Tobacco Giants Philip Morris, Altria To Reunite

telecomm and media for Bloomberg Opinion. She joins us here on our Bloomberg Interacted Brokers studio, and we're here to talk about this merger Philip mars is and talks to reunite with Altria UH in an all stock deal. So, Tara, is you know what's the rationale for be behind putting these companies back together after years of them being apart. So, as we know, fewer people are smoking, especially in the US, and both of these companies have been working on remaking

their images in recent years. If you go to either of their websites right now, you will be hard pressed to find any mention of cigarettes. Of Marlborough anything like that. It's all about reduced risk smoking and quote smoke free products which are on the Philip Morris side of products called I Coast. It's I q O S and that is. And it's funny because it looks like it would be an anagram for something, but the companies say it isn't.

Some people have uh interpreted to me, um, I quit ordinary smoking, but they say there's really no meaning behind it. So I Coast is this product that Philip Morris, which is in the international markets, launched it there. It heats tobacco instead of burning it, so they kind of market it is something a little bit safer than cigarettes, but

that's disputable of course. Um next month they are going to be launching that in the US market, starting in Atlanta, and for the US business all Tria gets to market that product here. So I think the goal is to join forces, unite their cash flow around these smoke free products to try to combat the sort of uh shrinking rates of smoking here and push more people to these newer products that they have of I am actually looking

at the websites now and they look like hospital webs exactly. Genuinely, it's all about not smoking, designing a smoke free future, reducing risk, expanding choice. Who are we How long will P M I be in the cigarette business, whether the state of health? I mean, really, what do these companies actually sell? You be hard pressed to find cigarettes here.

So I guess that the question is, is the idea that they have reduced their liability to such a degree when it comes to a political front that they're not going to be extra big targets if they joined forces. I think so. And I think also just the growth. I mean obviously, like of their operating income comes from cigarettes. Still it's still the huge driver of their businesses, but that is slowly shrinking. Their stock prices are no longer

the tough one that they once were. So I think what we're seeing is they realize that the growth markets are these vaping products, the cigarettes like Jewel, despite the controversies around that and also pot Uh they've invested in marijuana companies. So I think what they're doing is if they unite forces, you know, they have that power of scale and they can kind of keep pushing these products and and kind of monopolize that market. If you keep

going on the website. Corporate responsibility progress Report Health effects of smoking, you know, talking about uh, you know, supporting twenty one is the legal aged purchase to bacque products. These genuinely look like advocacy against smoking websites, yet they still sell billions of cigarettes from yes, exactly, like outside of the US, are there still growth markets for smoking?

I think so. But I think the bigger thing is not looking at just traditional smoking, but looking at these newer products like the est eggs and and like these heating sticks that they're selling, like icos um, And I think that's where that sort of they're you know, they're calling it the innovation for the market, and I think that's where the focus is right now and when investors have been looking to hear more from them on But again, those are such a small portion of the business in

terms of their financials that it's not really helping their stock prices right now. Putting them together might do a little bit to kind of re excite investors to these companies. Let's talk pot. How does this sort of increase their position when it comes to uh, making marijuana products more mainstream and is this on their agenda? I think so. I mean, obviously, right now, marijuana is legalizing Canada, and

that's a relatively small market versus the US. But I think all of these companies that have invested in these Canadian pot producers, such as Constellation Brands, which is a US boost congomerate, and then Altria going after Chronos, I think that those investments were made with an eye toward the US market, and I think they see it as eventually it's going to become legal federally. And obviously, what industry is more powerful when it comes to sort of

lobbying the US government, it's the cigarette industry. So I think that they see themselves as in a position, even though they're kind of the slow movers in it, to get into into marijuana and turn that into sort of their growth avenue. Are they Are they waiting for federal US legislation because I know we've got a dozen or so states of legalized marijuana. Are I think waiting for

federal Yeah? I think you need federal because otherwise it's just not a big enough market for them to really pursue. But they are obviously looking into It's something they've studied for decades, we know, even quietly behind the scenes, So it's definitely something they're interested in, but not until is it federal legal for them to really make a business push this time. Is this deal going to go through? I think so yeah. I mean I've been writing about

this deal happening for years and it never did. And I think it makes sense. I they think it was only a matter of time, and with the launch of I coos next month, it seems like they're really serious. Sara La Chapelle, thank you so much for being with us. As always. Charla Chapelle as deals, telecom and media columnist for Bloomberg Opinion. Read her columns and all the other columnists columns on Bloomberg dot Com, Slash Opinion or O

P I n Go on the Bloomberg. I am going to have a lot of fun for using these websites to even have the same colors, and there are hospital colors. I'm really looking at this sort of you know, sort of darker blue and the red and the just everything about it. It feels so healthy, It feels so healthy. I mean, these are absolutely you know, they would be they would be hospital websites if they weren't advertising cigarettes.

Joining us right now is Jack Divine, former chief of CIA's worldwide operations and founding partner and president of the ark And Group. Jack, thanks so much for being with us again. I'm not sure where to start, but let's start with a Ran. Um. You know, we just had the G seven wrap up. What is your sense of kind of where we are with a RAN right now? It seems to be one of the issues on the front burner right This is a one of those issues that have troubled me all along. How do we deal

with Iran? I think somehow we get along and maybe we won't get a break with North Korea, but Ron is really a contentious issue and we could have end up with some sort of military conflict. I'm not saying war. I don't think that will happen. What do you have? Are two really lunch and strong positions now in the Iranian government, and they're very good negotiators, as you know, Uh, we tend to underestimate foreigners and their ability to do negotiations in the art of the deal, which is true

with North Korea as well. They've been negotiating and I think they did a really good job last time. So to go to the table right now, um, I think it's going to be hard for them. Um. They are in their latest messages saying you have to lift the sanctions now Trump, There's no ways Trump is going to raise the take away the sanctions. It's just not going to happen. So the positions are sort of recalculate trend. Strong positions that both side for domestic reasons and as

well as national security interests can't find big, big concessions. However, as a footnote, I do think there's there. It is wise to try and bring leaders together if you can, sometimes you get a breakthrough. So up when the U N Session takes place, I wouldn't be surprised if there is a sidebar discussion despite all the strong posturing that that won't happen with Andrump. All right, I just sort

of taking a step back. Do you think that we are in a more dangerous or less dangerous place than we were a year ago when you were writing your summer intelligence report, Then well, I think we're in a more dangerous place because I think the Iranian situation has become increasingly more desperate economically. Uh, they've made military gestures

shooting down drones. In fact, one of the key developments for the year for me is the fact that the President Trump did not take a stronger action when the drone was shot down. Why because I think there's some very strong, howckey sentiments in the Trump administration, Uh to have uh to push the runtings as hard as you can. That showed more temperance and more probably possibilities, if you will, by not doing that, despite the pressure from elements into

his administration. So um, I think he would like to have an arrangement with the Iranians. I just don't see how you get to a deal that works for both sides. He's easily. Are you concerned that the Americans seem to be going about this alone without some of the other European countries that are signatories to the original deal. Well, I think it's always better to have everybody with you. Having said that, sometimes you get everybody with you if

you take the lowest common denomen or fees. Once we decided to tear up the deal, and as I said, it wasn't thrilled with the deal, but I thought it was an okay deal, I probably would have recommended against it. Well, once you tear up, then to get back to the table, uh, you know, if you're gonna it's really impossible for trumping me back with the same arrangement. There has to be a new deal, so uh, the Europeans on the other side,

if it need to make accommodations with the US. It's such an We're such an important part of everyone's game plan that they're trying to do workarounds with Iran and that's not working out so well in Iranni and oil production is still very low. Internally, economic problems are quite severe. There's a lot to be said for putting his maximum pressure on Iran to get to the table. Don't put maximum pressure to have a regime change because that doesn't seem to be in the cards and you do not

know what will happen when and uprising occurs. Let's just flip up a little bit and head to China, because certainly we talk every day about US China trade discussions, tradespats, tweets, etcetera. How worried are you that the situation will escalate beyond trade to something more military? There? I give that low prospects. I mean, I'm not anticipating the military uh clash between

the US and the Chinese and the foreseeable future. Okay, that we will have a Cold War tense relationships with them. It seems like we're heading more and more in that that direction. I do think it's hard to find places where there's common agreement, but on China there is a sense of we really need to do something about China. How you go about it is open to dispute. I don't see it getting anywhere near a military confrontation. I think that Chinese have long range goals to some degree

in terms of their military might. They're meeting those goals. I don't see where there's bones of contention, as in the case of Iran with the Straits of or Motes, we we are going to have opportunities to shoot at each other, Okay, we're in the case of the Chinese, I don't see that happening. And we're both major powers today. They have nuclear weapons, so I think the prospects are

really pretty low. It's more in your area, especially economic conditions, that I think represent the greatest challenge to the relationship. Do you think that the U S should have pulled out of the Transportacific Partnership the t p P and and kind of again once again going and alone and discussions UH with China, or did we have more leverage being part of that group. Yeah. Again, I tend to line line up in the direction of keeping these things together.

But all of them were flawed. The randeal was flawed, the the trade agreement was flawed. So you keep working the issues at a certain point. For example, with the Russians on the the nuclear arms arrangement, that was so dead that you eventually have to walk away from it. I don't think that was true. In the other cases, you keep working with them. I do think multilateral approaches thing are the best. However, I do see that we've drifted into a soft multilateral Someone has to take charge

with a stronger multilateral thing. Will Trump prevail and bring the others to his side? That's the That's the question for me. Jack Devine, thank you so much for being with us. As always, we really appreciate you being here. Jack Divine, founding partner and president of the Arkan Group, former chief of CIA's worldwide operations, joining us here in

our Blomberg Active Broker studios. Well, the rising trade tensions between the US and China are clearly royaling financial markets around the globe, and that includes investing directly in China itself. To get the latest. We welcome our next guest, Brendan A. Hearne, Chief Investment Officer of Crane Chairs. H Crane Chairs is based in New York City. Brendan, thanks so much for joining us. So again, we've seen, you know, the ups and downs of the trade tensions and the tweets kind

of whips all markets. What about you know, the folks that actually are investing in China. What are we seeing in that activity? So the first forms nice for the opportunity to connect Paul Um. You know, I think day to day we become somewhat you almost have to become immune to some of the things that you can't control, if it's tweets or media headlines. Ultimately, the fundamentals China has been slowing for a number of years, but but it's it's it's really trading um high growth with high

leverage for slower, healthier growth. And we're seeing that on on the corporate earning side as well. We're where corporate earnings were in really the meat of of corporate earning season for Hong Kong Us and mainland listed companies and

the results have been surprisingly strong. So so we maintain our optimism is growth in China truly healthy at this point, given the fact that the PBOC has engaged or I should say re engaged in a releveraging of the economy, well, I think you know what what the PBOC is attempting to do is is really goes back to this thesis of a tale of to China, is that part of China doesn't need necessarily need lower interest rates, and yet there are parts of the economy that do need help.

If it's your export driven manufacturing um at the same time that the consumption story is alive and well, um in a broad braced interest rate cut, you know basically could fuel bubble in in that that consumption. But but I think that you need to get help to the parts of the economy that are struggling under the weight of the trade war. So Brendon happens. You know, the unrest we're seeing in Hong Kong, it it doesn't seem

to be going away. The demonstrators continue to you know, weekend after weekend, Uh come out into into the streets. What are you hearing from investors as to gees? That just adds another level of uncertainty in that part of the world. It maybe you know, I might sit on the sidelines as it released allocating more capital. There certainly investors setiment around Hong Kong. If you one looks at

the Hang Sang has been very very depressed. Uh, certainly, you know, it does appear that it's very unlikely you'll see a military type intervention. Um. I suspect Carrie Lamb will be removed at some stage. That the populace in Hong Kong has become um very disenfranchised to her leadership. But I do think the hope is that if you just leave it alone, it will go away. But it teems to be quite persistent, and certainly the local populace is worried just about how is China going to react?

But I think they maintain the hands off approach as we've seen thus far. Brandon, at what point in a potential escalation of the trade skirmish between the US and China, would you grow more bearish on China? Well, I think a lot of the pessimism has already been built in least if one looks at the pe ratios for both mainland China as well as Hong Kong or US listed companies, the valuations are about as pessimistic as I've seen them unfortunately, so I think a lot of that is built in.

I think I think the bigger worry, if you step back and say big picture, would be that this is China being pushed into some sort of enemy role. That's something for those who do business there. I don't see that, I don't ever feel that, but increasingly, you know, China's being put on that pedestal. I think I think that's

the big worry. So Brendan, what are you see in terms of the fund that flows into say like China E t F and things like that, are people Are you seeing it slow down or are people still engaged? We're definitely Uh. The US China et F industry is getting outflows. We've seen we actually had the largest China E t F here in the US lost a hundred

million dollars overnight. At the same time, we did have MSCIS inclusion last night where we had um net uh one point five seven billion dollars of foreign buying in Chinese a share. So so the E t F s are react. The China E t s are seeing outflows. At the same time because of the m s c I inclusion, we are getting inflows in that regard, How does the u N factor in here? We are seeing a pretty significant depreciation in the u N, crossing the

seven per dollar threshold and then going beyond. How bunch of an issue is that going to be both in terms of companies repaying their dollar debt as well as

their ability to sort of compete internationally. The the un depreciation has been somewhat mild, I mean relative to the e m f X. It's it's in line, what what what what we've seen um At the same time, I think it's very different than August, where I've got some wrinkles on my forehead from from that particular, a month where you had a very unexpected decline because because people kind of expect, you know, one, you have a very strong dollar at the same time you have China is slowing,

So some some weakness is expected in the REAMBI as long as in a controlled manner, I think we're okay. Thank you so much for being with us. Brendan Hern, chief investment officer at Crane Shares. Let's talk about a particularly risky segment of the market, Argentina. We can look in at bonds where the implied yields are currently fifty five on short dated notes. Kind of shocking and investors are flocking to the nation to check it all out.

But let's talk about what the prospects of default, recovery and actual yield is. Damian sass Our, chief Emerging Markets credit strategist joining us here in our Bloomberg inter Active Broker Studios. So whether Argentina, what is the bull case and what is the bear case? Goodness, Okay, well the bull cases we hear something good out of at Buenos

Arts today. We have Aljandra War, owner of the IMF, visiting this week and his contingent is going to decide when they're not to make a five point four billion dollar disbursement next month. That would be the third dispersement of the i m F loan. If we get good news there and the i m F doesn't hold that back, that would definitely give some comfort to markets. We have seen the pace of stabilizes it around fifty five. But

that's the short term bullish case. The bearrish cases obviously that boats are fernandez Um is indeed elected and sort of goes off the rails. And basically, I mean we were talking about possible debt, restructuring, government control over grain prices. We're talking about multiple FX regimes locally. UM, that would all be very very bad. But look, Fernandez is on the tape this week, UM saying he stands by the I m F mandate. Um, they both stand for the

same thing. And so far as Argentina's concerned, economic growth, lower unemployment, UM, lower debt and so forth, and so look, you know, you know there is some reason to be optimistic. I know our friends at Morgan Stanley are UM, they actually moved Argentina from underweight to market weight this week. They think at call it forty cents on the dollar, that UM there, the Argentine dollar dead is actually a

buy here. UM. But you know, from the stress investors that I've talked to, and those are really the only ones that are going to go near that paper at current levels, you know, they'd want to see it coming a little bit more down into the thirties. So you know, the verdict is still add us to whether or not it's a buy yet. But UM, certainly, you know we need to see more news uh from the I m F in order to really discern that has the trouble.

We've seen in Argentina. Is that had been a little bit of contagion around Latin America or is it kind of confined to that country. Well, you know, it's that's interesting. I mean, contagion is it takes many different forms. So if it's if it's real economy, real risk contagion, where you see something on the order of, you know, early last year, when you know all of emerging markets sort of caved. I don't think we're going to see that this time. Position is not nearly as heavy, it's not

nearly as concentrated as it once where. But we've seen some really big losses from from some very UM venerable portfolio managers over the past month with the with the the client in the RG pace, so including our friends

at Franklin Templeton, and so we wrote to that this morning. Look, the risk of contagion would be more of I think it'd be more are isolated to e M dollar credit, specifically high yield credit, because let's be clear, if people don't want to sell arg debt at current levels because they still believe in the fundamental theme, they probably wind up selling other high yield emerging market sovereign debt. So you know, we pointed out some bonds that are potentially

suffering from concentration risk. Um wa, wait just stop right there. I want to just accentuate at this point because this is actually incredibly important. The idea that you have these very big investors who had very big positions in Argentina and now are facing what do you do with the fact that the assets have fallen out of bed, prices have gone down? Do you sell or do you sell other bonds? And you're saying that they are likely to sell other bonds rather than take actual losses on all

of the Argentinian debt right now? Correct, Well, it depends on supply demand dematic dynamics. And what I would say is it depends on redemptions because look, hasn't stopped and some of the guys that f T are still very widely regarded and people were completely on board with his concentration in Argentina when this happened. So does that mean the redemptions from clients, from investors and it's funder going to come through? We're not quite sure. But if they do,

what's hasn't stuff to do. Is he gonna capitulate and start selling RG debt or is he going to sell other debt that's in his portfolio that may not have come off as significantly. I I wouldn't. I don't know so, I mean, but it's not all doom and gloom down there. Chile has actually been a pretty good success story for EM investors. What's driving that performance, Well, it's going to be copper prices in Chile and most and same same goes for Peru for the most part. But you know,

I mean, look, Chili's come off a bit. I mean the real risk now, I mean, I mean Paul is is Brazil. Um. If you see some of the things that are going on with the fires in the Amazon and the way Boltonaro is openly rejected dollar aid package from from the G seven. Just this weekend. He's actually gotten in a little bit of a spat with He turned it down because he was insulted. But he thinks

he was insulted by mccron. Correct. He felt that the Europeans were basically treating Brazil as a colony again, you know, so he took that very personally, or at least that's the way the news. The news has kind of interpreted that. I think the real the real thing is all of a sudden, this became a Facebook spat over, you know, first ladies between Macron and Bolsonaro. I don't know how that mass aside so quickly, but but that's where that went.

I mean, look, just in terms of Brazil, just by the way, I can't believe that you're saying this was a straight face and you are that this is We're talking about a Facebook spat over the wives of two leaders of nations, and that's what bond markets are watching. I mean, look, you have to understand. The Amazon rainforest is a huge I mean it's I mean it's it's it's the biggest rainforest on the planet. It's a huge source of oxygen for all of us. And you know,

fires are bt three percent. You're there seventy seven thousand fires raging because ranchers and loggers and farmers are trying to clear land so they can raise more cattle, or at least that's what you know, uh prevailing thought would have you believe. And look, Bosonar is doing very little about that. His disapproval ratings now off the back of this, that's not very good for for him and for the country.

Cart So emerging markets investors like they don't have enough to worry about, and now I have to worry about facebooks, beats and Amazon fires. Damien Sasare, thanks so much for joining us. Damien is chief Emerging Markets credit strategist for Bloomberg Intelligence, joining us here in our Bloomberg eleven three oh studios, he covers all things emerging markets. Thanks for listening to the Bloomberg P and 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 Woyit's I'm on Twitter at Lisa abram Woyits one before the podcast. You can always catch us worldwide. I'm Bloomberg Radio