Argentina Selloff Is A Buying Opportunity, Turkey Not So Much

just to support its currency. The result it is not working. Joining us now, Paul McNamara, investment director for Emerging Markets at gam UK Limited, overseeing about eleven billion dollars in developing world assets. Paul, thank you so much for being here. We're looking at a lira that is tanking. We're looking at that yields are absolutely skyrocketing on Argentinean bonds. Is this a buying opportunity? We think it is. Sorry you said lira. The lira is the one that we don't

think is buying opportunity. Turkey has quite similar problems to Argentina. Sorry, I'm getting my troubles back. Confused, Sorry, no, no, the different the differences really favor Argentina. Argentina is a much less indebted economy. So you know, the the Argentines did three percent last Friday, they did three percent yesterday, they did six and three quarter percent today. But you know, this is an economy with a very low level of leverage, where the burden of hiking rates is much less severe

on the real economy. Um, it's you know, it's something that can translate relatively smoothly to currency strength, unlike you know, most countries in the developed world, almost countries in e M, where you know, obviously the conflicts between the damage done by higher rates and the damage done by a weaker currency. In Argentina, I think it's fairly here that that all the all the burden, all the damage comes from a

weaker paco. Um, so everything favors that the the the Argentine authorities doing everything they possibly can to keep the paco in place. Well, just to push back a little bit, because if you see, this is a buying opportunity for the Argentine paco or perhaps some of the debt that's selling off. I'm just wondering about the root of the weakness here, which is the fear that the right leaning leadership isn't doing as much as it needs to be

doing to support the nation's economy and its finances. What's your take on that. No, I mean, you know, we've got right wing governments or populist governments all over the world sort of not supporting the economy. The economy, you know, if you look at Russia, if you look at Poland, if you look pretty much everywhere. I mean, the reason that Argentina and again Turkey are getting hammered is not so much to do with economic strength. It's to do

with the external balances. These are both countries where imports are are rising much faster than exports. You know, that the currency has become competitive, um, you know, and the way to address that is to you know, is to bring import demands down a bit and give people a reason to hold their money in local currency, which I think higher rates will help with. Um. You know, growth

growth in Argentina is respectable. It's you know, it's not outrageously high, but I think it's you know, it's it's positive that the authorities are willing to hike rates and looking for stability ahead of a dash for growth. Paul, why did this happen. I mean, what's the reason. Doesn't this go back to something that happened in December? I think the rate hikes at the end of last year

and the start of this year. Yes, that that that there was a perception that the you know that that the Argentines were kind of engaging in this dash for growth, that you know that stability and lower inflation had taken second place. But you know, the rate cuts that they did, you know, across the turn of the year have been more than reversed since then. So I think it would be fair to say that the Argentines has got the message gay. So you think it's a buying opportunity, what's

the best opportunity? Is it the paco? Is it a certain bond issuance? I mean, you know, as ever, if you say something something is a buy, I mean, as somebody who's running an e M portfolio, we think relative to other emerging markets, it looks like goodbye. We think you know that the pacer has overshot here, that you're getting an interest interest rates up at around on Argentine

paco assets. We prefer paco assets here. Yes, okay, what about let's talk about Turkey because that's the other big, big name in the news, and you're saying that you are not positive on the lira there, which is tanking. I believe in some measures to its weakest levels, uh in near history. What's your take on what's happening there? Well, I beat the problems in Turkey look to us fairly severe.

You know. Above all, you know, the one thing you don't want to see an emerging market is a huge build up of foreign debt to support ought activity, which only generates local currency. You know, we saw its an Asia, We've seen it in lots of countries along the way, because what happens is as the currency falls, the ability of the banks and the core protector to to pay

that debt falls um. You know. And unlike Argentina, you know, the level of foreign debt in Turkey is extremely high and at the same time activity in business activity in Turkey is falling very slowly. Plus you have political changes which I think militates in favor of capital flight and moving money out of the country, and a very low

level of foreign exchange reserves. If you take that mix together, uh, you know, we think that there's a real possibility of a major economic crisis in Turkey this year, So what would you do? Go short Turkey, go along Argentina. Would that be a good trade? I think we'd find it an attractive trade. But it's it's definitely one for the brave, you know, this is this is not one for widows

and orphans. Just really quick. I'm wondering just in general, we've seen two weeks of outflows from emerging market funds, the most since December. Are you concerned about general broader weakness due to the stronger dollar? M Well, yeah, I mean if somebody, you know, kind of makes their living in this market, I think we have to be concerned. I mean, what we've seen is, you know, after two years of quite a week dollar, we've seen the dollars

snap back. And it's always been the case that, you know that when the dollar rallies against d M, it rallies stronger against EM and everything we've seen since then has been in line with that. Unlike you know, say two thousand and thirteen or two thousand and eight, we don't see weakness in EM We're not seeing external deficits, so we think that the fundamentals in them this time

are much more supportive. Thanks very much. Paul McNamara, Investment director for Emerging Markets for gam UK, helping to manage about eleven billion dollars in developing world assets, earning us on the phone from London. Right now, let's turn our attention to the jobs data that we got out from the US this morning. Yes, we saw the jobless rate fall to three point nine percent, the lowis and April two thousand, but wages did not increase as much as

many people had expected. Tom Gimble joins US now. He is founder and chief executive officer of LaSalle Network. And Tom, I'm really glad you're here. You're the person I want to speak with. I want to talk about why we are not seeing bigger increases in what we earn. Well. Right now, we've got a labor market that um is, as you said, the best labor market we've had since two thousand, with unemployment below four. So the question is we're bringing in the hourly wages reflecting the service wages.

So we haven't seen the influx from the municipalities increasing minimum wage, and I think we'll start to see that as that minimum wage continues to grow, But the service positions are still not are still driving the unemployment ranked down, and what we're not seeing is when people get hired in white collar jobs and someone goes from making fifty thousand to sixty thousand, they're also being replaced by people

coming in at lower salaries. So it's not as easy as saying, oh, well, if unemployments low, then everybody's making more money. That's not where the markets at right now. And that's because of the global economy in a sense as well, that we can there's so much production being done around the globe that we're not competing against the neighbor and that we're not getting more money tomorrow than

we were yesterday. That's the channel. But the good news is there's more jobs, but there's there's no one should be out of work right now. Well okay, but but Tom, I want to push back a little bit because you're saying that that basically people don't have to pay more. Companies don't have to pay more unless the minimum wage rules are are changed. But aren't a lot of ceo is saying that they have trouble finding qualified workers right now, and wouldn't they have an easier time if they just

offered more money. No, So, so paying more doesn't get somebody more qualified, So to pay more with the vision of most CEOs and CFOs are not the vision. The reality is they're not going to pay more for the exact same person they can get. This is what happened in two thousand and two until two thousand and eight, is that that boom was fueled by companies were paying more for people just for the sake of saying we need more people, We're gonna pay outrageous amounts of money,

and it didn't work. Right now, I'm not saying that the housing market wasn't the driver for that crash, but we have now is a more responsible group of lead corporate leaders, and they're saying that we're not going to pay more just for the sake of paying more unemployment at three point to go hire some who's unemployed and just pay them more, that doesn't make fiscal sense. Tom uh. There are five point nine million open jobs in the

United States at least that's according to Lasal Network. Right, Okay, where are the most Where's the most demand? And I mean demand, not that you need a PhD in you know, astrophysics or mathematics. Where's the biggest demand? Right now? So the biggest demand is in sales in computer and technology developers, coders and programmers, and then in healthcare, right and that's been the same way going on for half a decade. Now that those are the drivers sales really more in

the past three years. To keep fueling this economy, corporations want to increase revenue. Where I think we're gonna get at births. I think the July numbers and the August numbers are going to be really good because you're gonna see it's a great time to be graduating college right now, all right, And that's why, Well, I'm glad you mentioned graduating college because I'm wondering these entry level positions or these positions for which you need a lot of experience,

or would even internships qualify you. Yeah, no, it's it's it's it's for all of the above. And so that's the big difference is that companies would love to hire some experienced people. However, the ones who are unemployed, that's where the skills gap exists. The long term unemployed don't

have the skills to be hired in this market. So what companies do is they hire younger people out of college, and that doesn't increase the wages because those people are coming in at entry level salaries, and so we'll see as a boost. My guess is July, August, September numbers are gonna be well over two hundred thousand a month because this economy engine is gonna keep going, and you're gonna see higher volumes of people being hired because they're

more available. So what do you think the unemployment rate will be by the end of the year. I think it stays around the same. It really the Even if the FED raises interest rates by another quarter of a point, I don't think that moves the needle on hiring. I think it can't really get much lower. What what used to be a rule of thumb twenty years ago that two and a half to three percent was the acceptable unemployment rate. That's that there's just a certain number of

people that are unemployable. I think that number today is probably right around three to three and a half. So I don't think we get much lower than three nine, maybe three eight. Tom. The cover story of Bloomberg Business Week this week, Just Out, is about the workplace. It says the workplaces complicated the business of equality. What a

graduates want out of their jobs. The number one thing that it's really been a change is that and this is one thing that will probably they could go counter to what I just said, is that graduates now are seeing the market and they're seeing that they can probably get a higher wage. So more than ever before since pre crash in two thousand and eight, you're seeing graduates not accepting jobs early into their senior year. So they're

waiting until after graduation and see how the market. The market checks out, so they want compensation, They want location, so they want to work in cities, major metropolitan areas of where they want to go. So death the Nation is number two. And really culture continues to be. They want to work in a plant that the company appreciates the employees, We appreciate you being with us. Tom Gimble, the founder, the chief executive a list solum that we're

talking about today's non farm paywall report. Two days of US and China trade discussions ended in Beijing with little accomplished. Here to talk about the sort of escalating rhetoric between the US and China, at what point it will tip into a more severe trade war is Mike McDonough, chief

economist for Financial Products here at Bloomberg LP. Mike, you you pend an opinion piece that I thought was fascinating looking at how a bankruptcy of a major tech company in China could be the real tipping point for a true trade war. Can you explain? Yeah, I think you know, every everyone's focusing on the trade delegation that just visited Beijing, and I think very few people thought we would get

something meaningful out of this visit. Right, at best, you would get an agreement to keep talking, and that's more or less what we got, UH. And I think everyone's missing the real front line of a potential trade war, which was the decision the US government made UH in mid April to ban the exports of any US products to z T the telecommunications maker. It's one of the biggest telecommunications equipment makers and it's definitely one of the

biggest in China, and it's a very important, very important company. Now. You know, if you know the U S World implements, you know there's some tariff and tariffs on alluminum and steel. They're mostly inconsequential in the global scheme of things, especially when you look at all the countries that had gotten exemptions. UM, there's a list of tariffs that could be put on on Chinese goods. They're a bit more meaningful, but again

in the scheme of things, not not that pertinent. Where China is going to be troubled is if U S policy leads to the bankruptcy of a Chinese technology company. This is a critical sector in China. They have big plans for the technology sector. It's an important part of the future. So if if the US government starts implementing policy that's going to bankrupt these companies or meaningfully disrupt these companies, that is what could actually trigger a trade ward,

not these tariffs. Mike McDonough looking at the most recent issue of China Daily dot Com, one of the stories is headlined China US agree on some trade issues. Indeed, they even mentioned ZTE Corps. They say China made solemn representations to the U S side regarding the case of z t E and that the U S side expressed that they will pay attention to these representations and will report China's position to the President of the United States.

That sounds a little bit concilius, where it doesn't. I I the first headline I saw about the trade talks where they agreed on some things and disagreed on other things, which is not incredibly useful. UH. You know, sure, if they go back to the President and the President changes as rhetoric or or they change the ruling on ZT, that would be quite positive. But at the same time, there's UH it's been reported that they're working on executive orders that would ban the sale of telecom equipment in

the US by other Chinese firms. UH. And the most important telecom communications maker in China is Hawei. UH. And there's I think the Wall Street Journal first reported that they have opened a similar investigation against Hawei that they had on ZT that led to this band UH. A similar move against Hawei would have I think pretty significant repercussions. I mean. The other thing to think about is it's

an important part of China's economy. China is leading the world right now when it comes to mobile payments these you know, this telecom equipment is an important part of that. UH. So this could be very disruptive for the entire Chinese economy, which has the UH. You know, you could see a rise in sort of nationalistic tendencies against the US. When when you do have this disruption the ZT stock, for example, has been I halted I believe in Hong Kong and

Shenzen since April seventeen. So if you're a shareholder of ZT, you right now don't know what's going on and you can't get out, and that's the US fault. Well, that's exactly what I was going to ask about. I mean, using z T E as sort of a poster child of what could happen, and just give a little more. Caller, we were talking. You said, uh that the ban on their gun selling goods to them and selling their goods

came from they're providing goods North Korean arm. They are not an innocent victim, right, Okay, So this is this is part of what's going on. But do we have any sense of the financial impact on z T E so far and whether they have any recourse to overturn this ban? Uh? You know, one of the recourses they had the conversation with the trade delegation to bring message to the president. Uh, you know, in terms of long

term health, I can't speak to that as well. There's various reports of like ranging from they'll be okay, so they could potentially go bankrupt to I think they have some loans that are are coming due in the near future. But can you give a sense of just how vast this band is and who it could affect the US? Well, I mean, you know, Intel is a big provider, Micron Technologies is a big provider. Microsoft. Um, there's one company I'm not sure how to pronounce it as communication about

forty of their revenue comes from ZT. So this does have a pretty big impact on this. You know, I don't know the full number. I think there's something like fifties fifty or so suppliers that we have on the Bloomberg Terminal SPLC go for anyone listening where you could actually go see all those suppliers UH and and their exposure to ZT. So you get an idea. And then

that's on the input side. And then of course there's the UH stores that sell ZT equipment, right, that actually sell their phones UH and sell the phones of other Chinese technology company is that pending how this goes could also be impacted just quickly, you go to China, you don't use your own mobile phone, and you don't use your corporate laptop, right, I use my my corporate lab I have my phone in my laptop. When I go to China and you use it, I use it and

you don't worry about it being hacked. I'm not I'm not doing anything that I'm okay. I'm just saying because you know, no, no, but I'm serious. I mean, pretty substantial corporate policy is around the United States. Beware when you go to places like that and be careful with your I try to remain aware everywhere honestly nowadays. All right, we'll leave it there. Well done. Mike McDonough he's an expert in all things economic, chief economist Financial Products for

Bloomberg LP. Check out his column about the trade in China how China has a decided advantage. The value of gold has dropped about four percent since mid April. Indeed, at thirteen hundred and eleven dollars an ounced, gold is pretty where near it was at the beginning of the year. Here to tell us about the precious metal and more commodities is Will Ryan. He is the founder and the chief executive of Granite Chairs. He joins us here in our eleven three oh studios. Well, thanks for coming in.

Why has gold fallen in value since so, let's say mid April. Is it because of dollar strength? Primarily from the dollar strength, yes, um, there there haven't really been any catalysts to speak of that would have driven the price higher. You know, the potential geopolitical tensions that people were expecting to blow up have actually gone in the other direction, namely North Korea, and so the Korean penincia now looking to be much safer than a proposition than

it was a year ago. So that that's sort of taken the shine off gold a little bit. How about the fact that inflation expectations also have kind of tempered a little bit, given the fact that we haven't seen the wage increases that many people were expecting. I think

a little bit. But there's still kind of bubbling under the surface that you know, we have the strongest inflationary platform for last ten years, and so while in the short term, you know, the numbers off of you know, the February numbers weren't as strong as as people expected, there are more kind of forces at work that are giving people pause on the inflation side. So is there a bullish case to be made for goal at eleven dollars an ounce? I think yes, because in my view,

this the dollar strength is temporary. Um that this is not a longer term thing. UM. I think that you know, in an environment of rising interest rates and you know, increasing inflation expectations UM, plus the higher volatility, the gold and commodities more broadly are a a place to be. And you know, people are looking at uncorrelated or low correlated assets right now in order to take some risk out of the equity or bomb market, and gold is

one of those places. I want to shift focus to oil simply because prices there have risen to the highest since and there's a big question of how much higher they can possibly go, nearly at the seventy barrel mark. What's your taken on that, well, I mean this is

a very interesting story. And you know, if you go back to last summer when I launched granite shares in the market, I mean some of our ETFs have oil exposure, and a common thing I would hear from people as oil is never going to go above forty dollars again. And that was just last summer, and since then we've had this huge rally, and really the main reason is because there's been a huge amount of demand synchronized global

economic growth. But these opeque cuts that they've put in place have really kind of bitten back on the supply. And then I think more recently, the dollar weakness and tensions again in the Middle East, particularly with Syria and Iran, have sort of kept momentum going right, But but to some degree that's already being all baked in. Should those tensions ease, should the dollar strengthen as we're seeing it do so today it's actually at the highest levels of

the year. Now, I'm just trying to understand at what point do people start to say, wait a second, this seems unsustainable. At some point production from from from shale drillers and from you know, Iraq you've been, you know, might might off set this. Yeah, I mean I think people thought that at fifty dollars, they thought that at sixty dollars, and I thinking it's seventy dollars. And yeah. The point is that a lot of you know, when

commodity moves happen, a lot of its momentum driven. And you know what's different about oil is that there is there is a strong fundamental demand there the markets and vaquidation, which means that people are willing to pay a premium for oil of the delivery now versus in the future. And so there's a real strong underpinning underpinning for gold demand right now. And you know how far it can go. Obviously, who knows, but certainly it's a market that's caught a

lot of people by surprise. All right. But the same reason that you said the goal was down in price since mid April, wouldn't that apply all sort of oil? Couldn't you just say that oil has reached a sort of near term peak at seventy dollars a barrel, particularly when you know you have, as Lisa said, you've got share producers who can turn on this bigot and they can produce as much oil as you want. The only constraint is actually the pipeline system and the logistics of

getting it to the marketplace. Yeah, I think that's true. But the lesson that they've learned from last time is that if they do that, that that's one shore fire way to make the price go lower again, which reticent to do after what happened in the can make a lot of shell producers can make money, can make pretty good money at forty and fifty dollars a barrel. Well, I'd say if fifty. Most people are making good money now, so it's seventy seventy dollars a barrel. They're making really

good money. Um, And I think people are just a bit more cautious. Certainly the bigger producers about increasing production. I think, well you may see production coming on board. Is actually the small or startup producers who are thinking exactly what you were saying. Hang on a minute, if we put the money in that we can get capital, we can start drilling, and we can produce and we can make money. That's I think where there's a potential risk. How do you think it could go? Um, honestly, no idea.

All right, fair enough, let's let's move to aluminum, because that's been in the news very much recently. It was huge run up as Roussel came into the crosshairs of US regulators. I'm wondering your view given the tremendous rally here, do you think that, uh, you don't really want to be holding aluminium right now? Yeah, I mean I think that, like a lot of these things, there was a big hype um when the sanctions you know, came in um

and aluminum, steel, palladium. To a lesser extent, but the Russia metals, if you want to call them, that got bit up a lot and a lot of analysts we're talking about you know, I'm still talking about you very very high prices for aluminum and some of the other metals. I think it's probably a little bit overblown at the moment um, but certainly there was a lot of fever because by definition and all these sanctions when they happen,

they're inflationary for the underlying commodity markets. Well, we're gonna have to sort of see what happens because the European Union is also negotiating with the United States on steel and aluminum tariffs as well, right, so that would affect not necessarily the price as much as the Russian issue, but it would certainly affect the supply in the United States. Correct, But a lot of that comes from outside of the States.

You know, Canada is obviously a big producer for the for the States, um as is Brazil career as well. But yeah, of course, any kind of trade war affects the baseline commodities or whatever piece of legislation is being talked about at that time. Now, I know that you were talking to Lisa offline, about platinum, right, you want to give us your thoughts on platinum, another precious metal used particularly in the automobile industry and also in fuel

cell technology. Correct, So one one story that you know doesn't get talked about a lot because the conversation here around future metals and largely tends itself or lends itself to lithium and cobalt, manganese, other sort of components of the lithium ion battery. And of course that there's a big ground swell of support and a huge momentum around battery technology, particularly for cars, but a lot of people don't necessarily realize that there's also a lot of technology

around hydrogen fuel cell vehicles. Now it's not happening in the US, the same extent is happening in China and other places. But the battery argument sort of goes to the point where it's binary. You believe that the market becomes all electric, and therefore there's huge demand for battery and the metals associated with it, but there's no demand

for any other technology. I believe that there will be a market for hydrogen fuel cells, and you don't have to increase that by much for that to dramatically increased demand for platinum for example. Thanks very much. Yeah, this is really fabulous. We really appreciated. Thank well. Ryan Founder, Chief executive Granted shares interesting conversation issue. Thanks for listening

to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio