Surveillance: Merkel Has Been A Monolith, Schick Says

get to the IBM deal. Ten times sales for red half thirty three billion dollars. What does red Hat do and why does IBM need them? Is this all about the cloud? I think it's all about IBM trying to catch up with a technology cycle that's you know, left it trailing in the dust. Sounds a little late to me, Michael, I think it's it's extremely late, and and you know, somewhat despert. I'm not enough of an expert to tell you whether it's a quote unquote good deal or not,

or what exactly that happenings to the table. But you know, when I look at IBM, I look at a company that used to be Triple A and is now single a um and And nineteen years ago was one of the absolute dominant corporate American companies. In fact, for what I remember, it even managed the first eighteen months of the bear market, and we're still near it's high um and And since Venners has you know, in absolute terms, maybe not absolutely disastrous, but but in relative terms kind

of looks like Wegg did a year ago. What happens if they slipped to some form of triple B or flavor of triple B. I mean, this is an iconic company of the phrase bet. The company has been seen three and four times at PC tobaccle the death of the near death, I should say, of But as you correctly state, Michael, they've got an a rating of a triple A perception and one day they're going to be B or whatever. What happens when a company does that

shifts from ash to be ish. You know, I think it's okay to debase your balance sheet if you are enriching your shareholders. It may not be the way I would want to run a company, but I think you can make an argument, but that's in your in your shareholders interest in your bond holders, you know, provided you keep up at that sort of triple B plus level haven't really been damaged, haven't really been damaged too greatly.

But you know, if we went into a technology downtread um and IBM is teaching between as you say, that A level and that triple B level and spreads a widening. You know, those sorts of bombs don't get treated well by markets. What did Mr mL get wrong? If you were having a cup of coffee with Mrs Romedy and Bloomberg will speak to Mrs Romedy here in a bid uh if if what would you say to Ms Romedi

about lessons learned from Mr Immelt? You know, it's it's I think both of them took over companies that exactly there a long time. I mean, I mean they were and did very very difficult situations by the time management look. I think m L in retrospect panicked after the OA financial crisis and got part of a crucial party, got bit of a crucial part of g which was the financial business, and the company has never really been able

to rebuild itself since. You know, in the case of IBM, yes, as I say, it's it's been a wonderful technology cycle, and you have to ask questions of somebody that came into the cycle and in an okay position like IBM and hasn't managed to innovate, hasn't managed to take advantage of any of the major trends that you've seen take place. John, I get a chart out. I put a Michael shul chart on the Chinese stock market. That was just the usual show brilliance. But I went back and looked at

IBM history, which I lived. But I'd forgotten the boom of the early eighties with the IBM PC and then John the absolute crater. I'd forgotten the trouble IBM was in twenty five years ago, even the last ten years. They think about Microsoft, think about the transition that Microsoft

has managed to make of Santa and Adela. Now that's the way it should have been done at IBM, you would assume, Michael, Yes, But I you know, Microsoft had one key advantage, which was they were earning tremendous amounts of cash for whole way through it and never really had to touch their balance sheet. That the trouble with Microsoft, as they had a fantastic legacy business and they didn't really noticed, they really didn't understand what to do with it.

You know, IBM unfortunately seems to have a deteriorating legacy business and doesn't quite know what to do about it. Well, IBM stocks down about five. I love the way many people will refer to this, Michael as a cash deal, and it's a cash deal for Red Hat. For IBM, it's something else. It's a debt deal, right correct, It will be financed by debt. That's the situation for the big tech companies. Looking at the situation right now for the broader market is interesting that we're about together the

world's second largest tech deal. Michael seemingly at a time where the markets falling gat a bed and increasingly the doom and Gloom crew were coming on a program like this talking about the prospect of a downturn. What's the signal that comes from a deal like this this morning? You know, you don't want to like take every deal and say this definitely means something. I think it means a lot for IBM for the overall technology market. It's

perhaps interesting, but Red Hat was willing to sell. You know, maybe they felt that their own business was coming under pressure. But I think technology has got to the point that it's becoming increasingly competitive, increasingly oligopalistic um, and for the first time, I think we have questions whether over the medium to longer term, the large technology companies can keep up with expectations. Are all ego bullies? How does IBM

adjust to that? And we get to the cow and Jeffrey's headlines today in the Bloombird, where one of them, I believe Cowen says we could see other bids even at thirty one time, Zibadar or whatever, and Jeffreys saying, no way. I mean there's a desperation out there in cloud technology, isn't there. Well, I think it's viewed as as the best way to make money from the corporate sector, you know, going forward. And I think if the IBM three six, do you have two thousand twenty two right? Yes?

You know whatever? That was his face I wish we had wish Did you see that on radio? We need you like brilliant Michael's face, Michael bar Did you see that? She'll just killed me that? Yes? To last, you have no idea John, how the pecking order at any firm was whether you had an IBM typewriter. They were just the coolest thing. Going back in the day. They were the coolest thing. What going I couldn't type was this.

This is so far back I don't remember what decade, But the point is it didn't even matter if you could type. It was just cool. You still don't do on your own typing even now. No, I don't do my own type. Tom Kane, Happy, Tom Kine, Michael Shell, Thank you, Michael, give me so much time to place on TV and radio. Market Field Asset Management's chairman, portfolio

manager and CEO. We are honored to bring in Shannon O'Neill of the Counsul and foreign relations or expertise in Mexico and Argentine of course on all of Latin America and Brazil. Dr Nil, wonderful to have you whe us you speak of Mexico and America indivisible in your book? Are Brazil and the United States? Is this new president and President Trump? Are they indivisible? Well? I do think that the new president elect would like to make them indivisible.

He's a big fan of President Trump and has talked a lot about him and how he would follow him, and also really touted the phone call he got from President Trump last night in the congratulations within this, Shannon O'Neill, is the comparison is to Mr deterity of the Philippines. Obviously, law, criminality, corruption or front and center. In Brazil. Will there be a crackdown to threaten civil liberties? This is what everyone is expecting and what he has said over and over

during each campaign. Stop. Brazil is already a place where the police kill somewhere around five thousand individuals every year, and so expect those numbers to go up, just as they did in the Philippines. The commitment to liberalize and privatize is something the markets have really focused on over the last few months or so. Shannon, just how strong

is that commitment? How fluid is that commitment? Well, this is a big question because the president elect Bosnao has never been a big privatizer, he's voted against it during his almost thirty years within the Congress. But his economic advisor is a very strong privatizer, very orthodox Econ missed, and he's hinted that he will give him free reign. So which Billsonaro, which government shows up will be a

big question. And Shannon, this is the issue. The narrative around Bolsonaro, This economic narrative is recent, it's vague and it hinges on this one individual. Talk to me a little bit more about this one individual that is going to be shaping economic policy in Brazil, that ultimately is the economic policy that the market has gone behind. Well, he's a very strong personality, very set in these beliefs, very orthodox economists along the University of Chicago lines. So

in that sense, he's very pro market. The question is, as you say, he's new to the Billsonaro team, and so will he really have his trust, will he have the power to go forward? And one thing that was said in the last couple of days is that he will report to Bilsonaro's chief of staff, so suggesting he might not have that direct line to the new president. Shannon, within your expertise of Latin America, how discreet is Brazil or are there more linkage? Is than we understand with

the adjacent nations and even with Mexico. Brazil is the biggest economy in in the hemisphere outside of the United States. It has a lot of trade with the microsar partners, Argentina, Uruguay, Paraguay. It has the possibility of being a regional and a bigger global leader We've seen that at various moments along the way, um, and it is important for what's going on in Venezuela also its neighbor, and we'll see whether the new president takes a leadership role on the crisis

that's happening there. What's the linkage of the military or well, let me rephrase this in my ignorance, what is the linkage of the military slash police with this new president. Well, he was an army captain many many years ago, but he's a huge official and not a huge fan of the military. He likes to talk in that language. He likes to talk about giving the police a free reign. So expect a much more milit terries state in many ways.

We also saw several ex military office brought in as governors or as members of Congress, So you're gonna see more of this rhetoric within the new political class. Shannon, Thank you so much. Shannon on the old console on foreign relations, can't say enough about two nations indivisible. It has aged well out four or five years ago. Two nations indivisible Mexico, the United States, and the road ahead is wrong. Let us pause with Neil sharing of Catholic anomics,

you can do that. He's he's really really quite good, spanning from e M to developed countries as well. Neil, if you were to write a report today, what would you focus on in the capital economics mix? Well, that's the question. There's just so many things going on. I don't want to predetermine it. What which right There's There's obviously lots of strands that we that we we do tend to focus on. There's the trade war. To what extent is that going to escalate? To what extent that's

is that going to kill the global economy. There's the risk of the political fragmentation, rise of populism, economic nationalism and parts of the world, including with the news of Bosonara's victory in Brazil over the weekend. And the big question to my mind though, is to what extent how much longevity is there in the US recovery. To what extent does the cumulative effects of previous FED rate rate hikes,

FED tightening, Well, when does that start to bite? When does the fiscal sugar high from the tax cuts earlier this year start to fade? And that's the big puzzle, because that's the it's the US that stands out at the moment every most other parts of the globe economy is slowing US. The dollar dynamics is the guess of dollardics. Yeah, which people have got wrong for two years wrong, two years running. Now Tom looking for a stronger and they get a weaker. They look for a weaker and they

get a stronger. That's been the story of Neil. Really fascinating interview with Jeff Gunlag very recently on on Citywire. It was really really interesting and he talked about what he looks for in the economic data and either the data changes or people's interpretation of that data changes. Has the data changed or if people just started to interpret

the data differently another good question. I think that there is genuinely a sense I think in the last six months that the economic data outside of the US have started to soften. We see that not just in the soft data, the survey data, the p m s and so on and so forth. We see in the hard days of some trade data slowing, industrial productions weaker. Pretty much across the board. Japan's economy looks like it looks like it contracted in Q three, and China's economy is

losing momentum. Too, So I think there is something tangible in the in the data. The puzzle that you as you alluded to earlier is that we've not yet seen signs of wage pressure picking up in the countries where the labor market is a titan. Growth is still strong, particularly the US and in the U k UM And that's that. I think that's the that's the that's the missing piece of the jig saw so far. No, very quickly, you're you were with us earlier we talked about China

slowing down. What is China growth right now? In capital economics and conder, I say, we get a print below six point zero percent, we you can. We have our own in highse measure China activity proxy that's kind of running at the moment about five and a half five's

something like that. It got to as low as just below four at the end of twenty fifteen, started sixteen, which if you remember, that's when he had the botched evaluation and big slow down in China's economy, subsequent recovery field by policy stimulus that's now fading ah and growth of stowing. Accordingly, just quickly, what are you looking for on Friday? We've got five think the consensus is one three something around that. The key will be what happens

with the way number? Is there a further sleervation in wage growth? How does the fetch reacts? How does it went bound? Stop against the tamil that we see actually office stops the pause bubbles now sharing, thank you so much as well with a new slow this morning. We uh we did early early this morning the shocking headlines coming out of Germany of Chancellor Miracle stepping down from

party leadership of her dominant c DU. This after a troubled election in Bavaria a few weeks ago in Hessan which is vis Boden and Frankfurt over the weekend, and then really the major headline coming out of a end or political career looking out two and three years. Nina Schick is with Rasmussen. This is the Rasmusen of Denmark in London. Uh, and we greatly appreciate her attendance uh

this morning. Nina. Is it an analysis out two and three years of after the party's c DU, after the party's CPD, or can these two dominant parties find a new path in domestic Germany. I think they don't have

a choice. They have to find a new pass. And the thing is that Angela Merkel has been such a monolith not only in terms of domestic politics in Germany, but also in terms of EU politics and also global politics, that filling that space, that void that she's going to live behind, is going to inevitably going to cause a

little soul searching and blood letting in her parties. And although I think she's setting setting the stage for her departure, which by the way, I would argue was always going to be the case, given her performance in the national election in seventeen and the subsequent regional elections where we've seen her parties her both her party and the other traditional kind of center left Mains Treen Party being hammered.

I would argue that this is inevitable. And the bigger trend of what we're seeing in Germany is something that we see across the liberal western democratic world, where the center cannot hold anymore and politics is becoming more and more polarized, noisy, and increasingly fractured. That's something we see in Germany with the rise of the far right a f T but also with the Greens, both of whom present you know, a diametrically opposing vision of Germany and

what Germany's place in the world should be. Wondering, you know, if there are any sort of likely candidates to fulfill Uncle and Merkel's role as head of the party, for example, the health minister Yen's spawn. Well, so the first thing I should mention is that Michael has said that she's going to step down from the party's leadership, but she's still technically saying that she's going to serve out the

full tenure as chancellor leading into one. But again I think what she's doing stayed, you know, setting the scene for an early exit, so big question mark about whether or not you will actually stay until twenty one. But

she's not leaning leaving imminently. As to her successor, well that's where it gets a bit complicated because Angela Mackel herself was you know, a proponent or even a student of helmwou Cool, you know, the former chancellor, and under that school of thought, she looked very good at eradicating any potential successor when they started getting a bit too powerful, a bit too close for her. So there aren't very

many obvious candidates. Well, of the few people that are being touted, like Jen Spahn or Anne mcgrad kavan Bower, who is known as almost a mini Mercle. I think that it is a poison chalice because she has been such a bemus in German and global politics that being her successor, and make no mistake, she's still going to have a say on who her successor is. Being her successor might be too toxic long term politically, because they'll

be so tight to Angela Mackael. And you know, the older generation of the city who be it Machael or Wolcom Scheibler, that their own political career might not last too long. So you have a younger generation of politicians who are coming up, including for example, who don't necessarily immediately want to step into her shoes right now because they want to make sure that they are able to define themselves with something quite different from Machaels. So it

will take a few years. I think. As part of your work at Rasmussen Global, you've looked at a variety of campaigns. You also did some work on the UK's EU referendum. Do you believe that there will be a new government in the UK. Well, British politics is very

precarious right now, and I think that you know. On a separate note, I think that we are seeing a lot of kind of disciplines or should we say company located politics around the world, which I think has is something much larger to do with the state of democracy in the world order, which was built in the ashes of the Second World War, and how that's all being offended, not least because of what's happening in the United States.

With regards to the UK in particular, the biggest challenge that the government and the Prime Minister Trees that may have on their hands right now is to get the Brexit deal through Parliament. They've already kind of agreed the deal on the EU level, and what we've been in the past two years is that the UK has come around this easy position of thinking. But if they don't get that through the government may okay. But in Germany

and in England it pends. Good question, and you're wonderful answer and informed answer is the reality at the ballot box people are voting. When does this populism trend end, whether it's Poland or Germany, or England or frankly Kentucky in eight days, when does populism end? I don't I don't see a rash all outcome for the elites other than it keeps going. I tend to agree with your analysis.

Third home, I think that this is very much the trajectory of politics that we're going to be seeing in the years to come, a highly emotive, partisan and destructive and angry politics, in part because I think that democracy

quote unquote has failed for a lot of people. And this kind of anger that you see not only in the United States but also across Europe means that the narrative that we've told ourselves in particular with the United States as well, that open markets, liberal democracy, and capitalism go hand in pans, and that this is some kind of linear progress to which all of the rest of the countries in the world are going to aspire to.

That very narrative is being challenged. And what we find is that liberal democracy is no longer the UH is no longer the aspirational model for everyone in the world, but it's actual She's becoming an exception, and there is valid criticism to be made, you know, there's valid criticism of the liberal elites um and I tend to agree with you that this is something we're going to speak playing out heavily in the next few years. Nina and

Short Notice, thank you as so much. Share with rast Miss of Denmark in England helping out this morning on European News. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.