WEBVTT - SEC Commissioner Crenshaw: We Need To Close Insider Trading Loopholes 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.560 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.640 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.520 --> 0:00:22.959 at Bloomberg dot com slash podcast. Well, Matt, when I 0:00:23.000 --> 0:00:26.600 first got to Wall Street in the mid eighties, uh, 0:00:26.800 --> 0:00:29.240 you know, insider trading was a big thing. It was 0:00:29.320 --> 0:00:33.400 all over the headlines, names like Ivan Bowski, Dennis Lavine, 0:00:33.440 --> 0:00:37.319 movies like Wall Street. Um, apparently it is still a thing. 0:00:37.360 --> 0:00:40.479 Our next guest is focused on a Caroline Crunchhaw. She's 0:00:40.479 --> 0:00:43.640 a commissioner at the Securities and Exchange Commission based in Washington, 0:00:43.720 --> 0:00:46.160 d c Uh. She's out with a Bloomberg opinion Colm 0:00:46.280 --> 0:00:50.760 entitled Insider trading Loophole's need to be Closed. Caroline, thanks 0:00:50.760 --> 0:00:52.560 so much for joining us here. We'd love to get 0:00:52.560 --> 0:00:55.760 your thoughts on kind of where you think the state 0:00:56.040 --> 0:00:59.520 of insider trading and enforcement of insider trading rules art 0:00:59.640 --> 0:01:02.400 right now? Yeah, good morning, it's great to be here. 0:01:02.680 --> 0:01:04.600 Before I start, I do have to say quickly that 0:01:04.640 --> 0:01:06.920 the views I expressed today are my own and do 0:01:07.000 --> 0:01:11.400 not necessarily reflect the views of the commission uh, my, 0:01:11.640 --> 0:01:14.679 the staff, or my fellow commissioners. UM. But as to 0:01:14.680 --> 0:01:17.520 your your question, you know, I think, um, you know, 0:01:17.560 --> 0:01:21.080 insiders something insider trading is something we always take seriously. UM. 0:01:21.880 --> 0:01:26.320 But UM right, you know, recent evidence suggests that some 0:01:26.400 --> 0:01:30.720 of the rules designed uh to make sure that corporating 0:01:31.040 --> 0:01:37.480 executives who always have insider information or material non public information, 0:01:38.160 --> 0:01:42.280 UM you know sometimes uh, they they also are paid 0:01:42.280 --> 0:01:45.560 in stock uh and and and to ensure that they 0:01:45.600 --> 0:01:48.680 are not uh you know, trading their stocks while they 0:01:48.680 --> 0:01:51.720 have insider information. The SEC established about twenty years ago 0:01:52.360 --> 0:01:56.320 a rule called B five one. And this rule UH 0:01:56.560 --> 0:01:59.560 basically puts in place a schedule, fixed schedule for them 0:01:59.560 --> 0:02:02.400 to make trades so that they're not trading on insider information. 0:02:02.960 --> 0:02:05.520 But it makes sense, right because they get a lot 0:02:05.520 --> 0:02:09.560 of these UM men and women get a huge portion 0:02:09.600 --> 0:02:12.239 of their pay in stock. So in order to live 0:02:12.520 --> 0:02:16.400 the life of a respectable chief executive, you've got to 0:02:16.440 --> 0:02:18.960 you've got to sell the stock occasionally to pay for 0:02:19.000 --> 0:02:22.720 your stuff. UM. But I guess the problem you found 0:02:22.840 --> 0:02:26.240 is that they set up these schedules commissioner to sell 0:02:26.400 --> 0:02:30.360 the stock UM, and then they can cancel the sale 0:02:30.480 --> 0:02:36.280 or delay the sale UH to to better position themselves 0:02:36.320 --> 0:02:39.320 around an event that they know is coming up. That's 0:02:39.360 --> 0:02:42.639 exactly right. UM. The recent academic evidence UH some by 0:02:42.639 --> 0:02:45.160 my co author Daniel Taylor out of Wharton Business School 0:02:45.680 --> 0:02:48.240 UM has shown that there are there are lots of 0:02:48.280 --> 0:02:50.880 red flags with these plans UM, and that they can 0:02:50.919 --> 0:02:54.520 be modified, they can be canceled, and that could allow 0:02:54.560 --> 0:02:57.799 executives to time trades and thus perhaps to be trading 0:02:57.840 --> 0:03:00.799 on insider information ahead of other investors are the rest 0:03:00.840 --> 0:03:04.000 of the market. So, Carol, I excuse a sense of 0:03:04.960 --> 0:03:07.560 the state of insider trading today, how prevalent is it. 0:03:08.040 --> 0:03:12.160 UM has the SEC and other regulators, UM maybe learn 0:03:12.240 --> 0:03:14.560 some things from back from those the nineteen eighties that 0:03:14.600 --> 0:03:18.079 I that I referenced. You know, I think, UM, it's 0:03:18.120 --> 0:03:21.920 always something we are looking at. UM. You know, I think, UM, 0:03:21.960 --> 0:03:24.160 there's always going to be insider trading. There's always going 0:03:24.240 --> 0:03:26.639 to be UM. You know, folks who are inclined to 0:03:26.639 --> 0:03:29.440 break the rules. That's why we have an enforcement program. UM. 0:03:29.480 --> 0:03:32.320 They're actively looking at this. But I think UM, to 0:03:32.320 --> 0:03:35.640 to the degree. Um, we want to modernize the rules 0:03:35.680 --> 0:03:38.960 and and help put stricter parameters in place. Uh. These 0:03:38.960 --> 0:03:41.320 ten five one plans are an area that I think 0:03:41.320 --> 0:03:45.600 we can really look to modernize and provide much clearer 0:03:45.680 --> 0:03:49.000 rules of the road. UH that will help lead to um, 0:03:49.360 --> 0:03:52.360 uh perhaps level more level playing field and promote fair 0:03:52.400 --> 0:03:54.480 and efficient markets, which is you know what the SEC 0:03:54.680 --> 0:03:58.080 is is always thinking about. Have you ever heard anybody 0:03:58.240 --> 0:04:01.160 like on a stakeout or something, a blue horse shoe 0:04:01.160 --> 0:04:05.560 loves Annicott steel all the time, Because that's a tip off. 0:04:05.600 --> 0:04:09.640 I'm just telling you no, seriously, Um, Caroline, do you 0:04:09.680 --> 0:04:12.800 worry on the other side at all, on the short side, 0:04:12.840 --> 0:04:15.400 because that's been brought up a lot in well the 0:04:15.400 --> 0:04:17.839 court of public opinion and in front of Congress as well. 0:04:17.960 --> 0:04:22.440 Short sellers have been attacked, and um, maybe there have 0:04:22.480 --> 0:04:25.720 been implications that maybe they even banned together to bring 0:04:25.960 --> 0:04:29.359 companies down. Well, obviously, in the wake of the activity 0:04:29.360 --> 0:04:32.320 area in January, we're we're looking at that behavior. We're 0:04:32.440 --> 0:04:35.560 we're looking at the consequences, We're looking at what happened there, 0:04:35.640 --> 0:04:38.040 and I think that's something we we are closely looking 0:04:38.080 --> 0:04:40.599 at again to make sure that to the degree we 0:04:40.640 --> 0:04:42.520 need changes in the market, the degree we need to 0:04:42.560 --> 0:04:46.400 modernize our rules. UM that we're doing so. You know, again, 0:04:46.440 --> 0:04:49.599 it's the the SEC's mission to promote fair, orderly efficient markets, 0:04:49.920 --> 0:04:51.599 and I want to make sure we're preventing a two 0:04:51.600 --> 0:04:54.720 tiered market, one where insiders can train and one where 0:04:54.760 --> 0:04:57.360 everyone else can trade. And I think this is another 0:04:57.400 --> 0:05:00.279 area that we can look at along with some of 0:05:00.279 --> 0:05:03.040 the changes perhaps that we're looking at after the January 0:05:03.080 --> 0:05:05.799 activity to again to promote this fair and efficient market. 0:05:07.000 --> 0:05:11.720 So what's the political support or pressure or environment for 0:05:12.320 --> 0:05:16.760 toughening up potentially insider trading rules. UM. Caroline just gives 0:05:16.760 --> 0:05:18.560 a sense of kind of what's what what's the mood 0:05:18.600 --> 0:05:22.040 within Washington. You know, I think we always want to 0:05:22.040 --> 0:05:24.359 make sure the markets are fair and efficient. UM. You know, 0:05:24.400 --> 0:05:28.440 there is a Preferrara Commission that's that's looking at this. UM. 0:05:28.480 --> 0:05:32.040 I think there's always there's always interest in making sure 0:05:32.120 --> 0:05:35.240 that we have the tools we need UH to to 0:05:35.440 --> 0:05:38.000 ensure that the markets are level and that the playing 0:05:38.040 --> 0:05:40.480 fields are as they should be for both the market 0:05:40.480 --> 0:05:43.880 participants and investors. You know, in the last couple of days, 0:05:43.920 --> 0:05:47.520 we've been talking a lot about UM efficiency improvements that 0:05:47.600 --> 0:05:51.440 could be wrought out of the I R s. For example, UM, 0:05:51.600 --> 0:05:53.800 people have been telling us if you give for every 0:05:53.800 --> 0:05:55.320 extra dollar you give them, they could go out and 0:05:55.360 --> 0:05:58.560 collect five more. Do you feel the same is true 0:05:58.560 --> 0:06:01.960 with funding at the SEC you had more funding, could 0:06:02.000 --> 0:06:06.320 you bust more inside traders? I think our enforcement division 0:06:06.320 --> 0:06:08.320 could always do more. Our whole agency could always do 0:06:08.360 --> 0:06:11.640 more with more funding. We do have limited resources, UH, 0:06:11.680 --> 0:06:15.120 and that results in you know, often trying to decide 0:06:15.120 --> 0:06:16.919 what cases over time or are going to be the 0:06:16.920 --> 0:06:19.640 most effective, had the most market impact. UM. But we're 0:06:19.640 --> 0:06:22.960 always out there, We're always making sure that UM, we're 0:06:23.000 --> 0:06:26.039 we're using those limited resources to the degree we can 0:06:26.600 --> 0:06:29.480 UH to bring inside or trading cases, to bring fraud cases, 0:06:29.560 --> 0:06:32.720 to bring UM the cases that will help ensure UM 0:06:32.800 --> 0:06:37.120 that the investors and the markets are protected appropriately. Currently, 0:06:37.120 --> 0:06:39.960 what about politicians who engage in trading maybe a head 0:06:39.960 --> 0:06:42.760 of legislation or after receiving classified information that seemed to 0:06:42.839 --> 0:06:45.680 have been a thing before the the pandemic really hitting 0:06:45.760 --> 0:06:49.120 and the market crash. Is that a big issue? You know, 0:06:49.160 --> 0:06:51.839 it's certainly it's certainly gotten a lot of attention. UM. 0:06:52.120 --> 0:06:55.599 I I know there was some investigations. Uh you know 0:06:55.720 --> 0:06:58.240 that that that we're being talked about in the news. 0:06:58.800 --> 0:07:02.839 I think to the re individuals are trading with information 0:07:03.279 --> 0:07:05.240 that the rest of the investors, so the rest of 0:07:05.279 --> 0:07:08.440 the market doesn't have, uh, there there's always going to 0:07:08.520 --> 0:07:14.800 be questions around that and whether that's promoting market confidence effectively, UM, 0:07:15.000 --> 0:07:16.640 and whether that's going to lead to problems. So I 0:07:16.640 --> 0:07:19.320 think that's something that that we are always looking at, UM, 0:07:19.760 --> 0:07:21.680 and that that everyone should always be looking at to 0:07:21.760 --> 0:07:25.760 make sure that you know, individuals with insider information or 0:07:25.800 --> 0:07:29.520 trading at the same time as everybody else and with 0:07:29.560 --> 0:07:33.040 this information as everybody else. Commissioner, thanks so much for 0:07:33.080 --> 0:07:37.080 joining us. Really fascinating column at say, Caroline Crenshaw wrote 0:07:37.120 --> 0:07:41.200 with Daniel Taylor, a great piece and I recommend if anybody, um, 0:07:41.440 --> 0:07:44.440 will anybody with access to the Bloomberg go ahead and 0:07:44.760 --> 0:07:48.120 search Caroline Crenshaw and you'll find it. I did not 0:07:49.160 --> 0:07:53.520 uh know about what seems like a pretty simple loophole, 0:07:53.800 --> 0:07:57.080 and Paul I think it's um it's the kind of 0:07:57.120 --> 0:07:59.400 thing that well, this is what these people are doing, 0:07:59.400 --> 0:08:01.200 this is what they're they're up there for, right, They're 0:08:01.240 --> 0:08:02.920 gonna put a stop to this so that markets can 0:08:02.960 --> 0:08:07.120 be more efficient for everybody else, including you and me. 0:08:07.160 --> 0:08:09.880 So Caroline Crenshaw, thanks very much for your time and 0:08:10.200 --> 0:08:17.600 your service. This is Bloomberg going a busy, busy week 0:08:17.640 --> 0:08:22.040 in terms of economic data. We had retail sales manufacturing 0:08:22.120 --> 0:08:25.800 data today, We've got market moving news tomorrow with potentially 0:08:25.880 --> 0:08:28.480 with the Fit and what j Powe will say. What 0:08:28.600 --> 0:08:30.640 a great time it is then to speak to our 0:08:30.680 --> 0:08:33.760 next guest, Constance Hunter. She's a chief economist at KPMG. 0:08:33.920 --> 0:08:36.600 She joins us Constant, thanks so much for your time here. 0:08:36.679 --> 0:08:39.360 Let's start with some of the economic data points we 0:08:39.440 --> 0:08:43.920 got today. Retail sales UH and manufacturing activity came in 0:08:44.160 --> 0:08:46.880 below expectations. A lot of folks are just saying, hey, 0:08:46.880 --> 0:08:49.480 it's an aberration. We had a really bad weather across 0:08:49.559 --> 0:08:53.240 much of the country in February. Is that your calls? Well, yeah, 0:08:53.280 --> 0:08:55.440 I mean there's there's two things as far as the 0:08:55.520 --> 0:08:58.840 retail sales um impacting the noise. So the first, of 0:08:58.880 --> 0:09:01.240 course is so whether as you mentioned, and the second 0:09:01.880 --> 0:09:05.880 is the yo yo effect of stimulus checks that got 0:09:05.920 --> 0:09:09.319 spent in January. So of course the January month over 0:09:09.360 --> 0:09:12.520 month was up seven point six and we just saw 0:09:12.559 --> 0:09:14.160 a pull back from that on a month over a 0:09:14.559 --> 0:09:17.960 month basis for February down three percent, and of course 0:09:18.000 --> 0:09:20.319 the weather didn't help that UM. But when we look 0:09:20.360 --> 0:09:23.280 at the year over year, February still up six point 0:09:23.360 --> 0:09:27.000 three percent for retail sales and then for manufacturing. Of course, 0:09:27.080 --> 0:09:29.520 it was very impacted by the weather. And it's always 0:09:29.559 --> 0:09:32.600 good to look at these data on a three month 0:09:32.640 --> 0:09:35.000 moving average just to get a better sense of the 0:09:35.040 --> 0:09:37.960 trend when you have some noisy factors like weather and 0:09:38.000 --> 0:09:40.599 stimulus checks in there. First of all, I want to 0:09:40.640 --> 0:09:44.439 say hello, Constance, Matt Miller here. It's been a long time, 0:09:45.240 --> 0:09:47.640 but I want you to know that Paul and I 0:09:47.679 --> 0:09:49.840 were invited to Camp Ko talk, so we may see 0:09:49.840 --> 0:09:53.600 you next year. That would be fabulous. I hope you come, 0:09:54.840 --> 0:09:57.920 you come fishing, and I hope we're all you know 0:09:58.160 --> 0:10:00.800 it mass free. Do you believed we're all going to 0:10:00.880 --> 0:10:04.360 be vaccinated? Yeah? Yeah, I I we hope so too. 0:10:04.400 --> 0:10:06.760 Me and Paul are lined up for the astros Nika shot. 0:10:06.880 --> 0:10:10.839 So just as a public service announcement, we'll take it. UM. 0:10:10.960 --> 0:10:14.600 I wanted to ask you about UM inflation. Of course, 0:10:14.679 --> 0:10:19.400 it's the hottest debate right now and A listener earlier 0:10:19.440 --> 0:10:21.680 in the program wrote a great question to me. He says, 0:10:21.840 --> 0:10:23.800 where does the ten year ago if we see a 0:10:23.880 --> 0:10:28.000 minor Rosenberg or Tepper scenario i e. Short lived inflation, 0:10:28.040 --> 0:10:32.640 the short sharp shock as uh, that then comes down 0:10:32.920 --> 0:10:35.520 as all the Street research maybe has it wrong. What 0:10:35.559 --> 0:10:40.400 do you think about that? So basically the idea is 0:10:40.440 --> 0:10:42.400 that we would have a short sharp shock due to 0:10:42.520 --> 0:10:46.920 base effects, I assume, and then basically saying the Street 0:10:47.000 --> 0:10:49.120 is wrong. We're not gonna We're not gonna get anywhere 0:10:49.160 --> 0:10:51.920 close to the two percent of that is forecasting, or 0:10:52.000 --> 0:10:54.480 even the slightly above two percent. But the inflation year 0:10:54.480 --> 0:10:57.480 over year starts to fall once we get past that shock. 0:10:57.640 --> 0:10:59.920 Is that's my question? Yeah, exactly, And I mean Scott 0:11:00.000 --> 0:11:01.720 Miner told us a couple of weeks ago he thinks 0:11:01.840 --> 0:11:05.040 in this scenario the tenure could go negative. It's obviously 0:11:05.080 --> 0:11:08.920 an outlier call. But um, I was reading some research 0:11:08.960 --> 0:11:11.280 from an economist last year who said, get ready for 0:11:11.280 --> 0:11:13.880 the Great Depression. Now we didn't have that. I was 0:11:13.920 --> 0:11:18.600 thinking to myself this morning yet, right, I mean, maybe 0:11:18.600 --> 0:11:20.960 it could go, maybe it could all go. I don't 0:11:21.000 --> 0:11:23.040 know a nice way of saying what I was going 0:11:23.080 --> 0:11:24.520 to say, but maybe you could go all go bad. 0:11:24.679 --> 0:11:29.040 It could all go yes, it could. I would never 0:11:29.120 --> 0:11:32.160 want to rule out the possibility we have a shock 0:11:32.280 --> 0:11:34.440 or a black Swan event. Or let's look at some 0:11:34.520 --> 0:11:37.560 of these mutated effects from the virus. Look at Italy 0:11:37.640 --> 0:11:41.080 has reshut itself down. This this virus, as I said 0:11:41.080 --> 0:11:43.920 in the beginning, is very pernicious, and it just continues 0:11:44.040 --> 0:11:46.880 to prove to be more and more pernicious. So certainly 0:11:47.280 --> 0:11:52.160 we could have additional adverse economic shocks that would would 0:11:52.160 --> 0:11:54.679 push us to lower consumption, which would push us to 0:11:54.800 --> 0:11:59.600 lower inflation. But let's think about what causes inflation or deflation, right, 0:11:59.600 --> 0:12:02.920 There's a too factors. There's overall the demand level, it's 0:12:02.960 --> 0:12:06.560 the most important um. And then what influences the demand 0:12:06.640 --> 0:12:12.200 level the level of employment wages um uh and in 0:12:12.200 --> 0:12:15.679 this case income. Right, so we're seeing income to household 0:12:15.920 --> 0:12:19.880 that's not from wages, it's from government uh, supplemental income. 0:12:20.120 --> 0:12:23.439 But it's still income that's going to influence demand. And 0:12:23.559 --> 0:12:26.720 so it's hard for me to see that scenario playing 0:12:26.720 --> 0:12:30.520 out given the current course of events. But given a shock, 0:12:31.520 --> 0:12:33.360 if we were to have a severe negative shock on 0:12:33.400 --> 0:12:35.960 top of what we've just experienced. Yeah, maybe we could 0:12:35.960 --> 0:12:38.680 go negative on the tenure, wouldn't be my base call, 0:12:39.960 --> 0:12:43.360 all right, Constance, So given that backdrop, what do you 0:12:43.360 --> 0:12:48.400 expect to hear from that Chairman J Pale tomorrow? So 0:12:48.559 --> 0:12:50.920 I expect him to talk a lot about sort of 0:12:50.960 --> 0:12:53.840 what are the transitory factors and how do they look 0:12:53.880 --> 0:12:56.520 through that? And the real question is going to be 0:12:56.960 --> 0:13:00.680 how clearly does one communicator does he communicate this very 0:13:00.720 --> 0:13:04.160 technical information to the market. Now, there's a good swath 0:13:04.240 --> 0:13:06.600 of the market that's already very well read in on that, 0:13:06.880 --> 0:13:10.160 but he's communicating to the market participants and the public 0:13:10.200 --> 0:13:13.440 at large, and so he needs to communicate that, yes, 0:13:13.440 --> 0:13:15.760 we're going to see an increase in demand, that yes, 0:13:15.800 --> 0:13:18.440 we're going to have some supply bottlenecks that push up 0:13:18.679 --> 0:13:21.480 prices for goods. That yes, on the year of a 0:13:21.559 --> 0:13:24.800 year print, we're going to see higher inflation numbers through 0:13:24.960 --> 0:13:28.160 the summer, but that as we get more and more 0:13:28.200 --> 0:13:31.600 people vaccinated, those supply bottlenecks will dissipate. We're not at 0:13:31.880 --> 0:13:35.240 production I'm sorry, we're not at industrial production levels that 0:13:35.240 --> 0:13:38.600 would suggest we're out of room to add production once 0:13:38.600 --> 0:13:43.600 people are vaccinated. So he needs to explain very clearly 0:13:44.080 --> 0:13:48.400 why the said believes this is transitory. All right, Constance, 0:13:48.440 --> 0:13:51.920 next time I see you, hopefully we have fishing rods. Well, actually, 0:13:52.360 --> 0:13:53.760 now that I think about now, I'm back in the 0:13:53.840 --> 0:13:55.679 US hours now, so I hope I can get you 0:13:56.040 --> 0:13:58.840 booked back on my television program. So i'll see you 0:13:58.920 --> 0:14:02.400 before that. Good, I'm gonna have a producer call you. 0:14:02.440 --> 0:14:06.400 I'll see you, um then very soon via satellite. But 0:14:06.480 --> 0:14:09.120 next time, me and Paul Cy will be wearing vests 0:14:09.200 --> 0:14:11.960 with flies all over the podcast. And don't forget, we 0:14:12.000 --> 0:14:13.760 have to ship cases of wine up there, so we'll 0:14:13.800 --> 0:14:16.480 be fishing with with wine or beer or the beverage 0:14:16.480 --> 0:14:18.680 of your choice. Yeah, well, I'll be drinking wine or 0:14:18.679 --> 0:14:20.760 beer while you guys are fishing. Is probably how it 0:14:20.840 --> 0:14:24.080 really is gonna work out. Constance Hunter is the chief 0:14:24.120 --> 0:14:30.760 economist at KPMG. Let me bring in John Butler right now. 0:14:30.880 --> 0:14:37.000 He's a senior telecom analyst for Bloomberg Intelligence, and John 0:14:37.280 --> 0:14:40.560 um five G has been I guess the idea has 0:14:40.640 --> 0:14:45.080 long been there, but we've now heard uh, a swathe 0:14:45.240 --> 0:14:48.560 of people, a swath, a swath, a swath of people. 0:14:49.200 --> 0:14:52.360 We've heard a slew of people UH talk about getting 0:14:52.400 --> 0:14:57.720 into it um, including Mark Andy from UH UM, what's 0:14:57.760 --> 0:15:02.720 Tom Barrick's shop called that Marcolin Colony Capital Um this 0:15:02.960 --> 0:15:05.320 is he says, where you're going to see the infrastructure 0:15:05.360 --> 0:15:09.080 build out in five g Do you agree, John? Yes? 0:15:09.320 --> 0:15:12.560 In fact, I'll go as far as to say this, Matt, 0:15:12.680 --> 0:15:16.280 I would liken it to what the world looked like 0:15:16.480 --> 0:15:20.360 after iPhone versus what it looked like before the iPhone 0:15:20.440 --> 0:15:23.120 was introduced. I think it's going to have that kind 0:15:23.160 --> 0:15:26.280 of powerful change, But I don't think it's going to 0:15:26.360 --> 0:15:29.440 happen in one year. It's going to take time. And 0:15:30.760 --> 0:15:34.120 you know, we're in literally like the first inning of 0:15:34.160 --> 0:15:36.720 the rollout here. You know, the carriers have sort of 0:15:36.760 --> 0:15:41.960 set foundational coverage in the US, but that foundational coverage 0:15:42.000 --> 0:15:44.880 doesn't have the kind of spectrum you need to really 0:15:45.160 --> 0:15:49.080 offer five G s full feature set or full potential, 0:15:49.120 --> 0:15:53.400 if you will. So fast forward two years, three years. 0:15:53.480 --> 0:15:58.520 I think we're going to see profound changes. I'm getting that, 0:15:58.720 --> 0:16:01.480 you know what I gotta tell you. I gotta tell you, John, 0:16:01.520 --> 0:16:04.120 I was so when I first started working as a 0:16:04.160 --> 0:16:08.560 young squid here at Bloomberg News in Frankfurt. My job 0:16:08.640 --> 0:16:12.280 was to cover the U MTS auctions, so I was, 0:16:13.120 --> 0:16:15.600 you know, covering these three G auctions at a time 0:16:15.640 --> 0:16:18.560 when three G was like the great pie in the sky, 0:16:18.640 --> 0:16:20.760 and it took me a while to realize what the 0:16:20.800 --> 0:16:23.840 result of three G was. It really was iPhone. That's 0:16:23.840 --> 0:16:26.280 what made iPhone possible. And then they jumped, of course 0:16:26.280 --> 0:16:29.000 to forge you with their next model. But uh, that 0:16:29.120 --> 0:16:34.000 was a massive shift, a tectonic shift, as Tom would say, 0:16:34.280 --> 0:16:37.160 well it was. I mean what three G gave us 0:16:37.280 --> 0:16:41.240 texting and limited web access, four G gave us full 0:16:41.280 --> 0:16:44.640 web access in the pump up our ham plus streaming video. 0:16:45.800 --> 0:16:48.960 Five G for the consumer, for you and me, is 0:16:49.040 --> 0:16:53.240 going to provide even a higher speed four K video, 0:16:53.520 --> 0:16:58.960 interactive gaming, augmented reality ultimately. But I think the bigger 0:16:59.080 --> 0:17:02.240 changes are going to be on the enterprise side for businesses, 0:17:02.880 --> 0:17:06.720 because literally five G can replace a lot of wires 0:17:06.720 --> 0:17:08.560 in your life. So when I was talking to A 0:17:08.680 --> 0:17:10.439 T and T the other day and they said, you know, 0:17:10.480 --> 0:17:15.520 we're doing tests in hospitals because hospitals have wires everywhere. 0:17:16.359 --> 0:17:21.200 Doctors need to have patient information on the move, and um, 0:17:21.280 --> 0:17:24.080 so they're putting five G in a private network in 0:17:24.119 --> 0:17:27.800 these hospitals where you can literally cut the cord onto everything. 0:17:28.040 --> 0:17:32.480 So there in lies the biggest potential I think for 0:17:32.640 --> 0:17:36.359 five G in that enterprise sector. And that's great news 0:17:36.400 --> 0:17:39.240 for the carriers because a lot of those services are 0:17:39.359 --> 0:17:42.760 very high margins. Hey, John, I see, you know, just 0:17:42.880 --> 0:17:45.480 in the last couple of days the big carrier's Verizon 0:17:45.640 --> 0:17:50.200 T mobile tapping the bond markets for more billions of dollars. 0:17:50.280 --> 0:17:53.119 Here what are they raising the money for? What are 0:17:53.119 --> 0:17:59.680 they using it for? So you know, I'll start with this. 0:18:00.119 --> 0:18:03.600 The c band auction was way more expensive for the 0:18:03.720 --> 0:18:08.480 carriers than anyone anticipated. That's the bad news. I think 0:18:08.520 --> 0:18:12.600 the good news is that Spectrum can be used not 0:18:12.680 --> 0:18:15.439 only for five G, but six G and seven G. 0:18:15.720 --> 0:18:19.280 I mean, those licenses have long lives to them. I 0:18:19.400 --> 0:18:22.600 think of them almost as a life lease, and so 0:18:24.480 --> 0:18:27.760 it's gonna be very costly up front. I think even 0:18:27.800 --> 0:18:30.320 they were surprised at how much they had to spend. 0:18:30.560 --> 0:18:32.840 So in the end you're seeing them raise a lot 0:18:32.840 --> 0:18:36.120 of debt to meet those payments, which are all due 0:18:36.160 --> 0:18:40.000 this month, and then over time the hope is with 0:18:40.080 --> 0:18:43.760 some of them to pay off debt with obviously excess 0:18:43.800 --> 0:18:47.240 free cash flow, but also some assets sales in the 0:18:47.320 --> 0:18:51.320 case of a T and T, and there're sort of 0:18:51.840 --> 0:18:55.359 instituting the shrink to grow strategy, and so I think 0:18:55.400 --> 0:18:59.399 they can monetize some of the assets that don't make sense, 0:18:59.440 --> 0:19:03.240 like a T in T Latin America, the Brio satellite 0:19:03.240 --> 0:19:07.960 business in Latin America, and who knows, maybe even Turner eventually. 0:19:08.000 --> 0:19:12.040 I've been thinking that might be. That was that was 0:19:12.160 --> 0:19:17.960 the harder. It just dawned on me. It just dawned 0:19:17.960 --> 0:19:20.560 on me that when uh, you know, when Deutsche Telecom 0:19:20.640 --> 0:19:23.480 bought Voice Dream, I flew out to Seattle with Ron 0:19:23.560 --> 0:19:25.480 Summer and he threw the first pitch out of the 0:19:25.520 --> 0:19:29.320 Mariners game. Paul, were you there? Were we both there? 0:19:29.880 --> 0:19:31.879 I don't think so. I didn't know if you were 0:19:31.880 --> 0:19:34.800 in on the deal, because this is you're a wheelhouse, right. Yeah. 0:19:34.840 --> 0:19:37.000 We did a bunch of deals there, and John's kind 0:19:37.000 --> 0:19:39.199 of the the expert on on the kind of how 0:19:39.280 --> 0:19:41.760 Telecom has evolved and kind of what is our our 0:19:41.840 --> 0:19:45.639 future here with five G So John is it? You know, 0:19:45.680 --> 0:19:47.760 if I were an investor, I mean, can I gauge 0:19:47.760 --> 0:19:49.719 out who might be a winner and a loser here? 0:19:49.760 --> 0:19:51.840 If I want to play five G, because that's what 0:19:51.920 --> 0:19:54.439 I hear a lot from all the tech and telecom 0:19:54.520 --> 0:19:56.760 FOLKUS is all that five G? How do I play it? 0:19:56.800 --> 0:20:03.960 As an investor? So I always look for leadership, right, 0:20:04.320 --> 0:20:08.399 and I'd look for leadership and growth in what really 0:20:08.440 --> 0:20:11.159 traditionally has been a non growth sector. But if you 0:20:11.200 --> 0:20:15.320 look back over the past ten years, T Mobile has 0:20:15.359 --> 0:20:18.000 done great, right, and they were the growth name in 0:20:18.040 --> 0:20:22.680 the segment, but Verizon was the one that really dominated 0:20:22.840 --> 0:20:25.879 in terms of being the early mover and orgy and 0:20:25.920 --> 0:20:29.680 then leading over the next ten years, and their reward 0:20:29.800 --> 0:20:33.359 was higher margins than the other carriers. I think T 0:20:33.560 --> 0:20:38.440 Mobile is now in that position right now on both fronts. 0:20:38.440 --> 0:20:40.680 They're going to continue to outgrow a T and T 0:20:40.840 --> 0:20:43.760 and Verizon, and I think their margins are going to 0:20:43.880 --> 0:20:46.920 expand over time as they get the technology rolled out. 0:20:47.320 --> 0:20:50.320 Interesting as always big tech telecom jump, but others seeing 0:20:50.440 --> 0:20:56.440 telecom analysts for Bloomberg Intelligence, we appreciate that we're gonna 0:20:56.480 --> 0:21:00.679 talk about f X, which already was, you know, one 0:21:00.680 --> 0:21:04.080 of the biggest markets in the world and absolutely fascinating, 0:21:04.119 --> 0:21:07.520 but it could be set to get even better. At 0:21:07.560 --> 0:21:10.000 least that's what Our next guest, says Vincent Delire joins 0:21:10.119 --> 0:21:15.439 US global macro strategists for stone X. Vincent. UM, you know, 0:21:15.520 --> 0:21:19.879 Ray Dalio was out overnight talking about UM, the dollar 0:21:20.160 --> 0:21:22.800 and how he wants to stay away from assets connected 0:21:22.840 --> 0:21:25.719 to that as all the stimulus goes into the economy 0:21:25.840 --> 0:21:29.080 and taxes are ready to get raised. And he was 0:21:29.160 --> 0:21:33.640 even talking about countries limiting capital movements. What do you think, 0:21:34.920 --> 0:21:39.960 M well, UM, it's it's possible. I think at the 0:21:40.040 --> 0:21:43.120 end of the day, we go back to UM what's 0:21:43.160 --> 0:21:46.720 called the impossible trinity that any UM, if you have 0:21:46.800 --> 0:21:50.680 the free capital movements, UH, you have to either target 0:21:50.680 --> 0:21:56.520 the exchange rate UH or the interest rate in a country. UH. 0:21:56.520 --> 0:21:59.600 And it seems to me that UM, as we have 0:21:59.800 --> 0:22:04.080 a on the global pandemic. UM, no central bank in 0:22:04.119 --> 0:22:07.040 the world is able or willing to let go of 0:22:07.040 --> 0:22:09.280 its interest rate to accept the move in interest rates 0:22:09.280 --> 0:22:11.480 that would be viewed as as harmful to the economy. 0:22:12.359 --> 0:22:16.200 So there's only two consequences from that. UM. The one 0:22:16.240 --> 0:22:19.960 that I expect, I we tolerate a much higher level 0:22:20.000 --> 0:22:23.600 of currency volatility because we cannot use movements in the 0:22:23.640 --> 0:22:27.439 interest rate to cush and that currency volatility or the 0:22:27.440 --> 0:22:31.440 one that rate values suggesting, which is eventually imposing capital controls, 0:22:31.480 --> 0:22:33.720 which may indeed be possible, but I would expect I 0:22:33.720 --> 0:22:36.520 would expect that to come later. The first thing that 0:22:36.560 --> 0:22:38.399 I expect to see is what I call the global 0:22:38.440 --> 0:22:41.919 macro disorder, the global monetory disorder, where you see a 0:22:42.000 --> 0:22:44.560 lot more currency volity to your new regime, very much 0:22:44.600 --> 0:22:46.800 like the seventies, where you see huge wins in currency 0:22:46.880 --> 0:22:50.400 alatility because central banks have to focus on their domestic 0:22:50.400 --> 0:22:54.679