France Wouldn't Consume More U.S. Wine, Even With Zero Tariffs

for alternative investments. Tom Gearing is managing director and co founder of Cult Wines based in London, but he joins us here in our Bloomberg Interactor Broker Studios. Tom, thank you very much for being here. What is Cult Wines? What is your business? Psycholt Wines is a wine investment company, specifically so with different traditional merchant or a wine breaker

on a wine auction house. All we all sets up completely to deal with private clients all over the world and to build up fine wine collections for the sole purpose of capital appreciations, so buying physical cases of wine, bottles of wine, storing those wines, ensuring them, managing them on behalf of the clients providing daily valuations for online platform and then reselling the wines and advising them throughout that life cycle for investment purposes. It is not to

be drunk in the future. This is to be purchased and resold as a profit for our clients to benefit their over investment portfolio. Now I understand that you got involved in this in a big way before you could legally consume any wine. At the age of thirteen, you started a twelve bottle case of Domain Romani Romani CONTI right, this is a very worthwhile and prestigious wine. What did you discover about it? So? I was very fortunate when

I was growing up. My father was actually an investment banking but it was a massive wine collective, very about wine, So I grew up around wine. I think the first time I even tasted wine was about eleven when I was taken to Burgundy with my father. UM. So he bought a lot of wine at auction. This is actually a really salient point in terms of what we do as a business. Um and he bought a case of

the main Romny County Romani qunt original wooden casing. Now, if anyone knows a lot about wine, these particular bottles. They're producing very small quantity, but they come with almost like a serial number, So they have numbers on the front, which obviously detailed which bottle number it is. Um So if you're buying an original case of six bottles, if it had never been tampered with, never been open, it was the original six bottles, they should be the same

consecutive numbers. So whatever they number, they are in a series, they should be consecutive. So one, two, three, four, five six. When we got the case home, I opened it up. We were inspecting the bottles, taking photos, condition checking the wines, and we found out that the bottom layer of the case, to the bottom six bottles, when we looked at it, the numbers were not consecutives. They were inconsequential. So what that means is at some point in time, someone had

opened that case and replaced them. So immediately you think to yourself, are these wines Counterfeit is their potential some forgent activity going on, because there's no way that these

wines shouldn't be in that order. And the reason I say that's a salient point for what we do now as a company is that we now manage over a hundred twenty million dollars of wine on behalf our clients and actually making sure that our clients are protected from any potential for forging activity counterfeit bottling is essential because if you're buying wine for the purpose of reselling to make a profit, you need to make sure that you're

selling wines that are authentic. And this has been a big problem in the wine and she over the last ten to fifteen years. So that was obviously a very early experience in my in my career, and I wouldn't even say it was a career at that time. I was just thirteen years of age, but it really has stayed with me and it's something that we hold very dear to ourselves now being a professional wine investment company

advising private clients all over the world. All right, now, I'm going to put you on the Twitter spot because earlier today President Donald Trump said, quote, France makes excellent wine, but so does the United States. The problem is that France makes it very hard for the US to sell its wines into France and charges big tariffs, whereas the US makes it easy for French wines and charges very

small tariffs. Not fair. Must change is that accurate. Well, let's let's start the accuracy, because often there's not a lot of them with Donald Trump. So they actually are that French wine and US wines are excellent. So he's correct with that point. What he's inaccurate about is the fact that in France the domestic French mark, but the domestic market in France for consumption wine is almost entirely French. I mean, if you're Italian wine producer, Australian New Zealand,

they sell very little wine in the domestic market. In fact, I travel extensively in France. When I'm in Bordeaux, trying to get someone in Bordeaux to drink of Burgundy is impossible. You know, if you go to Bordeaux, all the wine shops have a hundred percent Bordeaux. So in France it's difficult to people get to get people to drink outside their own region, let alone their own country. So the terrorists that he's talking about is absolute nonsense in my opinion.

I mean having you know, if Californian wine had zero import taxes to ship to export into France, it would make zero difference to whether someone in France would buy

and consume Californian lines. And also the other thing to imagine is, you know, you go to a lot of these rural agricultural areas of France and outside the more prestigious border Burgundy, but paces um, you know, in the land without province, whatever it might be, people can go to the local cooperative, the local cooperative and they can

get a gallon of wine for like two euros. So those type of individuals are never going to suddenly start buying American wine just because there's no tariffs on it. So it's really an economies of scale. So for me, I would look at this tweet and say, it's put political posturing. You know, this is nothing more than obviously something that's come up between Trump and Macron, and he's using it as a way to you know, you know,

negotiate or bargain with with the French president. But I think in the actual real economy of wine, it would

make zero difference in my opinion. It also seems as though there are a lot of idiosyncrasies when it comes to the wine and alcohol trade because of course, in the United States you have state boundaries that limit what cannon cannot be sold and transported across state lines the when you gave the idea it all right in France, the domestic market is so domestic that it would be like an American saying I will not drink a wine that comes from the state of Oregon. I will only

drink wine that comes from Nappa. Right. That's the kind of connection it is there, really is like that. Are there a preponderance of French wines when it comes to this cult wine business or is it's starting to expand to include American labels for example? Very very good question. If you're looking at the investment market for fine wine, you know, you're very You're talking about probably one percent of all wine produced would be categorized to say investment grade,

and that markets worth about five billion dollars a year. Now, if you look at say our assets under management, our hundred twenty million dollars around it is in Bordeaux, about in Burgundy, so really France and then obvious you've got

paces like Champagne, etcetera. So France is probably around of our total a u M. Outside of that we have US is our next biggest regional you know, breakdown within our portfolio Italian wines and then New World regions like Australia, New Zealand and and and even South America, but Californian wines in particular, some of the NAPPA producers have been excellent for investment purposes. You know, some of the top wines have made fantastic returns for clients over thinking of

Screaming for example, absolutely, I mean Screaming. It was a very tough wine to to source and acquire. Obviously it's producing very small quanties. But you're right, you know, if you were on that waiting list and you get those wines allocated to you, you're almost guaranteed to make a profit if you resell those wines, because you're getting them as such a great price. There's such little quantity available that when you resell, you're almost guaranteed to make a

good return. But if you're looking outside of that, you've got some up and coming producers. Obviously some more well known ones that opuswan Dominus that have done very well. So I think the Californian wine wine market from an investment perspective is is very strong and growing. Should I give you twenty seconds, Should I be concerned that I like screwed up bottles? Not? Not at all I mean, I think, I think in the next twenty years we

might see a change in the industry. But it's just not enough scientific and back vintages of wines that are being produced in screwcaps and really show whether they all have any real differences to to to cool closures. Well done, Thanks very much for being with us. Tom Gearing, he is managing director co founder of Cult Wines. Cheers to you and many thanks for being here. A bucket of salt,

A bucket of salt. Those are the words used by a witness to the EU negotiator Chief Brexit negotiator Michelle Barnyer. He was speaking to European ministers. One witness said that Barnyer said the parameters of a possible Brexit agreement are very largely defined, but the witness then said it was should all be taken with a bucket of salt. Well,

maybe he's got his own bucket of salt. David Danny Blancheflower, Professor of Economics, Dartmouth College, Hanover, New Hampshire, can be followed on Twitter at d underscore blanch Flower joins us Now, Danny blanch Flower, how big is your bucket of salt? Well? A pinch of salt seems obviously seems an exaggeration. We're two years in when the UK government needs to get some kind of deal done, particularly before a European Council

meeting of November twenty five. Um, and Brexit supposedly is going to happen March next year, certainly doesn't look like it. The bucket of salt suggests that, um, there's nowhere near to doing that. And you and I have talked about this several times. The Northern Ireland problem seems to be

a large one. And I was in the UK last week and great fund was being made of a speech made by Dominick Rabb, the Brexit secretary, who appeared to have just realized that Britain was an island, which which which meant that trade deals and over the ports were really important. So I think we're a long way away from any kind of deal. May is in trouble, but it doesn't really look like within the party there are alternatives and outside the party. So this is buckets assault

being rubbed in the wound. Um, and we're nowhere near a deal and maybe no deal at all is what will happen. Well done, Danny Blanche Flower. I like the connections there. I mean I think maybe Mr Rabs should probably Minister Rabs should probably read a little Wadsworth. Maybe that will help him understand the disposition of the United Kingdom. No, no, exactly, We're two years in and I mean literally it was

all over the TV and the newspapers. He made a speech say he don'tly just really realize how important UM the port of Dover was and kind of having these deals done, and preparations are being made by the UK government for no deal, including stockpiling medicines and food, and there was even talk that the huge traffic jam which was likely to occur at Dover with lots of lorries, they would have to buy porter parties because a thirty mile jam would mean that, you know, some you have

to deal with all eventuality. So this obviously looks disastrous. But what's interesting I was looking in the ft today it doesn't appear that UM polling has actually moved as far against the bricks that as you might think. It's still pretty close in the polls, and there's big talk about having a second referendum, and the reality is that the markets are sort of clear on this. The reality is it's not absolutely clear, Danny, Well, not to be two pros poetic about it. But you know King Richard

the second Shakespeare Sceptred Aisle and all that. Are the British just going to model through or is there a real feeling and you were just there, Is there a real feeling that things are going to be very different a year from now? Well, I certainly think that, um, in some sense, people are as he rightly say that

they're muddling through. But I talked to a number of people, including a variety of academics from Europe, who were very concerned that sort of racial attacks on them, the sense that foreigners shouldn't be there had risen, so that there was certainly a sense of that having conversations with people. But the Brits will eventually muddel through. But I think he is he was saying that in the past that's happened. They're just not clear where we are. But I think,

honestly it's a lack of political alternatives. Um, No one's really told an alternative to trying to find some model through um outcome. I mean, I guess the classic would be whatever happens, declare victory, withdraw and pretty much go back to a to a situation pretty much like now, and and the basically the transition period will be a really long time and a new government that comes in can actually change all of that and go back to where we were. So I think buying time pushing you.

And I've talked about the famous phrase kick the can down the road. Well, this is a giant canful assault and that's gonna kept pushed down the road. So I think I've think people are muddeling through, but there are great concerns that things have changed, and particularly that I mean in the UK that the views about foreigners of something that you know, are you Polish, that kind of

stuff has changed a bit. All right, well, let's move from salted beef to pasta because I want to get your thoughts about what's going on in it's the International Monetary Fund coming out and warning that Italy's plan to increase spending carries quote substantial risks and would leave the country vulnerable to market turmoil. Well there's an understatement, right, well, and the European Commission has said this, but in a sense this is hardly surprising. You see the move to populism,

you see the move of these political parties against against them. Um, mosterity that hang on, Danny. But I mean there's there's populism, and then there's just then inability to do simple math. No I agree with that, of course, the inability to do simple math. But that I mean, in some sense that's what's exactly been true in the Brexit conversation we've just had. Um, simple math is kind of what's got us here in the first place. I'm not suggesting I

agree with it, but I think you're completely right. I think it's a surprise. Um. So now you have these parties like Five Star who got elected on we're going to help the workers and so on. So they're going to start to push for this, and obviously the I m F and the Youth Commission and others are going to push back. But in a sense, these groups have a point, which is that austerity has had a really large impact on people. And you might think that that

explains a lot of the populism. But you're right, simple math and facts don't seem to be the order of the day around the world right now, and that's where we are, all right, So I'm going to untether you from simple math and facts give us your worst case scenario for what happens to Italy. Give you about half a minute. Well, I mean, obviously the talk talk about UM, not just Brexit, but I I text it is obviously going to be on the table and we're going to

see a major confrontation. I mean, PYM, let's go back, these are double these Italy has double digit unemployment still UM and so there's going to be a battle, a battle between the Commission, the i m F and others to try and helpful and it's probably going to be a major battle in the worry would be that we won't just be talking about Brexit, will be talking down the road about Italy staying enough enough, not least because what is the EU done essentially for those at the

bottom end in Italy. Same argument was made with them in France with the election. So I think it's going to be a mess. The ability to keep a government in place as a mess um and this is going to have a great more term all in the markets because people are hurting. It sounds like a messy recipe, Thank you very much. Danny blanch Flower, Professor of Economics, Dartmouth College, Hanover, New Hampshire, follow him on Twitter. As we all do a d underscore blanch flower. You're listening

to Bloomberg Market. I'm pim fox all natural ingredients, getting rid of artificial colors, of flavors and preservatives, not for humans, but for dogs, cats and your other pets. Here to tell us more more about the change in the world of pet nutrition and pet health and all things having to do with pets is Ron Coglin. He is the chief executive of Petco and they are based in San Diego. He joins us here in our Bloomberg Interact or Broker's studios. Ron,

thank you very much for being here. Appreciated. Give people just the overview first of all of the pet and the pet business and then we'll get into natural ingredients. Sounds good. Great to be here. So the pet business is a wonderful business. I've been the CEO at Petco now for five months and the thing that is most impressive is just the love that pet owners have for their pets. As a business, this it's a rapidly growing business, growing six percent across and food business is a billion

dollar business, so it is a big business. I was going to say, the love that they have for their pets and the bottomless pocket of money that they spend. Some of that's of course going to be spent on food. And you've taken a particular position at pet Co. Tell

us what you decided to do that's right. So one of the things that's clear is pet owners want to do the right thing for their pets, and that includes feeding them the right food and a pet go For fifty years, we've sought to do the right thing for

pet parents and pet the pets that they love. So we decided to take a stand against artificial flavors, artificial colors, and artificial preservatives, and will we announcing that will be eliminating products that have those ingredients starting in two thousand and nineteen, things like ethanol, things like sulfur dioxide, things like high H. I can't even I can't even pronounce half these chemicals that UH ethanol, F D n C, yellow glycerol. We don't think that they belong in our pets.

So we're eliminating them and we're the first company, major pet food company that will eliminate them. Okay, when you mentioned pet food company, that's got me thinking that there's a whole supply chain out there that either has to adapt or they're not going to get into the Pet Coast store. Tell us what the reaction has been and how that might change your mix of vendors. So there's really a continuum of three different types of pet food companies.

Um one is those that are already all natural, and we sell a lot of products from companies like Merrick companies like Taste of the Wild as an example. Then there are others who said, great idea, we're going to reformulate or we're gonna launch natural versions of our line and we're gonna work really hard to make sure that

that's successful. Then there are others that say, you know what, we're not going to make the changes with the artificial ingredients, and those uh, those companies won't be on our shelves anymore because we don't think they're doing the right thing for our customers. What about the brands that are attached to various types of pet food and we were talking just before you came on. You know, many people remember

pet food as outpo, that was all there was. Are those brands catching up to this preservative artificial free food or are they sort of slow walking the change? Some of them are far behind like the ones that you mentioned. Others are making the change and will actually have their natural lines in our stores when we start in January, and then others are far ahead on already organic foods, on natural foods and lacking artificials. What about the price

point of these kinds of foods, Are they higher? Yeah, that's a that's a misnomer that people think because you're going eliminating artific show that necessary things are much more expensive.

We pride ourselves and having an array of price points, so we'll have foods without artificials, and the opening price points, will have a product like our wholehearted own brand that is uh that doesn't have those artificials in the mid price points, and then we'll have you know, wonderful high end products like the merricks in the Taste of the Wilds or candidates that I mentioned earlier. Now, of course, pet Co much more than just pet food. You've got operations, grooming,

I've got training, You've got a variety of things. You also have partnerships with non pet Co outlets, for example in Canada, I believe we sell products through a third party. That's right. So the future of PETC, the new pet Co as you will, is about it being a nutrition powerhouse but also being a services powerhouse. Our groomers do a wonderful job. I visited over a hundred grooming salons in my first five months. And the passion that they have for the pets. Sometimes I wonder where they like

the pets more than they like human beings. If you if you ever wonder, Actually it's obvious most of the time. If you have a new pet, you want to come to a pet go to get them trained, And increasingly, if you want vet services, you can come to a petc and that's something will be scaling out. So the whole idea is a nutrition powerhouse and his services powers and at the end of the day, we want to be the pet parents partner. I'm making sure we're taking

great care of those pets. Did you have to learn a whole new vocabulary? I mean, because your previous role was at Hewlett Packard, UH and PepsiCo. Do you have to learn a whole new group of you know, vocabulary in order to talk about pets and their owners? The first step was opening up your heart. People have a lot more passion for the pets than they do have The PCs even though they loved our PCs UM, they have a lot more passion. But there is a lot

of vocabulary. But at the end of the day, it's taking care of something that's precious to people, and we take that very seriously. And you're doing about four billion dollars worth the business a year right uh, your own by Capital Partners, CBC, CVC and the Canadian Pension Plan Investment Board. Is it easier in a way to work

for privately held company? You know, I've been in public companies my whole career pretty much, and there's a wariness about PE and I will tell you that it has been wonderful the support you get, the contacts, the insight, but also you know, they give me a rope to it to run as well. So it's been a wonderful experience, and given what's going on with the markets, it's been nice not to be public. Thanks very much for being

with us. Ron Coglin he is the chief executive of pet Co, sending out non preservative, artificial ingredient free food for your pets. And the topic now is deficits budget deficits when it comes to the federal government. Here to tell us more as IRA Jersey. He is chief US interest rate Strategists for Bloomberg Intelligence. Ira, you have dubbed

this deficit Day. Yeah. So, so both myself and our colleagues at Bloomberg Economics focused on the deficit today and some reports we put out and and you know, we took two different angles. So, um, my colleagues and Bloomberg Economics think that maybe the government's own estimates of what the deficits going to be UH could be as wrong as a hundred and sixty billion dollars in UH the year.

And I think that, you know, that's meaningful obviously for what I do, because that means that the Treasury Department might have to issue um, you know, and an extra call it fifteen billion dollars a month of debt that maybe we um. You know, some people don't have in their forecasts right now. Okay, if they don't have it in their forecast, do they have the money in their

piggy bank in order to buy all that debt? Yeah? Well, that's one of the questions is at what point do people book and say, you know, deficits are too big. So normally it's you know, when you have growing deficits as long as the deficit is growing somewhere around the um the level of nominal GDP growth, it's not really that much of an issue because that means that the

you know, the entire economy is growing. You can fund the deficits because you have higher income, you have part of that income is going to be saved, and and corporations even need um you know, the fun pensions and other things like that. So there's money coming in. But the thing is is that at this point, at least for the next several years, you're not likely to see that you're likely to see deficits growing faster than the level of nominal GDP growth. And that's where you can

get challenge. And that's why you need foreign investors, for example, to at least make up a little bit of the shortfall from domestic investors. And you haven't seen that the last five years. Foreign investors have not been uh not been buying US debt on a net basis. So they're still very large holders, but they haven't been buying more debt than than they had say in two thousand nine ten Jersey, I want to get you in trouble right now. Is any of this linked to the tax cuts that

have decreased revenue for the US treasury. Uh yeah, well not not not all of it. I can't say percent, but a large portion of this has to do with with lower spending than was anticipated, say three years ago,

when we were UM making budget deficit forecast. UM. The the the unrealistic thing that the government has and this is what my Bloomberg Economics team did a did a very good job pointing out, is that the there's this expectation that you're going to have significantly higher revenue in two thousand two UM, but that's predicated on growth being faster. There's that's just a little bit unrealistic in their view, and that's one reason why a lot of these forecasts

have missed over the past several years. And again by by not by by pretty large amounts, I mean, a hundred and sixty billion dollars in the grand scheme of things might not seem like a lot, you know, when when the government has to issue um, you know, a trillion dollars, but you know it's a ten or fift increase in the deficit above and beyond what we thought

it was going to be, so that that's very meaningful. Now, Ira isn't there a push pull when it comes to investors because there are groups of investors that have to own what is described as the most risk less asset, which would be US Treasury. Yet on the other hand, they all have benchmarks, and in order to attract investors, will the Treasury have to let interest rates increase? Well, the Treasury Department um, you know, they have to fund the government, right and so so they don't have a

choice about the issue. Their decision is where to issue and how much of each maturity to issue? So how many tea bills are there going to be short term versus long term? And what they've done is they've been trying to keep the portfolio the weighted average maturity of Treasury debt reasonably long. Our estimate is is that it will it will fall a little bit over the next four years, primarily because they're going to have to issue

a little bit more in terms of T bills. That Now, the good thing about that is that and you know, we view our view is that the Fed is probably gonna hike interest rates another three or four times before they stop um and then the next move is likely to be for lower interest rates. So the fact that they're issuing more short term debt, means that interest costs in aggregate would be lower um than they would be if say, interest rate state stayed relatively high um for

for the next three or four years. Um. Yeah, exactly so. But at the same time, you know a lot of people are you know, you look at money market flows, and money market flows are actually getting bigger now. And a big reason for that is the fact that there's interest rates that are well above zero. Right. It was hard to invest in a money market fund when you're making maybe three basis points in that money market fund.

Now you're making you know, two ish percent plus or minus, depending on on what fund and how much risk you're taking. That's a bit more attractive to a lot of people. So you do see at least some inflows um. And and that's increasing demand for things like treasury bills, which obviously the government's issuing more of. I read Jersey, give you fifteen seconds. Does it make sense at a four week bill at two point two percent versus a one

year at two point seven two percent? Does that make sense? Yeah? So, so that's all about the expectations of the feed. The reason why you know, you wind up having you know, basis points there in that nine months part of the curve is just it all has to do with expectations that the Fed is going to hike a couple of times in between those maturities. Got it, Thank you very much. As always, I read Jersey chief US interest rate strategist for Bloomberg Intelligence. I mean, you've got a little buying

at the end of the curve. The thirty year yield of three point three six percent, the thirty year bond it is up ten thirty seconds. You're listening to Bloomberg Markets. Thanks for listening to the Bloomberg p m L podcast. You can subscut I've been listened 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 wits one. Before the podcast, you can always catch us worldwide on Bloomberg Radio.