Boris Johnson Wouldn’t Last A Year As UK Leader

Right now, this is being treated as a positive in markets, at least for the time being, with the pound gaining. Joining us now Danny blanche Flower, Professor of Economics at Dartmouth. He is also a former Bank of America, Bank of England. Uh, policymaker, excuse me, Professor blanche Flower. We love having you on. Why are British assets rallying today? Well? I see you in some sense at least a release at the some of the and is over, but it's really unclear kind

of where we're going. So the movement isn't that great. And I've been thinking today I think perhaps for the market is the most interesting thing is, in all probability we're going to see a new chance of the Exchequer. Who will be the person appointing the new Governor of the Bank of England. And I think that's obviously an issue we need to kind of care about. Who knows where that's going to go. But the uncertainty going forward

is basically not just who the leader will be. The reality is that this is a leader of a party that the minority government. So the question really we should ask ourselves is could this person actually govern? Could they negotiate anything through the parliament? Is the Halloween deadline is going to be pushed back, which I suspect it is, And I think the markets have to deal with the prospect of perhaps by Christmas there will be a labor

government headed by Corbin. All those things are on the table. So in the short term, market saying Okay, this thing at last has happened, But down the road, who the heck knows? So, Professor, it appears that bars Johnson is the favorite to replace May. What would a Bars Johnson leadership look like? Well, it's hard to tell. I mean, he was singularly unsuccessful as the Foreign Secretini and ended up resigning UM with the reality that we should say is that he was the top candidate to get the

job a loust time around, it didn't get it. I mean, the reality is he's not going to be able to pull together any cross party kind of consensus. So he's a populist. Um he basically is says, I want to go back and negotiate some deal or other and it's not then we'll use the threat of having um having no deal at Halloween. So I think it's not going to be a government of consent. That the my suspicion is if and when he gets to be Prime Minister,

my bet would be he won't last the year. Okay, So that's perhaps why people aren't counting in the idea of a herd Brexit as much as you would think based on Boris Johnson's rhetoric this morning. Is that how we can interpret that? I think? So, I mean he's talked about we can go back to the European Union and reading ghost games. UM, Well that you know that's cloud cuckoo land, because the European Unions said, well, the deal is the deal and a no deal would have

to resolve the Irish question. And Boris Johnson is very good at headline, but not very good at the committy gritty of actually negotiating and trying to work out what you would do. So there's a lot of other people who were in there, but the reality who are in this competition, the reality of many of them of brexiteers. But um, we we will see whether that actually will generate any kind of majority in the House of Commons. And what we've seen is that it has not been

able to do that. So being Prime minister at once being able to govern is a another and I think that's the problem. Um, And we'll see. But I don't think much of anything is resolved. It was absolutely clear the three times that Theresa May lost that she had no consent as across the Parliament, and the fourth time was not a charm and so we've really not resolved very much. Um, we will see. So, Professor, what is the status of a second referendum? Is that still on

the table in anyway? I absolutely think it is. It is on the table a possibility. Many of the people in the Tory Party who don't like it, Um, it's still on the table. But I think the reason why it's gained kind of complicated is unclear what what the question would be in that referendum, So would it be here's Theresa May's deal against remaining. So so even though we people talk about the second referend, if you have to resolve what's the question, you can't just say do

you want brexit or not break it? Because that's the devil now, as we know, is in the detail. So I think the answered yes, probably, but we have to resolve what's in a referendum about so that so obviously it's a big problem. But all options are on the table um and a general election might well end up being where where we'll end up, and I won't resolve

anything either. So just a real quick here, Danny, I'm wondering, looking back at Theresa May's tenure, are we going to say that she utterly failed and she could have done something different, or that she just was dealt a terrible hand of cards. I disagree on the delta terrible hand of cards. She means she was delta hand. Perhaps that

was unexpected, but she made us two fundamental errors. The first error she made but she did not reach across the aisle to anybody outside the right essentially the right wing of a Tory party, and that and that groups walked down governments in the past. John Major was brought down by by that group. So that so that was the first thing. And the second thing she did was she triggered Articles fifty in March two thousand and seventeen

with absolutely no plan whatsoever. So you trigger this thing and give yourself a two year dead line with absolutely no clue what the plan was going to be and no possibility of generating consensus. She to do that, she could have triggered this mark of fifty later. Still, she just held her self a terrible hand, delt herself apple hand, and unfortunately did not make it any better. Danny branch Flower, Professor of economics for Dartmouth College, Thank you so much

for joining us. What has been a very difficult environment for bricks and mortar retail. One area that has seen growth is music and our next guest has been on the forefront of this growth. Ron Japan, Us CEO of Guitar Center based in Los Angeles, California. Ron, thanks so much for joining us. Just first, I wonder if you could just tell us about Guitar Center how big you guys. What's the growth been looking like? Yeah, sure, Um, well, we're about two point two billion dollars in revenue and

we go into the market with four different segments. We have our arm knee channel segment, which is guitar center, so those are our brick and mortar namesake stores that we also have the ability to buy online, ship to store, buy online, ship to customer. We didn't have a pure play brand, which we call Musicians Friend, which is just online. And then we have a music and Arts segment which is the beginning stages of the musical journeys for children,

so think of band and orchestra and schools. And then our fourth segment is our business solutions, which is our business where we're going into other businesses help them do conference centers, studios, bars and restaurants and businesses like that. So we talk a lot here on the show about brick and mortar versus online. How have you seen sort of your two businesses when it comes to just how

you're how you're selling the goods? Uh evolve? Yeah, Well, we've um, we have a pretty unique situation is that our products are lend themselves to a environment where it can really be a lot of fun. So when you go to our Guitar Center store, it's really a experience. So what we do is we make sure that when you walk into the store, you're greeted by great salespeople and you have the opportunity to actually play the instruments.

So it's a unique experience to be able to walk in to one of our stores, take a guitar thousand dollar guitar, ten thousand dollar guitar off the wall, be able to sit down and play it without anybody um bothering you. And we see that as a very unique experience because when you go to a mom and pop or other stores, they actually have signs on the wall

that say please do not touch, ask for salespeople. We actually have an amp plugged in with a pick ready to go, and you can sit down and play the guitar. So run. You know, one of the things that Lisa and I we hear from a lot of retail executives when they come here talking about their business. It's about shrinking the footprint of their stores to try to match kind of you know, the demand out there, giving them more and more sales are going online. You guys are

actually adding stores. Talk to us about that. Yeah, well, so again it's in this omni channel environment for guitest Guitar Center brand. So what you see is we're adding about six to ten stores a year for a guitar center, and we just opened up Hawaii recently and we're going to open up Alaska a little bit later on the year. So this year we pulled back to six just because they're a little bit more complicated. But again we see this omni channel experience because of the environment that we have.

Customers come into our stores and kind of like the candy land for our customer, they get to see spectacular guitars. It's not unusual to have somebody come sit down, play a guitar, play start playing a song, have a drummer start um playing the same song, and all of a sudden, you've got a song being played in the store by just customers. So that environment just keeps adding on. We're also adding services into our business, so we have lessons, repairs,

and rentals. So we're now being able to sell you the instrument, We're being able to teach you how to use the instrument. We're able to support your gig at the bar. If we need to rent some additional products that go along with it and then repair the actual item when it needs repair. Were just to even be re strong. So I'm just wondering going forward, especially as you open all of these news stores, how are you

financing that? We're doing it all on our own. Um, we're financially sound and we have the ability to open our stores. We've also acquired two companies recently in our B two B segment and with as Music and Arts, we've actually gone from a hundred and fifty stores and we're two hundred and fifteen stores currently and we looked open between twenty and thirty stores a year in that business segment. But right now I'm looking, Uh, I know that the company has a triple C rating and I'm

just wondering, I mean, that's typically closer to default. How do you make sure that you generate enough revenue to offset the costs of some of these expenditures. Yeah, we're positive cash flow so UM. We manage our debt very carefully and we have our A B L which we use as our check book to be able to finance our operations. And we're well within all the limits that we have within that and we just are very prudent

about all of our expenditures. So, Ron, I know Bain Capital acquired you guys, I guess it was ten or twelve years ago. What's they're thinking about the investment. That's a long time to own portfolio company. Actually, Bain doesn't own us anymore. Bain did take us UM private, and Aries is now the owner, and Aries has owned us since two thousand and fourteen, and they're extremely supportive of

the direction that we're going in right now. And as we continue to improve the business and the profitability of the business, then um, I think, you know, we'll have some kind of a transaction in the future. But we've just finished six positive quarters in a row, and the business and all of our strategies continue to do well, and so we expect to just continue to move forward in the way that we're doing right now for the foreseeable future. Ron Japinka, thank you so much for joining us.

At Ron Japana is chief executive officer of Guitar Center, based in Los Angeles. Well. One thing that rising trade tensions between the US and China have engendered in financial markets is volatility. To get a better I you how to best navigate this. We turned to our next guest, Doug's yuck Up, chief executive officer and partner for cover Our Capital Partners. They're based in Leewood, Kansas. They have approximately seven million dollars under management. Doug, thanks so much

for joining us. How are you guys kind of managing the day to day swings in the marketplace that can be you know, and you know, just created by a tweet here or there. Yeah, you know, it's good actually to have volatility back, and we feel like it's presenting some opportunities for putting capital work that had not been president in the first three or four months of the year.

And you know, I undeniably do not feel like the market is be'm blown off course, but the winds have shifted, right, I mean, things that were headwinds coming into the year and now tail winds and vice versa. And you know, the trade war going into even the month of May, felt like there was gonna be a quick and very prosperous resolution and that's been completely overturned. Yet at the same time, we didn't feel like earnings were going to be very strong, and they were considerably stronger than we

had anticipated. And you know the FED was going to be neutral and that was gonna be a headwind. But out looks like the Fed And even despite some of the comments that we're pretty benign that came out on Wednesday, I mean, the FED is doubbish. And I think when capital, which is plentiful, starts to be mobilized in the absence of a lot of fear that dictated the trade this this last couple of weeks, I think it's a good opportunity for the market to actually have kind of a

pretty constructive summer, even if it only runs in place. So, Doug,

where are you finding opportunities? Where are you buying right down? Yeah? Thankfully? So. I we like if you look at the sector performance this year, it's pretty amazing, right, But as it relates to a contrarian buying opportunity in a sector like healthcare, right, the smps of what twelve percent are almost year to date and healthcare is up just a little bit better than three right, And there's certainly there's regulatory knowing noise.

It's a tendant to this sector. There always is, particularly when aspirations and in different campaign promises get to be slung around. We're just beginning to see that, and we're going to see that intensify over the course of the next year. Earnings were solid in Q one, Revenue was solid in Q one. Biotech specifically, we think in terms maybe immune immunotherapy, genomics, these are revolutionary therapies and technologies

that we think are underappreciated. And this is a market, particularly given the pronounced level of actility we're undergoing right now. There's valuing substantive and substantial organic growth and high margin businesses,

and those are plentiful in the healthcare sector right now. Well, Doug, how about in the you know, one of the things we've seen in these uh rising trade tensions between the US and China and what the Huahwei news is the tech sectors kind of gotten whipped around here, the semiconductor stocks taking a beating. Are you taking this as an opportunity to maybe take another look at tech or does this just too big of a risk to kind of bite off. No, we don't think it's to be a

risk at all. Paul. You know, it's amazing. You know, if you guys follow beast book on Twitter, they put a phenomenal valuation compared and comparison chart out last night that the value H the P on tech and utilities are almost paired off right The U the P I utilities right now are twenty point one in tech twenty point five. We think there's some very interesting opportunities, particularly if you consider where we are in the economic cycle,

which is undenidably late. We've seen enhancement of productivity and the aforementioned plentiful capital that's sitting on company balance sheets gets deployed in the fashion that's going to elevate that productivity to take the profitability into the future. We think tech has some very interesting opportunities right now, and I think the Uahwei thing, as it gets thrown around, is going to be a catalyst to really offer some of

those interesting and attractive entry points. Interesting I'm looking right now, of course, though it yields, and I do have to wonder whether they're sending a more bearished signal uh than equities, especially with tenure yields hovering around the lowest since twenty seventeen. Do you think that that that we can sort of take some kind of bearished signal here or do you think that there's just a different story priced in having to do with Central Bank doublish policies. Yeah, there's always

a message in the bond market, Riley. So we always say the bond market is more cold, hard and calculating in the stock markets, more that of the kind of the realm of the temperamental child. And it certainly is telling us that inflation is not an issue. It's likely telling us that growth rates may moderate. It is certainly embedding some sort of an elongation of the trade tariffs and foreign and domestic politics. If you think about like

the two axes upon which markets pivot. You have access to capital and you have confidence, and the bond market is a proxy for both, and it's kind of splitting its time right now. Capital is plentiful, but confidence is absolutely waning. So people are kind of look for a signal, and not likely that would be embedded in a backup and yields, because even though yields will come down over the course last three months, the curve has steepens. You've

had it's bull stepening trade that's been in place. That does give us an indication that if things do tend normalize, that can make a very productive contribution to the markets continuing forward. But the message of the bond market should never be ignored. So, Doug, are you part of what I guess I would call the kid census. Uh that it looks like the FED will cut rates at least once before the end of the year. I don't know, Paul,

that is such a tough prediction to make. Means certainly like the Bloomberg the w I r P screed is giving what a my favorite Thank yeah, I love it as well. And in the market is in the market, and w I r P has always been a little bit detached from the Fed. I really don't know that the Fed needs to cut rates clearly if they don't feel like the economy is running, you know, so weaker, and what do you want to look at the GDP now from the Atlanta Fed or other um underlying sort

of data points. I don't feel like they need the stimulus now if you could get something that kind of runs and buttresses the monetary policy, like something for us to productive about a fiscal policy, and who knows, maybe we get some kind of a breakthrough announcement with capital spending and infrastructure and that kind of thing. I don't think the FED once to cut I hope the FED does not cut. It is interesting to me that the market is obviously a far more pessimistic than the set

is communicating or the economic data is demonstrating. No, I am not in a camp that they will doug. I'm struck by sort of this dissonance here. There's some people who say that the trade concerns are really what's weighing on equities and what's certainly creating a bid for bonds. Other people saying that that's actually the peripheral story and it really has to do with slowing growth globally. Where do you come in on this, I think the the former.

I've not seen any slowing growth globally. I think we have a fear of slowing growth globally. That goes back to the message of the bond market. Have not seen the data that would support that, other than in some anticipatory impact of the trade tariffs and it's it's contractionary capacity or it's play itself out. I've just not seen

it yet least. I think it's more just consternation and fear, and that's being pulled forward, not unlike the optimism and the greed had been pulled forward in the first three or four months of this year just real quickly ten seconds, is or anything. You're just staying away from any equity

sector there really is not. I mean, I think when you look at some of the valuations in the most defensive sectors like utilities in real estate and to think that they're up and growing it two or three percent with a P, I think you have to be really cautious there and selective. But as kind of wholesale basis, No, we're kind of consider everything on kind of an individual fundamental assessment basis. Doug Cioca, thank you so much for being with us. Doug Cioca, chief executive officer and partner

at uh Cover Capital Partners from Leewood, Kansas. Interesting to see that he's seeing opportunities and he does think that this is more a story about trade concerns that it is slowing global growth. Talking about municipal bonds, we have to talk about the tremendous rally that we've seen in the debt, where we've seen prices on the debt rising to record highs relative to treasuries. Were very lucky to have with us here. Amanda al Rite, municipal bond reporter

for Bloomberg News. In our interactive broker studios in New York. So, Amanda, there are a number of analysts coming out from big banks saying, Okay, this has gotten a little ahead of itself. There is going to be a pullback. What's the argument, right? So I talked to some portfolio managers this week that kind of made the case that with Muni's UM, whenever you see a sustained period of really big inflows like what we're seeing now, um, you're just kind of waiting

for the other shoot to drop. UM. I think what's really interesting about this moment is that investors don't really know what that will be. So some people have even talked about the election is being something that could trigger that or something even more soon if people start to realize that they're kind of paying a lot to own munis right now, and maybe they're not being compensated for the risks, or maybe they're better off buying treasuries or

corporate bonds instead. So, Amanda, we've seen really have the less several months, if not more, just this tremendous inflows into the municipal bond market. Um, are we seeing a kind of commensurate new issuance by municipality? Saying boy, this market's great. I better just go out and raise the money while I can. UM. Absolutely not UM. So the

last time i'd not so much. So when I checked this morning UM on NBM, which shows UM the scheduled bond sales versus the amount of bonds maturing and being called away, I think it outweighs it by over twenty billion right now. And so we're entering this period where bond sales are really really light UM. You know, finance officials are on vacation just like everyone else UM. And but we're having all this money pulled out of the

market and it's looking to get reinvested. So investors are looking to that as another kind of UM supporter of performance UM. But it's also kind of a frustration to them because they have all this money to put to work, but they don't really have a place to put it. They have a place to put it, they're just not doing it right. I mean, we're talking about infrastructure spending, and we've been talking about the two trillion dollar plan that won't or wasn't or has not been UM. Why

aren't some of these localities just doing it themselves. So I think this is a really interesting conundrum. Dallas fort Worth said this week that they are doing a three point five billion dollar expansion UM. So that's an example of, you know, a place that's going at it alone. UM. But I think that, you know, whether it's smart or not, I think mayors and governors in some ways they're holding out a little bit of hope for the federal government.

We have seen, you know, some gas tax proposals. Some of those have been UM successful, and some of those are kind of tied up in political stuff right now. Michigan is still considering their's UM. But in terms of like the super local level, I feel like there's still a little bit of reluctance and a little bit of

fear about taking on debt. Still, let's look at the other side of the equation a little bit, like when I think about chronic fiscal woes at the state level and municipal level, I think Illinois, but the bonds are doing really well. What's going on there? Yeah, So the situation for Illinois UM investors have gotten more optimistic about it under UM JB. Pritzker, who's the new Democratic governor UM.

So you have one party rule in Illinois now UM, and the state is getting closer to enacting a progressive income tax structure, which will help them you know, raise more revenue from wealthier earners in the state. Um. So that's caused the bonds to rally, and you know investors are really looking to as potentially you know, being a further boon to the state's bonds. But again, that's kind of making a big bet on what residents will do

when that's up for a vote. And we've started to see a lot more money moved towards Puerto Rico again, right, that's true. We've seen um, you know, high yield funds, they keep attracting cash. We've seen some high yield deals on the calendar this week, um that my colleague Joe Meisac has been writing about. Um, you know those are getting um strong market access still and again this is a time when we're seeing you know, even Wall Street analysts saying, hey, like maybe now isn't the best time

to be buying these is. I don't know, how does a musicable market look at Puerto Rico now? Has it been you know, permanently negatively impacted or is it a temporary thing? And once it becomes clear that they've got their duck scenario that the investors will come back. UM. It's really this is like the key Muni market debate right now. So you can talk to some folks that are really optimistic on Puerto Rico, UM, you know, especially after the hurricane and all the federal money um expected

to come in. That's a positive. But if you talk to other folks, UM, you know, they've kind of been burned before and they're seeing that the underlying issues in Puerto Rico with its economy, you know, still exist and maybe haven't been fully addressed. So it really depends on who you ask. Is there any sign of any pullback by investors or at least a softening in demand as a growing number of analysts say, you know what, guys,

maybe just temper your enthusiasm. UM. I haven't seen any signs of that yet, but it wouldn't surprise me there there have been none. I think most people are kind of um, they're not hesitating to, you know, complain to me about how how high prices are. UM. So it's just a matter of when portfolio managers decide, you know, to kind of step off completely. That was that was so diplomatic. They're not hesitating to complain. I just picture the phone calls that you get from people saying, oh

my gosh, too, Darna, I'm not buying him. Amanda Albright, thank you so much. Amanda's Umenissa Bond, reporter for Bloomberg News, joining us here on our interactive broker studio. Thanks for listening to the Bloomberg pen L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa Abram Woyds. I'm on Twitter at Lisa Abram wits one. Before the podcast, you can always catch us worldwide.

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