Why Fundamentals Are Driving Currency Investment: BBH's Thin

market currencies. Now he covers everything and he really just knows everything about everything. Wentin of Brown Brothers Harmon. Thanks for joining us today. Hi FI always a picture. Thank you so when you know, I'd love to talk about emerging market currencies, but I do want to ask you first about this spot, which is really more than a spot. I shouldn't call it a bat between the US and China. It's pumping up again President Trump, you know, throwing in

a threat. Perhaps it's too distract from other things. Perhaps it's for real, as they say, how are you reading it? And will it affect the dollar longer term? As you know, the markets have been struggling with the U S China struggle really for for several years now, right, it started off with the trade war, No certaint you know something

I think even deeper and such structurally more profound. You I think, regardless of who the next president is, I think the US China relations have h well, you know, have changed um forever. I mean, if you look at the poles um voters in in the US cross party lines, both Democrats and Republicans all favor taking a tougher line

against China, against the perceiving fractions, etcetera. So whether it's Mr Biden or whether this Mr Trump, um, you know, both administrations I think will continue on this tough line with China. Yeah. And what will that do to the US dollar? Because we definitely saw you know, big weakening in the dollar last week. It wasn't just on the China news, but you know it was ninety two and change on d x y. We've strengthened a little bit again.

Will there be any the impact even if this continues? Well, what we saw back last year was, you know, during when the trade war erupted and really got tense, the dollars tend to strengthen, especially against emerging markets, right, because it's not just China, it's all the countries in sort of the wider China orbit. UM. You know, China imports UH, commodity, et cetera from other countries. So it's it's really you know, part of it, you know, sort of a big cog

cog in the whole global trading regime. So to me, that's the risk UM that you know, a a UM, it's a prolonged or renewed tensions in the US China would a two things, probably boost the dollars for safe haven and most likely UM put down depression on equities. You know, we saw that last year. I think that's what dynamic would take place. Now what's interesting to me is that, you know, and Mr Trump is sort of

kind of eased off that a little bit. UM. And but now I think, as you pointed out, you know, we're going into prime election season, and it seems you're trying to find some sort of message that's going to resonate with voters. UM myself personally, I look at the polls and and see that most voters at this point really we're most worried about the pandemic and the domestic economy. China seems a little bit lower on the list, and so also I do suspect this, this, this will not

get that much traction. And Mr Trump me go on the next message. So, if we don't have to worry so much about the dollar, where are you looking around for value in currencies? We saw the g B P U S D weekend today a little bit sterling trading at one thirty twenty six, but it had been strengthening. So there's that. We have the Canadian dollar almost at one thirty two right now and the end below one oh six, so there's definitely movement out there when but

where are you finding the most buying for your book? Literally? Yeah, So if I'm glad you brought that, because it's is something that myself and I think a few other analysts have been talking about that. You know, in the past you could talk about interest rate differentials as as a big driver for currencies, and that's just no longer the case. We've got zero of rates basic basically across developed markets

and even in across many emerging markets. So instead of the carry and sort of intertect differentials, I think investors are focusing really purely on the fundamentals and and relative economic growth potential and differentials. So where does that put us? Well, you know, I've been as you probably know, I've been pretty negative on the dollar in two three just because you've really I think mishandled this virus. It's been much worse than it had to be, and I think the

US economy has been underperforming. But what we're seeing around the world now is that those countries that started to reopen or having trouble right We're seeing problems in Italy, France, Germany, in Asia. So it's it's sort of almost a moving target, like who's what's what's looking worse right now? Um So, I remain negative on the US dollar in your term,

We've got to get these virus numbers that control. Um you know, I think China is a good story they you know, of all these other countries around the world, it's it seems to be done the best in in really keeping the virus numbers down. So China, Emerging Asia, I think hold the best eye right now in terms of relative fundamentals and relative growth Latin Americans and is just like he has in the US. Just we're struggling

with the virus, struggling to keep economic growth. Um So it's really I think for fundamental person like myself, you know, fundamentally focused investors and analysts, this is really where it becomes important. And I think that we really have to

pay attention here. Yeah. So obviously we're in a coronavirus era, and so you're saying that until that era is over, you would look at certain countries very differently than you might if we were not on a coronavirus era, such as emerging Asia and parts of Latin America and not not all of Latin America. But does that mean, for example, that you would consider, you know, currencies where you wouldn't normally and I say normally pre pandemic and post pandemic

invest Yes, I mean, I think what you know. I think that, for instance, we've always seen um emerging markets, a lot of high carey countries sort of Brazil, Turkey, um, South Africa. They tended to gain during risk on training. But now and again with basically zero rates, there's no Crishian there, there's no yield or carriage that attracts um UH invest in closes these countries, which to me have

arguably amongst the worst fundamentals. So within the e M, it's it's fascinating to me that there's such a divergence in performance um even during this sort of risk on um environment we really saw in the last several months. So again I would just again caution investors to to really not buy things sort of wholesale that is, you know, look, look differentiate, look at the aversion fundamentals, you know, within asset classes, and that's that's that's very important to remember

as you're going to Q four. Where do you like in Emerging Asia? I think, um, Singapore, Korea, China. You know, they again these countries, you know, they're still struggling obviously to to maintain low virus numbers. They've done a fantastic job um and without having to shut down the economy as as as uh these day, as we have elsewhere in Europe and here in in North America. So Taiwan I would go in that as well. You know, again, the China story is solid and it's going to bring

up a lot of these other other regional economies as well. Um. You know, it's it's not perfect. You know, China has its issues. You know, I think as you as we've been talking about this, this issue with the U S could flare up and could harm sentiment. But for now, I think investors are pretty comfortable with the China recovery story. You look at am I numbers and an export numbers China just as they lead the sort of the world downward during this coronavirus, leaving the world world upward in

the recovery. And again it's I think we all have to focus on which countries have done the best in in limiting the pandemic impact. You know, another reason I'm negative on the US is we still can't get another studless book past, and I think it's very crucial. And you know, I would have thought we've had something in the in the bank bank by now, but um, I mean, it's unreal that it's fifty six days to the election and we still have nothing. Very briefly starting, why is

it not reacting more? Our investors not taking the possibility of a worse break sit seriously? Yeah, so what look it did we have seen throwing U be the worst performance today? And I think over the last week it's pretty clear that that they're the odds of a no deal Brexit are are rising their higher than I think many has expected. Mr Johnson, you know, through our monkey mentions and the works by saying he may just throw out parts of you know, withdrawalogy, which is against I

I believe against international law. Uh So it's just to me, it's a big mess. Um. I think what most people are comfortable with. It's not going to be a huge sort of um global can cast. I think most agents have have sort of prepared for this um and and so the impact will not be huge globally. But throwing it's pretty negative. Yeah, that's for sure. Win, thank you so much. That's when thin of Brown Brothers Harriman so

much appreciated. That's a serious story that Greg Jared just told us about JP Morgan issuing about two eighty thousand loans in the p p P. Those loans told more than twenty nine billion dollars with a b so. JP Morgan was the top p p P lender in the country according to SPA data. And if it's now looking into instances, we don't know how many in which COVID relief funds were misused by customers and as probing employees involvement in the illegal activities, you can be sure we're

here a lot a lot more about that. All right, let's bring in somebody who knows a lot about what's going on in the NASDAC right now, and that is David Garrity of laid Law and also bt Block. David, thanks for joining. How concerned are you that now we're you know, in the last three sessions or so, we're at around about eight to nine percent drop for the deck. Yeah, Vanni.

In terms of looking at the price action that we had going into the end of August, you certainly had a asymptotic move to the upside by the likes of Apple as well as Tesla going into their splits um. Certainly we've had the news about the options market activity that have been taking place. So to have the market back now nine percent below its highs um as that tends more volatile, we don't think we necessarily going to be finished with this correction as of today. It may

have a little bit further to run. Are there stocks that you would pile into right now though, even if there is a little more to run, or would you wait for another while? Or are we getting to the stage where we'll see stocks correctly valued as opposed to under valued. I think that your last point here in terms of trying to get to a more correct valuation

is probably the most appropriate point. Um. We have to take into account the fact the prospects for further fiscal stimulus, at least prior to the election in November, are most likely being put squarely on the sidelines. So there is nothing that's going to be coming over the hill, so to speak, in terms of further spending UH to support the US economy, and certainly that has knock on effects for the global economy. Um. And at the same time,

absent that support. The drumbeat of bad news in terms of layoffs, whether it's coming from airlines, banks or other places, is probably going to become more significant. And you know, in the meanwhile, we always have the news about you know, the second wave if you will, of coronavirus infections. So you know, on balance, um, people were quite a brilliant going into the late summer, and unfortunately fall brings along

with the cooler temperatures perhaps a cooler perspective, David. The options activity that you were talking about, you know, religio to soft bank and so on, How serious is that

for trading going forward? Will have any impact? Um? I mean to the extent we don't know necessarily what were what was the maturity or what was the term on the options contracts that were involved, To the extent that they appear to have been fairly significant relative to the ramp up in the shares um, we would think that the options contracts themselves were perhaps relatively short term, in which case, um, you know, the impact of those contracts

should wash out fairly frequently. Nevertheless, it probably leaves us in a position here where the month of September um is going to be obviously ordered, started volatile, but it's

likely to continue to be so. And that more, it's going to be the earning season that we start to get announced in October for the third quarter of that will serve to stabilize things and give a better prospect in terms of where are the valuations reasonable in terms of the prices in the market relative to the earnings prospects of the companies involved. So, David, perfect news for you. We just got the word that Apple is going to hold an online event September where the company is expected

to unveil its latest iPhones and Apple Watches. It's going to start at ten am Pacific time one pm Eastern. What should we look forward to from Apple in this round of innovation. Well, certainly the biggest thing to look for from Apple is going to be the latest edition of the iPhone, which is going to be engineered to be using the five G wireless spectrum and in this regard considered to be possibly a transformative product for Apple.

Certainly it's been an element that's been responsible for the run up and the shares um probably over the last three to four months. Maybe if you want to go back further and look at the March lows so clearly allowed the expectations they're already baked into the market. Um. Nice to know that we're going to be getting something to look forward to in the fifteen September um, and we'll be looking for what the surprises are on the margin. But the five G I phone is the big ticket.

So why put so much and for this on five G when really you know there's a lot of the country that is not going to be able to benefit from that. I mean we're really only talking about the major cities and not even all of those major cities that have five G right now. No, it's true, um, but if we look at what the services are that can be facilitated as a result of having the speed that five G will offer, it can be a substantially

different user experience. UM, and you have to look at you know, what's going to be capable in terms of providing more information by way of video at faster rates. And arguably you may say it's the cities that have most of the coverage right now, but UM absent COVID, that's where most of the people or most of the

cell phone users tend to be UM. So you know, looking at five G we're not so far out from the deployment of five gene networks that this is something of a product that comes out before there's really a market for it. I think the timing on Apple support is actually quite good. Yeah, indeed, because there will be nothing like wanting a little bit of luxury or a little something new to pep us up if coronavirus continues, which as we know it will. David Garrity, thank you

so much for all of your intelligence today. David Garrity, chief market strategist at laid Lawn Company and also beat t block which is a blockchain and cryptocurrency company. It is time now forms and we're opinion of that we're going to actually across the pond. Sterling has been trading today just a little bit on the idea that Boris Johnson might be taking breaksit in a crazy direction. And that is also the title of Terre's Raphael's latest bloombaring

opinion piece. So we welcome tores right now and once again Sterling at one thirty thirty two week or by one percent. What crazy direction are we talking about, Terres, Well, there's there, there is crazy and crazier. Let's put it

that way. So john since ministers, his cabinet and then the can downing streets, have been putting out the word for some time now that he sees no deal with the EU, no trade deal that sets out the future negotiations, is actually preferable to compromising on the outstanding issues, including the one of state aid now that carries all sorts of implications because of the insertible trade, but the World Trade Organization terms, which will carry of course economic costs

as we get trade Christians. The crazier part is the acknowledgement, including by a government minister in the House of Commons today, that the government plans to break its treaty obligation. This is the treaty it fined with the EU only months ago, UH, and the part of the treaty on the Northern Irish Protocol that was intended to ensure that there's an open border between the Northern Ireland and Ireland, and the government is now saying it wants to pass legislation that would

override parts of that treaty. So all of this is obviously caused much consternation uh from the EU side, though there is at least, you know, some hope that it's uh the kind of brinkmanship we've seen in the past that tends to perceive the eleventh hour adminciations that tends

to procede some kind of a deal. So essentially Boris Johnson might be trying to rewrite the Brexit divorce deal that took so long to get signed last year with the European Union, and he might also be baking international law. If all of this goes ahead, why are markets not taking this seriously seriously enough in the sense that's starting as a little weaker but nothing is falling off a cliff.

I mean, I think for a couple of reasons. One, there is a sense that that EU negotiations always UH go through this sort of stage of falling apart before they come together at the last minute. And that's what we saw last year where Boris Johnson met with the former Irish teacher Leo Rodka and did a deal um on the Northern Island that that field um are paved

the way for the rest of the withdrawll agreement. So there's some sense that this may be posturing, but you know, there's also an understanding that they now had a significant time to prepare for a no deal exit. Both sides have been doing. So any deal that they would uh conclude now is not going to be uh substantially better

in terms of trade than leaving without a deal. They will get, you know, perhaps some relief on tariffs and quotas, but we're not talking the kind of comprehensive free trade agreement covering all areas of policy that was hoped for in the beginning, and that's kind of priced in now. These talks are going to go on and on and on regardless of whether some kind of deal is reached at the end of the year. Not only that, but it sounds like there are two options for no deal.

One is just no deal, but fairly endye terms, and the other is what seems to be happening, and that's no deal in pretty acrimonious terms. Yeah, and I think you know, from the point off, if you're going to look at it from from from the market perspective, you can have a no deal on acrimonious terms, but how long can you really stay on those terms. Britain and

the EU are each other's major trading partner. They cooperate on a whole rate, but issues from migration to counter terrorism, security, policing, um, all sorts of uh, you know, all sorts of other issues, and really they have to find some way through this. So you know, whatever the mood music is now, uh, we can expect that at some point cooler had to prevail and some kind of return to ano those shaping table would be expected. And I think that's that's sort

of a reasonable expectation. When that happens, and on what terms is really hard to say. So as I read Lauris Johnson's statement out of the ten Downings Weak yesterday, and it appeared to be, you know, very optimistic and look, if this all happens, it'll end up that we're you know, essentially trading with Europe, like Australia trades with Europe for example, but we'll also have completely you know, sovereign power and control over what we decide to do and so on.

Is the tone too optimistic for what would happen in a scenario where Britain was on the outside, like say Australia, Well, I mean you might as well well have said, you know, we'll trade with Europe the way um as someone said Outer Mongolia will trade with her, because Australia doesn't have a trade deal, and so that is just kind of a soft way of saying, um, you know, we will be completely on the outside. I think Johnson does want some kind of a deal. It's clearly in Britain's economic

interests to have preferential trade terms. Politically, it will get very very tricky with the momentum for independence in Scotland if there's no deal at all, So I think his preference would be to have a deal. At the same time, the issue that's dividing them now, which is a state aid, the the ability of governments to get subsidies, tax really

for other incentives to businesses. It is pretty existential for this government because it's trying to reorient the British economy after Brexit, to make it amenable to global trade deals, to level up, as as Johnson likes to put it, parts of the economy that has fallen behind, to try to improve certain lagging productivity. And the only way, in their view, they can do that is to have a free rein when it comes to using taxpayer money to help give a boost to investment in R and D

skills training in certain industries. And they're worried that the EU is going to try to prevent that because the EU will fear a distortion of competition. So the both sides actually have a lot of to stake here. The EU is trying to preserve the integrity of the Single Market and prevent Britain from undercutting the new industries in Britain wants to reap the benefits of Brexit and have complete freedom over its rules. And uh, you know, there is a deal to be done, no doubt, but it

will require political will on both sides. And the dangerous that you know they've really um from the UK side, they've sort of painted themselves into a corner because if you you know, if they're if they're going to go ahead with a plan to you know, literally abrogated international treaty and then say they refused to compromise at all of state. It's really hard to say. How I see how the EU can move closely towards the UK position and save a deal. And again, you know, we're talking

about a very tight time frame. Johnson's put a deadline of October fifteen on it, and then on the Northern Ireland Protocol. Ray is just very briefly because we're pretty out of time. Hard border has been obviously ruled out, but there would be some kind of order now, is that what this means? Well, not necessarily. The articles that talk just talking about um regards the impact of of state aid for trade attract more than Ireland and the EU.

But I think abrogating the treaty does open reopen questions about the border, So you know, one might follow the other. It's not for certain, but it certainly it's an issue. Terre's Raphael Bloomberg opinion columnists, thank you so much for explaining all of this to us. As John author says, the Empire strikes back. And in other news, sl Green Realty preparing to cut the ribbon next week on one Vanderbilt a thirteen billion dollar office tower above Grand Central

Terminal in New York. It's twenty years in the making. But will it be rented now to the story of the day. Really, it's the tale of the two electric vehicle makers. Neither of them really profitable, but one of them is actually turning out vehicles, and that's Tesla. Tesla down sent right now. But Nicola that's trying to make the badger in big numbers. Well it's higher because GM is to get a two billion billion. That's with a b dollar steak in Nicola. Let's bring in someone to

tell us a lot more about this. David Welsh is Detroit bureaucy for Bloomberg News. David, just the initial questions I want to ask surround the differences between Nicola and Tesla. Is it a false comparison? Look right now it is. You have a company that's worth almost nineteen billion dollars, but they haven't sold any You do have a couple of CEOs to these companies that like to get on Twitter and and be very active there and be very quotable and colorful. But after that the comparison kind of

fall short. That's not to see Nikola doesn't have some technology, um, but they don't even have a model for sale yet. They're still in the process of developing those and getting plants up and running. And really this deal sort of underscores and even bigger difference between Tesla from its early days and Nicola today, and that is with this partnership with GM, they're actually using GMS utric vehicle battery and GM's fuel cell system, which is generally developed with Honda.

Tesla developed its own battery pack that everybody else in the industry said couldn't work, wouldn't have great quality, but it did work, and it did that pretty good quality, so they didn't need to use anybody else's technology. Early on, Dime More of Germany and Toyota Corp. HAID invested in Tesla,

but they were still using Tesla's own battery pack. This is different here, So it does make a lot of people question what does Nicola bring the GM in terms of technology or is it basically a brand name of pickup truck concept and some sales down the line, and that that appears to be what it is. That's pretty insane. So the story is General Motors is giving two billion dollars to Nikola. It gets a two billion dollar equity

stake for that and even ownership of Nicola. Nicola says it's the saving over four billion dollars in battery and power train costs, and GM says it's going to receive in excess of four billion dollars of benefits. Where did I get that four billion dollar figure? So, first of all, GM is not even putting cash in the two billion dollar UH state that they're getting is simply by giving Nicola and their battery and their fuel cell technology. So with then no cash deal for GM and therefore much

less risk the same things everybody's talking about. And we'll take a brief walk back here to my days of covering M and A deals. It's sort of assuming a certain amount of sales and here's how much we will save on battery development and fuel cell development and building stories. Nicola doesn't have to build an electric vehicle factory. Now

they'll use GMS. It's really by joining forces, but it's based on a bunch of assumptions that X number of vehicles will sell and would have cost each company a certain amount of money had they gone on their own. But now they're joining forces and combining things, and they'll get all kinds of savings. You know, I'm not sure we'll see four billion peeled out of General Motors UH costs and down to the bottom line. But it's sort of a future projection here, so I've always looked at

through a little bit suspiciously. But see what happens in the future. So what does it say about GM that it's looking for a new concept like that? Why does it need it now? And when might the badger is sort of becoming off GM assembly lines or even you know, Nicola Tesla lines, the Nicola lines. They're saying the second half of two, so at least six months after GM's

Hummer pickup truck comes out. So if if Nicola's vehicles sell, GM gets two things out of it, they will be selling a basic work pickup truck, very different from the Hummer pickup truck that GM is planning. So that's more of a lifestyle vehicle, almost kind of a luxury vehicle. Hummer is not the kind of brand for people for contractors who are loading it up with pipes and two by fours and that sort of thing. This is the kind of truck that tows a boat or is just

driven around town. So the Nicola truck would give GM a crack. It's selling something more of a regular work truck. And then on a few also the side of things, what GM give because there's much more concrete, is the Class seven and eight pickup truck. These are the big over the road or rags for hauling free. GM doesn't really have anything there and this is their way to get into that game. And fuel cells are a pretty good way to power those trucks because batteries weighs so much.

You're you're just cutting away how much Frede you can holof You did it with electric power, now you're doing the hydrogen power. So GM gets into a new market if it works, if it doesn't work, GM has not put any cash in UM and and and so you know that there's not a lot of monetary respire GM here. So Nika is up. You might understand that. But is it understandable that Tesla is down today? Uh? Yeah, in in a big way. It is because a lot of investors.

Tesla is going to be welcomed into the SMP five hundred, and that means you have seen a lot of passive money through SMP five STP index bonds coming in as opposed to you know, the heavy cohort of re Tell investors and some institutions that are in Tesla that didn't happen. And it has to implications. One that's just you know, pure fact, you're not going to have all this potential new money coming into the stock. And too, there is some talk out there that um Testa's earnings, well, I

have been profitable several quarters in a row. Now, it's not a great quality of earnings. They often lose money on the core vehicle business and make enough money selling regulatory electric vehicle credits to the gas burning many car manufacturers, and and that overshadows the losses and end up turning a profit. David, we absolutely there, But thank you so much for explaining all of that to us. Much much appreciated, David Welch there in Detroit. Thanks for listening to the

Boomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Bonnie Quinn, I'm on Twitter at Bonnie Quinn. And Paul Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio. Huh uh uh u.