the fact that the planet is melting there's all kinds of reasons that kids are suffering from from anxiety, and just to isolate social media. It's going to prove difficult. Many think, well, let's go through some historical parallels here that you touch

on in your peace job. If we think about the way that auto manufacturers have been not necessarily held liable, but the public, public campaigns against them by Ralph Nader, for example, of perhaps the nineteen nineties. When it comes to tobacco companies, I mean I recall those tobacco executives sitting there and testifying in front of Congress Um. What can how does that paint some sort of picture about what could happen with social media companies, or does it?

Is that accurate? Well, I think again, we kind come up with with you know, we'll see what the courts decide, because it's there's two there's at least two arguments. One is that again, these suits are pointing to the algorithm as a kind of almost identifying it as a product, Um, so pointing, pointing not to the effects so much but as this particular product that they've designed that's, you know, to follow the analogy defective Um. So that's, you know,

right that's the kind of logic there. On the other hand, if you say let's follow the analogy of the of the tobacco suits. In the tobacco cases, I remember one, one particular part that was very compelling. There was that the tobacco companies were adding ammonia to to the tobacco. I don't know if you remember that, and you could point to them knowing that it caused cancer and knowing that this particular chemical reaction would would cause addiction and

cause cancer. I think a problem there for these lawsuits is that that's a particular health consequence. You know, you could pinpoint cancer as a medical you know, scientifically a cancer, a cancer, a disease that's caused by this product. Again, harder to do that with social media, if not impossible.

We'll find out. Are there, you know, just in the last forty seconds that we have with you, are there any uh proven health claims that can be tied to social media at this point the same way that that

we can tie them to cigarettes? Well, I'm glad that you raise that because one, because one of the suits that I'm following closely points to the testimony of Francis Hogan, who you may recall testified to Congress about Meta, knowing that instagram was causing um all kinds of anxiety with with girls in particular, around their body image and so and they in her when it was they knew it and perpetuated this and are still using it and profiting

from it. Joel Rosen, black legal reporter for Bloomberg News, joining us on the phone from San Francisco. Check out his story. It's in the current show of Bloomberg Business Week magazine. It's available now on newsstands and at Bloomberg Dot Com. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg radio. Let's turn to Crypto now and welcome in Danelle Dixon. She is CEO and Executive Director of the Stellar Development Foundation.

It's a nonprofit organization founded in to support the development and growth of the open source stellar network. She joins us on the phone from San Francisco. Dinnell, great to have you with us. Just about a week ago you testified in front of the Senate Agriculture Committee. That hearing specifically was focused on the Digital Commodities Consumer Protection Act. That of course it's a bill focused on the CFCC's role in regulating the crypto markets. I feel like that's

a big question. Which of the acronyms actually has oversight over the CRYPTO market? Yeah, thank you so much for having me again. Yeah, that is a big question, but

I think that what we're gonna find. I and just that both of them, and I think you're referring to the SEC and the CFTC, are going to have a role and I think what we talked about last week with respect of this legislation was that it is really wonderful and empowers the CFTC with the authority that it needs to regulate the spot market for digital commodities and it provides a lot more clarity to the industry than

we previously had. So it's bipartisan, which we love to see, and it's continued reinforcement that Crypto is not an issue that's divided by politics and that everyone is invested in it and they have to get this right. So I think we're going to see a lot more clarity if we see bills like this one come through the house and the Senate. What are the stakes here? The stakes

are pretty high in terms of. Really what we want to see is a lot more players in the existing financial infrastructure come into the CRYPTO and blockchain space, because it really like what we focused on is payments and

cross port remittances. We need to see stable coins. We think we need to see other players that are involved in those kinds of payments be participate in this, and I think that it not only gives clarity to the existing ecosystem, but it gives a lot more clarity to others who might want to participate but they're concerned because

of the regulatory environment. How I'm trying to think of the word that I want to use, but I mean, how receptive are the lawmakers, specifically at last week's hearing, and other lawmakers that you speak with about the crypto industry? I feel like it's had some real black eyes, especially over the past few months, a lot of high profile blow ups. Do you think that's sort a bit of

skepticism or mistrust along some of the potential regulators? Well, I think, and I think it's a great point to focus on, because I think that any industry that's new, you're going to have like thirty steps forward and then twenty steps back and you're going to have to climb your back, your way back to the spot that you were before, and I think what we saw over in the early days of the summer with respect to those algorithmic table coins and what happened with respect to the

market there Um will really actually change a lot if we can get the focus to create stable coin legislation that makes it clear about a definition of what stable coins are, because that's a lot of what we saw. There was a lot of leverage in the market. I've had little to do with the infrastructure and more to

do which is leverage. So if we see clarity around this, I think that we're going to see more and more lawmakers want to participate here right now, and particularly last week, there's so much support within the Senate, Senate Ad Committee, because they are truly a bipartisan committee that works together.

So we saw a lot of really good conversation and a lot of really good inclusion about this particular uh, this the bill itself, but also just the industry, and frankly, I think we're seeing that across the board, even on

the house side. So I feel really good and I think the promise of not just this legislation but we hear that there's also potentially stable coin legislation that could be brought together, and I think that could be that could come together also in a bipartisan fashion, so it'll really move the industry forward and create again that regulatory clarity. We all need it. One of the things that we hear a lot from the SEC is that the how we test, which is the one that defines that security,

is it's clear. And, frankly, if it was clear, we wouldn't be in a situation right now of trying to gain more clarity. So I think that we all really want to see that happen and you know, we heard the big banks CEOS testify earlier this week and we won. One part that stuck out to me was what Jamie diamond, the CEO of JP Morgan Chase, said. Uh, he called Digital Tokens decentralized Ponzi scheme and even bitcoins specifically. He had some choice words for it. It's it kind of

sticks with what he said in the past. Um, I'm wondering what you thought of when you when you heard him say that. Well, it wasn't new in terms of again, like, as you said, we've heard this in the past and I think part of the job that we have as industry is to really create a lot of educational materials and to really gain the focus and the attention of folks around the good things that are happening in with

respect to blockchain and crypto. You know, on stellar we see a lot of really big promise and execution when

we see the use of stable coins in payments. We have a relationship with moneygram where you can turn cash into crypto in four locations globally, and this really reaches the unbanked and the underbank and so I think if we really talk about what the good things that are happening in the CRYPTO and blockchain industry, it actually will help move that conversation away to talking about things like pondy schemes, because I think that you know, when any time,

when you have a new piece of technology, there's going to be a lot of criticism and potential concern of it and we really need to get to the discussion around use cases, which will kind of obliterate that message. And now really quickly. We have about thirty seconds or so, but you've said clarity a few times and we need clarity. WHO NEEDS CLARITY. Is it just the industry or is it traditional finance, Trad Five, as well? Yeah, I know, I love that. Trad Fi um. That's another, another word

that we like to hear. I think it's everybody. We all need clarity to bring Trad fit in so that we can actually really make this this technology work in the way that it should, which is in coordination with traditional finance, to really bring to the masses, uh, the opportunity that exists with watching. All right, you know, we're going to have to leave it there. Tonal Dixon, CEO and Executive Director of the Stellar Development Foundation, joining us

this afternoon on the phone from the bay area. I'm a journal Yeah, but you let me drive. Oh No, no, no no, no, please, I'll do bride gravel. I want to drive. It's good question. This is the drive to the globe on Bluebird radio. All right, it's that time. We are less than ten minutes away from the close of Equity Trading here on this Friday afternoon. What a

day it's been, what a week it has been. The SMP five hunded off of its lowest but still down about two in the SP five, energy by far the worst performing sector down close to seven percent this after we saw that w t I fell below eighty dollars for the first time since January. Let's get into it and specifically energy. We do that with Ben Cook, portfolio manager at Hennessy Midstream and energy transition funds. Ben Joining us on the phone from Dallas, Texas this afternoon. Ben,

How are you? I'm doing well. Thanks, how are you? Thanks for having me, by the way. Yeah, we're really glad to have you, especially on a day like today, because we definitely want to talk energy. What's going on in the energy market? I mean it is just just flashing recession fear all over you know, I think it is.

I think you know, the prospect of monetary tightening around the world is leading to a view that we're going to have to see some slowdown and economic activity or worser recession, and I think that's added to fears with China's zero covid lockdown policy, which has had a material impact on transportation fuel demand in that region of the world.

I mean, I think that's all contributing to a narrative that the market may not be as tight as previously thought, but that's leading to fears of further weakness and crewed. And where does that leave you in terms of conviction here? I mean, would you expect a rebound or how long might this current slump in energy last? You know, that's

a that's a great question. You know, we do have a favorable view of the commodity as we approached the fourth quarter and in the next year, and I think the demand fears are front and center and that's what we're dealing with today. But there are significant issues on the supply side as well that, in our view, will will continue to provide some support to the commodity. And

you know, those points are several fold. I think you could if you look at inventories, not just crude oil but refined products on the global basis were below historical

seasonal norms. OPEC is continuing to underproduce its targeted quota levels and, of course we're seeing a good financial discipline here in the United States by our our producers and that's limiting production growth here on a on a near term basis, will have the spr draws come to a close in in November and of course we've got embargoes on Russian oil exports into the you in December and

refined product embargoes in February. So on a short term basis there's some supply uh support to be had, I think. On a near term basis, then, did the did the SPR did tapping the SPR as President Biden chose to do? Did that have an effect on the energy market? You know, I think it did. I mean the on a on

a month to month basis. Actually, in a week to week basis, you know, we were seeing the addition of, you know, upwards of five or six million barrels and even more some weeks added to those sly here in the US, and that certainly put pressure on on crew prices. I think once those draws come to a close, once we eliminate that additional incremental barrel from the market, it

certainly will add to support, some support to pricing. And then when I look over the course of this year at the sector level, energy, by far, the energy sector, is the winner. Uh, still up about twenty sent for the year, but I remember when that number was closer year to date and I would love to hear your perspective on you know, if you look at energy stocks specifically the sector, have we seen the high water mark, you know, for the year. I think going into the

fourth quarter will probably be quite volatile. As we enter the winter heating demand period. We could see some volatility in commodities, which would lead to volatility in equity values. Um, it's hard to see the commodity retracing back to the previous peak of one plots over the next couple of months,

given the headwinds we're seeing today. Um. But, as I said, you know, there's a good reason to believe that support on the supply side recruit and for natural gas for that matter, which we have a very favorable view of natural gas pricing in the next year, that that will

add some buoyancy and support into pricing. So, while we might not retrace back to previous highs, we do feel like there's a good reason to believe that there's good outperformance relative to other sectors in the marketplace to come here the NE twelve or fifteen months. So, Ben What are you doing on a day like today? Are you

are you sitting on your hands? Are you buying? You know, Um, always, uh. Now, we're we're always monitoring commodity price volatility and its impact on equity values as a part of our repeatable investment process. And managing the Hennessy Energy Transition Fund. We look at what a range of commodity price scenarios and what it might mean for the relative upside and downside and equity

values and from for us. And when we look at equity values particularly, and we're taking the upstream sector in the US, we see an imputed price deck of roughly sixty five to seventy dollars per barrel implied by the current equity values across much of the upstream sector. So with the commodity on three basis the script, they're roughly in the seventy five to seventy six dollar range. We think the equity values are right now, or even though they're down five, they're pricing in a much die air

scenario than what's currently reflected in the commodity market. So again, evaluation on that basis is attractive. We look at Um the free cash shields have been very, very strong in the sector, even with a dial down and commodity prices, as we've seen over the recent weeks, we still see

very attractive free cash yield out of the sector. So on a day like today we're monitoring the portfolio, but we still believe very strongly in the outlook for the commodity and the financial returns and performance in the stoff. I should note that the Hennessy Midstream Fund has a year today performance of compared with the s and p five, which is down about yeah, energy, it's been a pretty good place to hang out. Ben, we only have about forty scents left with you, but I know you have

some specific names that you're pretty bullishawn. What are they? YEA, as I mentioned, uh, we like the upstream sector here in the US, select integrated companies. We do like Exxon. We think they're integrated business how to affords flexibility to benefit from a variety of cyclical environments. Um they've shown some good strength and in upstream results exploration in Guyana

and development activity in West Texas. We think they're going to continue to generate very strong financial results and continue to buy back shares. We like excellent EO G resources. Another name that we like, the US producer. They've got a great acreage in the lower us, lower fort l plays and demonstrated an acumen for optimizing production gains and efficiencies and that's translated to good sharehold return and so forth. Ben,

we unfortunately have to leave it there. Ben We love having you on the program please do come back soon. Ben Cook, portfolio manager at Hennessey Midstream and energy transition funds, joining us from Dallas, Texas. Thanks for listening to Bloomberg Business Week. Download the podcast on Itunes, soundcloud or Bloomberg Dot Com, and you can also listen to our radio show at two PM Eastern on Bloomberg radio or watch us on Youtube. Starch to Bloomberg Global News. Ll Memora