Brean's Tchir Sees Brexit Risk to High Grade Corporates (Audio)

to address the world's economic weaknesses. Both the Bank of England and European Central Bank pledged to increase liquidity. We take the markets every fifteen minutes throughout the trading day. Down industrial average is up two hundred fifty two points one and a half percent, trading at seventeen thousand three d smp F I founded up thirty four points one point seven percent to two thousand thirty four. Then AZDAC is hired by ninety four points, a gain of two percent.

It's trading at eighty eight less. Texas intermediate crude oil up a dollar fifty eight to barrel three point four percent. Spot gold is down eight dollars ten cents announced at thirteen sixteen sixty and a tenure treasury is down six thirty seconds with the yield of one point four five And that's Lumberg business flash. Catherine Cowderie, thank you so

very much. Stocks haven't quite a bounce back today, Bonds holding in with just as some small losses, keeping that benchmark tenure note yield down at one point four six percent. That's not a very good way to earn income, is it.

That's why we are returning now to Catherine Cowdery in our daily e t F Report to look at earning income from dividend pairs in e t s. As the Brexit fueled turmoil continues in global markets, investors might want to consider income oriented e t s. That's a word from Todd Rosenwood, director of et F Research for SMP Global Market Intelligence. His advice look for dividend paying e

t s with limited exposure to Europe. He suggests considering the pro shares SMP MidCap four hundred dividend Aristocrat et F taker R e g L MidCap companies tend to be more insulated from the economic nstrategy. That's that's taken place in Europe, that's taking place in Japan and other markets as a whole, so good growth potential with an income component as well. Rosen Bluth also likes the wisdom

Tree Small Cap Dividend Fund. It has exposure to financial services companies, industrial companies, consumer strestionary companies that are currently paying dividend and, according to the wisdom Tree approach to selecting securities, have room for dividend growth. That e t F trades under the assemble d e S and has one point three billion dollars in total assets. That's your

Bloomberg ETF report. I'm Katherine Cowdery. You're listening to Taking Stock with pim Box at Jacolin Hays on Bloomberg Radio. Brexit the impact on stocks, Uh, well, it's faded at least for tow, but we don't know if it's really faded. After two days of pounding after the vote, US equities are now up, as you just heard Catherine Cattery reporting anywhere from one and a half to two percent across

the board on the major market indexes. But you know, if you've been watching the market lately or even for a long time, you know you can't let one day of rebound. Fool you. Headlines, of course are a big vulnerability to the stock market and to the bond market. Now Peter Cheer joins this now head of macro strategy at Breen Capital right here in New York City, And of course just to explain that little bit more, Peter, because you know, when I say headlines, I mean headline risk.

I mean everybody's watching Brexit. What's Agleamarkell going to say the Chancellor of Germany about her willingness to let the EU negotiate a deal that's favorable. What's going to happen within the Labor Party? So many ifs? What is what is the expectation right now? Do you think in global markets that could be upended by an unexpected turn on

the politics side? You know, I think for the last twenty four hours, all of a sudden, I think people are realizing a little bit that maybe Brexit isn't quite as an immediate thing as they thought. You know, it's kind of termed okay Brexit, and then there's almost a sense that it's an immediate reaction, it's immediate filing. And I think quickly we're finding out one this is going to be delayed. Right, there's Cameron's already stepped down, so

they're gonna have to find a new leader. There's a chance maybe there'll be a new election in England to determine this. There's how does the ECB play out its role in this? It seems like the ECB today into that maybe promising more quie in the future if needed. And then as Mirke going to continue a hardline, is

you're going to be aggressive against England? Or is there the small chance that they start using this as a way to back up because if you look countries, even Merkel has that our own trouble in Germany about the immigration issue. This immigration issue is not just you know, a northern England issue. It's kind of hit all of Europe. So this might be the chance to back up a little bit and create a better union. All right, let's say that we get through this, we get further, Maybe

she backs up, the UK calls a general election. Uh, they get ready to elect their next prime minister. And it seems that this really is heading towards the next step. Can't go back, you can only go down the road. Uh what about the dominoes that this could cause to start falling. What is the risk there? What is the pattern you see? And I think the pattern there would be you know, Spain, they muddled through their election and they came out okay, it actually wasn't as bad as

some feared. But I think you would see this kind of ongoing demand from countries people to hey, let's challenge whether we want to be part of this. And again, I think England's actually the relatively easy part because they're not part of the common currency, so it's actually much easier to separate. If you start talking to with Spain and Italy and they start threatening to pull out or they want out, that becomes much much more complicated, and I think that grinds things to a halt much faster

even than anything that's going on the UK. So I think that's the real fear that you get this domino effect. And I think within that, one thing we're all very concerned about is had the central banks kind of lost their mojo? Do they really have the ability to support this. I think the FED lost a lot of credibility when they put June on the table and then didn't have

the data to support that. So I think we're at this real fragile state where if you start seeing these dominoes in place that slow the global economy and this lack of faith in these central bankers, you could have a pretty severe sell off. And you know, we looked potentially down to the S and P if we get that scenario. I think to get there first we have to see a that the dominoes are coming and be

there's just too many shorts in the market. I think part of the reason today we're getting this big rally is there were so many people prepared for Brexit that it wasn't as damaging it could have been otherwise. And now you're kind of getting the short squeeze lied led by the VIX, which is going down dramatically. All the VIX vts I think are buying back stock effectively or implicitly through their actions. So that's part of the reason

we're getting this rally. It's not that it's over. We're getting a bit of a short squeeze hedging, you say, but there's a lot of hedging behind this stock market. And even though it had to down days uh, it could have been worse. That the declines really haven't taken this that much lower than the market was before Brexit. What is going on there? And again, I think we've had this period time really since the February rally started

that no one's really liked this rally. And I think we got lucky as a marketplace that we were pretty close to the highs we are two thousand and seventy. I think the Friday before the Brexit vote was occurring, so you know, not last Friday, but the Friday before, and I think that gave people out of confidence. Hey, you know what, I'm not going to bet on Brexit winning or on Remain winning because what's the upside. So I think we got very lucky that this has been

a market that has not been well loved. I think people are under invested. Cash balances remain very high. You've seen all this options activity, but call ratios were very high, and you've seen all these inflows into these zix et s and e t N. So I think people were very very well prepared for this Brexit vote, which is why originally we only went from twenty thousand and down to twenty thousand and fifty and even you know, two thousand and ten, So it hasn't been that dramatic sort

of pull out because everyone wasn't positioned off sides. And for myself, when I look at the Macel world, I'm always looking at how people are positioned. I think the fact that people are positioned so lightly on risk was a relatively saving grace. And is letting us get this rally today? Your single largest fear, everybody listened to Peter cheers, single largest fear. I think that it's Junker in them.

Continue to talk, really show a EU that is completely out of touch with reality, that the you know, politically light, continue to elite, pretend to be or continue to act elite, and I think that will drive this faster than they realize. And you will very quickly see people pushing against Brussels, wanting out. And I don't think the economic system is sustainable right now, and if all these hedges get squeezed out, that will be the worst. So I will be looking

tonight to see our hedges going down. Do you see shares outstanding and some of these vix ets come down. If you see that coupled with an adamant you know, EU, or a EU that's out of touch, then yeah, I think we have trouble. John Claude Jinger is the President of the European Commission. That's why his words are so important. What about a possible wave of credit losses in the

investment grade market? And you know, to me, if we start this next wave of selling off, I am very concerned that it starts hitting the investment grade space, not necessarily because there will be default, but because there will be marked market losses. And how I look at the world, I look at a little bit through I call it Maslow's hierarchy of credit bubbles. And we've kind of already seen high yield sell offs and we've had a couple

in the past year. And what happens in hiw yield sell offs we get volatilely in the equity market, but it's usually contained. And the reason for that is I think most people invest in high yield with their eyes wide open, as they understand, hey, you know what, I might lose five percent, but I'm trying to make eight

or nine percent, so I'll deal with that volatility. It's the investment grade where people are only trying to make three or four percent, where all of a sudd maybe see this big spread widening and people lose two or three percent, that all of a sudden, they question whether they want to be in there, they sell. I think, you know, just before us, they were talking about, you know,

dividend stocks, same sort of thing. There's been this huge flight into so called safe stocks, all this yield hungry investments, and I think they're very crowd of trade, and if it starts selling off, I'm not sure who the buyer of this is. So that's why this chips into investment grade, which is a much bigger problem for the equity market. Fifteen seconds. Your second biggest fear is that the stock buyout blackout period starts, companies won't buy back stocks, and

that's a big issue potentially. Yeah, and I think that's part of what happened in January February. Is one of the big drivers of this market has been some companies buying back their own stocks, are selling puts against their stocks, and as they come into earning period, they get blacked out, so they cannot do that during earning period. So again, very susceptible to a January February type time frame exactly as they start July, well, the j months, there's some

some potential pitfalls there. Thanks so much to Peter Cheer, He's head of macro strategy at breen A Capital. He's coming back. Dave Wilson are Stocks Editor to look at movers and shakers with me. I'm Kathleen Hayes As is taking stock on Bloomberg Radio.