Loomis' Fuss Sees Two More Fed Hikes, But Uncertainty Prevails

he's not on vacation. Dan Fuss is the vice chairman of Loomas Sales and Company based in Boston, and Dan Fuss has been called by many the Warren Buffett of bonds. He's an expert in the world of fixed income and he joins us now, Dan Fuss, thank you very much

for being with us. I want to start off by asking you about the federal reserves program to let debt run off their books, and I'm wondering, if you combine that with today's inflation report, do you believe that individuals and consumers will still have money to spend to keep the economy roaring? Um The quick answer is yes. The um. The fet is PIM. The fet is very very early in this process, and they are tiptoeing through it. And as they gradually bring down the balance sheet and start

or continue to move up feed funds rate. Uh, they're keeping a careful line. Now. I'll be the first to say, hey, that inflation report and thinks along what I would call the periphery of it, the advanced indicators. They say, okay, here comes more inflation. But there's so much more to it now. The basic readings on the economy unemployment are also strong, so that's good. So from my domestic viewpoint, Uh, it looks like they're on track to gradually take rates

up at a steady pace. Um. After a while, you and I will feel that a bit, but only really if we're gonna borrow, if we're asset holders and are thinking of selling them depending on the asset housing for example, things like that, then we would say, well, this is good news because I'll probably get a higher nominal rate as we go forward. Um. If on the other hand, we want to borrow to buy something, that we're gonna say, oh, and at some point you start to lose the buyers

for things again like real estate. So that's the net note of it. Well, I'm glad you mentioned real estates because example, let's say you take a thirty year mortgage rate of three percent. Let's see it goes to five. That means your monthly payment increases. Uh, it means you've got a headache for sure. Now, bim um, if you've got adjustable rate mortgages, he got a problem in this environment. And so, by the way, does the lender if the

lender has lent at a fixed rate. So it's the borrows problem if it's adjustable rate, and the lenders problem if he's lending at a fixed rate. So this is uh, this is really not a good thing, um, And you're gonna run into some natural constraints on the economy at some point. Where that point is, I don't know. Because we're at basically full employment. If you say, if you use the standard in the heaters, or even if you go over and you loose you use participation rates, um,

you know things are are coming along just fine. The one caution in this I forgot which one of those fat speakers was speaking yesterday, but he said, you know, all systems goal according to the dot plots and things like that, inflation is rising, economy strong. They ought to be shrinking the balance sheet a bit and taking short

rates up. Okay, that's that's well and good. But he also put in the provisal that I think is in all of our minds now saying this is all subject to or bear in mind that we have some changes on the trade front that might lead to surprises in here. That's to beg uncertainty. You really don't know what's coming. Uh. My analogy on that because I I it's like raising teenagers. You're all ready to proceed on a certain basis, but then you know you've got a huge uncertainty here. Same

thing in the forecasting business right now? Well is this is this? Is this more like uh, you know a movie Ferris Bueller Days Off? Or or or is it more like Jack Nicholson in as good as it gets? Well, you see more movies than I do. But it's uh, this is not as good as it gets. So you believe the economy will continue on this path. I think the economy is strong. Now here's where the worry comes in. You know, just from reading the papers a G. I

wonder what impacts the terroffs. And it's more than the impact of the teriffs. It's the geopolitical impact of some of the things that are going on. How will they affect various aspects of the financial markets and other things. So you've got that, um, But it also says, you know, if we model this out based on past experience, Um, what happens in a setting like this, what does the models say? Well, the models say you get st inflation out. Now what do you do then? And the other thing

pim uh is uh. You and I have talked about this before, going back in our memories, we remember, Um, so does the FED. They've mentioned this when the money went sailing out of Southeast Asia to come here. Um. We are, as the FED raiss rates. We attract money from other parts of the world, and to the degree the other parts of the world become a little less certain because of trade restriction, restrictions of some sort, and the subsequent chief political pressures that come with that. It's

broader than trade. Um. Then they say, well, I want to be in a safe place, and the safe place has the highest rates all the more reasons. So I'm going Uh, the capital can do that. Not so easy for the people, but they'll do that with their capital. Then we've got a real mess in our hands. So, um, that's a fear, and the Fed's got all this in front of them, and um, it's an uncertain time right now.

They're they're sticking with the script, which is we're gonna bump rates once or twice this year and another three times next year. And some of them are saying again in two thousand, um, and I I don't know how hi they're gonna do. Goal. My own guests guestimate is about three and the pit punts rate by then they'll have something or the rest of the old curve will normalize to some degree, not along it long and it is different, but to ten years will sort of normalize that.

That's that's the wild guest Pim, Thanks very much, Dan Fuss, Vice chairman, Loomis Sales and Company. He's been called by some Warren Buffett of bonds. The shares of right Aid they are lower by more than twenty percent since the beginning of the year. And we know that right Aid and the combination with Albertson's not necessarily going to make it to the checkout counter. In fact, it's been a return.

It's back on the shelf here to tell us more about this potential combination and why it didn't work is none other than Bird Flickinger, managing director for Strategic Resource Group Bert Why didn't the Right Aid Albertson's deal go through. It didn't go through because large institutional shareholders in their idiocracy,

got greedy and they wanted more money. When the crazy company was trading at about a box before the Albertson's bid, and they wanted more than two dollars, Albertson s to its credit, walked away as twenty four billion to buy better things, and Right Aid faces a potential cataclysmic collapse. Okay, but if you're so clear about this, what advice do you believe the right AIG shareholders are getting. What's the

story that they're hearing. They're hearing from I S s or institutional shareholders who they have a lot of respect for. Typically it's right, but increasingly you have Baker scholars from Harvard Business School and UH the the institutional arrogance of the nine ivy schools from Penn to Princeton, uh to to to Yale to Cambridge UH in Colombia, and they're just looking at spreadsheets. They don't understand the rhythm of retail. They don't understand the detail of retail. They don't understand

the synergies. They don't understand Bob Miller, CEO of Albertson's Humble country Boy from Mississippi, but the best turnaround artist in retail for the last forty years. Bob saved right A the first time when Right eight CEO Marty Grass committed the financial fraud. Said uh to the government. Bob Miller. Yeah, Bob Mill, save real, save right the first time with with Mary Sammons when it was unsavable after massive financial fraud and the executive officers, Uh did did eight months

in or eight years in a federal facility. Miller comes to save it the second time. It should be prefera real manner from heaven. UH. For for for the Mensa Canada, Mensa men running these institutional funds, but they act like Mensis society morons and and turn Albertson's down and and and now they're stuck holding a bad credit. Uh. And they don't have the capital to reinvest and compete effectively

and connect with consumers. Whether retailers the number one seller of tobacco in the industry and can invest in beauty and health and solar and all the things that Albertson, Zosco, Savan Drug and others are doing so well. How much money do you believe that right AID needs or is there no estimate yet for what they need in order to fix what is going on in their stores? Uh? In my professional view and followed the followed the company

for nearly thirty years about five billion dollars. So if you look at what Chris Baldwin did successfully with his I p O invested in solar, being the leader in New Jersey, New England, institutional funds shift from being with proverbial Mr Burns from the Simpsons and nuclear UH two solar. UH. We've done out side research up to or more of consumers switch UH to places like BJ's, Albertson's solar flagship and d C with Safeway Solar Maze landing everybody. Anybody

going to Jury City Shore this weekend, we'll see it. Right. AID can't do solar for their warehouses to convert customers. They can't do it for the stores. They can't do the beauty like CVS, Target, Walgreen's Boots in store, UH and Albertson's with the late Great Doug Sagan, whose funeral I went to in Chicago, tragically died at fifty five.

But what Doug and his brothers and Bob Miller have done at Albertson's in Chicago and across America with their eight different banners, it's transformational and would have would have saved right eight And what Susquohannah Highlands and Alberta Investment Management are thinking about. In my professional view, it's like Oprah White with tops friendly markets. UH you you you could wind up buying bonds at a hundred cents on the dollar or pocket a buck fifty on it on

its way down to next to nothing. As we talked before, the toys are US bonds on the Bloomberg terminal uh, and the unsecured debt that was supposed to get a hundred cents on the dollar recovery PIM is getting three tents of one cent. That could be the catastrophic consequences for these crazy investors and I s S and made the wrong move on on the guidance and rejecting the right aid offer. Turn your attention now to another acquisition that didn't happen, And this is important because it relates

to advertising revenues. Sinclair Broadcasting and Tribune Media, the Tribune stations. What do you know about that, Pim. We as you know, we've done a lot of Federal Trade Commission work with all all the commissioners, all the all the chairmen and women, and the f FTC staff is a little too officious and vigilant and not looking at digital and consumer communication.

So with to your point, Sinclair and Tribute, that would have been the perfect combination to create more competition, particularly in an election year where whether it's Bloomberg or other networks, the cost of media is at an all time high and we'll get even higher going to the presidential election. And Sinclair and Tribune could have customized uh separately, they'll be okay, But the old janis Joplin. The combination of the two is better. Uh. And it's too too bad.

Uh the f FTC didn't let them combine. Think it was too much of a horizontal concentration of competition. Let's turn to something that might be more positive. Who's doing really well in this current retail environment? We uh, we love Amazon full disclosure shareholder for a long time. People go to his or her Bloomberg can see this stock price essentially troubled and in a little over three years,

and uh, you look, you look at it. You look at Chris Baldwin, who I didn't keep him from going from the priests going into the priesthood when he disappointed his mother and grandmother at Siena College, didn't go into the seminary. I was part of the team that hired him for Procter and Gamble, turned Hess retail around, turned BJ's retail around, one of the most successful I p O s on the Bloomberg terminal this year. Uh b

J's is hitting on all cylinders. Uh. You're also seeing Macy's under uh Jeff Ginnett and Tony Spring at Bloomingdale's with Frank Blake on the board really start to gain tremendous momentum too. And uh talking to Bloomberg's Charlie Pellett, uh c v c v assl uh and Walgreen's boots

capitalize on on this right aid catastrophe as well. So while there's an accelerating retail I stage in bricks and mortar retail, a lot of opportunities and bonds with the Bloomberg terminals as well as the equities, but as your friend Lazlo Berni says, and Dan Sullivan uh and Kurt Wolf, you have to be selective in what you pick and really go through the terminal and find the best situations because as you mentioned before the broadcast, you can't just

buy the market. You can't just buy the A T F S. You have to be like you said Peter Lynch and and and really focus on the right situations. Bert flickincher many things. Bert Flickinger is Managing director of Strategic Resource Group. You can follow Bert on Twitter at Bert Underscore Flickinger. Earlier today, President Donald Trump said that he has authorized doubling some of the medals tariffs have been placed on Turkey. He sided poor relations with Turkey,

which is a NATO ally. This is also over a conflict having to do with the detention of an American pastor. Here to help us understand what's going on in Turkey and whether this is a full blown crisis is Midge Raman. He is the managing director of Europe for Eurasia Group, joining us from London. Thanks very much for being with us, Midge. What do you make of this crisis? Is itself inflicted or was it a long time coming. To some extent, it was a long time coming, but it's been handled

in a very knucklehead way by the Turkish administration. Essentially, what Turkey has done is misinterpret the recent situation around the US. Pastor Andrew Brunson, I think Marian's perspective, the US is extremely eager to have the past the release, and a such anchor is now playing hardball regarding the kinds of demands it is hoping to extract in exchange for this release. And I'll give you an example of some of the things that are hoping for. There's a

probe against Houp Bank. They're hoping that any signs against that bank or sanctions would be would be limited. They're hoping the chief executive of that bank and Attila will also be released as well as as well as a number of other concessions. And I think this is a big misinterpretation by the Turkish side of where the US is in this standoffs. Based on what you've seen happen to the Turkish lira today, do you believe the sell

off will continue? I do, and I think I mean that the comment from our douan Um and the new Treasury and Finance minister or Birack essentially suggest that what they're hoping to do is let this crisis run into local elections next year. They're very poor for the AKP, for Adan and his team to assess the AKP's popularity. I think they want the crisis to essentially to manage it through until that time. I don't think markets are

going to give them that much time. So I think what you will see as more conventional policy action by the government interest rate rises. But it's a really open question at this stage is to whether or not that will suffice to stem the bleeding that we've been seeing in the Lira. Will steelmakers, particularly in Turkey, be able to survive until those elections. So I think the broader question is whether the crisis can can run that long,

and I think that's highly unlikely. I think unless you get a move by arid And in the fairly near future to release this pastor, we're going to continue to see pressure from the U S administrations. I'm thinking perhaps more sanctions against high level Turkish officials. If there is that standoff, of course, that's going to bleed into the market.

We're likely to see more capital flight, more pressure on the current and it's at that stage I think, you know, everyone will essentially be faced with with two very tough choices, either an I m F program or capital controls because this is a country that has large external vulnerabilities. They have a large current account deficit that needs financing, which

means they are dependent on external capital. So ultimately, I think everyone is going to concede and we will see this past or at least more quickly as opposed to uh, you know, after a long delay. But at the moment, I think, as I say, I think the Turks believe they have more bargaining power and they're trying to extract more concessions from the US, and I think that's unlikely. Banks in Europe are exposed to what's going on in Turkey, specifically b b v A, UNI Credit in Italy, BNP

Party bar in France. If they called mid Raman and asked for his advice, what would you say, I mean at this at this point, I don't think the lights to slashing red. I think the ECB Single Supervisory Mecha there's in the eas send the regulator is aware of exposure to the Turkish economy into the banking system. So you know, there's there's there's there's some active monitoring going on, but I don't think at this stage where near a crisis.

If if Turkey really wore to enter a full blown balance of payments crisis, and I think there would be some hit on the respective banking systems you've just outlined, I don't think that would flow to become a larger political crisis in any of these countries because in countries like Spain and indeed France, a lot of work has been done on the banking system through their respective crisis since two thousand and eight. So you know, I think

there is exposure. The ECB is keeping an eye on that, but I don't think this will necessarily precipitate or trigger a crisis in any of these markets or with respect of their banking systems. Do you believe that Turkey will make an application to the International Monetary Fund for funds?

So this is the problem for air do one. I mean, since he came to power, he has built a political narrative on the back of having free Turkey from the clutches of the I M S. So do you think about the the recent elections, the fact and has now instituted a presidential system that gives him a huge amount of power and plain influence over the country's institutions. Accepting the risk of the I m F would massively constrain

his ambitious, mega political project. So this isn't easy. However, I do think it's the more likely outcome via the capital controls, which I think would be extremely damaging economically and and and and broadly, I think thanks to the economic reputation of the country. So this is why I think you will see today the government will announce an economic reform plan. I don't think the idea of fiscal consolidation or meaningful structural reforms will be apparent. I think

the market will be unconvinced. I think this pressure will continue, and as I say, we'll see conventional policy action in the street risers, probably an emergency hike in August, and then I think it's really for us to see whether or not we have to head down the route. And I'm at program or compital control. Midd Ramen, thank you very much, Managing Director Europe for Eurasia Group, joining us from London. Not content with its success on the small screen,

Google is looking to the big screen. Billboards in railway stations, shopping centers and shop windows in Germany, the company could be branching out as it uses data from its user database in order to display advertisements targeted to specific audiences. Here to tell us more about this is Alex Webb, the Bloomberg Innion calmness covering all things technology when it comes to Europe, and he joins us from London. Alex, a pleasure to have you here explain exactly what you

believe Google is looking to do. So this story is really coming from Virtus Voco, which is in some ways the closer to thing that Germany has to Business Week. It literally is the translation. And they have reported the Germany as that the Google is in talks in Germany to get into out of home advertising, which is billboards essentially and increasingly digital billboards, you know, screens which you see it, as you say, at train stations and and

you know around the place in town centers. Now the thing that Google, where Google can bring an edge to this is at the moment those screens are kind of bid for in a fairly classic way where someone says, I would like to have twenty minutes over the course of the day of my ad being displayed at these sites.

What Google does with its ads online is called programmatic advertising, where essentially you have a live bidding process that every time someone who kind of matches the demography you want target visits a website, algorithms bid against each other to show now to that person. Now, it's unlikely that they'll be able to do that on such a specific person to person basis, but they might be able to do

it more demographically. So if it can tell from the number of mobile phones in the area that there are males aged between twenty five and thirty with an average income income of X, then it can decide to push a particular kind of add to that billboard. Well, Alex, let's use an example of a train station and you have people arriving from different locations, perhaps for different events. In your column you speak about a potential soccer match. Give us an example of how you could be on

different platforms of a railway station and see different digital ads. Yeah, exactly so, particularly as more train stations introduced WiFi, for instance, which can tell within quite a concentrated area which phone are there. It can then probably you know, automatically identify that the people on that platform overwhelmingly have an interest in sports, and um, therefore it's better perhaps to push them ads for beer or soccer cleats or something like that.

Whereas if it's on a different platform, there are commuters heading home from work, um, that could probably work out that it might be better to sell them an AD or push them an AD for a car for instance. Um, and is that sort of specificity which can enable a better return on the investment in ads. Therefore they might be able to charge more and generate more value from that kind of billboard real estate? What is the market

for this billboard real estate? This digital billboard? So it's proportionately as a as a proportion of global ad spend. Depending on where you are, it's something between five and nine percent, And people tend to estimate the global ad market is somewhere around five fifty billion dollars. So, um, you know, it's not as valuable right now as digital ads on the web or indeed on television. It's a small part of that, but it is also everywhere, and it has been slower to catch up with the ads

revolution than other parts of the ecosystem. Now, the one thing I should add is that you know, digital ads and and ad targeting based on user data or cell phone data is already something that happens in a lot of places. It's just not as sophisticated as it might be. And Google clearly has a lot of expertise in really highly sophisticated ad targeting. Now there's highly sophisticated ad targeting depends on location based mobile data. Correct, Yes, it would

be ultimately. You know Google in Europe for instance, it has sev of um cell phones using Android. That means that it's got a pretty good sense of what sort of people are in any given area at any given time. Um. Now, I when I was at the can Ads Festival last month, I spoke to some people about this and they said, for instance that they you know, they have they already buy data from mobile phone carriers and that helps them,

um workout who is there. But as I said, like the ability to automate that process and therefore, um, you reduce some of the overheads where Google can really innovate and drive this forward. Alex If, for example, you are taking a train in the London Underground and you're waiting on the platform with your mobile phone and it's connected to the free WiFi in the London underground. Can they

then use that information to then push adds to you. Well, this is where there's something of a gray era, and there's not much legislation right now, but I think at the moment it would seem unlikely that they will be able to do it specifically to me, you know, be quite creepy. If, for instance, I'll give you an example, when I visit Amazon, for some reason I don't smoke,

I get ads for Nicorette constantly. Now I think it's because I bought a a French liqueur, which a lot of smokers drink, and so therefore it assumes that I'm a smoker. Now that sort of every time I went on a platform, if I were to get an ad for nicarette, I think that that might feel like an intrusion. And also I don't want to have some sort of reflected judgment from the friends who might be on the

platform with me. So you know, that sort of public specific advertising, I think is something which will not happen anytime soon. But this sort of broader demographic targeting is something which is developing. I want to thank you very much for enlightening us a fascinating topic. Alex web our Bloomberg Opinion columnists for all Things Technology based in London, and I encourage you to read his piece on Bloomberg dot com slash Opinion all about how Google Ads will

be targeting a billboard near you. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcast, sound Cloud, or whatever podcast platform you prefer. I'm pim Fox, I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio