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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.

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Speaker 1: Along with my co host Lisa Bramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. There

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Speaker 1: is a slew of stories PIM about rental car companies

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Speaker 1: teaming up with big tele technology companies to manage their

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Speaker 1: driver lists car fleets. And I thought this was fascinating.

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Speaker 1: So let's bring in chrys Chrysler minivans. Maybe they'll even

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Speaker 1: put another badge on at Alphabet and their way Mo

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Speaker 1: autonomous driving division. Yeah, I want to I want to

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Speaker 1: get more context in this because it seems like a

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Speaker 1: pretty big significant development. I want to bring in Allen Baum,

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Speaker 1: principal at UM and associates, as well as our own

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Speaker 1: a non street Astavan senior semiconductor and hardware analysts at

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Speaker 1: Bloomberg Intelligence, and I want to start with you UM. Yesterday,

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Speaker 1: what was so significant that two agreements were reported? We

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Speaker 1: had Avis coming up with something with Weymo to possibly

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Speaker 1: manage their driver list a fleet, and then Apple and

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Speaker 1: Hurts appear to be discussing some kind of similar partnership.

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Speaker 1: Why now and what what really are these partnerships? Look,

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Speaker 1: at the end of the day, these are complicated electro

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Speaker 1: mechanical machines. I think that technology companies have figured out

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Speaker 1: that they need to be um partnering with somebody who

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Speaker 1: has substantial experience in the vehicle department. So as much

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Speaker 1: as driver list technical that would be a good thing.

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Speaker 1: That would be a good thing because they take space.

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Speaker 1: You need to do some maintenance maintenance, whether it's an

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Speaker 1: electric vehicle fleet or a fuel injection vehicle. You need

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Speaker 1: regular checkups on everything from tires to fluid levels to

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Speaker 1: batteries for example. And you just can't automate the whole thing,

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Speaker 1: just like you do with the server farm or a

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Speaker 1: phone so much to the annoyance of people in the

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Speaker 1: technology industry significantly, so you can't. You can't put it

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Speaker 1: in the cloud and forget about it. So so this

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Speaker 1: is that part of that. This is a messy part

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Speaker 1: of the hardware that needs to be taken care of. Well, Ellen,

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Speaker 1: I want to bring you in here are Hurts and

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Speaker 1: Eva's equipped to really manage a fleet like this. This

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Speaker 1: isn't exactly their business. Well, they're not going to be

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Speaker 1: managing the technology. They actually made pretty clear that the

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Speaker 1: WEYMO will be responsible for making sure about the hardware

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Speaker 1: and the software of the autonomous vehicle uh is functional.

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Speaker 1: But it's also about distribution. Uh you know the idea.

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Speaker 1: There's been a lot of surveys about how people view this,

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Speaker 1: how the general public views it, and it's generally pretty negative.

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Speaker 1: And the obvious reason is people don't know what they

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Speaker 1: don't know. Um and so you know, this sounds pretty

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Speaker 1: creepy that your car driving your driving itself, and uh

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Speaker 1: so that there's a concern about that. With distribution, as

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Speaker 1: people start to to experience it, then perhaps their their

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Speaker 1: views will become more positive. And so that's what this

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Speaker 1: is about. And this is also a very good I

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Speaker 1: think for the electric vehicle industry because what it it, uh,

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Speaker 1: it's it's an example of is when you talk about

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Speaker 1: a HURTS and an AVIS being involved, the cost of

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Speaker 1: the service, of of providing the services critical and so

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Speaker 1: to the extent that electric vehicles are going to be

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Speaker 1: cheaper to run, I'm not really talking about cheaper to buy,

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Speaker 1: but cheaper to run than that's critical for these these opportunities.

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Speaker 1: And so we see the players that are good at this,

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Speaker 1: that are good at running fleets getting more involved. So

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Speaker 1: is this as much a recognition that the business model

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Speaker 1: of rental car companies such as Budget and Avis, Budget

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Speaker 1: and Hurts Global, that their business model aligns financially with

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Speaker 1: the ownership and maintenance portion of these vehicles future Because

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Speaker 1: it's about scale, as you said on them, absolutely see

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Speaker 1: economic scale and technology is sort of the foundation of

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Speaker 1: which large technology shifts occur. Right, So to Mr Brown's point,

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Speaker 1: it's a great distribution channel. They know how to run

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Speaker 1: and operate cars, and they know how to run and

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Speaker 1: operate cars cheaply so and appreciate the value of those

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Speaker 1: cars the benefit of their shareholders exactly. And this allows

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Speaker 1: technology to proliferate through their fleet better, faster, more effectively.

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Speaker 1: That's point number one. The point number two is if

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Speaker 1: you look at drivertive technology enhancements, one of the things

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Speaker 1: that we have written about extensively is this notion of

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Speaker 1: collecting data from UH many many, many number of points.

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Speaker 1: This is one industry which needs a large amount of

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Speaker 1: vehicles flying on the road to gather information. Who better

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Speaker 1: do it from rather than than doing it one by

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Speaker 1: one by one on an ownership basis renting of cars. Well,

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Speaker 1: and this raises a question. This raises my next question, Alan,

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Speaker 1: I want to direct this at you. The significance of

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Speaker 1: this is it that we're getting closer to the reality

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Speaker 1: of a self driving fleet that will actually get implemented

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Speaker 1: in urban areas or elsewhere. I mean, are we really

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Speaker 1: see are we at the precipice of a sort of

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Speaker 1: see change in transportation. I'm a little uh cautious on that. Uh,

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Speaker 1: you know, will this work in Manhattan? Will this work

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Speaker 1: in San Francisco? Yes? Um, but of course it has

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Speaker 1: to compete with the existing system well well, but beyond

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Speaker 1: beyond but sorry, Alan, but beyond just will it work?

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Speaker 1: I mean, is it going to be experimented with at

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Speaker 1: this point? Is that the Is that the significance or not?

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Speaker 1: You want to take that? Yeah, I think that. I

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Speaker 1: don't know if it's Manhattan or San Francisco urban areas

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Speaker 1: as much as it's going to I think start with

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Speaker 1: UM large fleets of trucks. It's going to start with closed, compartmentalized,

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Speaker 1: UM sort of gated communities if you may, whether it's

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Speaker 1: a campus network, whether it's universities. One of the things

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Speaker 1: that we've said is university campuses may be ideal for

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Speaker 1: an experimentation with that, and particularly on the West Coast,

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Speaker 1: large urban or suburban corporate campuses would be ideal for

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Speaker 1: such a fleet where, um, you could experiment with the vehicles,

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Speaker 1: you could experiment with buses, you could experiment with cars.

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Speaker 1: But at the end of the day, you also need

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Speaker 1: urban data. You also need data from different parts that

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Speaker 1: you need rural data. You need data from all of

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Speaker 1: these different parts. And I think that I'm not so sure.

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Speaker 1: I agree with with Mr round in that I don't

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Speaker 1: know if it's to come sooner or later. But I

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Speaker 1: think that this is we're going to try multiple different things.

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Speaker 1: I think the experimentation with the rental car companies is

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Speaker 1: a great idea. I think that we might start with

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Speaker 1: the universities, corporate campuses, etcetera. We have to experiment in

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Speaker 1: order to collect this data to make this feasible. Alan

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Speaker 1: bound you have a response. The development process is growing

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Speaker 1: at at an amazing rate. I mean literally, it's two

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Speaker 1: or three items a week, um and yesterday two items

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Speaker 1: in one day where there are all these collections of

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Speaker 1: major players, both in the technology and the auto space

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Speaker 1: and now in distribution. Um, so we're seeing dramatic opportunities. Obviously,

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Speaker 1: not everything is gonna work, and that's what the system

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Speaker 1: is finding. I just saw a video of Tesla's new

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Speaker 1: autopilot where it was for about a twenty minute space

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Speaker 1: of where it did and did not work. But of

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Speaker 1: course in restless case, they're getting one a non to

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Speaker 1: saying that data. They get the data, whether you're using

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Speaker 1: autopilot or not, and that data is critical to the

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Speaker 1: development of the technology. And of course we've also got

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Speaker 1: the regulatory issue, which is actually being discussed in Washington today,

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Speaker 1: where the auto companies and the technology companies are saying,

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Speaker 1: we really don't want fifty states having different different policies

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Speaker 1: about this, Thanks very much. We gotta leave it there,

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Speaker 1: we gotta run Alan bound Principal Bauman associates on trin

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Speaker 1: of US and Bloomberg Intelligence. Just type b I go

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Speaker 1: on the Bloomberg for more. Well, I am a little

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Speaker 1: bit perhaps confused about one issue in the exchange traded

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Speaker 1: fund universe that only one all right, fairy fam but

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Speaker 1: this has been the fastest growing aspect of the asset

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Speaker 1: management industry, and it is now an increasingly actively managed

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Speaker 1: industry because you have the passive e t F which

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Speaker 1: account for the majority of the ass under management, but

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Speaker 1: there is the fastest growing component that is smart beta.

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Speaker 1: To understand how actively managed e t f s fit

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Speaker 1: into this this universe it's known for being passive. I

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Speaker 1: want to bring in Tom Hoops, executive vice president, a

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Speaker 1: head of business development. Uh like Mason, really glad to

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Speaker 1: have you here, Thank you so much, thanks for having so.

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Speaker 1: Can you explain where actively managed e t f s

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Speaker 1: fit in to a universe that has gained popularity for

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Speaker 1: being passive and cheap. Yeah. Sure. I think it starts

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Speaker 1: with thinking about the e t F as a vehicle

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Speaker 1: as opposed to an investment strategy and separating that. I

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Speaker 1: think the industry and the media often we get it wrong.

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Speaker 1: We think about e t f s and market cap

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Speaker 1: passive as being synonymous and true, most of the volume

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Speaker 1: that's been in e t f s today has been

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Speaker 1: in market cap passive. But ultimately the e t F

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Speaker 1: is just a delivery vehicle for an investment strategy. Yes,

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Speaker 1: although part of the beauty of the e t F

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Speaker 1: is its transparency, which doesn't always work with an actively

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Speaker 1: managed fund, particularly in less liquid areas right um, as

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Speaker 1: well as it's ease of transaction. So it's sort of

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Speaker 1: uh is supposed to be a proxy for a broad

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Speaker 1: market that you can just easily access, right it doesn't

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Speaker 1: have to be a proxy for a broad market. I

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Speaker 1: do think that the ease of access is important. I

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Speaker 1: think transparency has been an issue and that is is

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Speaker 1: a potentially a roadblock to broader adoption of delivering active

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Speaker 1: strategies UM in an e t F. But it also

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Speaker 1: has lower overall operating expenses and gives clients a better

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Speaker 1: tax outcome. So as a rapper, it's it's in many

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Speaker 1: ways a better mouse trap than the forty Act mutual fund.

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Speaker 1: And so you know, for clients and advisors and gatekeepers

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Speaker 1: that want to access active strategies, which they still do

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Speaker 1: in large numbers, having it in a more efficient, lower

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Speaker 1: US tax friendly rapper we think just makes sense. Does

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Speaker 1: this also have to do with the way that the

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Speaker 1: financial industry has evolved in the sense that if you

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Speaker 1: are a great money manager, you can go out and

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Speaker 1: create your own mutual fund and then people will want

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Speaker 1: to invest based on your ability to produce the returns

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Speaker 1: or the risk profile that they want. On the other hand,

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Speaker 1: with an exchange traded fund, it seems to be the

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Speaker 1: vehicle that is run by the larger financial institution based

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Speaker 1: upon a desire obviously to market the investment, but also

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Speaker 1: to take advantage of whatever the strengths are of your

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Speaker 1: financial institution. Yes, so so him. Our Our strategy, like Mason,

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Speaker 1: has been to increase client choice in both investment strategies

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Speaker 1: and in products and vehicles. And so getting the right

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Speaker 1: investment strategy in front of a client or in a

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Speaker 1: client's portfolio is most important if they want to access

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Speaker 1: that strategy through a mutual fund, through separately managed account,

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Speaker 1: through an et F, through collective fund, through use it's fund,

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Speaker 1: its R That's that's all fine. We want to be

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Speaker 1: able to offer them that choice. Which asset classes are

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Speaker 1: most uh conducive to active management management in ETF wrapper?

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Speaker 1: I mean, what are you looking at to sort of

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Speaker 1: expanding sure, sure so so So Back to the transparency

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Speaker 1: issue is, as you know, the E t F vehicle

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Speaker 1: UM as it stands today does require UM daily transparency. UM.

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Speaker 1: We're certainly fine with daily transparency with clients or the

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Speaker 1: second largest SMA provider UM in the in the US,

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Speaker 1: and that means we provide, of course a daily transparency

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Speaker 1: to our clients, but with an e t F, it's

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Speaker 1: daily transparency to the market and market makers, and that

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Speaker 1: can of time put your IP at risk for front

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Speaker 1: running UM and and other things that could be detrimental

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Speaker 1: to the client. That is less of an issue in

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Speaker 1: fixed income, and that's why you've seen to date the

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Speaker 1: largest active ETFs have been in the fixed income space.

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Speaker 1: It's harder to front run and get ahead of of

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Speaker 1: of fixed income securities and fixed income portfolios. On the

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Speaker 1: equity side, though, that is where I think the market

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Speaker 1: is looking for some type of technology or solution to

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Speaker 1: deal with the transparency issue so that we can deliver

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Speaker 1: actively manage equity strategies UM in the advantages of the

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Speaker 1: E t F vehicle. Let's talk, if you can, about

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Speaker 1: some of the results from a recent survey. This is

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Speaker 1: the fifth annual survey. I believe that you've uh that

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Speaker 1: your reference and it has to do with the attitudes

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Speaker 1: of investors, and I thought it was very interesting that

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Speaker 1: your your expectations for certain levels of return are almost

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Speaker 1: determined by your age and what you do. Yeah, I

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Speaker 1: think I think them. There were a lot of interesting

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Speaker 1: results or eye opening results when it came to investor

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Speaker 1: expectations versus versus reality, and it did vary some by generation,

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Speaker 1: varied some by whether one was was employed currently or retired.

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Speaker 1: At the end of the day, though there is still

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Speaker 1: a pretty sizeable gap between investors think they're gonna earn,

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Speaker 1: particularly in in income oriented investments, versus where we think

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Speaker 1: the world is now and where it will be going forward. Well,

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Speaker 1: it just said that the numbers fully retired. If you're

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Speaker 1: fully retired, you're looking at overall average rate of return

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Speaker 1: of six point two percent, which is a lot more

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Speaker 1: realistic than the nine percent that people who are employed

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Speaker 1: are sting. They're more uh, they're okay with investing in

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Speaker 1: safer assets that they can get a more predictable returns.

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Speaker 1: They might just be also de risking, right, or maybe

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Speaker 1: they just have everything they need. I'm sure the more

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Speaker 1: realistic they're older too. We we have seen again it's

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Speaker 1: persisted now for a few years in the survey, a

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Speaker 1: large allocation to cash um across all generations in the range. Wow,

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Speaker 1: all right, that's something to watch and thank you very

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Speaker 1: much for being with us. Tom Hoops is executive vice

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Speaker 1: president and head of business development leg Mason based in Baltimore. Well,

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Speaker 1: we've all been adding up our cable and our mobile

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Speaker 1: phone bills here in the studio, and the number is

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Speaker 1: not pleasant. Here to help us understand it and the

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Speaker 1: possible combination between Sprint and Charter and Comcast as Bloomberg

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Speaker 1: Intelligence his own Josh Yatsko wits he is a media

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Speaker 1: and cable analyst, and Matthew Cantererman he is a telecom

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Speaker 1: services as well as equipment analysts, and they join us

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Speaker 1: in our studios. Gentlemen, thanks for being here. I'm not

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Speaker 1: gonna make you reveal your cable bills or you know

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Speaker 1: how much it costs for your mobile service, but we

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Speaker 1: were informally talking and realizing, my goodness, we're supporting you know,

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Speaker 1: at least three behemoth organizations. I want you to talk

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Speaker 1: about some of them, Sprint, Comcast and Charter. H Matthew,

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Speaker 1: maybe you want to start off by describing what do

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Speaker 1: you think is going on here? Sure says say Sprint

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Speaker 1: for a while as underinvested in its network, they've been

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Speaker 1: concentrated aim by very high leverage, low free cash flow,

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Speaker 1: so they're looking for ways to finance network investments UM

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Speaker 1: to catch up to their rivals A, T and T,

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Speaker 1: Verizon and Tea Mobile has been the most aggressive recently.

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Speaker 1: UM an equity investment from the cable companies who Josh

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Speaker 1: can speak to about their desire to get into wireless

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Speaker 1: and offer quadruple play bundles to reduce their turn You know,

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Speaker 1: it suits all parties. It helps Sprint get cash to

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Speaker 1: accelerate their capex, and it helps the cable companies, you know,

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Speaker 1: get good, cheap access to the wireless airways that they

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Speaker 1: need to to lease to to offer those services. So, Josh,

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Speaker 1: let's bring you in how how beneficial is it for

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Speaker 1: Comcast and Charter Because theoretically, as Matt saying, you know,

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Speaker 1: it does sound like there is some kind of benefit.

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Speaker 1: And yet when you look at the share prices of

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Speaker 1: both Comcast and Charter both down. Sprint though, is up

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Speaker 1: because investors are loving the idea of a possible bailout

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Speaker 1: or extra cash. Yeah, so Charter and Comcast have actually

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Speaker 1: been having wireless ambitions for a while. Right now they

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Speaker 1: have a deal with Verizon and MV and O deal

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Speaker 1: where they can utilize the services. MBNO, you've gotta help

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Speaker 1: us m vyn O. It's basically a way for them

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Speaker 1: to utilize Verizon services without owning the network. So they're

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Speaker 1: using it as a wholesale agreement. UM. So with Sprint,

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Speaker 1: they could look into multiple options, one of which is

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Speaker 1: doing another mv and O type agreement with Sprint, maybe

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Speaker 1: getting better deal terms, or actually going out and buying Sprint.

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Speaker 1: We tend to think that an MBNO is more likely

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Speaker 1: that Comcast and Trotter are going at this little slow

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Speaker 1: We want to test the waters and also maybe help Sprint,

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Speaker 1: as Matt said, Jack some cash and see where the

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Speaker 1: network goes. Just real quick, how much money is at stake?

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Speaker 1: I mean these MVNO is, these these agreements to use

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Speaker 1: the wireless network that Sprint has. How much would a

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Speaker 1: Comcast or try to pay for that? The deal terms

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Speaker 1: are not disclosed. I don't know if um Matt hasn't anything.

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Speaker 1: But you saw what Comcast is charging its customers, and

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Speaker 1: it's utils utilizing its WiFi network which has sixteen million

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Speaker 1: hot spots, so they can offload a lot of that

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Speaker 1: data traffic onto the why find network. We do still

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Speaker 1: overall costs from the NBN oh, and actually get a

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Speaker 1: positive return on that. Matthew, I want to know about Sprint.

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Speaker 1: I mean, do they need this deal? I mean they

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Speaker 1: need the cash, don't they. It seems like Massa needs

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Speaker 1: a deal because he's been trying to sell Sprint for

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Speaker 1: a while now. He's talked to Team Mobile, Joy, to Telecom,

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Speaker 1: the cable companies, He's talking to everybody. He talked to

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Speaker 1: Charlie Ergan shopping it around. He's shopping it around. Is

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Speaker 1: that the is that? Does that make sense? I mean,

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Speaker 1: is that you know it's sort of you're shopping something

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Speaker 1: around that must make it difficult to gain any kind

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Speaker 1: of leverage in any kind of It does. But but

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Speaker 1: you know, he put a lot of money into it

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Speaker 1: and it didn't work out the way he wanted. You know,

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Speaker 1: Sprint's been unable to leverage the vast spectrum massets they

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Speaker 1: have for all the reasons I said before. Um, you know,

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Speaker 1: that's the value he saw and they've been unable to

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Speaker 1: monetize that for him. So he's looking at ways to

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Speaker 1: to monetize his investment that he made in the company

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Speaker 1: a few years ago. Being the head of soft Bank

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Speaker 1: which on Sprint right exactly, sorry, and so UM, you

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Speaker 1: know what what he would you know, by shopping around.

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Speaker 1: He's trying to find the best deal. And you know,

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Speaker 1: aside from just getting cash, I think one of the

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Speaker 1: key assets the cable companies have is the deep fiber

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Speaker 1: and collaxial cable networks and in the neighborhoods if you

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Speaker 1: think about, you know, particularly in the suburbs and the

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Speaker 1: in the rural areas where they are the only provider

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Speaker 1: or one of two providers of those services deep into

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Speaker 1: the neighborhoods. Um, you know, Sprint can just stick up

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Speaker 1: small cells on top of those and you know, very cheaply. UM,

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Speaker 1: you know, expand the quality and the coverage of its

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Speaker 1: network and really become competitive with the likes of Horizon, A,

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Speaker 1: T and T and T Mobile. I want to ask

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Speaker 1: about whether this is anti competitive or would this trip

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Speaker 1: any anti competitive wires. Josh, it shouldn't because wireless UM,

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Speaker 1: the wireless services that Sprint offers are complimentary more to

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Speaker 1: the wireline services that UM, Comcast and Trotter offer. It's

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Speaker 1: not taking away competitor in that space, unless you argue

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Speaker 1: that the wireless services could actually compete head to head

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Speaker 1: with UM the wireline services woul we don't actually see

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Speaker 1: in the market yet. You know, you've potentially seen that

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Speaker 1: with five G on on the last mile UM, with

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Speaker 1: wireless companies coming in and using back haul and a

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Speaker 1: five G basis, But this is years out potentially, Matthew,

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Speaker 1: what is your thought and maybe just reference Verizon and

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Speaker 1: its files product because that is trying to do the

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Speaker 1: triple play bundle. So triple plays are very popular in

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Speaker 1: the US, but we haven't taken the step like a

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Speaker 1: lot of the internet, home phone, and and TV services UM,

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Speaker 1: but we haven't taken the step to quadruple plays, which

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Speaker 1: bundle mobile services and they're like a lot of European

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Speaker 1: countries have. I think one of the issues is the

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Speaker 1: geographic constraints. We don't have national fixed line providers. Comcast

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Speaker 1: isn't national, Charter isn't national, Files isn't national, whereas in

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Speaker 1: France or the Netherlands, much smaller countries it's easier to

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Speaker 1: have a national footprint UM and so you know, the

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Speaker 1: geographic constraints really make it difficult to offer those quad

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Speaker 1: play services on a national basis, which is why it's

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Speaker 1: really never taken off thank you so much for joining us.

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Speaker 1: Matthew Kanterman, Telecom and video game analyst for Bloomberg Intelligence.

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Speaker 1: Also our thanks to Joshua yatsquits Uh Telecom, Cable and

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Speaker 1: Media analyst for Bloomberg Intelligence. Uh. I just have to wonder,

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Speaker 1: you know, Sprint, it's been on the table for a

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Speaker 1: while and it's been looking for some kind of bailout.

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Speaker 1: It's interesting that two big cable companies are coming to

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Speaker 1: it at the same time. You never know. Well, in

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Speaker 1: Europe we actually have had quite a big move in

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Speaker 1: government bond yield. You can see two year German yields

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Speaker 1: rising to their highest level in about a year, albeit

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Speaker 1: still negative half percentage points, so not not terribly high.

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Speaker 1: Let's just say I still haven't gotten it's all relative.

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Speaker 1: But I want to bring in Simon Ballard who has

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Speaker 1: a better sense on all of this and can give

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Speaker 1: us some perspective on why we're seeing this move and

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Speaker 1: why we're hearing about ECB tapering. Simon Ballard is a

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Speaker 1: global it Strategies for bloom Brock News in London. Simon,

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Speaker 1: why did e CBS Mario drags speech today? Well, Mario

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Speaker 1: drag speech at the ECB Forum has addressed the tapering issue,

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Speaker 1: which has been on many people's lips and in certainly

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Speaker 1: in their minds for for many months now. The the

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Speaker 1: asset purchased program, the quantity of easing program that the

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Speaker 1: ECB has gone through over the last couple of years,

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Speaker 1: comes to a tentative end or schedule end at the

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Speaker 1: end of this year UM. And so the question now

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Speaker 1: really is how will the market react when the support

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Speaker 1: mechanism is tapered, is taken away, be it through asset

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Speaker 1: purchases being reduced. And you've seen that this morning. We've

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Speaker 1: had Missie of Dragg suggesting that all being well, the

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Speaker 1: the nascent recovery in Europe will allow them to taper

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Speaker 1: or at least to sort of scale back accommodation between

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Speaker 1: now and the end of the year or certainly the

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Speaker 1: early part of two thousand eighteen. And that's why we've

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Speaker 1: seen this, this this rising government yours. As you say,

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Speaker 1: we're still deeply negative. We've still got major issues over

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Speaker 1: here to consider, um. But it is a move in

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Speaker 1: the right direction as far as Mr Drug is concerned.

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Speaker 1: And it's certainly moving the euro today against the dollar

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Speaker 1: one eight one right now, that's a gain of eight

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Speaker 1: tens of a percent. You know, I gotta ask you.

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Speaker 1: You know, the European Central Bank seems to be an

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Speaker 1: equal opportunity lender. In other words, they'll buy on most

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Speaker 1: any Euro Area investment grade non financial debt. I mean

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Speaker 1: it includes US debt, Swiss debt right as well as

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Speaker 1: all of this other They've added what billion euro billion

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Speaker 1: the corporate bond purchase program. The corporate purchas program, which

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Speaker 1: has been running since June of last year, has been

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Speaker 1: accumulating bonds probably about one and a half to two

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Speaker 1: billion a week. So as you say, just to just

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Speaker 1: shy of the hundred billion mark. Now, um, yes, the

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Speaker 1: restrict parameters for the for the bonds that they can

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Speaker 1: buy its investment grade, they have to be euro domiciled. Um.

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Speaker 1: But you know there are U s issuers that have

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Speaker 1: a European base whose bonds have also found their way

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Speaker 1: into the CBS portfolio. And it's had a dramatic effect

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Speaker 1: on spreads over the course of the last year. While

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Speaker 1: we've seen sort of ebbs and flows and some modest

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Speaker 1: widening through to mid two thousand and sixteen, there really

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Speaker 1: has been a consistent, consistent tightening across the credit spectrum,

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Speaker 1: not only through the bonds that the ECB has been buying,

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Speaker 1: but I'd point out perhaps many in US has been

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Speaker 1: crowded out further down the quality curve, further down the

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Speaker 1: credit curve, unable to buy the bonds because of the

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Speaker 1: CBS reduced liquidity in those sectors. So we've seen the

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Speaker 1: dramatic apt forms, even if we can't really quantify exactly

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Speaker 1: what the ECB has done. You know, Simon, I think

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Speaker 1: it's so interesting the market response to Mario drugs speech,

433
00:24:31,480 --> 00:24:34,440
Speaker 1: because first it was rather ambiguous. It wasn't like it

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Speaker 1: came out and said we're planning to discuss tapering and

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00:24:37,080 --> 00:24:38,679
Speaker 1: two months and then get it done by the end

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Speaker 1: of the year. I mean, it was very ambiguous and

437
00:24:40,640 --> 00:24:42,640
Speaker 1: you could kind of read into it what you wanted,

438
00:24:43,080 --> 00:24:45,280
Speaker 1: but it seemed to hint at some kind of normalization.

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00:24:45,720 --> 00:24:48,200
Speaker 1: That's number one, But number two, the response has been

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Speaker 1: pretty significant in US markets too. We saw the thirty

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Speaker 1: year yelled in the US rise the most in almost

442
00:24:53,840 --> 00:24:56,080
Speaker 1: two months, and it makes me think the ECB is

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00:24:56,119 --> 00:24:58,879
Speaker 1: absolutely the central bank that's in control right now of

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Speaker 1: global bond markets, which you agree, well, I think there's

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00:25:01,800 --> 00:25:04,919
Speaker 1: sort of there's a very very solid link between all

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00:25:04,920 --> 00:25:07,480
Speaker 1: global central banks, and more importantly, the rhetoric between the

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Speaker 1: central banks um and the fact that the ECB is

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00:25:10,400 --> 00:25:13,120
Speaker 1: even hinting at, albeit with as many caveats as you'd

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00:25:13,119 --> 00:25:15,560
Speaker 1: like to offer, um, that they would like to move

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00:25:15,600 --> 00:25:19,600
Speaker 1: to a tapering sort of position later this year is

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00:25:19,640 --> 00:25:22,320
Speaker 1: positive really for for the global economy because to a

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Speaker 1: certain extent, the ECB, the eurozonees economy has been a

453
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Speaker 1: drag on the US has been a drag on sort

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Speaker 1: of the global growth picture. So if that starts to improve,

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00:25:30,920 --> 00:25:33,920
Speaker 1: then we can start to take a more positive spinum

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00:25:34,000 --> 00:25:36,919
Speaker 1: to a sentiment within the US as well. Simon, is

457
00:25:36,920 --> 00:25:39,960
Speaker 1: it possible that the European Central Bank, and of course

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00:25:40,000 --> 00:25:42,639
Speaker 1: we don't know what the Federal Reserve is going to

459
00:25:42,720 --> 00:25:46,679
Speaker 1: do specifically with its own balance sheet, but the central

460
00:25:46,680 --> 00:25:49,399
Speaker 1: banks have gone out to buy the best and have

461
00:25:49,520 --> 00:25:53,240
Speaker 1: therefore crowded everybody else in to buy the junk, when

462
00:25:53,240 --> 00:25:56,000
Speaker 1: it really should have been the other way around, because

463
00:25:56,359 --> 00:25:58,399
Speaker 1: now you have a situation where they don't know what

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00:25:58,480 --> 00:26:00,359
Speaker 1: to do with this. They could sell it into the market,

465
00:26:00,400 --> 00:26:03,280
Speaker 1: but what would that displace? You'd sell your junk, and

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00:26:03,320 --> 00:26:06,880
Speaker 1: by this investment grade that they were selling back. Absolutely.

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00:26:06,920 --> 00:26:08,520
Speaker 1: I mean that's the big questions to you know, when

468
00:26:08,560 --> 00:26:10,720
Speaker 1: you start tapering. And we discussed this about the Bank

469
00:26:10,760 --> 00:26:14,120
Speaker 1: of England, who's whose corporate bond purchase program ended ending

470
00:26:14,160 --> 00:26:16,879
Speaker 1: earlier this year. Um, it's what they do with the portfolio,

471
00:26:16,920 --> 00:26:18,840
Speaker 1: whether they manage, whether they actually look to sell the

472
00:26:18,840 --> 00:26:20,760
Speaker 1: bonds that they've accumulated over the last couple of years,

473
00:26:20,800 --> 00:26:22,880
Speaker 1: which I think would be disastrous for the market, and

474
00:26:22,880 --> 00:26:25,240
Speaker 1: and and and send spread significantly wider as they start

475
00:26:25,280 --> 00:26:29,720
Speaker 1: to liquidate their holdings. They can they could extend the program,

476
00:26:29,760 --> 00:26:31,240
Speaker 1: of course, you know that we're talking about tapering, but

477
00:26:31,280 --> 00:26:33,320
Speaker 1: if anything happens between now and the end of the year,

478
00:26:33,400 --> 00:26:37,840
Speaker 1: some surprise shock on a macro oil commodity related aspect,

479
00:26:37,880 --> 00:26:40,240
Speaker 1: then you know there's the possibility that they extend or

480
00:26:40,280 --> 00:26:44,640
Speaker 1: they run rate of seven billion, right, seven billion euros absolutely,

481
00:26:44,680 --> 00:26:47,200
Speaker 1: if they if if the if the needs there, then

482
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Speaker 1: thank you very much. Well I'm sure he'll be, he'll be.

483
00:26:49,680 --> 00:26:51,640
Speaker 1: They've given us, they've they've they spent so much time

484
00:26:51,640 --> 00:26:54,320
Speaker 1: and energy getting to the position now of bringing down

485
00:26:54,320 --> 00:26:56,320
Speaker 1: funding courts for trying to and you could you could

486
00:26:56,400 --> 00:26:58,960
Speaker 1: argue that the funding mechanism wasn't broken for European corporates

487
00:26:59,000 --> 00:27:01,159
Speaker 1: before they started this, But nevertheless, funny cost have come

488
00:27:01,200 --> 00:27:03,240
Speaker 1: down so dramatically over the course of the last year

489
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Speaker 1: that they're certainly not going to do anything to jeopardize

490
00:27:05,480 --> 00:27:08,080
Speaker 1: the position that they've got themselves into now by tightening

491
00:27:08,119 --> 00:27:10,400
Speaker 1: too early. But at the same time, they are keen

492
00:27:10,440 --> 00:27:12,960
Speaker 1: to move back to a normalization starts just as the

493
00:27:12,960 --> 00:27:15,800
Speaker 1: Federal Reserve is in the United States. Real quick, simon,

494
00:27:16,040 --> 00:27:18,119
Speaker 1: is Mario track you just responding to German pressure to

495
00:27:18,200 --> 00:27:22,159
Speaker 1: get rid of this acid purchasing program. I think at

496
00:27:22,160 --> 00:27:23,639
Speaker 1: the end of the day, he's paying lip service to

497
00:27:23,960 --> 00:27:26,080
Speaker 1: to to Chancellor Merkel. Yes, and they've been one of

498
00:27:26,119 --> 00:27:30,240
Speaker 1: the the one of the big argues against against QUI

499
00:27:30,440 --> 00:27:32,920
Speaker 1: in its current form for for many months now. So

500
00:27:33,080 --> 00:27:35,200
Speaker 1: you know, it is politics. It is it is trying

501
00:27:35,200 --> 00:27:39,400
Speaker 1: to massage the political relationships across the across the divide,

502
00:27:39,520 --> 00:27:42,159
Speaker 1: the divide within the Eurozone, should I say, But at

503
00:27:42,160 --> 00:27:44,359
Speaker 1: the same time, I think he is he's he's he

504
00:27:44,680 --> 00:27:46,560
Speaker 1: needs to recognize that. You know, the efforts of the

505
00:27:46,560 --> 00:27:49,480
Speaker 1: ECB have been positive over the last over the last year,

506
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Speaker 1: and so I want to thank you very much. Simon Ballard,

507
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Speaker 1: global credit strategist for Bloomberg, joining us from London, and

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Speaker 1: we didn't even get to talk about Brexit. Next time.

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Speaker 1: Next time. That's uh, Simon Ballard joining us really great,

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Speaker 1: great stuff. Read more about it at Bloomberg dot com.

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Speaker 1: Thanks for listening to the Bloomberg P and L podcast.

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00:28:11,200 --> 00:28:15,080
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

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00:28:15,200 --> 00:28:18,680
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm

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00:28:18,720 --> 00:28:22,240
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa

515
00:28:22,280 --> 00:28:25,399
Speaker 1: abramoids one before the podcast. You can always catch us

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00:28:25,480 --> 00:28:27,040
Speaker 1: worldwide on Bloomberg Radio