Microsoft Rises to Record; Tiffany Rallies on Takeover Talks

at Bloomberg dot com. Tiffany shares surging the most on record, more than thirty percent, on the heels of this bid by Louis Vutan's parent company for fourteen and a half billion dollars. A question is who are the other potential suitors that could step up to buy Tiffany or is it just going to be on LVMHU to raise their bid. Kim Fassine is joining us now. He's a Bloomberg News US luxury reporter. I want to start with the price tag.

What is the implied path forward by the premium that we're seeing baked into Tiffany shares currently at one thirty dollars plus versus the one share price that the fourteen and a half billion dollars tag would imply. Right, So it's a fourteen and a half billion dollar proposal from LVMH. That's one twenties share and um some analysts are speculating that they might have to go up to as much as one sixty and uh. They're also speculating that Tiffany

could attract bids for other suitors. Now, so there's companies that have been mentioned, our Richment, which owns Cartier and Caring, which is LVMH's biggest fashion rival that owns it owns brands like Gucci and Salt Laurent. So can what's the strategy for LVMH and perhaps other suitors to uh, you know, go after Tiffany? What are they looking for? Tiffany makes a lot of sense for l v m H because

it fills a pretty big gap in its portfolio. Of course, it has numerous very strong European fashion labels like Louis Utton and dir Selene, Fendi and jewelry. It owns Bulgari, which is much more high end than Tiffany. But Tiffany would be away into the US jewelry market and American shoppers. Uh. Jewelry, particularly branded jewelry, has been performing particularly well in luxury lately, and it's a relatively small segment of LVM age compared

with fashion and leather goods. Can I talk about the timing why now? I'm not sure why now, but the tivity has been on the rebound in recent years. So CEO Alessandro Boliolo has been very busy. He's overhauled Tiffany's marketing hoping, hoping to attract younger shoppers. Uh. He entered into India after reaching what they called a critical mass of demand to warrant moving in there. It vowed to make its more supply, its supply chain more transparent, and

hired thousands of new diamond industry workers and executives. Right now are super focused on growing the business in China, and because by opening their own stores there, rather than waiting for tourists to come abroad, you avoid the volatier volatility of tourist flows. So let's talk about the luxury market in China. Know, China has been an Asian general has in a big driver of the growth and luxury over the last ten plus years. But so the trade

uncertainty here can't be good for luxury. So what are some of the companies that you covered? What? What are you? What are they saying? About trade wars and luxury. Well, let's start with Tiffany, which is in an interesting situation. They make their jewelry here in the US, so they do everything backwards. UH them. The big luxury company is the American Ones. So let's take UH Tapestry, which owns

Coach and Kate Spade and Stuart Whitespan. They used to make a lot of goods in China fifteen years ago, but they've spent the last decade or so diversifying their supply chains. So in UH in Coaches case, UM, fewer less than five percent of their goods are made in China now because they've moved to places like Vietnam and the Philippines in India. And this is what we're seeing across the industry. I'm looking right now LVMH's shares in Paris and they're up just slightly or basically flat. I

find this really interesting. Basically people saying this is a good move. Yeah, I think that is people saying it is it is a good move because it does fill that fill that gap. Tiffany is basically flat in the US now. UH. It used to be a more that's brand used to be stag here like people didn't it was less relevant to two young shoppers, which are so so valuable. But these moves lately seem to have to

have worked. I'm just wondering about sort of whether this will also diversify Tiffany outside of the US much more because of LVMH's footprint. The push in recent over the past year or so has been to physically go to where the shoppers are and not rely so much on on tourists going abroad, you know, Paris or London or New York where their biggest stories. They're spending two hundred and fifty million dollars to renov eight their flagship store.

Uh they're currently they're about to move next door, move their whole selling floor next door to their to their old place, so they can they can spend all this, all this time and money because that is the their their crown jewel of of their business. Like as much as ten percent of their global business comes from this one store in New York on Fifth Avenue. Kimbasine, thanks so much for joining us. Kimmassin is a luxury reporter

for Bloomberg News covering all things luxury. Let's gears and talk about the story that really is raising so many eyebrows. Microsoft shares jumping to an all time high today, the battle over cloud services with Amazon dot Com heating up. Joining us right now, James Back of Bloomberg Intelligence. Uh, Microsoft one a Pentagon cloud contract that was much disputed. Uh, there could still be appeals. But can you give us a sense of why this is being viewed by the

market as such an important development? Well, I think that it is a confirmation that Microsoft has essentially made it in the infrastructure as a service market. It's long trail Amazon dot Com, and now we're starting to really see that it has kind of forged its role as the number two player, and with with the Department of Defense, with all of it's you know, very very rigorous security requirements,

very highly sensitive workloads. Going with Microsoft over Amazon, the larger player, it's a pretty big statement about where Microsoft is in the cloud market. So, James, I know you follow these federal contracts and government contracts very closely. Clearly a surprise to the marketplace. How about the folks inside the Beltway to see, uh, you know, Amazon displaced here.

How much for a surprise was that? It depends on here you're talking to, Uh, the market may be a little taken aback by it and some other people who may have felt that Amazon was positioned well to win this. Certainly we felt that they were the favorite, just given that they have experience with the c I A, given that they have the largest offering in cloud infrastructure in

the market. Um, but Microsoft was always a formidable competitor in this competition, So it shouldn't come as too much as of a surprise that they did end up displacing Amazon, or not to say displacing Amazon, but did kind of you know, score an upset here. I don't think this is a stunning of an upset as some may believe

it to be. So I wonder how much politics really played in here because Amazon dot Com Jeff Bezos has a stake in the Washington Post, and we know that President Trump has been pretty vocal against Jeff Bezos in part for that was that a driver behind this decision in anyway? I think that papers over It's it's a fun story to kind of speculate about whether Trump had influence on how this was you know, awarded, but it really kind of papers over the capabilities that Microsoft did have.

They definitely had an offering that was capable of taking on this job. Um, And I think it might be you know, misleading, or it might be you know, overthinking it to say that Trump's uh, you know, his his his kind of bad blood he may have with Jeff Bezos or the Washington Posted anything to do with how this was awarded. You know, the whole you know, acquisition

bureaucracy and procurement bureaucracy is much larger than anyone president. UM. So it'd be hard to see this being something that Trump was able to influence, um, really in any big meaningful way. So James, does Amazon have any recourse here? I seem to have heard that maybe they might be able try to stop this. Yeah, they can go to and this is just kind of standard procedure for any large contract. They can go to the Government Accountability Office uh and file a bid protest um if they feel

there was any problems with the overall procurement. UM. That would delay the program by about a hundred days. And that's to say they don't you know, even take this maybe to the Court of Federal Claims. Um. There's a lot of different options they can pursue now to potentially you know, change the procurement or try to get this back from Microsoft. I want to go back to something you said, which is, perhaps people are are making too much of this in terms of uh, Amazon dot Com

losing its dominance over the cloud business. Why do you think that, Well, the federal market, and this is also a kind of our our our look at the commercial market to cloud is a very big, um growing piece of the I T sector. So, you know, one loss is about you know, ten billion dollar contract over ten years. These are two companies that have both very large cloud businesses. One contract isn't going to really change too much for

any of them, um. But at the same time, it is a big statement for Microsoft and where they are in the cloud market. For people who some observers who may have thought that this was a slam dunk for Amazon.

I think it's a surprise. But at the same time, there's a lot of cloud uh, there's a lot of I TA modernization that's going to happen in the federal market, and it's it's very you know, it's it's not hard to see that Amazon and Microsoft, regardless of this contract, are going to be a part of that in some way. And there's been some pushback within Microsoft employees about that.

How common is that in terms of well, I mean in terms of the I guess doing business with the government and you know, with whether it's the Defense Establishment or the c I A. Yeah, we saw this with Google um and it's ultimately Google was in the running for JEDI at one point and dropped out because of kind of an employee revolt. So it is something that happens in some cases. The difference here is, you know, Microsoft has been with the federal government for a pretty

long time. They've been at d O D for about three decades. It's hard to imagine that any kind of big employee revolt is going to take place and is going to stop Microsoft from operating in the Defense Department. James bad thank you so much for joining us. We we we really appreciate your insight here. James back covers all things in terms of the federal contracts and the government and procurements and all that stuff. He does have for

Bloomberg Intelligence. So really giving Bloomberg clients a real sense of what it means, what companies are at risk, what companies are doing, what types of business with the US government on days like today, really valuable to get his thoughts. This is a very big week for interest rates and certainly the outlook going forward. The Pleasure Reserve meets Tuesday and Wednesday releasing what everyone expects to be a rate cut.

That is not what people are watching for. What they're watching for is what they're going to signal in terms of whether this is one and hold for the time being, or whether they expect to cut rates yet again in twenty nineteen. Join us now. R J. Gallo, senior portfolio manager focused on fixed income at Federated Investors Are J what are you expecting them to signal on Wednesday in

terms of future rate cuts? Good morning, UM. I think it's important to realize that although you know sort of the one and done phrases being talked about, this is really the third right. This is the mid cycle adjustment language which was invoked by Chairman Powell UM around the time of the first ease, may in fact be realized by what we see now. The other periods of mid cycle adjustment have typically entailed more than one ease, oftentimes

two or three. This looks like the third in a series, and our bet here at Federated is that imminent recession is not most likely, and the FED may in fact layer in its third ease and see what happens next. That what happens next is probably a deceleration and economic growth. We're going to see some data this week on that on the GDP front. But the FED, I think, is probably a little less eager to signal further easing right away.

It's becoming states contingent or data dependent in their terminology. Yeah, it's interesting r J. You mentioned the data dependency. You know. I think if I were to go down to the f O m C this wee can argue for Hey, the data is not supporting this easing environment. I think you guys need to sit on the sidelines. Will they throw me out of the room. UM, I don't know if they'd throw you out of the room. I'll tell

you this. I think that the FED, or at least the core of the FED, the leadership of the FED, you know, the the New York FED President, the vice chairman, the chairman. UM, they're interested in being forward looking and proactive at this point in time. UM, they feel as if the United States is being sort of one of the strongest pillars of an otherwise slowing global economy. That they can afford to be proactive because the risk of being wrong, namely we ease and we shouldn't have doesn't

produce an inflationary spiral. Inflation continues to disappoint. So what's the problem with being proactive on growth? That's that's how I think they think of it. UM. Those out there like a Laretta Laretta Master who are arguing but data doesn't support it, UM, well, that's the ackward looking data. So in a risk management framework, they can afford to to layer layer in theseasies and see how the market and the economy response. So what does that mean in

terms of how you're positioning your portfolio? UM, if you look at my firm, we have spent years being overweight credit and expecting FED policy normalization in the form of higher rates that ultimately occurred. We had a complete flip flop on that last element as the FED has has moved towards easing. As we've been discussing on this call um, we anticipated the economic deceleration that would occur and selectively have been long duration at various points over the last

six months. It's been an incremental win. At this point, we've shifted closer to neutral on a lot of our variables, because I think it's not totally clear that that what's going to happen next. If President Trump and President z in China actually strike a meaningful truth phase one deal, then some of the global deceleration, some of the problem with presidential nonresidential investment in the United States make correct, and we can have a nice soft landing if we

get that yoke had a little fire. Corporate credit does okay. On the other hand, deal hasn't been struck. Global economy is slowing. Uh, you can't rule out that recession risk is elevated at this point in time. So we're trying to be nimble with almost like sort of a neutral home base on a lot of variables right now. So r J, as it relates to the R word recession, what is kind of your call there at federating base case we think we can have the the fabled soft landing,

which you know, which we had in the nineties. For example, Chairman Greenspan was successful at finding that after multi phased tightening that he oversaw um soft landings prolonged by definition the economic expansion, which I think pal is very committed to do. We think he might be able to stick that landing. Let's talk about what a soft landing actually

looks like. What's the playbook for a soft landing? Does it mean just a DECELERA is deceleration that's steady but continues with the with the growth or and how long can that continue? Well, if you believe the the the official arbiters of of potential growth, it's somewhere around one point eight maybe even one. Right. Um, we think that GDP is going to have a one handle this week when we see the first read on the third quarter

result here in the United States. A soft landing, in my opinion, has to mean that in coming quarters we can grow at potential or higher. Why is that a soft landing? Because that's after the Fed funds rate was increased sharply, it was zero not that long ago. That's after the Fed halted QWI. And what they're doing now is not qui. Anybody who thinks it is is apparently not aware of Federal reserve history. Uh. And that soft landing of a potential or higher growth means corporate assets

can do okay. I think that we're in an Arab diminished returns where bond yields are where stocks are. I think investors need to sort of ratchet down return expectations because there's not a lot of easy money. In a soft landing scenario, you don't get a recession, so you probably don't get a crash in terms of stocks. I hope UM, but it's hard to say that there's a

lot of a track active undervalued assets right now. R J. Gallo, thank you so much for joining us, giving us your thoughts on the credit markets and the upcoming uh FED meeting and outcome coming tomorrow Wednesday. R J. Gallo, Senior portfolio Manager, fixed to come at Federated Investors Investors joining us on the phone from Pittsburgh where Argentina. Over the weekend we saw a president elect, Alberto Fernandez win the election. Mauricio Macrie is out. He was thought to be market friendly.

Alberto Fernandez not so much. What will the path be going forward? Joining us now is Michael Bulliger. He is head of Emerging Markets Asset Allocation uh for UBS Global Wealth Management, and Michael, I want to just get your sense of the outcome of this election. Does not seem to be surprising markets all that much. Moves are not that severe, But do you have a feeling that perhaps people are under playing some of the risks that could

potentially cause much steeper losses for deadholders. Yeah, I think when it comes to Argentina, I mean the big surprise happened earlier when MARQUEI lost the primary um a few a few weeks back, and now this result actually has been widely expect expected by the markets and the positioning has been a justice already. Now for us, the critical

part now is to look forward um. The next few weeks will be critical, so people will be watching for example of what's going to happen on the ethics side and the central Bank, which has increased a couple of controls, avoid another steep devaluation of the piezo. And then crucially also what will the new president elect do between now and it's his integration with regard to which persons will you appoint for you know, the cabinet including Ministry of Finance,

central Bank governor, etcetera. And then also we are eagerly awaiting more specific guidance on his economic policies for his upcoming term. So Michael, for investors in Argentina, you know, what is the bulk case for being in Argentina now, it seems like there's just so many unknowns. There's that's true, there's really a lot of question marks at this point

in time. One one clear argument why people might hold onto their exposure, and that's also what we, by the way recommend our clients, is that if you look, for example, at the dullity denominated bonds and they offer obviously quite a bit of a discount they tried and the trade in the forties, and so you know, with with Anne this now and Board being part of this upcoming government, the president, he has obviously now incentives to try to come up with a you know, as market friendly um

policy program as possible, and that can also involve that maybe the restructuring, if it has to happen, might be even you know, a bit less market and friendly than what one's currently uprising. So Argentina has two hundred and eighty two billion dollars of debt outstanding, people concerned uh that they will default yet again. They are a serial defaulter and this is going to be yet another one.

They already have defaulted on some of it. I guess the question is what a recovery is going to be A number of people have been saying around forty cents on the dollar. Seems like that might be the most likely. Where do you come in on this? Yeah, I think you know, as as said before, there's really a lot of unknowns. Um there's a wide range of indications on

where a possible recovery value could be. But again, just to retrate what I said before, I think current prices do reflect quite a dire outcome on such a restructuring,

a possible structuring. And you know, we're not advising people to now buy into Argentine paper, but rather sort of holding a market weight to exposure at this point in time, So broadening out to Latin American in general, we've seen a series of situations that vote to even more unrest, whether it's Chile, whether it's Ecuador, uh, and the prospect of yet another default there. What do you make of all this? Are you recommending people get out of Latin

American assets? No, that's not what we're recommending. Actually. I mean, first of all, it's worth noting that you know, you mentioned Chile, you mentioned Ecuador, we talked about Argentina. But this is not a topic that is specific alone to Latin America. You remember the Chile shown in France, You remember uh, you know, current protests in Spain, the crisis in Lebanon um. So this is almost a global phenomenon.

And you know what many of these protests have in common is that people point towards, you know, issues of inequality te people point to you know, a lack of perceived quality of what their government is doing. And you know, for us as investors, what we tell people is to look at, you know, each each country, each market individually to assess the likelihood of such an unrest to happen, and then also what can the government to to resolve

that situation. Now, looking at a Chile, which has been a posted child for liberal policies for economic reform, which is very strong depth credits fundamentals were not concerned at all that you know, for example, the Chilean government or some of the Chilean corporates that we cover will see issues servicing their depth. So there we see that as a temporary about of volatility, whereas elsewhere, you know, the situation might look more challenging. Michael Baldner, thanks so much

for joining us. Michael's ahead of Emerging Market Asset Allocation for Ubs Global Wealth Management. Thanks for listening to the Bloomberg PL podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa Abram Wohits. I'm on Twitter at Lisa Abram Woits. One. Before the podcast, you can always catch us worldwide on'm Bloomberg Radio