We're Halfway Through this Cycle, Gimbel Predicts

let's begin with Turkey. What constitutes a currency crisis and how close are we to want in Turkey? So honestly, the recent movements in the currency had been a quiet to dramatic and you have to put that into context of really interest rates. So we're analyzing for an exchange we have always to think about what type of rear rate level do you require to cover up for internal

and external imbalances? And the Turkish rear rate and environment is obviously too low for the taste of investors and that is so why is the exchange rate is currently selling off now when you look into what is priced in on rate hikes in talk is about two on that basis points. So in order to stabilize the exchange rate, you would have to see rate hikes going beyond what is currently priced in in the in the front end

of the curve. Now that obviously it does require a decision by the Center Bank to do so well, and it's amazing to me that the Central Bank hasn't moved yet. And it's not just me. A lot of traders are saying, what is the what are they waiting for? What do they need to raise rates? If they don't raise rates,

how far can this go? Well, there's obviously the ultimate question, but you have as well to put that in the context of other circumstances or that is, actually the vulnerability which is commonly exposed in Turkey is as well a result of US dollar strengths, which we are now experiencing. Since so it's hard to call this that. I mean, the lyric has fallen twenty one percent so far this year. Japanese investors who had previously been bullish are now pulling back,

cutting their losses, getting out of there. Uh, this isn't just a dollar strength story. No, no, no, no no. You have actually to think about under which circumstances can you fund for an imbalance of funding needs in capital importance and under which circumstances is becoming more difficult. And the situation was obviously in the past a few years it was there were situations where capital important into higher yielding environment, so we're less difficult a than they emerged

from Fabry onwards. And of course there were then other effectors which are much more specific to Turkey kicking in. But my point here is that are to be easier for for authorities to stabilize the exchange rate within an environment of US solar weakness. When you have a dollar strengths generally are happening out or happening, then that effort is becoming a much more difficult. That is the point

I wanted to make. It's a good point hands. And when you overload the credibility issue here as well, you've got investors wondering whether the central Bank could indeed deliver a rate car never mind a rate hike after the election in Turkey, a real credibility issue there. Two hands, what's the contagion risk here? If there is any asel hands?

So what you have seen in the merchant market so far is that a bond equity and credit had been multi selling off, but it had been not astromatic as you would assume if you look at the exchange rates. So what happened here is that the value at risk in a merchant market portfolio also got reduced by people are hitching the Curren series. Now you know that hitching in the fixer emerging market environment is expensive. That actually

means we have currently unsustainable portfolio structure. So it actually means that are either at one point you have to lift the hatch or alternatively you need to reduce your holdings in equities, bonsor and credit. And that decision is going to come up in the next few days and a lot. Again, it is going to depend how the general perception of cs dollar is. What do you think about a global risk appetite? Are we in an environment

where people put money at work or not? And we have as well then to think about the complicating issue of the euro. What is currently happening in Italy does not help the issue. Yeah, you know, you make a really important point about how any moves to stabilize or even sort of edify developing economies really hinges on the dollar and the euro. And right now I'm looking at a story that Bloomberg News put out showing that emerging market companies and governments have borrowed a record amount of

hard currency debt in the past decade. What is your view for the dollar in the next six months and how concerning is this free m Now? The thing is that there's not nothing new that that there had been a hard currency in flow into a merchant market. The fo to think about that in the context of capital or capex expansion or in a merchant markets. When the global economy is synchronized and strong, you eat into global

capacity reserves. You wanted to increase your capacity use your as dollar for funding purposes, and therefore you raise dollar debt and take it for your domestic investment purposes. So that is not new, that is usual. Now. What is, however, a new theme here is where do we stand in respect of global economic growth? This is still as strong as it's synchronized as it seemed to look in Genuary.

And we have seen all the week data, especially in February coming in in Europe and then nature on a well in Japan, which are raising doubts on that, and you need to analyze the market from that point. We have released a scoreboard here at morns than in respect of serious dollar, which gives us quite precise information about the outlook of serious dollar, and that want us in February March to get long dollars. And what it does tell me now is that it is now time to

see only very limited upside potential in zeals solar. What I wanted to say here is that this dollar really is going to run out of steam within the next few weeks. Hands red, it's always great to cant shop with your hands Jo wanting us from the capital of Global Foreign Exchange and in London, Morgan Stanley's Investment Management

Global head of Ethics Strategy. But it's some news overnight the United States House approving a sweeping overhaul of bank regulation, now sending it to the President of the United States don A. Trump, a bill that would give him a chance to make good on his vow to do a big number on the Dodd Frankak. So to what extent is this a big number on the Dodd Frankack. Let's

bring an Isaac Boltanski. Shall we compass Point Research Policy Research managing Director, Isaac your thoughts on whether this is a big number on the regulation or not and what's in the bill. It's a number, but I don't think it's a big number by any means. This is a modest, narrowly tailored bill that isn't as good as its proponents argue or as bad as its detractors suggest. At its core,

they're really three elements. The bill significantly lessens the regulatory burden for community banks, and here I mean banks under ten billion and assets. It modestly reduced compliance costs for regional banks, uh. And the mechanism that does there is raising the fifty billion threshold for enhanced stand prudential standards from the FED all the way up to two and fifty billion over time. And I think it's gonna bolster

m and atail winds in the banking sector as a result. Well, and that's where I was going to go with this. I think after reading a number of nacs last night after this bill was passed, it seems like there is going to be a pretty significant wave of mergers and acquisitions among smaller community banks, and that may be the

biggest takeaway from this number. To use the language de jure, I'm just wondering, I mean, do you think that this is going to benefit that industry or do you think, I mean, what's what's the outcome the ultimate outcome of that. The ultimate outcome, I think is that we will have a modest consolidation the banking sector. I think that regional banks and super regional banks will become a choirers. I think that they will um start looking around the landscape

more aggressively. A good example is New York Community Bank, who sits at point seven billion in assets and has done everything food to stay under that fifty billion threshold. Now they have the capacity to local across the landscape

and see where they want to increase their footprint. And so I think that's a perfect example of someone who wasn't a buyer is going to become a buyer after the President sells this sells the ex cuse science this bill on Thursday, Isaac Toun to what extent is there any evidence that banks have struggled to lend because of these regulations? It's a it's a tough argument to prove, and I think of the mortgage market is a good example.

Um is there are mortgage credit standards too tight? Or is it an issue of household formation and supply availability and inventory in certain markets. So I think we hear lot of hyperbolic arguments, especially about this bill, but as you know, the truth is always more nuanced when it

comes to financial services policy in particular. So I think that on the margin, we are going to see a slight increase in lending in certain products because of this bill, and community banks are going to become a more willing to lend, particularly in mortgage products. But it's not going to be the panacea or lending activity that some have

described it as. Isaac, do you think that big Wall Street banks are going to take more risk, substantially more risk under the sort of rolled back good Frank so from this bill. No, there's very little in this bill that impacts the biggest Wall Street banks. It's supplementary leverage

ratio change and immiscible bond capital change, um. But if we look more holistically and we start to think about forthcoming issues, in particular the vulgar rule change that's going to be ongoing throughout the year from the five regulators, as well as some of the other capital and liquidity role changes ahead, I do think that it's clear directionally

the regulatory burden is lstening for those bigger banks. Isaac's always great to get your insight on what's happening in Washington, d C. And ultimately what it means for some of the themes and stories happening here on Wall Street. Issa Boltanski, Campus Point Research Policy, a research managing director. I've been talking a lot about developing markets this morning as the Turkish lira falls in a precipitous decline that seems to

have no end. So with us, please to say Don Gimble, Senior vice president of c IBC Atlantic Trust Wealth Management, overseeing forty eight billion dollars. He has decade it's of experience in the market, and we are pleased to say he joins us here, Don um, I want to just get your view on developing markets. You said that about half your fund is currently in the US, quarter in

Asia and a quarter in Europe. Correct. So, right now, at a time when particularly China has built up it's external debt to such a degree and has overleveraged its economy to the point where they're actually taking action, are you getting more concerned now? Interesting? We've been talking about the excess of US treasury debt for how many decades, and now we're talking about China. And I remember a few years ago talking about was there a banking crisis

in China? And I had several clients saying, Oh my god, We've got to get out of China because of the banking situation. And I said, the banks are owned by the government, They're not going to default. And I look at China today now they in my opinion, the the miracle of the People's Republic of China for the last twenty years has been the financing by the United States of the growth in China. There's been a huge transfer of money into into China over the last twenty years,

and that has produced what we've seen. And Uh, is it coming to an end now? Well, I think that the question you're gonna ask the right question. You know, if you ask the run question, the right the right question is in China, we've seen a consolidation of power from a standing committee into the hands of the leader. Uh. Now, in in when Singapore was started fifty years ago, Li Kwang, you, an enlightened man of incredible strength, formed a country and ran a country and has run a country for well.

He passed away last year, as you know, but uh for fifty years and he did wonderful things made made Singapore into the jewel in the crown of Asia. Uh. In China, we have a consolidation, And the question is is this an enlightened man who is opening his arms to h two foreigners and is continuing to raise the standard of living in the in the People's Republic. Uh?

So far the answer is yes. But Uh, the the extent of landing in China, I think really is not that relevant to the future of the PRC at this point. Now could it get worse? Of course? So you know you're talking about how you decide when to change your investments. Uh. If the fundamentals change, and a lot of people are saying the fundamentals are shifting, that we're not seeing the sort of synchronized global growth that we once did. Uh

you're rolling your eyes. Um that that that you know, you're seeing weakness, You're seeing defaults take up in China, You're seeing the situation in Argentina and Turkey interiorate. Is that not a fundamental change to you? Uh, it's an evolution. Uh. As somebody said a couple of days ago on Bloomberg, Uh, we're not in the early stages of this economic cycle. Globally, the question is are we at in the fourth inning, the sixth inning or the eighth inning? UM? And I

think that's that's a really good question. My guesses were halfway through the game. UM. And there's there's at least a couple of years left UM in much of the world. Now, what's happening in Turkey is government driven. And when a government drives off a cliff, as in my opinion, as it has in Turkey, and as as the deterioration in both Argentina and to a lesser degree in Brazil, UM

are our red flags, There's no doubt. But that isn't That isn't necessarily the whole picture of the emerging markets. Emerging markets are a vast number of very individual countries whose economic growth is well behind their development as well behind ours. Therefore we call them developing countries. We you know, we used to call them third world. We can't do

that anymore, right, So it's UM. But you know, I I look at problems around the world and there's wall that we were talking about before, the wall of worry. We have it in in the UK with Brexas, Um, we have it with a new young man in France, so we have struggling in Spain. I mean they're all over the world. Look at look at what's happening in Australia. So we could talk for hours on we could, but times run out. Don Can I just say thank you,

thank for coming in this morning. We really appreciate your balanced approach to two global markets, a reasoned approach at a time when there's a lot of scary news out

there in some places, including Turkey. Don Gimball, Senior vice president of c I p C Atlantic Trust Wealth Management, and a lot of news this morning, and among the headlines, Comcast decided to up the antie for the Fox assets and is going to offer a cash bid that will likely exceed the one of Walt Disney and Co. Walt Disney shares down nearly nine tenths of one percent, so

definitely a strong reaction. I want to bring in Abilla Ahmed, who's been covering the twists and turns in the saga, and I'm sure that there will be more of them as it continues. For Bloomberg News. She covers all things deals and Disney and everything else. Uh so, what do we make of this? Right? I mean, this seems like the Fox the Fox assets at hand. Here we're talking about the movies, we're talking about the TV shows, we're talking about content. Why does Comcast want that more than Disney?

Comcast neids in more than Disney's. People will say, Disney obviously has its own TV film studio. Comcast doesn't. Comcast product, especially overseas when you look at it is significantly weaker than Disney. So Comcast is pretty desperate. You know. I think everybody's woken up to the fact that this is the last big asset of scale to go in the media industry, and everyone's just falling over themselves to secure it. Where they're going to get the money to make this

deal happen the debt markets. We already have sixty six billion dollars of debt. This is going to make them one of the most indebted American companies. And you know, there are debt investors who having already indicated they're happy to lend to this company. You know, most of the debt issuance in the market has been to do with M and A, and this is just another deal, and

you know people are happy to support it. Well, some people who are a little bit less than happy or the Comcast shareholders shares down now in futures trading down more than two in responses and just to say down more than twenty five, and since they January minor detail. I mean, it seems like people are not that enthused about this bidding war. Is it just the price or is it that people think that there just isn't necessarily a better strategy here other than entering into this kind

of a bit of both. And I think Comcast holders think that this is a vote against what Comcast is currently doing, which is cable and that makes up eight of their business currently. So people are saying, hey, if you think it's like we should be just betting the house and going for these assets, what does it say about what we actually currently do? Well, you know, just to go back to Lisa's point about how shareholders are

seemed to be so thrilled about this um. If you were going to offer a combination stock cash deal, that seems to have been taken away not necessarily by your own internal strategy, but by the marketplace. Because if you're going to be offering anything that involves Comcast stock, you

could bet that that would be a much less valuable deal. Yeah, and listen, Fox is already said that they are not interested in that, right, But remember Comcast actually made a bit for these assets late last year, and Fox chose Disney over Comcast at that time, Right, So what does

what I mean? How much more would they have to offer? Well, at that time, they had offered sixteen percent more than what foxes agree to sell these assets to Disney for, So that would put it out about sixty billion dollars. Talking to my sources today, they are saying that they do realize that it's going to have to be higher than that to beat out Disney. Alright, So here's the thing.

From Fox's perspective, does it matter Are they just interested in a price tag or is there something more here that they're looking for in a suitor if you're just their pocketbook, or they're looking beyond the wallet and just looking at the personality. Sure, Initially Rupert Murdoch was not just about the wallet, but what he wanted. He's going to have five percent share in the new Disney with the Fox assets combined, and that would have mitigated a

lot of tax issues for him. So in all, cash bid for him makes less sense because because of because of the tax and the tax burden that the family will have to bear. So Comcast has to keep that in mind when it's coming back with its second firm offer. But this is really interesting. In other words, even if Comcast gives a higher offer than Disney, it might be less attractive to the Murdoch's as a result of the

tax treatment. Yeah. Absolutely, and that was one of the reasons why they said they didn't go for Comcast offer late last year, even though at that time it was already higher. And they were also worried about regulatory the regulatory issues. As you know, regulators have been very strongly looking at all of these sorts of mergers and and you know, Fox decided that they thought that the Disney

bid had a better chance of getting through. Well, the regulators in the UK, I believe they were very concerned about what would happen to Sky News. Yeah, and look, and that's another there's already a bit more there for Sky as well. You know, as you know, Fox has been trying to buy that business for a while, um of it it doesn't already own, and Comcast is come

in and made a bit for that too. All right, Well, the saga continues and We will keep following it, and so will you, and you'll be joining us, I'm sure again in the near future. Nobela Ahmed, Bloomberg Deal's reporter and the expert. When it comes to Comcast and Fox and Disney, maybe they'll make it into a into a you know, a Netflix series that could run simultaneous series about CPS. And indeed, indeed, 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 her at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.