WEBVTT - Trade and Tariff Disputes Between the U.S. and EU (Podcast) 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel Podcast. I'm Paul Swinge. You, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.960 Podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:25.360 at Bloomberg dot com. Another day, another trade skirmish. The 0:00:25.440 --> 0:00:29.440 US went after the European Union for, among other things, 0:00:29.880 --> 0:00:34.000 uh their air bus subsidies as well as wine and cheese. 0:00:34.080 --> 0:00:37.680 The European Union saying this is ridiculous a proposal for 0:00:37.800 --> 0:00:41.520 eleven billion dollars of goods potentially teriffed by the US, 0:00:41.560 --> 0:00:44.200 and that they will retaliate in kind. Joining us now 0:00:44.560 --> 0:00:48.960 to discuss why now? Sean Donnin, Bloomberg Senior Trade reporter 0:00:49.120 --> 0:00:52.240 here in our Bloomberg Interactive Broker Studios. Normally he's down 0:00:52.400 --> 0:00:54.920 in Washington, d C. We are so lucky to have him. Sean, 0:00:55.440 --> 0:01:00.320 Why now? Why now? It's uh, well, let's think back 0:01:00.400 --> 0:01:03.120 to what Donald Trump cares about when it comes to trade, 0:01:03.120 --> 0:01:05.120 and he cares about big deficits, and the US is 0:01:05.120 --> 0:01:08.839 a big trade deficit with the EU hundred seventy billion 0:01:08.880 --> 0:01:12.160 dollars or so last year, and he's been gearing up 0:01:12.200 --> 0:01:13.920 for a fund. Yeah, so he's been gearing up for 0:01:13.920 --> 0:01:15.920 a fight. But he has a bunch on his hands already. 0:01:15.920 --> 0:01:17.960 He has one with China, he has one he's working 0:01:18.000 --> 0:01:19.800 through the U S. M C. A if I got 0:01:19.840 --> 0:01:22.920 that correctly, But you know he's got he's got a 0:01:22.959 --> 0:01:24.960 lot of irons in the fire right now with trade. Well, 0:01:25.000 --> 0:01:27.399 it's a reminder that the trade wars aren't just about China. 0:01:27.480 --> 0:01:30.000 It's they're all over the place. And you know, there's 0:01:30.040 --> 0:01:32.400 a there's a trade war that's still going on in 0:01:32.440 --> 0:01:34.399 some ways with Canada and Mexico. Even though you've got 0:01:34.440 --> 0:01:36.000 the U S. N C. It's still tariffs that are 0:01:36.000 --> 0:01:38.639 still in place there. There's negotiations that are gonna get 0:01:38.720 --> 0:01:41.200 underway with Japan. I think there's a This is a 0:01:41.200 --> 0:01:43.640 reminder that a lot of us were thinking that as 0:01:43.720 --> 0:01:45.760 the U. S and China got close to a deal, 0:01:46.360 --> 0:01:47.840 and they are getting close to a deal, we think 0:01:47.880 --> 0:01:49.480 we're gonna see something in the next month or so, 0:01:50.160 --> 0:01:52.840 um that things were going to calm down. That this 0:01:52.920 --> 0:01:55.560 kind of shadow that was hanging over the global economy 0:01:55.680 --> 0:01:58.120 of the trade wars was going to go away. Well, 0:01:58.120 --> 0:02:01.440 it isn't because Donald Trump wants to take on all 0:02:01.440 --> 0:02:04.920 of these other trading partners like the EU, like Japan. 0:02:05.040 --> 0:02:07.840 These are big economies that Donald Trump is gearing up 0:02:07.840 --> 0:02:09.920 for a fight. Let's go to this one of the 0:02:09.960 --> 0:02:12.560 EU about the aviation. I mean, like if bubbing doesn't 0:02:12.560 --> 0:02:14.720 have enough problems with the seven thirty seven max that 0:02:14.760 --> 0:02:16.680 now has to deal with with this issue, give us 0:02:16.720 --> 0:02:18.880 a little history here, because these are both industries that 0:02:18.919 --> 0:02:21.200 have been highly subsidized and there's been tariffs for a 0:02:21.200 --> 0:02:23.400 long period of time. It seems like we've been rereading 0:02:23.400 --> 0:02:25.960 about this issue Airbus and Boeing and others for a 0:02:25.960 --> 0:02:28.120 long time. Yeah, this is the longest running fight in 0:02:28.200 --> 0:02:30.760 the w t OH. It's been going on for fourteen years. 0:02:30.800 --> 0:02:33.640 I think there's there's one element of normality about what 0:02:33.680 --> 0:02:36.200 Donald Trump is doing and that uh, these are gonna 0:02:36.240 --> 0:02:39.120 be tariffs that are likely to be sanctioned by the 0:02:39.320 --> 0:02:41.480 w t OH. This is going to be allowed under 0:02:41.480 --> 0:02:43.760 global trading rules. And normally Donald Trump wants to go 0:02:43.840 --> 0:02:47.040 around a w t O or rail against a W two. 0:02:47.040 --> 0:02:49.320 And we saw on tweet today, you know, sighting the 0:02:49.440 --> 0:02:51.840 w TO is ruling on the legal subsidies here. It's 0:02:51.880 --> 0:02:54.280 one of the longest running fights. It's a fight that's 0:02:54.400 --> 0:02:57.400 that has kind of refused to go away. It's also 0:02:57.440 --> 0:02:59.880 a fight that you hear people in the administration site 0:03:00.240 --> 0:03:02.720 as an example of what is wrong with the w 0:03:02.880 --> 0:03:04.920 t O and the global trading system. Why is it 0:03:04.960 --> 0:03:07.720 that it takes fourteen years to slve something like this? So, Sean, 0:03:07.960 --> 0:03:10.120 I love that you're here, Sean Donn and he's been 0:03:10.160 --> 0:03:12.680 coovering trade for a long time. You have a sense 0:03:12.720 --> 0:03:15.560 of what's real and what's not. And what I thought 0:03:15.639 --> 0:03:19.320 was really compelling this morning was when these headlines hit, 0:03:19.680 --> 0:03:22.359 the market didn't really move that much. You didn't see 0:03:22.360 --> 0:03:25.040 a huge drop in airbus shares, Bowing shares, which have 0:03:25.040 --> 0:03:27.560 already gotten so beaten up, didn't go down that much. 0:03:27.800 --> 0:03:30.120 And then just in general, there wasn't sort of any 0:03:30.240 --> 0:03:33.360 kind of reaction. What do you make of that? I 0:03:33.400 --> 0:03:35.160 think when I make of that is that the market 0:03:35.200 --> 0:03:38.400 has priced in this kind of uncertainty about trade that's 0:03:38.440 --> 0:03:41.160 been with us for the past year. And and and Terris, 0:03:41.160 --> 0:03:44.520 this is another volley from Donald Trump. But in some ways, 0:03:44.520 --> 0:03:46.720 it's a front that we knew was open in terms 0:03:46.720 --> 0:03:50.360 of the EU. It's also to be frank, it's a dispute. 0:03:50.480 --> 0:03:53.480 It's the airbus bowing dispute that probably puts a lot 0:03:53.480 --> 0:03:55.360 of people to sleep in the markets. It's been around 0:03:55.360 --> 0:03:57.640 so long. I'll tell you what doesn't put them to 0:03:57.680 --> 0:04:01.520 sleep is China trade negotiations. Although you just mentioned earlier, 0:04:01.760 --> 0:04:04.280 sometime in the next month, this was a deal. We've 0:04:04.280 --> 0:04:06.720 been expecting for the last couple of weeks to get 0:04:06.720 --> 0:04:08.680 an announcement, and you know, I thought they were gonna 0:04:08.680 --> 0:04:11.160 have a golf date at mar Lago and you know, 0:04:11.200 --> 0:04:14.920 maybe sushi. I mean, who knows. But what's what's the 0:04:15.040 --> 0:04:18.800 latest on the China trade negotiations? Are we are both 0:04:18.800 --> 0:04:22.000 sides making substantive progress or is it just going to 0:04:22.040 --> 0:04:24.680 be a headline? Do you think so? I think they're 0:04:24.680 --> 0:04:27.279 making substantive progress. I think there's a sign. You know, 0:04:27.320 --> 0:04:29.520 we're getting signs that there's there's a there's a real 0:04:29.600 --> 0:04:32.440 deal that's that's brewing here. What is happening right now? Well, 0:04:32.440 --> 0:04:34.880 the problem with trade is and one of the reasons 0:04:34.920 --> 0:04:38.200 that it tends to not get the attention to deserves 0:04:38.200 --> 0:04:40.479 sometimes in my mind, although I'm a I'm a trade geek, 0:04:40.960 --> 0:04:44.200 is very simply that drags on, and just when you're 0:04:44.200 --> 0:04:47.760 exhausted with the trade negotiation, that seems to drag on 0:04:47.960 --> 0:04:51.600 for another year or another month. Uh. And that's really 0:04:51.640 --> 0:04:53.240 what we're seeing here. These things are hard. I was 0:04:53.240 --> 0:04:54.840 on the fun last last week with someone in the 0:04:54.880 --> 0:04:57.560 administration is close to the negotiations, and he said, look, 0:04:58.160 --> 0:05:01.880 these things are going, they're going. Well, it's just really hard. 0:05:02.160 --> 0:05:05.360 So just real quickly here, I'm wondering people talk about 0:05:05.440 --> 0:05:09.080 these trade skirmishes as President Trump's doing. How much are 0:05:09.240 --> 0:05:13.160 are many Democrats kind of quietly happy about all this 0:05:13.279 --> 0:05:15.440 in the sense, not not from sort of like a 0:05:15.480 --> 0:05:18.960 political standpoint, but glad that he's doing and fighting these 0:05:19.000 --> 0:05:22.480 fights because they think that they're legitimate. So there's a 0:05:22.520 --> 0:05:24.800 lot of people in Washington and around the world, to 0:05:24.839 --> 0:05:27.120 be fair, who think that the fight against China's a 0:05:27.160 --> 0:05:29.960 legitimate fight. There's some legitimate issues there on industrial subsidies 0:05:29.960 --> 0:05:32.159 and intellectual property and so on. But what you've really 0:05:32.200 --> 0:05:34.359 pointed to is a big dilemma for the Democrats going 0:05:34.400 --> 0:05:38.279 into trade, and trade skepticism used to be their issue. 0:05:38.400 --> 0:05:40.679 Donald Trump's made it his issue, how do they respond? 0:05:41.560 --> 0:05:43.600 Sean Donna, thank you so much for joining us here 0:05:43.640 --> 0:05:47.040 in studio Bloomberg Interactive Broker Studio. We love having here 0:05:47.080 --> 0:05:49.880 talking authoring trade. Sean is a senior trade reporter for 0:05:49.880 --> 0:06:07.520 Bloomberg News. Well, despite the down market today, the SMP 0:06:08.279 --> 0:06:11.720 is up fifer cent this year. Today, the NASTAC is 0:06:11.800 --> 0:06:15.000 up almost The question for a lot of investors is 0:06:15.080 --> 0:06:19.919 what's left in the markets, particularly for seeing slowing global growth, uh, 0:06:19.960 --> 0:06:23.000 you know, evidenced by the I m F data this morning, 0:06:23.000 --> 0:06:25.479 for example. So it help us dig into that issue. 0:06:25.520 --> 0:06:28.520 We welcome David Deets to the show. David is founder, 0:06:28.600 --> 0:06:32.359 president and chief investment strategist for point View Wealth Management 0:06:32.839 --> 0:06:35.360 in Summit, New Jersey. David, thank you so much for 0:06:35.440 --> 0:06:39.120 joining us. So we did have some weaker growth numbers 0:06:39.120 --> 0:06:41.560 coming out of the I m F today, I think 0:06:41.600 --> 0:06:45.520 probably giving some of the bears some ammunition that say, gee, 0:06:45.520 --> 0:06:48.240 this market has really gotten ahead of itself given what 0:06:48.520 --> 0:06:54.279 appears to be slowing global growth. What say you, David, Well, certainly, um, 0:06:54.320 --> 0:06:55.719 that was one of it. That is one of the 0:06:55.760 --> 0:06:58.880 reasons for the sell off today. Um, you know, I 0:06:58.960 --> 0:07:02.120 would note that the I m F is still UH 0:07:02.279 --> 0:07:06.799 positing stronger growth in two thousand twenty than this year, 0:07:07.240 --> 0:07:10.720 so they do see the dip in global activity as 0:07:10.880 --> 0:07:14.480 somewhat temporary UM. But you know, I think from an 0:07:14.520 --> 0:07:17.720 investors point of view, the concerns about global growth are 0:07:17.800 --> 0:07:21.480 not new. And of course what has helped our markets 0:07:21.520 --> 0:07:24.360 here is that the story has been pretty positive on 0:07:24.440 --> 0:07:29.120 the US economy with the labor markets, unemployment rate about 0:07:29.120 --> 0:07:34.840 a forty year low. UM job creation was just report 0:07:34.960 --> 0:07:38.400 is very good in March. Consumer sentiment is very strong, 0:07:38.720 --> 0:07:41.840 small business sentiment is very strong. So I think on balance, 0:07:42.120 --> 0:07:44.600 what we're focused on here is how well the US 0:07:44.720 --> 0:07:48.120 is doing, how much creasmce. Can we actually give this 0:07:48.280 --> 0:07:52.040 idea that the I m F projections somehow is what's 0:07:52.320 --> 0:07:54.560 driving the market? I mean, is this just basically that 0:07:54.640 --> 0:07:56.480 no one really has an incentive trade and there are 0:07:56.480 --> 0:07:58.440 a couple of algorithms out there that are kind of 0:07:58.480 --> 0:08:00.800 like bouncing around a couple of styles, pushing things down 0:08:00.800 --> 0:08:04.640 in touch before we get actual real news. Well, certainly, 0:08:04.680 --> 0:08:07.360 if you put into the context of the success of 0:08:07.440 --> 0:08:10.920 economists predicting the economy, you do need to take it 0:08:11.000 --> 0:08:14.400 with a grain of salt. I remember, you know, Warren 0:08:14.440 --> 0:08:17.360 Buffett saying they put economists on earth to make astrologers 0:08:17.400 --> 0:08:20.920 look respectable. UM. Their track record, quite frankly, has not 0:08:21.040 --> 0:08:24.440 been particularly good. Is we look at the I mf 0:08:25.000 --> 0:08:28.000 UM report, we're scratching our heads a little bit because 0:08:28.040 --> 0:08:30.920 although they're positive for two thousand and twenty, they see 0:08:30.960 --> 0:08:34.200 the two biggest economies in the world, the US and China, 0:08:34.840 --> 0:08:37.520 being slower in two thousand twenty than two thousand nineteen. 0:08:37.559 --> 0:08:40.000 I'm trying to figure out how that works exactly. But 0:08:40.240 --> 0:08:44.640 you know, in any event, it's more than just the economy. 0:08:44.720 --> 0:08:48.520 What it really comes down to is corporate earnings. It 0:08:48.600 --> 0:08:52.560 comes down to interest rates UM, and it comes down to, 0:08:53.120 --> 0:08:55.880 you know, the outlook for global trade. I would say 0:08:55.920 --> 0:08:58.640 that the biggest factor that has driven the market this 0:08:58.760 --> 0:09:03.040 year is the d eighty degree turn in the position 0:09:03.080 --> 0:09:06.199 by the Federal Reserve from being very hawkish in terms 0:09:06.240 --> 0:09:09.719 of wanting to hike interrust rates to now being very dubbish, 0:09:09.800 --> 0:09:13.959 and many market UM participants see the next move in 0:09:14.000 --> 0:09:16.559 the Federal Reserve as a cut in interest rates as 0:09:16.559 --> 0:09:19.320 opposed to any further hikes. I think at the end 0:09:19.360 --> 0:09:23.240 of the day, low interest rates UM promote the US 0:09:23.320 --> 0:09:28.120 housing economy make corporate acquisitions and capital expenditures much more 0:09:28.160 --> 0:09:30.960 affordable and them And at the end, I mean people 0:09:30.960 --> 0:09:33.880 are looking at today, for example, ten year treasury two 0:09:33.960 --> 0:09:36.520 point four eight Very few of us can make our 0:09:36.559 --> 0:09:40.440 long term plans work getting two point four eight percent 0:09:40.520 --> 0:09:43.040 on our money. So therefore, I think that any kind 0:09:43.080 --> 0:09:46.800 of pullbacks are ultimately gonna be met with positive buying. So, 0:09:46.920 --> 0:09:49.360 David were later this week, we're gonna be coming into 0:09:49.440 --> 0:09:52.360 the beginning of the first quarter earnings period. We've got 0:09:52.360 --> 0:09:54.800 some of the big money center banks. Um I think 0:09:54.920 --> 0:09:59.840 SMP five hundred earnings forecast consensus for four percent decline 0:10:00.080 --> 0:10:03.240 or in the first quarter. How are you positioned going 0:10:03.280 --> 0:10:07.120 into the first quarter earning season? Well, so, I mean 0:10:07.280 --> 0:10:11.200 from the macro point of view, Um, yeah, it's it's 0:10:11.840 --> 0:10:16.079 very disconcerting when earnings are the most the biggest driver 0:10:16.400 --> 0:10:20.280 of of stocks to have a forecast for a four 0:10:20.360 --> 0:10:22.880 percent decline you over year. Take that with a grain 0:10:22.920 --> 0:10:25.880 of salt. For a couple of reasons. One is last 0:10:25.960 --> 0:10:28.920 year's Q one was very much juiced, as it were, 0:10:29.240 --> 0:10:31.560 by the cut in interest rates. That we don't have 0:10:31.600 --> 0:10:34.280 a second cut in this year, so that has to 0:10:34.320 --> 0:10:36.720 be taken any consideration, and of course, at the end 0:10:36.760 --> 0:10:39.360 of the day, is not what happened in the last 0:10:39.400 --> 0:10:41.160 three months. At the end of the day, it's going 0:10:41.200 --> 0:10:45.480 to be what UM market particiption, what these companies forecasts 0:10:45.600 --> 0:10:50.520 for the next let's say, nine to twelve months UM so, 0:10:51.040 --> 0:10:53.480 and certainly you can make the case anyway that the 0:10:53.480 --> 0:10:57.080 fact that UM the forecast for earnings is so negative 0:10:57.120 --> 0:11:01.880 now beats and positive surprises will be much easier. UM. 0:11:01.920 --> 0:11:04.720 I think what we're doing here is looking at some 0:11:04.760 --> 0:11:11.200 companies where the they have stellar franchises, but the prospect 0:11:11.240 --> 0:11:15.640 for near term earnings is somewhat muted. You mentioned Financials 0:11:15.800 --> 0:11:18.480 one that we like a lot, as wells Fargo. We're 0:11:18.480 --> 0:11:21.440 gonna be hearing from them on Friday. UM. I don't 0:11:21.440 --> 0:11:23.280 think they're gonna say a whole lot because they're in 0:11:23.320 --> 0:11:26.080 this period now where their current CEO is stepped down 0:11:26.080 --> 0:11:28.559 there in the process of not only finding a new one, 0:11:28.600 --> 0:11:31.480 but looking outside the bank. I think the catalyst for 0:11:31.600 --> 0:11:36.880 growth for this blue chip franchisees naming a bank executive 0:11:37.320 --> 0:11:41.800 UM which people respect and can turn the bank around. 0:11:42.120 --> 0:11:45.120 Names go ahead, any names that you have that you 0:11:45.120 --> 0:11:49.000 would like to see rise to the Holme of Wells Fargo. Well, 0:11:49.200 --> 0:11:54.160 certainly the UM. There's a number of lieutenants UM in 0:11:54.280 --> 0:11:58.360 JP Morgan. They have been cited UM the actually Warren 0:11:58.440 --> 0:12:02.240 Buffett UH is very high on JP Morgan and they're 0:12:02.240 --> 0:12:05.680 probably frustrated because Jamie Diamond seems to have no current 0:12:05.679 --> 0:12:10.199 plans to leave. I think that would make some sense there. Um, 0:12:10.360 --> 0:12:14.840 why would Jamie Diamond go from JP Morgan to Wells Fargo. 0:12:15.400 --> 0:12:18.400 I misspoke there. Jamie Diamond is not going to move, 0:12:18.600 --> 0:12:23.360 but people who want his job under him UM would 0:12:23.440 --> 0:12:27.760 be perhaps interested in taking over arguably bank just as 0:12:27.880 --> 0:12:31.560 good at JP as JP Morgan. Immediately. So we we 0:12:31.640 --> 0:12:34.280 had Walgreens pre announced, and I know that's the name 0:12:34.320 --> 0:12:36.839 we've talked about in the past. For you, that side 0:12:36.840 --> 0:12:39.959 of the business, that prescription business, the retail business very difficult. 0:12:39.960 --> 0:12:43.960 What are you views on on Walgreens? So Walgreens is 0:12:43.960 --> 0:12:46.040 a company that that we moved on to our BI 0:12:46.160 --> 0:12:49.320 list right now is trading in about eight times earnings 0:12:49.400 --> 0:12:52.880 versus a market that said about seventeen times earnings. You know, 0:12:53.160 --> 0:12:57.000 although much of retail has been gutted by the rise 0:12:57.080 --> 0:13:01.880 of the internet shopping, we still feel that buying prescription drugs, 0:13:01.920 --> 0:13:05.080 going in and talking with the pharmacist UM is not 0:13:05.200 --> 0:13:09.000 so easily displaced by buying online. Plus, of course, all 0:13:09.080 --> 0:13:13.280 these pharmacies are now developing clinics so that it could 0:13:13.320 --> 0:13:15.520 be a low cost option to get a check up, 0:13:16.040 --> 0:13:19.120 to get some medical care at at at a lower rate. 0:13:19.320 --> 0:13:21.760 And of course you're always looking for those companies which 0:13:21.800 --> 0:13:25.560 have size and scale. Walgreens and CBS almost have a 0:13:25.600 --> 0:13:30.000 duopoly in in this country. Put Walgreens in the context 0:13:30.040 --> 0:13:32.800 of healthcare. General healthcare is under a cloud. It's usually 0:13:32.800 --> 0:13:36.360 a defensive sector. Right now, of course, everyone's uh, the 0:13:36.800 --> 0:13:41.199 pace of prescription drug inflation has been reduced dramatically. Uh 0:13:41.360 --> 0:13:44.599 do the jaw boning from politicians on both sides of 0:13:44.679 --> 0:13:46.720 the aisle. Of course, there's some concerns as to whether 0:13:46.760 --> 0:13:50.840 we'll fundamentally change the system to a single payer. What 0:13:50.960 --> 0:13:55.199 has happened historically is those have been unbelievably great opportunities 0:13:55.240 --> 0:14:00.640 to take healthcare UM investment because normally, Uh, the fear 0:14:00.720 --> 0:14:05.200 goes away, the threat of price controls dissipates, the system 0:14:05.280 --> 0:14:08.079 doesn't change, and it can be a great way to 0:14:08.120 --> 0:14:10.840 see appreciation on your investment. David DIDs thank you so 0:14:10.920 --> 0:14:13.160 much for being with us. David DIDs is founder, president, 0:14:13.400 --> 0:14:16.679 and chief investment strategist at Point View Wealth Management, based 0:14:16.720 --> 0:14:36.840 in Summit, New Jersey. We have been in a low 0:14:36.920 --> 0:14:40.480 interest rate environment for more than a decade. We have 0:14:40.560 --> 0:14:44.240 been looking at robust credit markets, easy learning standards pretty 0:14:44.280 --> 0:14:46.400 much across the board. So there's kind of a mystery 0:14:46.880 --> 0:14:50.640 that's been baked into certain corners of credit markets, in 0:14:50.680 --> 0:14:54.320 particular the auto lending sector, which is seen delinquencies rise 0:14:54.400 --> 0:14:57.080 to a post crisis high in some cases, as well 0:14:57.120 --> 0:15:00.080 as the high defaults and delinquencies among some pure to 0:15:00.160 --> 0:15:02.720 peer loans. Joining us now to dig under the hood 0:15:02.720 --> 0:15:05.920 and explain perhaps why we're seeing that is Adam Tempken, 0:15:06.160 --> 0:15:08.680 credit market supporter for Bloomberg News, joining us here in 0:15:08.720 --> 0:15:11.600 our Bloomberg Inner Active Broker Studios. So Adam, let's just 0:15:11.680 --> 0:15:14.560 start there. What are people looking at for the possible 0:15:14.680 --> 0:15:17.960 cause for the uptick intolinquencies and defaults at a time 0:15:18.000 --> 0:15:21.160 of easy credit. Well, Goldman Sachs and Moody's analytics have 0:15:21.280 --> 0:15:25.600 recently said credit scores they do not include economic cycles, 0:15:25.640 --> 0:15:30.120 but economic cycles greatly influenced credit scores. So as the 0:15:30.160 --> 0:15:34.120 economy has expanded so have the scores. The problem is 0:15:34.160 --> 0:15:38.680 people's inherent risk, their inherent ability and attitude towards paining 0:15:38.720 --> 0:15:42.200 is the same. So a five fifty subprime person today 0:15:42.600 --> 0:15:46.760 is relatively riskier than a five fifty and two thousand nine, 0:15:46.840 --> 0:15:49.400 and that could be a hidden risk. So the idea 0:15:49.480 --> 0:15:52.240 here is the FICO scores, which are used by many 0:15:52.280 --> 0:15:55.360 peer to peer lenders, and some of these smaller deep 0:15:55.400 --> 0:16:01.000 subprime lenders are not as reliable exactly. The scores are 0:16:01.080 --> 0:16:04.440 migrating up, but the risk is the same, and the 0:16:04.520 --> 0:16:07.360 question is are lenders accounting for that? Are they raising 0:16:07.400 --> 0:16:11.360 their minimum FICO cutoffs? While Moody's Analytics and Goldman says 0:16:11.400 --> 0:16:15.360 some of them, the smaller ones maybe unsophisticated deep subprime auto, 0:16:15.760 --> 0:16:18.760 they're not. They're not bringing in like debt to income 0:16:19.200 --> 0:16:24.480 or LTV to have. It's not a good differentiator differentiator anymore, 0:16:24.680 --> 0:16:27.520 these FICO scores, and this is leading to hidden risk 0:16:27.560 --> 0:16:31.840 in certain corners deep subprime, private credit cards, and peer 0:16:31.840 --> 0:16:35.600 to peer marketplace lending. The categories you just mentioned kind 0:16:35.600 --> 0:16:38.480 of harkened me back to ten or twelve years ago. Okay, 0:16:38.560 --> 0:16:40.520 so are you trying to tell us or is Moody's 0:16:40.560 --> 0:16:43.480 and Goldman trying to tell us that the lending community 0:16:44.120 --> 0:16:46.680 had not really learned the lessons, or is kind of 0:16:46.680 --> 0:16:48.960 those lessons have kind of receded into the background, because 0:16:48.960 --> 0:16:51.840 this sounds eerily similar. Well, the good news is that 0:16:52.000 --> 0:16:55.640 some of the larger banks and savvier lenders are including 0:16:55.680 --> 0:16:59.680 other factors. The worry is complacency with some of the 0:17:00.000 --> 0:17:03.160 waller lenders like deep Subprime Um and some of the 0:17:03.320 --> 0:17:07.679 smaller online personal loan lenders. They may not be increasing 0:17:07.800 --> 0:17:11.080 their minimum credit scores, they might not be bringing other 0:17:11.200 --> 0:17:13.840 factors in. And Goldman is a little worried about this, 0:17:14.119 --> 0:17:16.640 and Moody's is saying there could be great complacency from 0:17:16.640 --> 0:17:19.159 these lenders that could lead to losses down the road. 0:17:19.200 --> 0:17:21.800 All Right, so let's put this into some scope here, 0:17:21.840 --> 0:17:24.879 because there's a question how much debt is there that 0:17:25.000 --> 0:17:28.399 is backed by loans that are underwritten with Phyco scores 0:17:28.520 --> 0:17:31.360 for first and foremost in the mind. I mean, that's 0:17:31.400 --> 0:17:33.199 how how much we talked about here. Well, this is 0:17:33.200 --> 0:17:37.320 probably not a systemic problem. If you look at just outstandings, 0:17:37.760 --> 0:17:41.320 it's about four hundred billion dollars worth across those areas 0:17:41.359 --> 0:17:44.520 that I just mentioned. However, not all of that is securitized, 0:17:45.000 --> 0:17:48.359 So maybe one fourth of that is securitized hundred billion 0:17:48.480 --> 0:17:52.720 or so approximately, So this is not systemic. However, the 0:17:52.760 --> 0:17:55.720 problem is it's a great risk for lenders. It's a 0:17:55.760 --> 0:17:58.040 great risk for some of the investors in the deep 0:17:58.080 --> 0:18:00.080 subprime A B s. Okay, and that's what I was 0:18:00.119 --> 0:18:02.120 going to ask. So a hundred billion dollars of these 0:18:02.160 --> 0:18:04.960 loans have been securitized. It means they've been pulled uh 0:18:05.320 --> 0:18:07.560 into bundles and then their bonds that are sold that 0:18:07.600 --> 0:18:10.360 are backed by the payments that go into those pools, 0:18:10.400 --> 0:18:13.200 and they're they're sort of given out to the investors 0:18:13.200 --> 0:18:15.920 depending on which trunch they invested in, and depending on 0:18:15.920 --> 0:18:17.840 on what the credit rating is and where they are 0:18:17.840 --> 0:18:21.119 in the waterfall structure. So I'm wondering, from your perspective, 0:18:21.359 --> 0:18:24.000 who are the investors and the riskiest trunches here? I mean, 0:18:24.040 --> 0:18:26.200 is there is there a sense of, oh, that's your 0:18:26.240 --> 0:18:29.640 pension fund. Pension funds are look going all the way 0:18:29.680 --> 0:18:33.840 down to double B and deep subprime. Auto asset managers, 0:18:33.880 --> 0:18:37.000 I mean across the board people pretty much think these 0:18:37.040 --> 0:18:39.400 types of auto loan A B s are safe and 0:18:39.440 --> 0:18:42.360 they've generally performed well, although I have to say, uh, 0:18:42.520 --> 0:18:46.080 thirty day delinquencies for subprime auto A B s are 0:18:46.119 --> 0:18:49.600 at close to a peak. Now does that translate to losses? 0:18:49.720 --> 0:18:53.000 Here's where it gets tricky. There could be great delinquencies, 0:18:53.040 --> 0:18:55.280 it doesn't always translate to a loss right away because 0:18:55.320 --> 0:18:59.840 there's such credit protections robusts. Uh, these are structured very well, 0:19:00.400 --> 0:19:02.359 but a lot of the banks are now saying do 0:19:02.440 --> 0:19:06.040 not buy lower rated you know, auto deep subprime A 0:19:06.080 --> 0:19:08.760 B s, stay away the personal loan a bs that's 0:19:08.760 --> 0:19:12.639 been securities only over the last few years performing pretty 0:19:12.680 --> 0:19:17.040 pretty poorly right out of the gate, honestly, very high delinquencies. 0:19:17.240 --> 0:19:21.280 We've not really seen a tightening of underwriting yet, but um, 0:19:21.320 --> 0:19:23.320 a lot of people stay away from that stuff, that 0:19:23.400 --> 0:19:26.639 type of peer to peer assepect securities, which is a newer, 0:19:27.119 --> 0:19:30.240 untested asset class. So it looks like Moody's and the 0:19:30.240 --> 0:19:32.479 Golden The reports here kind of shedding some light on 0:19:32.520 --> 0:19:34.840 this issue, which we've heard a little bit about certainly, 0:19:35.400 --> 0:19:38.280 but maybe not the scope. Has there been any regulatory 0:19:38.400 --> 0:19:40.520 response or how are the regulators looking at this little 0:19:40.560 --> 0:19:43.439 slice of the market. There's definitely been a lot of 0:19:43.600 --> 0:19:49.680 focus on subprime auto um. The the bond investors always say, hey, 0:19:49.720 --> 0:19:52.880 we think this is safe. You know, uh, there's great protections. 0:19:53.080 --> 0:19:56.960 But you know, the Federal Reserve came out February saying, hey, 0:19:57.000 --> 0:20:00.359 auto dilinquencies are at seven million. People are hind on 0:20:00.400 --> 0:20:04.359 their payments. So this is kind of a growing theme. 0:20:05.119 --> 0:20:07.719 Warning signals are flashing, and some of the regulators are 0:20:07.720 --> 0:20:10.280 slowly getting involved. You know. It seems to me like 0:20:10.320 --> 0:20:12.440 one of the biggest consequences of this is to sty 0:20:12.600 --> 0:20:15.760 me the peer to peer lending industry before it really 0:20:15.760 --> 0:20:18.200 had a chance to gain steam, Paul, because that seems 0:20:18.240 --> 0:20:21.960 to be one consequence they're having a harder time making 0:20:22.000 --> 0:20:25.280 money if the credit qualifications just aren't there. Yes, and 0:20:25.320 --> 0:20:26.960 we've had some period of peer folks in here before 0:20:27.080 --> 0:20:29.400 talking about kind of how they have a demand for 0:20:29.440 --> 0:20:31.400 their business because some of the banks have stepped away 0:20:31.400 --> 0:20:34.720 a little bit. So very it's very interesting, and I 0:20:34.720 --> 0:20:36.800 think it's the story we're gonna hear more about going forward. 0:20:37.160 --> 0:20:40.040 Adam Temptin, thank you so much, Credit Markets reporter for 0:20:40.160 --> 0:20:42.400 Bloomberg News. Joining us here in a Bloomberg eleventh three 0:20:42.440 --> 0:20:58.520 yo studio in New York. Well, we are fast approaching 0:20:58.560 --> 0:21:02.000 the April fifteen deadline, people are scrambling to get their 0:21:02.040 --> 0:21:05.400 returns done. A lot of tax law changes this year 0:21:05.440 --> 0:21:07.960 for people to get their hands around, including new tax 0:21:08.040 --> 0:21:11.280 law changes around alimony and child support. To get the 0:21:11.320 --> 0:21:14.160 latest on this, we welcome our next guest, Maggie John Drow. 0:21:14.240 --> 0:21:17.560 She's financial advisor and founder of John Drought Wealth Management. 0:21:17.560 --> 0:21:20.080 She joins us live here in Interactive Broker studio. Maggie, 0:21:20.320 --> 0:21:22.560 thank you so much for being with us again. A 0:21:22.680 --> 0:21:26.879 lot of tax law changes that people have to figure 0:21:26.880 --> 0:21:28.920 out this year. Talk to us a little bit about 0:21:28.960 --> 0:21:33.520 the alimony child support changes that are in this year's 0:21:33.880 --> 0:21:37.640 tax code. Sure, thank you for having me. So, if 0:21:37.720 --> 0:21:43.199 you were divorced on December thirty one, two eighteen, or 0:21:43.280 --> 0:21:48.560 prior to your divorce decree remains the same unless you 0:21:48.600 --> 0:21:51.760 decide to amend it. But if you were divorced on 0:21:51.960 --> 0:21:56.080 January one, two thousand, nineteen or thereafter, alimony has now 0:21:56.680 --> 0:21:59.239 is different for you the way it is taxed. Uh 0:21:59.400 --> 0:22:03.239 So it's essentially flopped um. In the past, those that 0:22:03.240 --> 0:22:06.680 were paying alimony could take that as a tax deduction, 0:22:06.800 --> 0:22:09.280 and that is no longer the case for those after 0:22:09.400 --> 0:22:12.679 January one two has a nineteen and those that are 0:22:12.720 --> 0:22:18.280 receiving the alimony, this is no longer taxable income for you. Okay, 0:22:18.359 --> 0:22:21.880