WEBVTT - Signs of Credit Stress Pose A Big Challenge to Emerging Markets 0:00:05.800 --> 0:00:08.360 Welcome to the Bloomberg p m L Podcast. I'm PIM 0:00:08.400 --> 0:00:11.200 Fox along with my co host Lisa A. Brahmowitz. Each 0:00:11.240 --> 0:00:14.440 day we bring you the most important, noteworthy, and useful 0:00:14.480 --> 0:00:17.079 interviews for you and your money, whether you're at the 0:00:17.120 --> 0:00:20.360 grocery store or the trading floor. Find the Bloomberg p 0:00:20.520 --> 0:00:26.720 m L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. 0:00:26.800 --> 0:00:29.400 Right now, we are broadcasting live from the Commonwealth Financial 0:00:29.400 --> 0:00:34.519 Network's annual National Conference of Advisors from the Marriott in Austin, Texas. 0:00:34.560 --> 0:00:37.080 And PIM we've been talking about the dollar revival. The 0:00:37.280 --> 0:00:41.120 flip story to that is the significant decline in emerging 0:00:41.159 --> 0:00:43.600 market currencies, and to talk about that, let's bring in 0:00:43.680 --> 0:00:48.280 Damian sass Our, chief Emerging market credit tragist for Bloomberg Intelligence. Damien, 0:00:48.320 --> 0:00:50.280 I'm looking right now at the biggest one day drop 0:00:50.320 --> 0:00:52.720 in the M S c I E M Currency Index 0:00:52.800 --> 0:00:55.600 since early October and more than a month. Is this 0:00:55.760 --> 0:00:58.640 all just the dollar or is there something else going 0:00:58.720 --> 0:01:02.560 on with a rethink of investing in the developing world? Yeah, 0:01:02.560 --> 0:01:04.120 at least you no, I think there is a little 0:01:04.120 --> 0:01:05.760 bit of something else going on here. I mean, if 0:01:05.760 --> 0:01:08.360 you just look back at was a test of what's 0:01:08.360 --> 0:01:11.800 called the external durability of global economies. And I think 0:01:11.840 --> 0:01:14.360 the way things are shaping up here, you know, heading 0:01:14.360 --> 0:01:17.679 into yourn for is you know, with with a lot 0:01:17.680 --> 0:01:19.959 of shorts and liquidity metrics kind of rolling over. And 0:01:20.000 --> 0:01:22.920 by that I'm talking about US liquidity metrics, you know, um, 0:01:23.080 --> 0:01:26.479 you know, oh I s t to libor and and 0:01:26.520 --> 0:01:28.800 TED spreads and all of this. I think we were 0:01:28.800 --> 0:01:31.040 maybe setting up to see a test of sort of 0:01:31.040 --> 0:01:33.120 the structural fiber of financial markets, and I see the 0:01:33.120 --> 0:01:35.520 credit markets as we get into the new year may 0:01:35.600 --> 0:01:37.080 very well be tested for the first time in a 0:01:37.160 --> 0:01:42.720 post TFC more tightly regularly. Hold on a second. So 0:01:42.760 --> 0:01:46.920 great financial uh, great financial crisis. H Hold on a second. 0:01:46.920 --> 0:01:49.000 This is what you're saying is really important, and I 0:01:49.040 --> 0:01:52.480 want you to sort of articulate this. You're concerned about 0:01:52.720 --> 0:01:56.040 the sustainability of current credit markets given some of the 0:01:56.160 --> 0:01:59.440 stress metrics that you're seeing build right now. Is that correct? 0:01:59.600 --> 0:02:01.840 That's art I think the said unwind is crowding out 0:02:01.880 --> 0:02:06.480 competing asset classes. Damian Sassaur what is going on in 0:02:06.600 --> 0:02:10.720 Mexico and we see a stock market that is lower 0:02:10.800 --> 0:02:15.120 by about two right now and the new president on 0:02:15.320 --> 0:02:21.000 low this is not reassuring at least two investors. What's happening. Yeah, 0:02:21.040 --> 0:02:23.000 you know, I mean we're gonna see a lot of 0:02:23.200 --> 0:02:25.960 credit differentiation here, I think as we as we get 0:02:26.000 --> 0:02:28.280 into the end of the year. I mean, you know, look, 0:02:28.320 --> 0:02:30.920 Trump has gone some way toward unifying forces against the 0:02:30.919 --> 0:02:33.040 dollar and against the US, from China to Russia, to 0:02:33.080 --> 0:02:34.640 France and Germany, you name it. But I think we're 0:02:34.639 --> 0:02:36.959 going to see foreign governments pay a lot more attention 0:02:37.520 --> 0:02:40.120 to currency denomination and the PACEO is then you know, 0:02:40.400 --> 0:02:43.880 it's the most liquid emerging market currency out there, and 0:02:43.919 --> 0:02:45.600 I think people are going to use that either as 0:02:45.639 --> 0:02:48.520 a head vehicle or a way of speculating against the dollar. 0:02:48.680 --> 0:02:50.480 So I mean, you know, there's a little bit of 0:02:50.520 --> 0:02:52.520 that going on. And I think, you know, Mexican equities 0:02:52.520 --> 0:02:54.160 and a lot of other Mexican assets are just really 0:02:54.240 --> 0:02:57.600 kind of um, you know, a byproduct of that, but 0:02:57.840 --> 0:02:59.919 you know, just kind of taking that that that fall 0:03:00.000 --> 0:03:01.639 it a little bit, you know, I think I think 0:03:01.680 --> 0:03:03.560 the real themes as we get into the new year 0:03:03.560 --> 0:03:06.919 and emerging markets PIM you know, China struggling to find 0:03:06.919 --> 0:03:10.120 a way to fix its slow growth problem, and they're 0:03:10.120 --> 0:03:11.680 going to be hard pressed to find one that doesn't 0:03:11.680 --> 0:03:14.600 involve taking on additional leverage. Um. You know, if you 0:03:14.680 --> 0:03:17.000 just look to Russia, now that the midterms of behind US, 0:03:17.280 --> 0:03:19.240 we have new sanctions that are expected soon and then 0:03:19.280 --> 0:03:22.960 this could be registered regulated US funds are not able 0:03:23.000 --> 0:03:25.520 to participate in new Russian sovereign auctions that could be 0:03:25.560 --> 0:03:27.639 a major hit to them. And then the other big 0:03:27.680 --> 0:03:29.520 theme I think that we're looking at is Brazil, right, 0:03:29.560 --> 0:03:32.440 I mean Brazil. You know, everything is all rosy in Brazil, 0:03:32.480 --> 0:03:35.160 but now the country needs to deliver and both in 0:03:35.160 --> 0:03:37.320 our as an uphill battle if they if they plan 0:03:37.400 --> 0:03:43.080 on passing hugely unpopular pensruon reform and other structural agenda. Well, Damien, 0:03:43.120 --> 0:03:44.360 I want to go back to something that you were 0:03:44.360 --> 0:03:47.240 talking about with respect to the stress that seems to 0:03:47.280 --> 0:03:50.200 be emerging in credit markets that basically the FED is 0:03:50.240 --> 0:03:53.640 withdrawing liquidity from markets and you're starting to see investors 0:03:53.840 --> 0:03:57.800 go back to treasuries and withdraw money from emerging markets. 0:03:58.200 --> 0:04:00.640 I'm just wondering how much further you think this could go, 0:04:00.680 --> 0:04:03.600 because I'm looking right now at the biggest dollar denominated 0:04:03.600 --> 0:04:06.640 emerging markets debt et F and it's down six and 0:04:06.640 --> 0:04:08.480 a half percent year to date. I mean, this hasn't 0:04:08.480 --> 0:04:10.400 been a good year for it at all. Are we 0:04:10.480 --> 0:04:13.720 looking at much deeper losses than that even potentially next well, 0:04:13.760 --> 0:04:15.280 I mean if you just look back at the modern 0:04:15.280 --> 0:04:18.040 era of emerging market debt and I'm talking post global 0:04:18.040 --> 0:04:21.000 financial crisis, you know, this is the first environment we've 0:04:21.040 --> 0:04:24.120 ever seen where you know, we're duration and I'm talking 0:04:24.279 --> 0:04:28.080 losses that are due to rising US yields are really dominating. 0:04:28.279 --> 0:04:30.719 You know, uh, you know, any other factor that might 0:04:30.920 --> 0:04:33.400 generate you know, that might that might impact the end returns. 0:04:33.400 --> 0:04:35.760 And the other big factor, as we know, is spread. 0:04:36.360 --> 0:04:39.160 We'd have we've come come to some the taper tangum 0:04:39.160 --> 0:04:41.599 a number of episodes, November elections, you name it, where 0:04:41.880 --> 0:04:44.200 spreads have blown out quite considerably in the e M 0:04:44.240 --> 0:04:46.400 debt and we've not seen that this time around, and 0:04:46.440 --> 0:04:48.360 that is a real risk. And I think the reason 0:04:48.400 --> 0:04:50.520 that spreads has kind of held their own here has 0:04:50.560 --> 0:04:52.360 a lot to do with the fact that other spread 0:04:52.360 --> 0:04:55.480 asset classes here in the U S, specifically high yield, 0:04:56.000 --> 0:04:58.520 have not really witnessed the same sort of you know, 0:04:58.800 --> 0:05:01.760 um hit that emerging market, you know, so, so I 0:05:01.800 --> 0:05:03.560 think I think you make a very good point. I 0:05:03.560 --> 0:05:06.040 think there's a real risk here that not so much 0:05:06.120 --> 0:05:07.800 that the set isn't doing its job, but it's going 0:05:07.839 --> 0:05:10.960 to be very very difficult for it to navigate an 0:05:11.080 --> 0:05:13.840 environment where you know, dollars are being squeezed out of 0:05:13.880 --> 0:05:18.760 the system. Damien. Are there many professionals who are betting 0:05:18.760 --> 0:05:22.200 on a recovery in e M debt and equity and 0:05:22.279 --> 0:05:25.480 have not seen that recovery and now are faced with 0:05:25.800 --> 0:05:32.400 issues about redemptions or just past performances not prologue. Well, 0:05:32.440 --> 0:05:34.800 I mean yes, and and there's there's certainly gonna be 0:05:34.839 --> 0:05:36.880 pockets of that. But you make a really you're hitting 0:05:36.920 --> 0:05:39.960 on a very very important nerve here, Pim. As we 0:05:40.000 --> 0:05:42.560 get into the new year, you know, everything resets, right, 0:05:43.200 --> 0:05:46.120 And I mean I've been crunching the numbers here and 0:05:46.600 --> 0:05:49.159 I don't see how you can have exposure to some 0:05:49.240 --> 0:05:52.760 of these very high BIDA, high risk UM you know 0:05:52.920 --> 0:05:55.880 e M themes like Turkey and Argentina. You know, because 0:05:55.920 --> 0:05:57.719 if we go into a risk on environment, you know, 0:05:57.760 --> 0:06:00.599 at some point next year, those credits are going you know, 0:06:00.600 --> 0:06:03.480 they're going to outperform significantly, just given the embedded data 0:06:03.520 --> 0:06:05.600 that are in them, so you know, you just can't 0:06:05.600 --> 0:06:09.359 afford not to own them, you know. And I despite 0:06:09.360 --> 0:06:12.520 the weaker fundamentals, the higher idiosyncratic risk, I really can 0:06:12.520 --> 0:06:15.040 see buyers emerging over the next few weeks into year end, 0:06:15.600 --> 0:06:17.840 you know, before conditions turn a liquid into the holidays. 0:06:18.400 --> 0:06:20.880 So just to follow on that theme right now, at 0:06:20.920 --> 0:06:23.640 least looking at retail funds, we really haven't seen outflows. 0:06:23.920 --> 0:06:26.560 Are we seeing outflows from other areas or not yet? 0:06:26.800 --> 0:06:29.360 We have We've definitely seen active funds take their share 0:06:29.360 --> 0:06:31.880 of out flows. A lot of that's already kind of transpired. 0:06:32.279 --> 0:06:33.960 I think it's safe to say that you're going to 0:06:34.040 --> 0:06:36.599 see some rebalancing, as you do most years, you know, 0:06:36.800 --> 0:06:39.359 as you kind of you get through the thirty feet 0:06:39.440 --> 0:06:41.840 into the into January. I mean what happens is is 0:06:41.920 --> 0:06:44.080 usually a bit of a lag because the redemptions start 0:06:44.120 --> 0:06:45.880 to come through, at least the redemption orders come through. 0:06:45.880 --> 0:06:47.640 Now you know, they usually have a month or two 0:06:47.680 --> 0:06:49.440 before they have to meet those redemptions and then we're 0:06:49.440 --> 0:06:52.360 talking feb one. So really what you're looking at and 0:06:52.360 --> 0:06:54.520 this is you know, just talking about credit conditions, Lisa, 0:06:54.520 --> 0:06:55.880 which you and I are just kind of, you know, 0:06:55.960 --> 0:06:59.400 harping on here as we emerge from the holiday, you know, 0:06:59.440 --> 0:07:03.520 sort of Christmas holiday. How US credit markets react to 0:07:03.560 --> 0:07:06.080 that and whether they normalize where they remain type is 0:07:06.120 --> 0:07:09.600 going to be absolutely critical to performance in Thanks very 0:07:09.680 --> 0:07:12.040 much for sharing your time with us and your expertise. 0:07:12.160 --> 0:07:17.080 Damian sassau Are Bloomberg Intelligence knows everything about emerging markets 0:07:17.120 --> 0:07:19.720 and emerging market credit and indeed, just taking a look 0:07:19.720 --> 0:07:23.160 at the Eye Shares m s c I Emerging market 0:07:23.200 --> 0:07:27.200 et F, it is down more than twenty percent since 0:07:27.240 --> 0:07:33.040 the beginning of the year. And it's time to talk 0:07:33.200 --> 0:07:36.280 about fees. You know, Lisa, whenever we talk about exchange 0:07:36.320 --> 0:07:39.360 traded funds, we speak about why they are popular, and 0:07:39.400 --> 0:07:41.960 of course one of the big reasons has to do 0:07:42.040 --> 0:07:45.760 with their low cost fee structure. Specifically when it comes 0:07:45.800 --> 0:07:48.480 to big index funds, let's say those that are offered 0:07:48.520 --> 0:07:50.480 by Van Guard. So I want to know about in 0:07:50.520 --> 0:07:54.560 the advisor space, what is happening to fees. Greg Gore 0:07:54.600 --> 0:07:58.120 is the senior vice president of wealth Management for Commonwealth 0:07:58.160 --> 0:08:02.080 Financial Network. He is east in Boston, as many of 0:08:02.120 --> 0:08:04.840 those people at Commonwealth are, and he joins us here 0:08:04.920 --> 0:08:07.920 in Austin, Texas. Greg, it's a pleasure to have you 0:08:07.960 --> 0:08:10.640 here with us. Tell us the latest when it comes 0:08:10.680 --> 0:08:14.720 to the trend in fee structure and how it's working 0:08:15.040 --> 0:08:19.680 for the advisor community. Yeah, thanks for having us him. UM. 0:08:19.760 --> 0:08:22.040 So there, you know, we're in the midst of probably 0:08:22.040 --> 0:08:26.200 a ten or fifteen year secular trend away from commission business. 0:08:26.840 --> 0:08:31.160 UM and his advisors have you know, migrated UM away 0:08:31.160 --> 0:08:34.880 from commissions and into fees. Uh. The entire industry, UH 0:08:35.000 --> 0:08:38.960 is moving toward lower cost, greater transparency. UH. It's great 0:08:38.960 --> 0:08:41.840 stuff for clients. You know, they're seeing expense ratios go down. 0:08:41.880 --> 0:08:44.960 In many cases, they're seeing the total overall fees they're 0:08:45.000 --> 0:08:47.800 paying their advisors go down. UM. So clients are big 0:08:47.840 --> 0:08:52.560 winners here. And you know, it seems like as this 0:08:52.640 --> 0:08:56.760 trend progresses, UM, you know, commission business will continue to 0:08:56.840 --> 0:08:59.440 erode and we may eventually get to a point where 0:08:59.440 --> 0:09:02.680 the vast jority of advisors are fee based. So you 0:09:02.720 --> 0:09:06.439 said that most advisors are most clients anyway are going 0:09:06.480 --> 0:09:09.000 to be lower paying lower fees. That means that the 0:09:09.040 --> 0:09:11.320 advisors are earning less. Do you expect some to go 0:09:11.320 --> 0:09:14.160 out of business as a result. It's interesting and that 0:09:14.400 --> 0:09:17.600 you know, client fees there, there's different components to it, right, 0:09:17.800 --> 0:09:20.600 So we started this with the exchange traded funds, which 0:09:21.120 --> 0:09:25.199 certainly you know carry you no far lower expense ratios 0:09:25.200 --> 0:09:27.960 than your typical actively managed mutual funds. So a lot 0:09:28.000 --> 0:09:32.480 of advisors UM have migrated clients from higher cost expense 0:09:32.559 --> 0:09:37.000 ratio products to exchange traded funds UM, you know, maintain 0:09:37.120 --> 0:09:41.240 their fee structure or only modestly adjusted it down UM, 0:09:41.320 --> 0:09:43.920 and clients ultimately may still benefit there. And then you've 0:09:43.960 --> 0:09:49.360 also seen some advisors reduce their asset management fee UM, 0:09:49.400 --> 0:09:52.680 but charge a separate financial planning fee, so sort of 0:09:52.679 --> 0:09:56.000 an unbundling of the advisory fee if you will. UM. 0:09:56.080 --> 0:09:58.280 We we definitely see a trend towards that as well. 0:09:58.640 --> 0:10:03.199 What is the breakdown if there is one based on demographics? 0:10:03.200 --> 0:10:08.600 In other words, older customers, younger customers, because many younger 0:10:08.640 --> 0:10:13.000 customers they've never lived in a world where commissions were 0:10:13.320 --> 0:10:16.480 the basic way in which he got paid. Yeah, that's 0:10:16.520 --> 0:10:19.560 a that's a great one, PIM. I think what we're 0:10:19.600 --> 0:10:23.760 seeing among our advisor group is, you know, the older 0:10:23.800 --> 0:10:27.080 clients I think are very comfortable UM. You know in 0:10:27.160 --> 0:10:29.439 both the commission and a few world A lot of 0:10:29.520 --> 0:10:31.679 them grew up with commissions, you know, sort of came 0:10:31.720 --> 0:10:34.800 out of that era where there was still stockbrokers, you know, 0:10:34.840 --> 0:10:37.679 where there was right Jacole Jamada trade and then you've 0:10:37.679 --> 0:10:40.040 got your slip and you realize that you paid, you know, 0:10:40.120 --> 0:10:42.040 you paid the demission. You know you paid, you paid 0:10:42.040 --> 0:10:44.440 for the transaction. So so they're very comfortable with that. 0:10:44.559 --> 0:10:49.359 I think, um as you move into the younger generation 0:10:49.440 --> 0:10:52.280 that you know, they just consumed services differently, right, So 0:10:52.360 --> 0:10:54.840 to them, they've grown up in the world where you know, 0:10:54.920 --> 0:10:57.960 to them, commission is just they have no reference point 0:10:58.000 --> 0:11:01.280 for that. They don't pay commissions. Um. So, so that's where, 0:11:01.280 --> 0:11:04.040 particularly as we think about next gend clients, a lot 0:11:04.080 --> 0:11:07.079 of our advisors are adjusting their fee schedule for those folks, 0:11:07.640 --> 0:11:11.240 charging things like you know, recurring financial planning fees that 0:11:11.240 --> 0:11:12.839 could be on a monthly basis, that could be on 0:11:12.920 --> 0:11:15.880 a quarterly basis, like a subscription, like a subscription fee. 0:11:15.920 --> 0:11:17.800 That that's how they you know, these folks like to 0:11:17.840 --> 0:11:21.839 consume services exactly. I have to wonder if there is 0:11:21.920 --> 0:11:24.800 more transparency and given the fact that fees have been 0:11:24.840 --> 0:11:27.480 compressed across the board at what point will clients just 0:11:27.520 --> 0:11:29.320 say I wanted to be lower and if you don't 0:11:29.360 --> 0:11:30.880 lower it, I'm gonna go elsewhere we I'm gonna go 0:11:30.880 --> 0:11:33.440 to a rob robo advisory and I'll make it work myself. 0:11:34.320 --> 0:11:37.560 I think you're seeing that now. I think, um, you know, 0:11:37.760 --> 0:11:40.719 clients are asking, they're better educated, and they're asking hard 0:11:40.800 --> 0:11:43.920 questions around fees that probably ten years ago they weren't. 0:11:44.440 --> 0:11:47.000 Now for us, as we think about you know, our 0:11:47.040 --> 0:11:51.880 advisors sustainability, UM, I think as long as you're providing 0:11:51.960 --> 0:11:54.520 far more than just investment management, it gives you a 0:11:54.640 --> 0:11:58.080 nice mode, if you will, protection from like a robo advisor, 0:11:58.480 --> 0:12:02.840 it's primarily focused on investment management. So most of our 0:12:02.880 --> 0:12:06.679 advisors do play in the comprehensive financial planning space. So 0:12:06.840 --> 0:12:09.120 investment management is just a small part of what they 0:12:09.120 --> 0:12:14.440 get paid for. Insurance products, annuity products. They all come 0:12:14.480 --> 0:12:17.839 with their own fee schedules based on the products that 0:12:17.880 --> 0:12:20.120 may be sold. Do you see that that is going 0:12:20.160 --> 0:12:22.439 to be an area that is going to change over 0:12:22.480 --> 0:12:26.600 the next couple of years. I do, UM. I think 0:12:27.840 --> 0:12:30.040 you know, the insurance industry maybe hasn't been on the 0:12:30.160 --> 0:12:34.160 leading edge of this movement from commissions to advisory fees. 0:12:34.440 --> 0:12:37.120 But I think we're starting to see signs that they're 0:12:37.120 --> 0:12:40.199 going to move that direction. UH. Some of the major 0:12:40.880 --> 0:12:45.959 v A carriers now have moved aggressively variable annuities have 0:12:46.080 --> 0:12:51.360 moved aggressively into advisory based contracts UM. I was just 0:12:51.400 --> 0:12:54.000 talking today with one of our insurance partners, asked ash 0:12:54.040 --> 0:12:57.280 Brokerage UM, and they were talking about the evolution among 0:12:57.400 --> 0:12:59.880 some of their insurance partners that are getting more into 0:12:59.880 --> 0:13:04.840 the fee UM advisory based insurance products UH to support 0:13:05.160 --> 0:13:08.360 you know, advisors who can't receive commissions who have made 0:13:08.360 --> 0:13:11.559 that move in their affiliation model that their ent fee. 0:13:11.720 --> 0:13:13.360 So I think the evolution is going to continue and 0:13:13.360 --> 0:13:15.360 we're going to get a lot better products from it. 0:13:15.360 --> 0:13:17.240 It's funny as you were talking and you were saying 0:13:17.280 --> 0:13:20.120 they need to provide something more than just investment advice PAM. 0:13:20.200 --> 0:13:22.920 Based on some of the conversations we've had here over 0:13:22.960 --> 0:13:25.880 the past two days, it seems like being someone's family 0:13:25.920 --> 0:13:27.760 therapist is part of it because you have to talk 0:13:27.800 --> 0:13:31.120 about what their life goals are, what they envisioned for 0:13:31.160 --> 0:13:34.600 themselves when they're olders, how their relationship is, how they 0:13:34.600 --> 0:13:37.400 would like the world to be. Is that accurate, and 0:13:37.559 --> 0:13:42.520 that is accurate. And uh, you know, we think about 0:13:42.559 --> 0:13:46.200 what our advisors do and and all the services they deliver, 0:13:46.280 --> 0:13:49.280 and all the conversations they have, and if you brought 0:13:49.480 --> 0:13:51.160 ten of them over here, I bet you they'd tell 0:13:51.200 --> 0:13:53.000 you they spend less than ten percent of their time 0:13:53.160 --> 0:13:58.160 talking about investments with their clients. UM. It's really, you know, 0:13:58.240 --> 0:14:01.920 it's not what most clients want to focus on. Um 0:14:02.000 --> 0:14:04.120 that you know that they want to know, do I 0:14:04.160 --> 0:14:06.480 have enough money to retire? You know? And am I 0:14:06.480 --> 0:14:07.800 going to be able to take the trip? And I 0:14:07.920 --> 0:14:11.800 am I gonna be able to fund my grandchildren's education? Um? 0:14:11.880 --> 0:14:15.320 So it it the the investments, you know are important, 0:14:15.720 --> 0:14:18.160 and certainly from the advisor's perspective, they do pay the 0:14:18.200 --> 0:14:21.280 bills to some extent. UM. But but I don't think 0:14:21.280 --> 0:14:26.400 it's you know, always the top priority for clients. Fiduciary rules, 0:14:27.120 --> 0:14:30.200 that was a big topic last year. It's less so 0:14:30.480 --> 0:14:33.000 this year. Do you believe that many firms are going 0:14:33.040 --> 0:14:37.880 to just adopt fiduciary rules standards because it's good business. 0:14:40.240 --> 0:14:42.480 I think we're in a wait and see right now, 0:14:42.520 --> 0:14:46.880 you know. Um, certainly the d L fiduciary rule UM 0:14:47.040 --> 0:14:48.680 was a wake up call. I think for a lot 0:14:48.680 --> 0:14:50.680 of firms to sort of look at their business and say, 0:14:50.680 --> 0:14:54.080 are we future proofed? Are we in a position that 0:14:54.240 --> 0:14:57.280 you know, we can comply with this UM Now everybody 0:14:57.280 --> 0:15:00.320 got a reprieve from that. UH, that may route to 0:15:00.320 --> 0:15:03.400 be temporary. Right. The SEC is out now with the 0:15:03.400 --> 0:15:07.840 best interest proposal. We've heard from UM the d O 0:15:08.000 --> 0:15:10.440 L that they may take take another run at some 0:15:10.480 --> 0:15:15.040 regulation here. UM. So our advisors, I mean of our 0:15:15.080 --> 0:15:18.240 business is already fiduciary. So so our advisors are very 0:15:18.240 --> 0:15:20.840 comfortable with that. Ultimately I think goes that direction, we'll 0:15:20.880 --> 0:15:23.040 be just fine. Greg Gore, thank you so much for 0:15:23.040 --> 0:15:25.000 being with us. Greg Gore as senior vice president of 0:15:25.000 --> 0:15:28.960 Wealth Management at Commonwealth Financial Network normally in Boston right 0:15:28.960 --> 0:15:36.880 now in Austin, Texas. Definitely, one thing that is shaking 0:15:37.080 --> 0:15:40.160 at least the energy stocks in the SP five hundred 0:15:40.200 --> 0:15:44.640 and beyond is the ongoing decline in oil and the 0:15:44.920 --> 0:15:49.600 ten day losing streak is setting it up for possibly 0:15:49.680 --> 0:15:53.040 the worst route on record. The ten day loss has 0:15:53.080 --> 0:15:56.040 been the biggest since November two, sixteen, and that was 0:15:56.120 --> 0:15:58.760 one there was basically a free fall going on in 0:15:58.800 --> 0:16:00.520 the price of oil. So it's using a lot of 0:16:00.600 --> 0:16:04.440 questions here, given the fact that we have entered a 0:16:04.480 --> 0:16:06.520 bear market. Now to talk a little bit more about this, 0:16:06.800 --> 0:16:10.640 Julian Lee Bloomberg oil strategist joining us Julian can give 0:16:10.720 --> 0:16:13.520 us a sense of why what is the mean driver 0:16:13.720 --> 0:16:16.840 behind the oil price declines recently. I think there's a 0:16:16.920 --> 0:16:21.400 number of things going on. We are seeing that forecasts 0:16:21.400 --> 0:16:24.920 of demand growth of being revised downwards by all of 0:16:24.920 --> 0:16:28.280 the major agencies. But I think that the bigger thing 0:16:28.440 --> 0:16:32.960 is is really a supply issue. UH. The US government 0:16:33.000 --> 0:16:37.880 has raised its assessment of how much oil the United 0:16:37.920 --> 0:16:41.640 States is producing. Both the most recent weekly and the 0:16:41.680 --> 0:16:45.120 most recent monthly data show that production is growing at 0:16:45.120 --> 0:16:48.480 a rate of two million barrels a day year on year. 0:16:48.880 --> 0:16:51.000 That is a staggering amount of oil. I mean that 0:16:51.160 --> 0:16:55.560 is adding as much oil as is produced by Nigeria 0:16:55.640 --> 0:16:58.520 and Gabon to OPEC members in the space of a 0:16:58.560 --> 0:17:02.720 single year. UH. That I think has really spooked markets 0:17:02.760 --> 0:17:06.240 and there's more shale to come. Julian. If you take 0:17:06.240 --> 0:17:08.480 a look at the price of crude on the NIMAX, 0:17:08.840 --> 0:17:14.240 since the beginning of October, the price has fallen more 0:17:14.280 --> 0:17:20.600 than twenty per cent. If this was a stock market indicator, 0:17:21.040 --> 0:17:24.080 people would be jumping out of windows. They would be 0:17:24.160 --> 0:17:29.400 seeing their stock portfolios lower by a five. Is there 0:17:29.440 --> 0:17:33.800 a rebound that will happen. There may be a temporary rebound. 0:17:33.800 --> 0:17:38.719 I mean we are moving towards a period of of 0:17:39.200 --> 0:17:42.480 much stronger seasonal demand. I mean, if you look at 0:17:42.520 --> 0:17:47.040 one indicator, if you look at US refinery runs, the 0:17:47.080 --> 0:17:50.840 amount of crude oil processed in US refineries, it's just 0:17:51.040 --> 0:17:53.680 coming to the end of what is typically a seasonal 0:17:53.760 --> 0:17:57.200 low point, and the amount of oil being processed will 0:17:57.320 --> 0:18:00.240 pick up over the period to the end of the 0:18:00.320 --> 0:18:02.280 year by as much as one and a half million 0:18:02.280 --> 0:18:05.320 barrels a day. That's going to give a a short 0:18:05.440 --> 0:18:10.520 term boost to the demand for crude oil UM, and 0:18:10.600 --> 0:18:14.280 that might provide a bit of relief for a while. UM. 0:18:14.320 --> 0:18:16.199 But I think eyes are going to be on on 0:18:16.440 --> 0:18:20.119 Opaque and Russia, the group of countries that said they 0:18:20.160 --> 0:18:24.919 would cut output. They are meeting on Sunday. This is 0:18:24.960 --> 0:18:29.040 not a policy making meeting. It's a meeting to sort 0:18:29.080 --> 0:18:31.720 of assess how their current agreement is going. But it 0:18:31.760 --> 0:18:34.520 will set the tone I think for their discussions over 0:18:34.560 --> 0:18:38.840 thecoming coming weeks. Is there a price point Julian at 0:18:38.880 --> 0:18:43.280 which basically people start to go back to fossil fuels, 0:18:43.280 --> 0:18:46.960 go back to using oil. That stymy is the development 0:18:47.080 --> 0:18:49.520 of alternative energy sources. In other words, that's good for 0:18:49.560 --> 0:18:52.200 the oil industry long term. In other words, three dollars 0:18:52.200 --> 0:18:54.680 a barrel, it would be actually for the long term, 0:18:54.680 --> 0:18:56.880 probably pretty good for them. For the oil industry now, 0:18:57.720 --> 0:19:00.080 it would certainly be good from a demand point of you. 0:19:00.200 --> 0:19:02.440 I think the problem with thirty dollar a barrel oil 0:19:02.600 --> 0:19:08.480 is that that really starts biting into investment in future production. 0:19:08.600 --> 0:19:12.679 And we saw that when oil prices fell, when they 0:19:12.680 --> 0:19:18.520 were getting down to those sort of levels, in investment 0:19:18.600 --> 0:19:21.960 in new projects just dried up um. And we're still 0:19:22.000 --> 0:19:24.560 I think seeing the tail end of that. Now. What 0:19:24.840 --> 0:19:28.960 is you know, what everybody I think agrees is that 0:19:29.320 --> 0:19:33.200 we need some sort of stability around a price that 0:19:34.000 --> 0:19:37.120 doesn't choke off demand too quickly, but also is high 0:19:37.240 --> 0:19:41.800 enough to allow the industry to continue to invest. What 0:19:41.840 --> 0:19:44.320 that level is is is the thing that nobody can 0:19:44.359 --> 0:19:47.959 agree on. When oil prices were thirty dollars a barrel, 0:19:47.960 --> 0:19:50.680 OPEC said it was round about fifty. When it got 0:19:50.720 --> 0:19:53.480 to fifty, they were talking well maybe it's round about seventy. 0:19:54.119 --> 0:19:56.679 When it got to seventy, well maybe the target was eighty. 0:19:56.800 --> 0:19:59.600 So you know, this is a very much a movable 0:19:59.680 --> 0:20:02.639 feat all right, it's a movable feast, but the feast 0:20:02.720 --> 0:20:06.600 is sometimes stuck in the ground. Reserve values they are 0:20:06.800 --> 0:20:11.119 used for collateral purposes if you happen to be borrowing money, 0:20:11.160 --> 0:20:15.879 which many exploration companies in the shale patch actually do. 0:20:16.000 --> 0:20:18.160 They taken on a lot of debt. When do they 0:20:18.200 --> 0:20:21.600 have to revise those assumptions for how much that oil 0:20:21.640 --> 0:20:24.080 at fossil fuel is in the ground, how much it's 0:20:24.119 --> 0:20:27.160 going to be worth well, I mean most of these 0:20:27.160 --> 0:20:33.160 companies are looking at a sort of revising the estimates 0:20:33.200 --> 0:20:36.639 of their break even prices and the value of oil 0:20:36.680 --> 0:20:40.120 in the ground on a usually on a six monthly basis. 0:20:40.160 --> 0:20:42.879 So the next one is is probably coming up towards 0:20:42.920 --> 0:20:46.520 the end of this year. But at seventy dollars a barrel, 0:20:47.240 --> 0:20:49.800 sixty dollars a barrel for w t I I sort 0:20:49.800 --> 0:20:51.800 of work in a Brent world being in Europe, but 0:20:52.040 --> 0:20:54.720 you know, sixty dollars w t I, most of these 0:20:54.720 --> 0:20:58.359 companies producing in the shale patch have probably cut their 0:20:58.400 --> 0:21:02.760 break evens two round about thirty thirty five dollars of arrel. 0:21:02.880 --> 0:21:05.399 So from that point of view, I think they're still 0:21:05.440 --> 0:21:09.440 fairly comfortable. The people who are going to be suffering 0:21:09.680 --> 0:21:13.000 as prices fall if they continue to do so, are 0:21:13.040 --> 0:21:17.200 the people who are looking at investing in very big, expensive, 0:21:17.320 --> 0:21:20.560 long term projects, and that's where the investment has really 0:21:20.640 --> 0:21:23.280 dried up. Julian Lee, thank you so much for being 0:21:23.280 --> 0:21:26.360 with us. Definitely oil in the spotlight today and your 0:21:26.400 --> 0:21:30.920 perspective is greatfully, really insightful. Jeffrey, Julian Lee is Bloomberg 0:21:30.960 --> 0:21:34.680 Oil strategist. Uh coming to us. We are currently in Austin, 0:21:34.720 --> 0:21:37.200 Texas at least RAMA. What's along with my co host 0:21:37.200 --> 0:21:42.960 and colleague Pim Fox. This is Bloomberg. Then we're going 0:21:43.040 --> 0:21:47.280