Boris Johnson, The Yen, And The Fed (Podcast)

honestly don't know, but our next guest does. John Author's senior editor for Bloomberg Opinion. John. It's not like they got a vice premiere just sitting there waiting to take over. They do. Do they have a vice premiere? And what does this vice premiere? Do you want me to answer that question that there's a there is a title of depty prime Minister which has no constitutional significance. Okay, well, given in the PA, there's a stop too disappointed office seekers.

In this case, Dominic rob who at one point got as far as in the Foreign Secretary, was named as his deputy by Boris two or three years ago and then did actually formally act up when, as he remembered, U Boris had to go to the ICU with COVID. He has says he's not running. He really wouldn't, Dominic rob has, and he would have very little chance of

winning anyway. So there is this availability of he is a convenient guy that they can tap to be a caretaker prime minister, given that a lot of Conservatives now one Boris out of swift leest by the way it possible, John, at this point we should make clear to those who aren't Brits or political scientists that it's a system where you vote for the party, not the person. Right. So um, yes, someone asked me earlier, how can Boris leave and be

replaced by a Tory leader. Doesn't the opposition get to step in now or don't they have a general election? And that's not the case. No, no, no, he's been arguing, And I think this shows personally who chose that he really doesn't quite understand the ways his own country's political way of doing things. That he has a mandate. Certainly, his popularity his personality helped the Conservatives win the nineteen

general election. That's true, but no, he does not have a personal mandate each individual MP has a mandate to vote for somebody to be prime minister as they see fixed. There's plenty of examples in British history of prime ministers resigning, standing down between elections and their the MP's in their party.

Tuesday somebody, it was one of the most famous ones, Blair and pretty Blair standing there for Gordon Brown and then both the last two Conservative prime ministers took over in mid term without general electure, both to reason and and Boris himself. So there's nothing there's nothing unusual about about about a prime minister standing down and being replaced by his party. How about the whole concept of the

caretaker prime minister? Is that just a function of what popularity you have left whether you can remain a caretaker p m ntil there's another election. I know he's Rob is not going to be a leader to to go into the election. No, I think Paul means Johnson wants to stay as the prime minister Protram until yes he does. And I my opinion, my judgment from you know, from Afar, but I don't think he's going to be allowed to do that. UM. Basically the problem for him and the

fact that he showed really no contrition. Never used the word sorry in his speech earlier. The problem for him is that this isn't about some policy disagreement or some political defeat. It's about the over majority of his colleagues saying, we don't trust you. You are not personally honest enough to be our leader. It's not even the economy is stupid. They just think he's a liar. Exactly we we we

don't trust you, You're a liar. Go And in these circumstances, if the basis f you're saying, Theresa May can carry on until they chosen a new leader. If she's resigned because they know people don't trust her to to make a Brexit deal, so she's a terribly weakened position, but she can carry on being the Prime minister until the new guy gets David Cameron can announce his resigning as soon as the referendum happens, but not actually stand down

until they've chosen somebody new. But in this case it's not clear that you can do that because it's nothing about politics per se. It's about you personally shouldn't be the Prime minister. You are not for this job, and we don't trust you, which is a remarkable state of affairs, but it does make it difficult for conservative in peace to serve answer and for the for a matter of months, especially if THEE doesn't want to step up. Now you've

got to figure out who. So it leaves a lot of questions, um unanswered, John, just quickly on the market. We've only got about thirty seconds, are we Is this rally like a reverse ferret here? What's going on? But rally in the pounds or no? No? In in markets? I mean do we just don't. We don't believe the FED is going to fight inflation more than a recession.

I think basically there was an immense shock created by the pandemic, which has created a much shorter economic cycle than usual, And there is an immense shock created by the fact that at this point nobody is sure they really do believe the feds guidance after two reverse ferrets by the FED uh in quick succession. Therefore, it's a natural consequence of the market will gine call over the place? All right? I don't. I don't think there is any clear cut reason to think that, yeah, the FED will

fold any more than there was for respect. I recommend to listeners who are wondering what the heck a reverse faret is. Yes, to go on Bloomberg dot com and read John's column. Or if you have a Bloomberg terminal in front of you, type ni authors and you can read a reverse ferret gets up markets trousers by John Authors. Now we're bringing Massa Takeda. He's a portfolio manager for the Hennessy Japan Fund and this has been, uh, to my mind, one of the most interesting stories that doesn't

get the coverage it deserves. Let's give it. The Bank of Japan is insistent that it's gonna hold rates to a quarter percent or lower, and the market mr market is testing them out. Now traditionally this trade is called the widow maker. You short jgbs, you short the end, and so many investors have gotten burned that it's earned that moniker Massa Takeda, Are you one of those investors that's trying this again? Uh No, I'm just make fenty

vibes to conclupanies. Well, what do you think about the Bank of Japan's will to hold out against the market? I mean, can they keep it uh pegged it a quarter percent? Or will they have to let it slide like the Swiss National Ank did a couple of years ago. Um well, it's hard to tell, but it seems like a plank of plan is they're very much committed to the zero right policy and we have to control um.

Now they're in a dilemma. Obviously, if they choose to raise rates, then of course it's going to hurt the economy. We're just you know, coming out of the pandemic. Um. So it's there's still their fragile um if they don't choose to raise rates. But then um, the yam will continue to depreciate on lightening interest rate differential, and that's going to also drive inflation for the so and that that inflation isn't going to be good for the equality either. So a BAN, I think it is a very tricky

situation right now. Um So that's that's that's my take on just just pointing out right now we're at a hundred thirty five seventy two, which is we're having around the low. The last time we saw this was you know, long term capital management, yep, exactly. I'm looking at the one year chart for the Japanese end. We started the year are year ago twelve months ago. What about one ten UH now are one thirty five such as significant weakening?

Must I love to get just your overview based upon your experience of the folks you talked to in Japan. How has the pandemic impacted Japan just broadly defined, and how has it impacted the economy and and how are folks they're dealing um. Obviously economy was severely damaged and UM. And also it has been not as resilient as as we hoped it as we hoped UM and still enhanced. The economy is in a very fraudule the state. So as a call photo manager, I mean I'm a I'm

a japan UM photo manager. But my UH investment style is to invest in great companies that have global footprints. So trying not to put all our eggs in one basket, um, you know, one geography UM and they loven't great companies out there in Japan that have a strong presence UM worldwide. And if if there's going to be you know, a strong uptake in Japan, our port companies should also benefit from it. So that's my sort of defensive investment strategy at the moment. So talk to us about maybe some

names that might fit that. Uh, you know the kind of framework that you're you and your team are doing some work on right now. Yeah. So you know, our our investment mantra is to invest in great business with exceptional management attractive class. So, um, you know we uh growth growth manager. We're in the growth management bucket. And obviously a market rotation from growth of value has been

has taken a toll on us. Um that we continuously remain invested in in our long term holdings and growth needs. But at the same time, we've been actively searching for what I would call growth names in disguise, and what I mean by that is companies whose growth prospects are just as strong as any pure growth name. We're talking about learning, throw a Group, Campus and plus, but they're trading out of value stuff about multiples due to its

perceptions in the market. And I would highlight the Touch as an example. And then there's another example, another type of growth in disguise where growth growth earn if growth rate might be in the med single digits, but they come with significant ability to buy back shares and sub division news and if you add am all up, you can plus return as a showholder. And I would highlight general insurance companies as as as primary example. I just want to quickly ask you about the election House of

Counselor's election on Sunday. What are the market implications of that? Uh? What could they be? Well, it seems like the ruling party is going to win the majority ships um and UM. I think you know right now Prime Minister Kishi Daum he's been promoting the so called Japan's New capitalism and the market was once in spooks by the prospects of Kishida potentially introducing not to shareholder not extridly. Um. Policing is just like higher how about the games tax ridge

and middle on bridge hikes. Um. So depending on what policy imagers will will come out going forward, they may have some many percussions in the market, but I would look at it more positively. There. You know, this is really a mark to shift from showhold of friendly capitalism to sustainable growth capitalism. So um, you know we should take it as a positive movement. All right, Massa, thank

you so much for joining us there. Massa takeda portfolio manager for the Hennessy Japan Fund, getting an update on the developments out of Japan, and again elections matches pointed out coming up out in sun Valley, Idaho at this time of year. Every year, the good friends at Allen

and Company, the investment bank hold their conference. Were all the big tech media, telecom, really cool kids gather uh to just talk deals, talk business, talk, what's going on in the world, and of course we send out our ace reporter. Ed Ludlow is a West Coast correspondent for Bloomberg News. Ed, you're in sun Valley. You probably went to the Soul last night for a couple of cocktails. Hopefully you bumped into some media moguls. But what are

you hearing out there in beautiful sun Valley? What's the theme kind of this year? Yeah, you know, Tom Keating just framed it as the Ludlow Humility Meter there television, and at first I thought, oh goodness, here we go. But then you know, that is pretty appropriate that all the conversations I'm having on the record on boom Bow Television and in the corridors behind the scenes, is that there's kind of dis acceptance of the world is very

different from twelve months ago and pre pandemic. There's public market volatility, you know, there's zeroed in on the inflation story, recession. But you know, everyone is quite bullish here. You know, there's a lot of optimism. They're clearly enjoying each other's company.

But remember this is a TMT conference where the focus is deals and meeting your clients, your customers, your bankers, and everyone is kind of acknowledging the problems out in the world but saying there are real opportunities in these sectors to deploy capital. And I think that's really interesting. So what are the biggest deals that we're looking at

right now? What are people talking about there? You know, I think the valuations have come down a lot, particular in media and telecoms companies, right you know, the big king of the hill is the phrase I used this year is is Warner Brow's Discovery CEO David Doust laugh, you know that merger was successful. Um, he is kind of point and optimistic. And it's funny because last year Netflix, Read Hasting S Sanda Rose were kind of those star people that everyone wanted to be too. But there's this

idea that valuations have come down. The consumer has so much choice on the streaming side, and you do wonder whether there will be further consolidation. One really interesting point some sources made me last night, and by the way, I did go to the Pioneer Saloon. It was excellent. Saturday, according to sources, is the day that a lot of the smallest startups and interesting founders have been invited present.

And one source, a long time attendy and investor, said to me that he actually invested, has invested over the years in many of those startups that present on the Saturday. You know, they're all kinds of people from healthcare, biotech, transport, mobility, tech, and they get an opportunity to stand in front of this just incredible room of people and make their pitch behind closed doors. And I'm told with absolute certainty that the twelve months that follow a lot of those guys

do receive investments, you know. And one of the speakers that I think a lot of folks are in participating hearing from, assuming he shows up as Elon Musk because there's a big, big m and a trade out there that he's involved in with Twitter, that is really you know, nobody knows whether this thing is going to go through or not, and nobody really knows what he's thinking anywhere.

I mean, I don't know, So we'd love to hear from Mr musk Is that's still the plan to as a former m and a banker in the TMT space, if someone if the richest man in the world made an offer for a company at would you expect it to be trading at thirty nine? No? Absolutely not, And so that kind of tells you the market's telling you're right there that it's they don't view it as a credible deal. But what do you expect to hear ed from Elon musk Iffen when he shows up? So sources

tell me that he is showing up. We're not sure when we thought it would be today Thursday. Sources also tell me that he is making the Saturday prime time address and now that's that's a slot usually reserved for one Warren Buffett traditionally at the Allen and Co. Conference. So I thought that was interesting. Um, wait, Warren Buffett

like always does it. Warren Buffett traditionally speaks on the Saturday and you know the Oracle of Omaha, it's his moment where he gives his world view behind closed doors. You know a lot of Allen and Co. Attendees I've spoken to in private say, you know, this is why people stay through the weekend. You know this is this year.

By the way attendees are allows bring their families. You have the extra added issue of childcare and keeping people entertained in one of the most beautiful spots on Earth. It's very hard. It's a serious issue for Elon Musk, now right with nine childious issue. We'll get to that that basically, you know, I have spoken to people about it. They are talking about it in the corridors. Ned SEAgel Twitter CFO is here. I asked him. I shouted at him, frankly,

are you going to meet with Elon? And he smiled and put his index finger in the air showing one digit. But and you know I took that to mean one time he'll meet with him. I have no idea what he was saying. We haven't seen Tara Gagl who's the Twitter CEO. I have had a number of conversations people that say Elon Musk can't get out of this. The reverse termination fee is a distraction. You can't bank on him just being able to pay a billions dollars to

walk away. One source made a really interesting point. If your Twitter and you want to fight this. To Belon Musk walks away, you really going to go to court for a decade, you know, because that's how long it could take. So I think the consensus here is that

he could come in with a lower offer price. And if your Twitter share if you're an existing Twitter shareholder, you would bite somebody's hand off for that deal any time in the last two years, right, you just would like So I think that a lower price for those involved, just to get it done would be a good outcome based on what you know, the conversations I'm having. So, Elon Musk has another set of twins that we didn't know about, and apparently one of his kids has like

disowned him. Really, so how many I guess nine unless you don't count um his one of his kids just changed her name you know, and gender and said she wants nothing to do with her father. Probably is this

getting to no? Okay, So a lot to back here, But there was a business inside a report that Elon Musk had twins who are now eight months old, with the Neuralink employee, and that was discovered through court filings where the NEURALNK employee and Masque wanted to have the names changed so that it reflected the Musque name as well. But why didn't they just put that on the birth certificate. I don't get that. Usually when the kid's born, you just put the father's name down. And well, two things.

I'm yet to be a father, But I also don't pretend to know what is going on inside. Elon must mind and the actions that he takes at any time. Um. But according if this report is to be believed them, you know, we've asked Musque about it. He hasn't replied. We've asked Neural Link about it, they haven't replied. Then Musk does currently technically have nine children? All right, We've got to keep up to date on that stuff. But that just came across. I mean, we don't, Actually we don't.

It's silly, gossipy stuff. And I guess CEOs can have as many children as they want, just like a normal person. Um. And he has certainly got the money to support them. Well, he's got a he's got a policy. It's just fun to keep up with Elon. He thinks there needs to be more people on the planet, right, he says, yeah, Yet I saw a tweet from him today that said the US has been underpopulated for like fifty years, so it's against consensus. I think. All right, all right, Ed Ludlow,

West Coast, corresponding Bloomberg News. He is our reporter on the ground in sun Valley. We get talked about Rivivian. Next time we get on, we gotta talk about Rivian. Yesterday they boosted their UH production target for the second quarter. Right, stop us up? Not good stuff, ed Lolo out there at sun Valley, Idaho. Let's get right to it. Danielle DeMartino Booth, CEO of Quill Intelligence, also at the Dallas

FED for a while. So when we talk interest rates, when we talk FED, boom our go to choice here and daniel nothing says that we're getting back to normal than Danielle DeMartino Booth in our Bloomberg, in our actor broker studio. So what is the Fed? Wait? How was the flight? First of all, how is you travel? Because last time Paul came here from Texas, his flight was canceled. He was forced to stay at a water park all day. Yes, well, knock on wood because I've got to get on another

flight tomorrow. But it was seamless now, but one in front of me was canceled because of no crew. That's the thing's all right. So what let's assume that there's a crew at the Federal Reserve. Are they going to raise fifty basis points? Seventy five basis points? What are you thinking? So two days after the FED announces, we're probably going to get our second negative print on personal consumption, expenditures, personal income, and spending comes out the Friday. At it's important,

it's very important for it. In fact, they're likely to have that data in hand when they announced, and if it's negative, I would argue, counterintuitively that they're gonna go for seventy five basis points to get it into the can. Yeah. I actually have a bet right now with Paul and Ira Jersey. If they do seventy five, Paul has to drive me down to Princeton and Ira has to buy

us dinner. I started feeling, honestly a little bit nervous about that bet yesterday reading these fedman it's that everyone said we're hawkish, and I got this feeling in my stomach like I could lose this bet. I don't know why, but it's not a sure thing. It's nothing is a sure thing, and I think that markets interpreted the minutes as being a time stamp, which sometimes markets don't. Sometimes markets read in that the Fed is massage the minutes after the fact if they have a reason to do so.

But I think a lot of people said, you know what those minutes were time stamp before the Atlanta Fed printed negative two point one percent for the second quarter, before SMP Global said the second quarter was gonna be negative one point five um. And that's telling you something actually, because the Atlanta Fed GDP now model kind of broke down during COVID, and now that we've got all the COVID noise out of the data, it's coming right back up to where some of the best models on the

street are and they're converging. And that that tells you that a lot of it tells you why a lot of cell side, if it's economist right now, are saying it's going to be a technical recession but not a real one. I mean, it would have to be really far off for there to be growth though, right We're very likely to see two quarters of contraction, right, I mean, I'm saying that's a recession, but it's a it's a technical one, but not not a real one, everybody argues

with the Gary Shillings. No, no, NBR has to come out and say it's a recession. And I think nb ER will come out and say it's a recession like in twelve months or so, because there's a typical twelve to eighteen month leg. That's when they timestamped these puppies.

But again, we've had credit card spending very strong, We've had we've had consumers blow through their savings, so we've propped up consumption some would say somewhat artificially, and now we're heading for a consumption cliff that's just now starting, so that that can prolong the recession. I have a listener, writes in I think he's watched you speak a few times,

so he's a big fan. And he points out that are forecasts have been all over the map about what the Fed is gonna do, about whether we're gonna have a recession, how shallow it's going to be, how short, And he points out we haven't see seeing a quantitative tightening yet, which is a huge question mark. We haven't seen the downward revisions and earnings right analysts on the sales side have still left um their revisions are their forecast sky high. We haven't seen inflation come down, we

haven't really seen job losses. This is all too comma, it is, and it's all building up in this system. And yet when you follow every Friday after the close, the Federal Reserve publishes the highth eight and in in there there is a very good, reliable gauge of liquidity and it has been negative for three months in a row prior to QT, and that people need to understand.

And Muhammadarian has done a very good job of articulating where we are right now in the cycle, that we're heading from recession shock to a liquidity shock, and that really changes the game. So right now I think that we're still in the midst of yet another bearer market rally. Alright, So is this Federal Reserve. I've always thought of it as kind of a balancing act between fighting and inflation,

yet not pushing it into a action. But now some people are saying they're really focused on inflation, but yet some people say they're really focused on keeping us out of a recession. Is it a balancing act or do you feel like they have a bias. It is a balancing act, but it's a less balanced act headed into this close to an election, and so federals are officials are really there's an existential crisis going on as it pertains to September because it's so close to the election.

But surely this independent body for Heaven won't risk its credibility for the political status quo rights not. It's only been politicized since Greenspan started leaking information on TERMP to bond trading desk. But other than that, the play, the play was great, Mrs Lincoln, I uh, yeah, it's pretty crazy. By the way, why isn't Mohammed running the Fed? Why isn't somebody he made the right calls for the last

couple of years and no one was listening. Apparently he's in England, He's not that far away, and his voice is pretty loud and his point. He's had some pretty important as well, and he's had some great calls, and he really has lined up the domino as well and warned us one step after another. We've got an inflation shock. Now we're gonna have a recession shock. Now we're gonna have a liquidity shock. He's been there the whole time, and actually because j Powell founded the Industrials Group at

the Carlisle. He speaks to people in this world. He speaks to people in private equity. He knows that banks are sitting on north of fifty billion dollars of loans that they can't get priced. J. Powe speaks to these people. He knows that liquidity in the system is seizing up. And I think that's why they treat quantitative tightening like the boldem word. It's like, don't talk about it, just don't don't, don't talk, don't bring it up. So don't we see it's Bruno, It's Bruno. Now we don't talk

about Bruno. We don't know, no, no, what does Liudo look like to every day folks like me? Liquidity shocks looks like four out of five people saying they're afraid of losing their job. They start to see bankruptcies, and we are starting to see bankruptcies. We're starting to see some of the vestiges of the industrial recession that we're in. In fact, if you looked at today's jobless claims, the

state with the fastest rising and the greatest extent is Michigan. Michigan, we've and you know what there's apparently a semiconductor glut in the making, So we're gonna have tell that to my Chevy Silverado sitting in I have ordered a Shelvy Silverado. I've been waiting months and months for it. It's built at a factory in Mexico, but they won't ship it to me because it doesn't have the right chips. They're coming, They're coming, and we're gonna be talking about life, housing

and oversupply of cars in a year. All right, Danielle, thank you so much for joining us. Daniel DeMartino Booth should let's take a picture and we'll tweet that. We'll do that. CEO Chief Strategist Quill Intelligence, also form advisor at the Federal Reserve Bank of Dallas. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer.

I'm Matt Miller. I'm on Twitter at Matt Leer in nineteen seventy three and on ball Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio