Whistle-Blower Complaint, Climate Change, & Bond Market

really moving much in one direction or another. Despite any political drama in Washington, despite concerns about unrest in the Middle East, you get a whole host of existential kind of concerns that people are simply shrugging off. Joining us here to discuss what is the path ahead. Then, Karen pay she's head of Equities at Fiduciary Trust Company, joining

us here in our interactive broker studios. So, Karen, I'm wondering you're saying that, you know, a couple of months ago you started repositioning client portfolios to be a little more defensive. Are you guys doing anything right now? I mean, are you sort of taking any any approach to to shift things around. You're just sort of watching this and

saying let's go home early. Right. So, I think that you know, we have seen the market in a range bound UM situation because you've got low rates that are supporting the markets on the downside, but you also have UM the potential of any positive changes that could sort

of maybe perhaps break the market on the upside. UM. But you know, when we're looking at the market, we're really looking at fundamentals, and what the fundamental tell us is that we're in an economy that has been slowing down and we've seen earnings UM decelerate in terms of

growth UM. And therefore, we started repositioning our portfolios a couple of months ago to be a little bit more defensive from an as allocation standpoint UM, as well as kind of within equities, repositioning to UM take some profits in the market, recognizing that the s MPs up for the year valuations are UM not cheap, they're actually you know, relative on the high side, and so you know, we just think that it would be prudent and smart to just take some profits and we UM have you know,

really looked at UM quality as a factor in our investing, and UM we have you know, looked for more defensive characteristics, but that doesn't necessarily mean paying up for bond proxies, doesn't necessarily mean that we're going to chase things in the market that might be driven by some of the macro factors. You know, utilities, for example up for the year. UM. Consumer stables also up very nicely, but valuations are very

rich in those areas. So, Karen, what are some of these sectors that you're looking at here, Given that we are kind of late in the cycle, we need to get a little bit more defensive. Yeah, So, UM, I do think that it comes down a lot to UM the individual securities and how our managers are also selecting UM those securities within portfolios. From a sector standpoint, we're mostly neutral at this point. We have been UM. We've had a cyclical bias and our portfolios and a growth

bias and our portfolios for some time. UM. We've seen that, you know, we've seen that reward it really well by the markets. UM, But at this point, you know, we're much more neutral le positioned, and we're taking a notch down in terms of the cyclicality and our portfolio. We took down, for example, our overweight to technology a couple of months ago, just in recognition of you know, the strong gains this year and profit taking. Yeah, profit taking.

So I'm trying to figure out what it would take for you to change the allocation to shift things around from here. So we do think that if there is positive development, a positive deal on trade, that that would make us become a little bit more UM encouraged. But I think that we do still have this view UM that any prog ress on trade would take some time to translate into fundamentals. We think that trade uncertainty has

impacted business confidence. It may you know, at some point impact consumer confidence because we've seen some signs of UM you know, companies raising prices to offset some of the trade costs. So we we do think that UM, if we do get some positive news, the markets probably would perhaps get a relief rally, but it may not be sustainable and we would need to reset. What I'm looking for is really much better UM risk reward in the market, much more attractive valuations and UM equities. So do you

think that the next leg is up? Potentially UM in the It may occur in a short run, but we're not really expecting anything concrete to happen on the trade front. We're not making a bed on that. So we would UM advise investors at this point to actually position portfolios to be a little bit more defensive and cautious, really look at managing risk in the portfolios. So on the earnings front, there's really not a story there either. Looks

like earning growth is very flattish in the foreseeable future. UM. So I mean, as are there sectors when we talk about defensive sectors, I think utilities and reads and things like that in consumer stables. But my understanding is they're not cheap right right, So that for for that reason, we're also finding it very difficult to sort of find a lot of attractive things to buy in the marketplace UM. And therefore we've actually raised some cash and portfolios UM.

But what I would say is that from an earning standpoint, we don't see a lot of UM earnings growth, and fact consensus still has twenty at about plus ten percent growth. We are a bit UM more skeptical about that. When you look through the earnings, we see that UM companies that are more geared to domestic revenues have fair much better.

So if you look at second quarter reporter earnings, UM, companies that have greater than fifty pc of revenues coming from the US actually posted five percent growth, whereas companies that had greater than fifty international revenues posted an eleven percent decline. So there's the whole trade issue, the whole uncertainty issue, which is likely to play out. I think if you look at the consensus earnings for the remainder of the year. Karen pay thanks so much for joining us.

Karen's head of equities at Fiduciary Trust Company, joining us here in our Bloomberg Interactive Broker Studios. We appreciate her thoughts on the equity markets. Time to check in with Bloomberg Opinion. We're joined by opinion columnists Noah Feldman. No one's a professor of law at Harvard University. He's located in Boston, Massachusetts. No, thanks so much for joining us. Well, what a day we had yesterday on Capitol Hill with the testimony. It appears that the impeachment proceedings will in

fact proceed. What is your thought on kind of where we are right now? We're at an extraordinary moment in which we actually know a huge amount about the details of the allegations, and in which we have a roadmap for what we can still need to know. And I think it's a high probability that we will find out

all of those details. So in a sense, we're in a very different position than we were, say when the Mulla Report came out, when we had been waiting, waiting, waiting for a long long time, and we got a multiple hundred page document we had to make sense of it. Here, we've got a really brief, four or five page document with really clear and specific allegations and a clear roadmap of what comes next. Do you expect President Trump to

get impeached? I think the odds are pretty high right now that the House will impeach him, though the odds still don't look that high the Senate would remove him. Um, you know, the Democrats could still turn back at some point if somehow Trump were able to provide some kind of innocent explanation beyond what he said thus far for

his conversation with the President of Ukraine. But unless he can, I think essentially all of the Democrats who said they support the impeachment inquiry have said that if these allegations are true, they represent an abuse of power that merit's impeachment. And I think it's very probable that these allegations will be seen to be true by Democrats at the end of the inquiry. So what's the tipping point for Republicans. I think the tipping point for Republicans is whether there

it is plausible to believe Trump's denials. So far this time we have not heard the kind of legalistic justification that we heard the last time during the Mother investigation, in which the President would say, well, I'm allowed to uh say anything I want to a foreign official, including attacking my political opponents. Instead, he said, oh, the call

was created. Was business as as normal? You know. The question is how plausible will Republicans find that if Republicans cross the line and believe they see a quid pro coo,

I think this is really the tipping point. If there's definitive proof that there was a tradeoff that the President was offering the president of Ukraine to unfreeze the aid that he had just frozen in exchange for investigation of Joe Biden and of and of his son, then I think that many Republicans would be forced into the other side, but it's not at all, though there will be definitive

proof of that. What there is now is a lot of very strong evidence that suggests that, but there's no truly smoking gun in the sense that there's no tape so far of either Trump or of President Zelinski saying explicitly this is a tradeoff. So, Professor, there's calls for potentially a special counsel needed to investigate Rudy Giuliani and William bar the United States Department of Justice Attorney General.

What are your thoughts there. I published such a call this morning in Bloomberg Opinion, so I'm I'm on board with that. I think the bottom line is the whistle blowers complaint alleges conduct to interfere with the US election, which could well have violated criminal statutes, and Rudi Giuliani will not be the target of the investigation by the House.

They will be investigating properly the President United States. Rudi Juglani is a private citizen and there is enough evidence in the whistle blower complained to make it credible that he may have committed crimes, so he needs to be investigated, and the reason it needs to be a special counsel is not only that it's an investigation connected to the president, but also that the whistle blowers specifically named Attorney General William Barr and specifically said that it appears that's the

whistle blowers language that bar was involved. Now, Bart, to be fair, has issued a denial of that. But you can't say I'm accused of a crime, but I'm not guilty of it, so I'm not recusing myself. That's not how recusal works. If you have been incredibly connected by

the President of the United States. In his call to the president of Ukraine, he repeatedly invoked Attorney General bar So if you incredibly connected the conduct that may well have been criminal, you can't supervise the investigation full stop. So bar has to recuse himself and a special counsel is needed. Left, but not least, there's a question of a potential cover up of this phone call in the

White House. The whistleblower alleges concretely that this transcript of this call was suppressed and then it was put into a different database and more classified database than it would

ordinarily have been put into. Those are steps that need to be investigated to determine whether they were part of a criminal cover up or obstruction of justice, And that too will involve an investigation into what was going on in the White House, possibly behind by the President's advice, possibly not, And a special Council needs to look at that too. I just want to add, we don't want to wait until the Special Council reports for the House to be able to go forward. That would not make sense.

The House can simultaneously go far with its own inquiry into the president's conduct. Is there an historical period to which this period is analogous? Not really, because you know, during the long slow Mother investigation, I was interested in the question of whether the whole thing was more like the historical investigation of Richard Nixon or more like the

investigation of Bill Clinton. In other words, was it studying with a real crime at the back of it, or was it something that in the end would come up with a rather small or or minimalistic allegation. And you know, I think it turned out on the whole to be

slightly more like the Clinton case. But what's going on now is, after the long, long slow drum roll of the Mother investigation, we suddenly have this short, sharp, you know, symbol sound of the allegations around this phone call, and we haven't in the past had a kind of aftershock of a long investigation in the same way. So that we're on we're on uncharted territory here. Noah Feldman, thank you so much for being with us. Noah Feldman, Professor

of Law at Harvard University. Also Bloomberg Opinion Calumness. You can find all of his columns and everyone else's who writes for a Bloomberg Opinion at O P I N GO on the Bloomberg Terminal or Bloomberg dot com slash Opinion. Well, as we heard from the Bloomberg Global Business Form this week, chief executive officers certainly have plenty on their plate. They have trade uncertainty slowing global growth, and then continue geopolitical

risk in the marketplace. To get a sense of what CEOs are thinking about going forward, we welcome Regina Mayor. Regina is a global sector head for Energy and Natural Resources for KPMG. She joins us on the phone from Houston, Texas. Regina, thanks so much for joining us. Well, we're maybe the key takeaways from KPMG CEO outlook the key takeaway was that CEO's name climate change as the number one risk

to organizational growth. This is the first time in the five year history of doing the survey that climate change topped the charts of the risks, ahead of technology, disruption or cyber or territorialism. Seventy fully three quarters of them say their growth will depend on their ability to navigate the shift to a low carbon economy. Are these ceo is all industries or are they focused in one specific one.

It was O s across eleven industries, so quite striking for a climate change to be the number one for the first time in the history of our survey. I mean it's been climbing steadily. Has it like been close number two for a long time and it's just sort of edged ahead, or has there been a notable upsurge in the amount of concern around climate change. It's a notable up surge. It was four last year and it

vaulted from four to number one. I think it's consistent with what you've seen in New York around the UN Climate Summit and the level of energy and enthusiasm that's building. It's not a nice to have, it's a requirement now. So Regina, is this perceived, Is this really focusing on energy carbon footprint? What are some the underpinnings of their uh, the issues about climate change. I think there's quite a

quite a few things that are going on. Number One, they're getting a lot of pressure externally, their communities, their employees, their investors, the E s G component of the investment proportion is driving a lot of this need for change. But they're also saying, I think there's not a lot of climate science deniers anymore, particularly even in the energy space.

While we do realize we need fossil fuels to continue to drive the wealth that we have globally, we also know we have a dual challenge in that we have to figure out how to reduce the carbon footprint. They're seeing multiple strategies. Some are focusing more on renewables and a totally green footprint. Others are focusing on carbon capture and how do we capture and remove the carbon that's in the atmosphere today. But everyone's talking about the need

to do something. So let's shift gears a little bit to just sort of business climate and sentiment. Part of the survey showed that of energy CEOs are confident about their businesses growth prospects, but sixty feel the same about the global economy. Is that sort of consistent uh feeling across the sectors or is that isolated to energy. No, it's consistent feeling across the sectors. But I do think it's a stark disconnect because last year's survey showed that

that number was a lot closer together. We were exuberant about the global economy and exuberant about our own company's prospects. So there is either this sense of the growing unease about what's happening geo politically, that folks worry about the strength of the global economy, but they still I mean, that's a that's this amazing percentage to feel really confident

about your own company's growth. So either there's more fundamental strength in the global economy underpinned by these uh these sentiments, or it could be made perhaps a little bit of irrational exuberance on the part of the individual CEO. So Regina, one of the things that Lisa and I hear often as we speak to corporate executives is the need to find there and the challenge to finding properly trained employees. As economy continues to become more technical and more digital. Um,

what is your survey telling you on that front? Yeah, thanks for that. I think one of the stark points for me too is that of the energy CEO of now taking this life slowly, leading their own technology strategy for their organization and plan to upscale their employees and new digital capabilities. So there is this belief that it's not just about finding new employees, it's about reskilling the base that you have because the world around them is

changing and it's at all levels. It's a multi generational push. You know, those of us that are that are older and perhaps less tech savvy, we have to figure out how to use these new tools to make our jobs more effective and the company more effective, as well as being relative to the digital natives that are entering the

workforce in droves Regina. I want to just take a step back, taking a look at the entire report and mood that you sort of felt being created by all of these chief executive officers right now in markets, every investor comes in here or most of them anyway, say it's clear global growth is slowing, the U S economy is slowing down. We're getting cautious is that cautious feeling

being reflected by the actual plans of these CEOs. I mean, is this something that can be confirmed in corporate America, you are seeing more judicious capital allocation and budget management

as a as a result and as a response. And then one of the other themes that I think came across was the need to be agile because the global signals are changing so rapidly and from one day to the next, we're not entirely sure what our commodity price environments are going to look like, what our share price looks like, what our investors and employees need from us. So we're need to be agile to make different decisions and to respond to the signals as they're rapidly changing.

I think that was the key that came out in response to the environment that you just described, um that you need to be agile because you have to change your responses pretty quickly in today's world. So, Regina, one of the things that's really driving financial markets really over the last year plus has been the ups and downs of any uncertainty surrounding global trade and trade tensions dween the US and China. Any feedback from your survey about

how CEOs are thinking about that risk. It's definitely a very strong risk that's playing in and for our sector and energy. It has a major impact, right. It is showing that there is concerned globally about demand UH in particular from India and China, and the geopolitics with the

tariffs and the trade war do not help that. So you know, my clients focus a lot on the commodity price, and the commodity price is depressed because of a lot of the concerns about future demand and future growth prospects. That's where we see in our industry the trade wars, the uncertainty on tariff having a very real and immediate impact. Regina Ma, thank you so much for joining us today. Regina Mayor's Global sector headed for Energy and Natural Resources

at KPMG. Talking about that CEO outlook showing that climate change topped all concerns for the first time in history. Let's shift gears and focus on the credit markets, because what we'd have seen this month a rally. It's been the first week since August we've actually seen HIL bonds lose value and you are seeing investors becoming more discerning. Joining us now, Michael Temple, director of corporate credit focused on the US for a MOONDI pioneer. Uh, Michael, thank

you so much for being with us. I want to just start there. We are seeing some pushback by investors. What's your takeaway from that, high, Lisa UM, Well, you know, this is sort of typical types of signs that you get when you're sort of reaching the end of the

credit cycle. UM. And we don't know how long the credit cycle is going to continue to last, but you know, some of these companies, particularly the triple C rated companies that are trying to get access to the capital markets and refinance UM are finding it's a little tough going. So why is that just simply because again where we are in the cycle, or is there something specific in the bond market per se? No, I think it's it's

it's more about the cycle. I mean, if you look at high yield and even investment grade corporate credit performance this year, it's actually been very strong. But what's been interesting is that UM, the strongest part of that return, particularly in high yield, has been in the higher quality parts of the market, so the double B parts of the market. Now, part of that is because you've seen this dramatic rally in the underlying UM part of the structure,

that is the treasury structure. But corporate credit spreads in the higher quality part of the hyal market have done really really well. And and the the areas of the market that have been struggling struggling a little bit more has been the lower quality parts of the credit market

UM and in particular areas in the energy market. And so from that standpoint, I think what we're seeing is despite the fact that um uh, you know, overall yields have compressed, the really lower credit quality parts of the market are kind of struggling to get access to capital. So at this point in the credit cycle, and given the fact that we have seen the performance of higher rated credit, are you positioning for that to continue well?

At this stage, we think there's a lot of values still in the kind of single B part of the market, so we would call it kind of the middle tier part of the market. UM, we are very underweight the triple see side of the market right now. I think we're um concerned about um, you know, the potential for

ID syncratic credit risk exposure. We're not yet seeing it on a total sectoral basis other than an energy as I mentioned UM, but yes, we're sort of continuing to focus on the double B and single B part of the hyl market right now. So, Michael, given that we are, you know, late into a cycle, you know, ten plus years into this economic cycle, what's this what's your take on credit quality out there? Are you're seeing any real

pressures or strains in your portfolio in terms of credit quality? Well, you know, it's interesting, about six months ago, everybody was talking about the significant increase in the amount of triple B credit UH exposure in the index UM, and there was the view, I believe that UM, particularly triple B issued creditors, we're going to have to really pay attention to their overall credit quality and begin to reduce debt because of the concerns and the warnings that people were

putting out about this significant bulbs, and the concern was you're going to see a lot of these credits fall down into high yield. Well six months later, you really haven't seen it, and I think the fears of that have really receded. But the reality is is that these

companies by and large really haven't delivered. They have not reduced any of the UH there is, the risk associated with these credits really hasn't reduced anymore, UM, and I think at some point UM people investors are once more going to start to focus on that area of the market. So we're being very selective in the in the triple BE part of the market, UM, avoiding those areas where we think there may be some specul pressure. UM. Beverage

kind of comes to mind. UM. In the high yield market, we're actually seeing an increase in overall credit quality as more and more investors and issuers are sort of focusing on the double B part of the market. So here's the thing gonna make a sort of contrary argument, Michael.

I mean, for let's say triple seas to outperform going forward, everyone's saying they're so cautious, and everyone's saying that we're getting towards the end of the cycle, and so it's important to move up in corporate credit UH credit worthiness.

And yet there's a wall of cash coming from overseas in the face of negative yields, and that is continuing and in some ways accelerating, and you have to wonder at what point that just outweighs the fundamentals especially because that will keep companies going for longer perhaps than they should and avoid the sort of downdraft. That is a

great question, at least in a very interesting observation. UM, we've thought about that as well, and so the question really is, in a nutshell, do technicals end up trumping fundamentals UM and much better? Yeah, well, and I do think that there is a chance that that that that that that does occur. So in particular, we're seeing significant inflows UH into to UH investment grade corporates UH and into in in less of a way, but we're still seeing it as well into the highal market from investors

overseas who are just gasping for yield UM. And so from that standpoint, I think, UM, we definitely could see as we see further spread compression in double bees and single bees, we could see um uh spread compression among triple cs, which would then give access to some of these triple C rated companies to refinance themselves. The alternative view is though, that you get a bifurcation in the market,

and I think that's kind of what we're seeing. Despite the quote unquote wall of money that we're seeing from overseas we're still seeing some of these what we would describe as um uh, you know, questionable business models actually struggling to get funded. Uh. And so from that standpoint, I think the jury still out. So Michael, I need to duce my portfolio a little bit here as we

get towards your end. What sector should I be looking at? Well, again, we think the the single B area of the corporate credit market is still relatively attractive. And I say relatively uh in in air quotes, because um, everything is is trading rich right now on a historical basis. But if you look at UM the single B part of the HIGHL market, I think it's it's really sort of the

goldilocks right now for most investors. UM. You can avoid certain sectors that you think might be under secular pressure. UM and in general, many of these companies have been spending a number of years upgrading the overall credit quality. The average credit statistics in the HIEL market have continued to improve. UM. This isn't direct contradiction to the investment grade market. And some of course are more concerned about the bank loan market on the deterioration of credit quality

that we're seeing there. But again, our view is um. This is probably a as good a place as any start putting your money. Michael Temple, thank you so much for warning us. Michael's a director of corporate credit for US and for the US and portfolio manager for a Mundy Pioneer joining us on the phone. We appreciate his thoughts on the credit 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. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa Abram Woyds. I'm on Twitter at Lisa Abram Woyds. One Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio