Bond purchases in Something Like 88 months. The ecb can buy up to 1 3 of the countrys debt. In the u. S. , still about 3000 on the s p. Yields being moved higher by yields in europe. Crude down 2. 6 . The renminbi is being whipsawed a little bit as well. We were down to 7. 05 and change a bit ago, and now back up to 7. 07. Ecb president mario draghi spoke after the rate and policy decision today. Here are some of his thoughts from the news conference. Mr. Draghi the risks surrounding the euro area Growth Outlook remain tilted to the downside. We still think the probability of recession for the euro area is small, but it has gone up in view of the weakening Economic Outlook and the continued prominence of downside risk. Governments with fiscal space should act in an effective and timely manner. We have a mandate. We pursue price stability, and we dont target exchange rates, period. Vonnie this was the big final one for mario draghi. He has another press conference in october, but this wheres the this was the one where he let everything loose. With a reaction, we have Marathon Asset Management ceo and chairman bruce richards. Marathon now has 7. 2 billion under management. It has been a good year so far, bruce. Roofs thank you, bonnie bruce thank you, vonnie. Vonnie we are still looking at a bought a come of extra inflation by 2021, even with all of these measures. Ruce it is actually kind of sad. All this is doing is putting treasuries in europe and around the globe at further negative rates. It is doing nothing to stimulate aggregate demand. So look at germany, for instance, slipping into a recession, or at least zero growth. U. K. Slowing as well. Much of europe mired in what is a very slow economic environment. Number three, the equity markets , in terms of aggregate demand and what it does to earnings, is not responding either. Look at the dax trading at 13 multiple. We think that this is nothing more than further financial repression, a way of governments around the world able to borrow at negative rates to finance their big deficits and be a tax on savings. Vonnie so how do you think about corporate europe in that kind of environment . Is it investable . These Zombie Companies that are getting more and more money for less and less interest, can they compete . Bruce all this does is create more of a debt bubble. At allows companies to borrow at very cheap rates, and it does nothing to stimulate demand. So we think it is a monetary trap that has been created, that is a very unhealthy environment. For the time being, the markets are stable. The markets will do well, but at some point, it creates this big hunger games. Where does capital earn an attractive rate of return where you have trillions and trillions of treasuries and more by the month trading more negative returns . Vonnie overleveraged, unprofitable businesses. Is there opportunity for you . Bruce we are not investing much in europe because of how overpriced both debt and equity markets are, based on where treasury markets are. Having said that come of the biggest opportunity for us in europe is our continued activity having said that, the biggest opportunity for us in europe is in continued activity borrowing at the lowest financing rates at the world. Meanwhile, take real estate at nonperforming lows from the banks in europe. We bought three packages over the summer, and we are in the process of buying another three between now and yearend. We are buying hundreds of millions, and we bought billions of these nonperforming loans, that results in this owning real estate finance. The lowest rates in the world. So the spread real estate financed at the lowest rates in the world. So the spread is unprecedented. Theie mario draghi said banks have their own problems. We are giving you the tiering. Bruce they should be trading at much higher premiums, but there yields are negative. So it is hard for them to earn an attractive rate of return. It is also hard for them to make aggregate loan demand isnt so great in europe because growth is stagnant. Vonnie what happens to the Banking Sector in europe, and wire you so confident . We are seeing trouble with banks in germany. Bruce europe is stable because the Monetary Policy that underlines the economies makes it stable. My confidence in europe is simply along the lines of we can , andeal Estate Properties offices are occupied. Unemployment is lower. People need to live in multi Family Apartments and leave it and stay in hotels. Again, financed at very low rates. Are there corporate opportunities at this point in time . No. After brexit, we will see whether there is more opportunity in the u. K. , but right now it is a waiting game, waiting to see that outcome. Vonnie it is interesting because you sold a bunch of assets in ireland, and also in britain and germany, and moving to the peripheral countries, right . Italy and spain. Bruce italy, spain and portugal. We are staying away from greece and cyprus, and focusing acquisitions in spain, italy and portugal. Very vibrant economies. Spain is doing quite well, much better than most of the countries up north in terms of gdp growth. Vonnie hard brexit has been your base case. Is it now . Bruce it is a very tough equation because if you take the man at his word, boris johnson, when asked a question in front of the press corps, responded, i would rather be dead in a ditch then delay brexit. It is all going to come down to constitutional law. He has been blocked by the parliament from leaving without a deal, and yet, hes told the people, and the people voted that they want to leave, and he stands behind it. The question is, will he go crashing out with it . I think the one thing he may be able to change is that whole irish backstop to make it from a backstop to maybe a soft cushion to allow trade to flow, at least initially, until they could resolve that. Vonnie what would that look like, some kind of border in the sea . Would europe agree to that . Bruce i dont think it would be a border in the sea or in the country initially. They will let goods flow, and there will be a soft stamp on it, and an expedited process for it, so there will be a softer process. I think that is behindthescenes what he is trying to negotiate. If he can negotiate that, i think he has greater confidence to say october 31, we are indeed leaving. Until then, it is a waiting game. There is too much uncertainty to invest for us, but we stand ready based on outcomes. Vonnie that wouldnt be a hard brexit, then. Lets just clarify that. Bruce it is a soft brexit, a hard brexit. You can call it whatever you want, but if they leave without real cooperation from parliament and without a substantial deal longterm, i would call that a hard brexit, but with some caveats or cushion to that. Vonnie if there is eventually a resolution or something this year, would you be interested in going back into britain . What would make britain attractive to you again . Bruce number one, if there is further distress that happens as a result of a brexit, we would be interested in much cheaper prices. Alternatively, if the economic environment were clarified, it would make it investable again. Vonnie lets talk a little about the u. S. Does what happened today change any equation for the fed . What does the fed do . Where does u. S. Growth and up here . Bruce here . Bruce the more that trillions and trillions trade negative, the more there is a hunger game going on around the world, then buy u. S. Credit assets. High, leveraged loan, even emergingmarket debt. Theres enormous buying demand coming from around the globe because currency swap rates have also compressed a bit, making it more attractive to buy u. S. Assets. All this does is feed further into a lower rate regime here in the u. S. And a further bid or demand for Corporate Credit and alternative credit that offers attractive rates of return. Vonnie should we be concerned about that . Clearly, you wouldnt be so concerned about that. That would be your area. But should the rest of us be . Bruce i think there is reason for concern because some of these recession signs are starting to flush red starting to flash red. Specifically, the 16 decline in u. S. And china trade despite toning down the rhetoric and agreeing to open up discussions again. The fact of the matter is trade is falling, and companies and countries are making adjustments as a result. Number two, we saw pmi numbers 49. 1 , now below 50 at which is a flashing sign for recession. Number three, the yield curve has turned negative. Six out of the last six times when tos notes versus tenure treasuries in the three month versus 10 years turned negative, there has been a recession within a year and a half. Finally, the feds recessionary indicators are starting to trend up to a point where every time its been at this point in the last five cycles, a recession has ensued within a year to a year and a half. So we think that the base case is 5050 whether there is a recession or not, but the base case is a continued slowing from 3 gdp last year to 2 today to 1 next year. Vonnie you had said the cycle would turning 2020, but now that red flags are become more obvious, did you pull that forward a little bit . Bruce i think our timeframe is a year out. Marathon is very engaged in being patient, waiting for a trigger point in the marketplace , which is much wider credit spreads, dollar trading below 70 and 80, and higher default rates to deploy what is our dry powder for buying distressed. Discipline and patience is key. Vonnie lets talk about what might be that catalyst. We just had a downgrade of forward to junk of ford to junk. Is that a harbinger . Bruce when is the last time you remove are one of the big three auto manufacturers in the u. S. Fall from Investment Grade to junk . The remember that . Correct. Ts is Bigger Picture for bbbs 157 billion dollars in debt that just fell to junk. S p still has it ig. When s p moves it to junk as well, and post rating indices have it there, we think theres a lot of ig holders in mutual funds that have to sell, and the prices get even cheaper. Motoryou can buy a ford credit 5year note at around par, and that is not a bad deal for what we consider to be a strong bbb. Vonnie are you buying them . Bruce we are waiting for the next rating agency, and then we are buying them. The Bigger Picture is the bbb bubble. We wrote a white paper on this recently, about the proliferation of bbb issuance. When the fed lowered rates for the first time in 11 years over the summer, there is a proliferation in Corporate Bond issuance. There were 70 issuers that flooded the markets. Does not simulate aggregate demand, but it corporates further debt but debt ingates further the system. Trillion, as 3. 1 fourfold increase, and what is essentially a decade. It is unprecedented. Vonnie what sectors and what companies . Thee the super sector is number one most vulnerable on the ig companies. Kraft and about heinz some others. Bbbs,that 3. 1 trillion 300 billion today has a ebit ratio that exceeds five. Those bonds are going to b rated junk. So what do i think . I think theres another 300 billion almost guaranteed that when the economy really does soften, when earnings softened considerably, that will fall from ig to junk, presenting folks like marathon with a tremendous buying opportunity. Mostlymostly vonnie Consumer Department stores, or other areas, too . Bruce you look across the industry, but a lot of it is consumerproducts. We mentioned maybe anheuserbusch, we mentioned heinz and others come on the last show, and that hasnt changed. Bbb complex,in the who the most leveraged our, those are the names in our basket of shorts. Vonnie we saw a huge market move in argentina. Curious as to what you did with that. In halfonds got cut from prices like 80 to 40. Youve never had currencies dropped by more than 20. Happens fromsition cri to fernandez, there will be a big opportunity for us to buy the best equities and credit in argentina. We are setting up an entity right now, and we are in the process of that. I cant talk about it because it is happening with us in our clients, to go into the marketplace and to buy what we consider to be the best equities, which we think will ,ake a 2 to 3 times return and debt we think will make a 50 to 75 return. Vonnie can you mention any of the companies in particular . Bruce i cant, because we are in the process. Vonnie you are waiting until the election even though we saw massive moves in the primaries . Bruce we are waiting now, but the biggest buy will happen between now and the election at your end. Vonnie what about emerging markets . Bruce emerging markets are doing really well. The emerging market bond index is up 11. 4 year to date. High yield is up around 9 . It is outperforming the market by 500 basis points. Why . Although equities are soft in emerging markets, the s p is up 20 year to date. Meanwhile, emergingmarket equities are up 1 to 2 . It is completely lacking, as are currencies. But why is debt performing so well in emerging markets . Ratios are 40 ratios to 50 . Very sound credit. Half of your bonds in the emergingmarket bond index are Investment Grade, so they will do very well. It is an opportunity with the trillions trading negative for investors around the world to buy sovereign debt at really attractive rates of return. Vonnie but if we see a global slowdown or these trade wars not refeeding, but getting worse, does that impact negatively some of these emerging markets . Bruce we inky sovereigns and he debt story is much more solid. It is more of a growth and equity story that will weigh on the emerging markets. The reason why the smart money has been buying emerging markets, and we have been buying emerging markets all year long, is for that specific reason. The get credits with the least therage trading at the debt credits with the least leverage trading at the highest yields in the world, that is the trade. Vonnie bruce richards, thank you for joining us today. Bruce richards of Marathon Asset Management. 7. 2 billion and a nice return this year. This is bloomberg. Vonnie live from new york, im vonnie quinn. This is the european close on bloomberg markets. Lets get a check now on global markets. , tundra will explain emma chandra will explain. Emma we are seeing equities across the world largely in the green. The s p 500 up some 0. 3 . We have seen a bit of churn in the s p as weve seen conflicting headlines about the trade war between the u. S. And china. Conflicting news as to whether or not there will be some concessions made from the u. S. Side. Still, we are watching that in the markets. The s p 500 up for the Third Straight day at the moment. The dax doing particularly well, up close to 0. 4 . German comedies are more export oriented, so they would like those more positive trade headlines German Companies are more export oriented, so they would like those more positive trade headlines. The ecb bringing back qe after nine months. The reaction in bonds has been a bit mixed following that announcement from mario draghi. I also wanted to draw your attention to oil. We were initially rising, but we have since fallen, now looking like we are headed for our Third Straight decline. Down over three days some 5. 3 after the International Energy agency warned opec it faces a daunting surplus of crude in crude in 2020. This largely on fears of a Global Economic slowdown. Lets get a few movers for you. It is Consumer Discretionary leading the way in the u. S. Gap not doing as well. It was a leader, now a laggard. Weve got a strategy meeting for gap at the moment. What will happen to cap post old to gapo gap postold navy spinoff . They plaintiff expanded to china as well. Vonnie thank you for that. Use gtv to catch up on your favorite carts and save for future reference. This is bloomberg. At comcast, we didnt build the nations largest gigspeed network just to make businesses run faster. We built it to help them go beyond. Because beyond risk. Welcome to the neighborhood, guys. There is reward. Beyond work and life. Who else could he be . There is the moment. Beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. Take your business beyond. Vonnie europe finishing up trading. Lets take a look at where stocks are. Lets take a look at the map. Broadly positive, t everywhere. Ireland down, potentially on the google news. Google paying a settlement to france. Elsewhere in europe, a nice rally for many of the indices. The cac 40 up. 5 . Take a look at this. This is where the real action came today after Mario Draghis policy announcement. The triple approach to policy in europe saw yields declined, particularly in italy, in spain, in portugal, in greece, where the bond buying will continue for many months. In italy, 88 months or something less. This according to dots bank to danske bank. Huey starting again qe starting again. Most of the governing Council Members continued decided it was necessary. It will continue. Given that the ecb does not see inflation until 1. 5 until beyond 2021, that could be a while. Lets take a look at the euro, trading at 1. 1040, well below 1. 10 earlier on. And the dax up relatively modestly, mario draghi pointing to downside risks. The recession is not imminent that does not mean the probability has not gone up. This is the banks index, 47 banks in that index across europe. On the announcement, it dropped quite substantially. Then we saw a bit of reaction, banks back to zero. Good and bad news for banks. Three means therell be a variety of ways banks can engage in longterm lending. There is also the negative deposit rate. 10 basis points more negative that is down to 50 basis points in qe. All of that implementing by banks will cause profits to be difficult to attain. 500 up the u. S. , the s p. 4 . The 10 year yield higher off the back of the rise in rates abroad. The tendency is toward strengthening and plenty of it on the china news. Crude oil at 1. 7 . Look at stocks on the move in the u. S. Lkq court has an activist investor. The stock up more than 8 . Analysts are wary about the cloud performance, it is down 5. 4 . On the trade news, the metals index up 3. 5 and the drug retail index on the opioid news down 3. 8 . Bank cuttingral Interest Rates ten