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tv   Bloomberg Markets Americas  Bloomberg  September 29, 2022 10:00am-11:00am EDT

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>> from the financial centers of the world, this is a bloomberg markets with alix steel and guy johnson. alix: 30 minutes into the trading day and here are the top stories. risk off returns to the u.s.. the u.k., investors struggling off reports from the bank of england and bracing for more volatility. we will break down what is driving the market action. former economic advisors asked liz truss as she doubled down on
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her fiscal plan and talked about the u-turn on the horizon. and ian came across the u.s., leaving billions of dollars in damages. we go to florida to bring you the latest. i am sonali basak with guy johnson. guy, that rally did not last long. guy: we are absolutely flattered. the s&p is almost exactly five. we have come up and down, but this speaks to what we are seeing. we are seeing to it all over the place, in a multitude of asset classes. this is where the risk lies. people cannot cope, their risk models cannot cope. sonali: they sure cannot. you have to wonder how much leverage is left in the system. we will be talking a lot about that. think about what is so crowded
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from equities to the dollar to treasury markets. that leaves a lot of people vulnerable. guy: absolutely. yesterday was emblematic of this challenge. in the u.k., there is leverage but not where you necessarily expect it to be. people have figured out that there could be a problem in the hedge market home about what it highlights is that there is still limited in the system and that composed huge problems are very -- 10 pounds. problems very quickly. we are trying to figure out our question of the day. how much leverage is left in this system? where is it? joining us to try to answer these questions is katie greifeld. the last couple of days, the
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u.k. has been the epicenter of action. how much leverage is left in the financial system? katie: good question. i went on a wild goose chase trying to find an answer. if you look at margin debt, it is still$687 billion, which is a lot but lower than what we have seen over the past two years. it has come down a lot. that makes sense when you think about the drawdown we have seen. many think that the institutional players, that has been hard to judge. we have heard that a lot of people may be going to cash. it is a scary market out there. hard to judge, but there is a letter for fear as we get into the second leg of this bear market that we could see more leverage blowup similar to our caterers. sonali: with pensions in the u.k., you've saw a lot of that
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hidden leverage. more than 10 years and leverage is going to take a long time to unwind. do you think that the market is trying to get back in my find that that could be painful as more trades could still be unwound? >> stepping in now is painful. people that i talked to who are involved are not long-term players. they're not buying now to hold until next year. there has been a lot of outflow. the lever keeps this number from high-yielding funds. there is probably a fair amount of money in cash but is not going to be put to use. gates were mentioning earlier the reversal from yesterday. that speaks to more positioning in the market. we have seen a lot of trades stretch to three standard deviations.
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yesterday was just a short squeeze based on the not relate news for equity markets. that was more of a stability thing that the banqueting that was doing for its fixed income market. that bank of england was doing for its fixed income market. today, and is still short for guy: we are seeing a paradigm shift. we have had 10 years plus of interest rates falling. the logical thing to do is to gear up. we are now changing the model. you have been through a number of these crises. help long will it take to shake leverage out of the system? help long for that mentality to change? vincent: i think it will take a recession. that is highly likely. we heard bullard again today. we will hear more speakers today , none are taking their foot off the gas. darrell saying that rates are high need to go higher.
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we heard it yesterday as well. we saw the said this morning inflation numbers, they are higher. that is just going to keep them pushing and pushing higher. the leverage will stop and the pain will stop in a strange way when we get pushed into a recession, because that will give the fed parts. sonali: headlines are crossing the wire about where the nasdaq is headed good slump extending to 3%, its lowest levels since june 17. katie, you were talking to me about people trying to get back in. how are those traits being wound? katie: not great. if you look at ecs influence, a combined five plane dollars went in cash $5 billion went in. if you think about what deals, it was the bank of england
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intervening in the bond market, a reminder that central banks have your back but the fed is intent on getting inflation down. that will be a painful process. you're that in price action this morning for -- this morning. guy: you talk about the head causing a recession. we thought yesterday the bank of england switching into a financial stability role. they said, there is a big problem and we need to take action. i am wondering whether we are approaching the point where other central banks will have that problem as well. rates are going up quickly. we are approaching the point at which financial stability risk comes more important than inflation. i am wondering how you think central banks will do at that and healthy market will manage. vincent: financial stability risk is probably closer in the u.s. then talks are pricing in.
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we have seen mortgage payments that doubled over the last two years. we are seeing it in home sales dropping and just about every economic indicator is dropping, even the deep fat is pushing hard and raising rates. with the strong dollar, we could see a situation where they cause a fiscal crisis. we are going to get the next round of earnings and it is probably not going to be pretty for the large-cap corporate. dollar record high is going to hurt earnings. we do not see issues with individual leverage based on where rates are. we are going to see a housing market where landlords are trying to recoup gains by raising rents aggressively. people cannot afford this. that is going to cause major issues. sonali: katie greifeld and vincent cignarella, thank you for your time. coming out, underneath the
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surface. any drink us on our question of the day next -- amy joins us on our question of the day next. this is bloomberg.
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>> get is not going to -- it is not going to stay stable forever. it is probably not even going to stable for two weeks unless there is a sense that this is a bridge to the fundamentals being fixed and that is not what we are seeing from the indications we are getting. sonali: that was larry summers speaking with bloomberg on the bank of england's intervention yesterday. how much leverage is left? let us ask amy lee silverman. when you look in the surface here, what is underlying the market, are you concerned that there is another shoe left to fall? amy: i am.
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there is maybe issue and a half left to vote. that is the case because a letter of what we look at would tell you that equity loans still have room to catch up heard that has been 20-year-old. in reality, it has been volatility that has been driving the economy. when we see that lag in volatility, we think there is probably room left. jonathan: a lot of people have exited the market and got into cash. are we reaching the end at that point? if so, what does that mean? amy: it is a good question. i also struggle with the answer. there are strong narratives
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starting at the beginning of the year. the biggest questions was why was demand for hedges also lower even as we saw the drawdown in march? part of that was high cast levels. chapter two that, we are assuming a larger checkup now for demand, those tail risk hedges, which would tell you that we can if there are people on the sidelines net demand -- that demand is picking up as we start to see the fed raised rates and what is going on in europe. you are continuing to seek command. sonali: i am curious about hedges here. much of people flocking to hedges to the where they are expected. you talk to risk funds and their skeptical of the option buying strategy. are there other places that are less crowded?
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amy: that is interesting. here look on the bloomberg terminal and putting the cart index versus tp for the next, was actually made you money this year has not been systematic hiking selling. -- systematic hedging but selling. so what has changed? first, the dawning realization on investors that there are two tail risks out there. what happened with the bank of england is one. two, what is happened with russia and ukraine, at the unknown unknowns are coming to the forefront. the other thing is that in is this interesting dynamic where investors want to hedge even if hedges get expensive because the reality is the net momentum, otherwise you are just burning premium. jonathan: are people monetizing hedges?
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using hedges? rolling hedges? amy: last week, we would have expected given the movie down is more monetization hedges but essentially what people were saying -- and even with the rally yesterday, people are keeping hedges on, rolling them into the end of this year. that house the -- that tells me that there is still nervousness and room for more downside. living with a mix above 30 and volatility -- even with a vix above 30 and volatility. sonali: how posted the get yesterday to a panic moment? -- help close did we get yesterday to a panic moment? is there more leveraging, which is the basis of what we are looking at?
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how much is less there. how close are we to panic? amy: re-medium panic but not high panic. when we look at his tales and skills. a wind standardization in the market and the three standardization drop, when you look at the networks, on in one year basis, they are above their mid percentile, but on a five-year basis, they are trading at their bottom quartiles community they have room to go. the other thing is if and when you that rally yesterday, the fact that we have come down sharply is not great for volatility. that website -- whip saw keeps option prices high. if we get the rally again, is that that really concerns people
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and fuels option prices staying elevated. jonathan: the ultimate hedges the fed, the fed stepping in and saying enough. we are to say central banks and on the world, given the pace we are seeing assets shift, stepping out. the bank of england is probably the most noticeable example. when you talk to people, is there still a belief that when things get too bad the fed will be there? amy: that has slowly shifted. when i think of investors, i think there is this idea of how to not put your poker face on. with each jackson help that happens, that result has strengthened. they will say during the conferences if i breakers poker face and then i am out people to read into that. i have got to overplay things.
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i do not think it that aspect is going to break, which is why you are starting to see that fleeting into these low levels from the start of the year finally picking up. jonathan: the fed is definitely in control of the narrative. thank you. the s&p is negative money today basis, stoxx 600 down 2.4%, the lowest since november 2020. still had, investors appear to want higher yields to take on lbo. interest rates at 10%, plus not getting it done. this is bloomberg. ♪
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>> and look at some of the biggest stories right now. some share has gone public. shares began trading today after the largest ipo in a decade. volkswagen raised more than $9 billion, pricing the stock at the top end of the initial range. japan began laying off employees at its vision fund. the condition fund had about 500 employees and recently posted a $20 billion loss. wall street is dealing with a persistent clump in dealmaking and capital market actions. profits were cut 52% in its latest quarter.
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jeffrey's warns that the investment banking pipeline is similar to last quarter. sonali: we stick with wall street. a group of banks led by bank of america is struggling to get investors behind the for dollar that deal for apollo global management. how much leverage is left in the system? we are going to be joined by olivia. when i talked to investors, they were excited. now you are seeing that idea come home to roost? how does this apollo deal fit into the broader picture and add to pain in the leverage market? olivia: there are a couple moving parts. the most important thing to consider when we look at the leverage pipeline is that in a lot of these deals were underwritten many months ago. in the case of the apollo deal, it was last year before markets
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experienced so much volatility. the banks promised the borrowers that they would get these deals done at a certain interest rate, which is now way lower than what interest rates are today. that is forcing banks to offer deals that deep discounts. guy: how far away are we configuring up prices for these deals? it is not just what is happening with price stream. there is always a period of inertia where people are prepared to accept the new price, but ultimately will we see this get done? if it does, what kind of yields will we looking at? olivia: great question. the most important thing to consider is that a year or two ago, investors were hunting for yield and were happy to lend to
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high-level businesses because of yields they were able to get but now you have investment grade bonds trading at 5% yield, the highest in 13 years. that is causing investors to shift their priority toward higher rated that anyway from this riskier buyer that. that means that it is going to take more to entice them to be learning to buy. that is going to push up yields. i do not have the crystal ball but citrix just priced it yield of about 10%. early pricing discussions for bryce he also suggest 10%. there is not much demand for the deal. that can change through the marketing process. sonali: i love guy's question about the clearing price. you have the two minute citrix. are you seeing distressed buyers saying there is a point at which
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we are ready to bite, but the banks are just going to take it? olivia: we have seen some interesting things like elliott coming in and buying the debt parts private equity via for this deal with great speed, apollo is finding the equity checked with a loan. we are seeing interesting things happening in order to get these deals done. at what level it clears is going to change as a volatility in the market changes. guy: i hear there is a powder there. how much does distress these things have to get? thank you, olivia raimondo on what is happening with great speed. we are going to talk about oil not. talk about lowering oil outward and about pressure on the global
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economy uncovered. the j.p. morgan strategist is joining us next. this is bloomberg. ♪
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>> we are one hour into the u.s. trading session. abigail: a brutal day. the rally yesterday turning to be a one-day reprieve. the s&p 500 down. the worst day in about two weeks. apple on track for its worst today since june. they are cutting the production they been looking for a few weeks ago. bank of america cutting their rating on this and of course we have a macro pressure higher after falling yesterday. the sense some of the u.s. but the fed was not going to be as hawkish. not so much.
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as for the round-trip let's look at it in detail because it is it two day turn on the s&p. the best day since early august and here we are back below where we began at the start of yesterday. so a lot of volatility and this of course puts us below the recent low not just the june low but will be made earlier this week. this is the bear market downturn. here is bear market rally from june to august. that was firm resistance, now trying very much below the last low. that is brutal. it suggests you will see much bigger declines for the s&p 500. a lot of economic data suggesting that. mortgage rates back at i think
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6.7% so that housing market likely to slow. another drag on the economy. really reflecting that. another weakness, for guy. carmax putting up a disastrous quarter. sales we can earning week and this is weighing on car dealerships. the consumers are holding off on big ticket items. guy: i know matt miller is watching and he is going to be depressed about what you see. he did buy a car and house. thank you very much. let's talk about what goes in. opec-plus talking about the outlook when he meets next week. the size of the potential cut according to a delegate. head of commodity research spoke on bloomberg surveillance earlier this morning. >> the oil market is in a deficit, but what's happening,
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when he supplies shrinking. so that sinking the price level and driving it down even though you still have too few goods. look at the fundamental picture, our base case is it going to continue to tighten guy:. a lot of push poll in the oil market. jp morgan global head of strategy joining us in new york. let's talk a little bit about what's happening here. let's start with opec and figure out what it's going to do and then we work our way through the story. what should opec do and what will opec-plus do. christyan: when you think about it, russia will probably cut in declines and opec trying to produce that. an actual cut would be the additional 500. as a base case. an additional 500 in order to
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put the floor around $80. this is not just about cutting into tightening the markets but actually an emergence of the spread between what the u.s. would like to see and the oil price close to 70 and what opec would like to see. >> where you see the greatest pricing to risk. i'm wondering how long the overhang actually lasts for given that some of it is not tied to what you're seeing in the macro and supply and demand dynamic. christyan: there headwinds we have to -- there are headwinds we have to respect. getting from that trying to go along with record low liquidity. all these things pricing in the short term but what opec will do
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with that decline. when you start to see china reopening, it's going to have to stabilize and ultimately it could seem to fall. we could see a boomerang rallying aggressively. now they're coming of a lower cut. the question is as we see that happen what does opec do. there's a clear probability, a high probability it will continue which is where we have to think about the risk of a potential price war. this time to the upside between opec and what they are looking at versus the u.s.. guy: the german finance minister was talking about an energy war. with the destinations we now think are on the nord stream and -- nord stream 1 and nord stream
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2 pipeline. infrastructure potentially being exposed, do you think the market is correctly pricing that risk. how do you price that? christyan: i think there is complacency in terms the geopolitical risk premium. up to now we have had a man-made -- actual supply has been inflicted by russia metal we are seeing. we have yet to embark on a real energy crisis where you have structural declines. that something we've been talking about since spring of 2020. you have that emerging through 23 and 24 from the majors. at the same time you have this sort of potential in pipeline infrastructure happening and so when you think about those things combined i don't it we pricing anything near the sort of levels of geopolitical interference and a real
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tightness. sonali: play this into some of the broader fears we are seeing. jamie dimon has said oil at 150 would mean a global recession. we believe we get there given all the war -- and have been given all the warning signs, how soon do we get there and what does it mean? >> last november on the back of the limited --, for being on the show talking about this. going into historic low degree of capacity. and that will see a risk premium emerge as a result of that limited. the key here is how quickly we get this. if we get there within weeks that's a price shock the market cannot -- the world cannot take. if we get in the context of gas price is up $300, oil is x quite cheaper. as we see a repricing, we think
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the economy can take it. but absolutely you would need time to get there. the scenario we painted for next year in the meantime were looking to see over $100 oil. guy: what's the best way of playing this? if i held here in london michelle or bp, mia buyer or seller? >> i think the best way to play this is through the equities. what we are seeing is the back of the curve. it's all over the place but continues to rise. it only gets better. are the proxies for more cash flow coming in from a higher back end. and more jewels. i think as investors and try to
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form a sort of hybrid mandate over esg. prices looking at this sector as a rate of change. and in that scenario this sector gives investors who traditionally had a strong -- because they are growing energy. it's a great investment case that wouldn't have been the case 12 or 15 months ago. sonali: we were talking about geopolitical issues and pricing dynamic but the reality is to the extent you see that march past $100 a barrel, then wouldn't that he equates to a lot of demand pressure as well? at what point does the recession become a deflationary force for the energy industry? christyan: we tend to think about demand destruction. that's been hyped a lot. we are in discovery, we don't know what price we could see.
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if we are in a world of short energy and you have oil, there's good news and bad news. the good news, i have oil, the bad news you'll have to pay a lot for it. that repricing, that is something we have to see emerge. ultimately the consumers is going to take it but it will subsidize other economies in the think we're still ok at 110 or 120. but ultimately the warning shot to the industry, if you don't you will see massive price shocks to the upside could you have these deficits we can control. sonali: jp morgan's global head of energy strategy, thank you for your time. coming up we have florida governor ron desantis outlining the damage. we will survey the damage with
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the founder of home insurance company. this is bloomberg. ♪
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>> you are looking at a live shot of the principal room. coming up, charles schwab chief investment joining bloomberg. this is bloomberg. >> keeping you up today with news from around the world. vladimir putin is sharing ahead with the annexation of parts of ukraine that his troops control after sham elections but it's them on another collision course of u.s. and its allies. they will send treaties to the four regions. they are looking to limit the impact of soaring energy costs.
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the olaf scholz administration will play cap on natural gas prices. they will have a fund to help offset the impact of the coronavirus pandemic. there will be barring of at least $146 million. florida woke up to a disaster and has been downgraded to a tropical storm. it's left misery in its wake. and businesses are without power. it will go down as one of the most powerful and costly hurricanes ever to hit the u.s.. the potential losses could approach $17 billion. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg. sonali: thank you. we will stay with florida where ian is leaving behind floodwaters and tornadoes in its wake. commodity analyst for bloomberg intelligence joins us from miami. what are you keeping an eye on?
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mike: it's the significant from commodity standpoint with the major natural gas production going further out west. so that's been an issue, jumped a little bit and hasn't mattered much. it's more proudly signaling global recession. in miami specifically the micro not bad. just some flooding. a couple of trees down. i rode my bike in on tuesday, decided to work from home yesterday and wrote in no problem. not so bad here. guy: long-term is a something this regions can have to think about, adapt to and change the way it does business. or we can is see this -- are we
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going to have to see this shift to different area. will we see commodities more broadly rethinking this. >> i think you are right. all the storms are going up there the last 10 years. but what's happening here is orange production has been declining for quite a while. there's been some issues with migration towards commercial development and some issues with some bad crops. the lesson i learned here is amsterdam's been able to do it for years, maybe florida and some of the cities have to shore up their shores a bed. the trend is not good towards rising sea levels. that's what i've heard from naples per the highest title search ever. guy: and potentially we see more of these, that's can i have a
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change in behavior. thank you very much indeed paid let's carry on the conversation and get a sense of the damage we are looking at. despite the downgrade to a tropical storm, ian is poised to be one of the costly storms in u.s. history. joining us as the founder and coo of slide. one of the top homeowners insurance carriers in florida. bruce, thank you for joining us. can you speak to the scale of the insurance damage we are looking at here. >> it is massive. southwest florida were getting wins at category five. 160, 1 at 70 mile-per-hour winds powers out everywhere. and i saw the comments earlier from the governor. that have really had the entire state. i think it's a 500 year storm on the flood side. it's good to gears to rebuild this.
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it's a storm that unfortunately is probably the worst one we've had in florida in decades. >> the cost of it alone given what you are seeing in terms of pressure, inflationary pressures that consumers are feeling outside of this event, how damaging is this for households and is insurance going to cut it. will the government have to step in and bigger way? bruce: it's an excellent point. they've been warned by the insurance industry for the last 10 years and the last five years about the runaway litigation. in florida 8% of homeowners claimed in 70% -- those abuses that we can the florida insurance industry for quite some time with record failures, the market is on the verge of collapse and they will have to step in this year to make some reforms. >> what impact will this have on the housing market? bruce: it's going to kill the
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housing market there. there's no real estate market. it's going to have a big hit on home sales. we are already sitting with the highest premium in florida. our cost most for example on average paying about $4000 a year and that's unabated without some government intervention i think he goes to eight to 10,000 in the next 24 months. higher insurance rates means you can afford less on home purchase. this will be a big hit to the housing market to put out some -- without some type of government intervention. >> how long does it at the last four pair there's multiple areas of the economy getting hit really hard. so to the extent this is going to keep consumers in a real crunch, while premiums are set to likely rise in the wake of this after massive payouts why are there -- while they are also
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facing issues when it comes to affordability of homes. where does the aid come from first? bruce: it has to come from the state level in terms of reform. florida is very unique. we have the florida hurricane capacity fund which provides subsidized insurance for the market here. those get passed on to the homeowner. it will have to step up in a big way. it's going to have to expand it and lower the price and if you don't do that, of it's only -- it's only going to mount from here. and affecting the entire economy in florida at this point. they could've prevented this years ago with small action, but that's off the table now. we will see how this is but i expect them to step up in a big way. >> is there an expectation or
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realization in florida that this is now the new normal that we are going to see category four, a category five hurricanes becoming more regular? >> you have to believe in global warning. -- local warming prayed it's definitely increasing. i caution though anybody that thinks this is the new normal. i think there are periods of quiet and periods of a lot of that. we went through this in 2004, 2005 and the new normal was good to be three hurricanes a year. we went 12 years without one. we are in a bit of an absent cycle now but the new normal set into florida is that consumers would be crushed runaway litigation and property damage
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that they have suffered prayed that's the new normal. sonali: given the issues we've been talking about and given the idea this is not a standalone event. as such petition of more similar storms to come. is it difficult to find capital to support the industry? bruce: if you're an older player it's difficult. there's been years of adverse development on all of these litigation claims that have been around for years. the industry is paying out massive losses on what we call fail risk. for newer players i think we came in with a clean balance sheet having records in the fourth quarter to raise over 100 million braden and we've already gone with third markets and what's happening. the companies like us, of the
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newer players will have a lot easier path for that capital could we are better positioned to weather the storm so to speak. sonali: bruce lucas, thank you for your time and giving us some more on what's happening in florida. this is bloomberg. ♪
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guy: approaching the european close and it's ugly when it comes to the asset markets here. u.k. to your yield accelerating. we can watch to see whether we will get this. we have 15 basis points moving to the two-year. the german 10 years up by 11 basis points. you got temper had -- 10% headline cpa prayed a huge story and the ecb looks like it's going to have to react.
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equities are down pretty hard. juliette jessup will join us. we will hear from him next. this is bloomberg. ♪
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guy: european equities are being battered. the bond market isn't having a great day either. the pound is actually higher. the countdown to the close starts now. >> the countdown is on in europe. this is bloomberg markets: european close. with guy johnson and alix steel. guy: to show you what equities are doing, we are off session lows. the uk2 year yield down.


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