WEBVTT - Hard To See Coal Rebound Despite Trump's EPA Rollback 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.840 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Today, 0:00:32.880 --> 0:00:37.400 President Trump's administration unveiled its plans to dramatically weakened pollution 0:00:37.600 --> 0:00:41.440 limits on coal fired power plants by shifting most of 0:00:41.440 --> 0:00:45.560 the regulatory burden to states. This basically is another way 0:00:45.600 --> 0:00:49.519 to basically foster the coal industry, as President Trump has 0:00:49.560 --> 0:00:51.680 promised to do. Here to talk a little bit about that, 0:00:51.720 --> 0:00:54.640 as Ethan Zindler ahead of America's for Bloomberg any f 0:00:55.000 --> 0:00:57.720 coming to us from Washington, d c. Ethan, thank you 0:00:57.760 --> 0:00:59.800 so much for joining us. So can we just start 0:00:59.800 --> 0:01:02.600 with an overview of what exactly President Trump's administration is 0:01:02.640 --> 0:01:05.080 trying to do here. So first and foremost, there was 0:01:05.120 --> 0:01:08.080 an effort under the Obama administration called the Clean Power 0:01:08.160 --> 0:01:11.160 Plan that would have set a national goal of reducing 0:01:11.200 --> 0:01:14.360 CEO two missions from the power sector. The goal was 0:01:14.400 --> 0:01:19.319 to cut CEO two emissions by twenty thirty. We're very 0:01:19.360 --> 0:01:23.360 actually very far along towards that goal already. But the 0:01:23.360 --> 0:01:26.479 new rule, which was essentially has now been rolled out 0:01:26.520 --> 0:01:30.520 by the Trump administration UH sets no specific long term 0:01:30.560 --> 0:01:34.559 goals for CEO two emissions and essentially says states, you guys, 0:01:34.600 --> 0:01:36.560 go away and figure out how much you want to 0:01:36.600 --> 0:01:40.959 do on your own to try to address CEO two reductions. Okay, 0:01:41.120 --> 0:01:44.080 So just to give a sense, and this is something 0:01:44.080 --> 0:01:46.600 that you noted that as of the end of last year, 0:01:46.640 --> 0:01:51.360 the US already achieved pent UH CEO two reductions that 0:01:51.400 --> 0:01:53.560 had aimed to reach by In other words, it was 0:01:53.600 --> 0:01:56.520 really ahead of schedule. And I'm wondering how much does 0:01:56.600 --> 0:01:59.640 President Trump's how much too, is President Trump's actions set 0:01:59.720 --> 0:02:03.040 us back or do they have no impact whatsoever. Well, 0:02:03.040 --> 0:02:05.560 this is one of those stories, and especially someone here 0:02:05.560 --> 0:02:08.240 in Washington, which is I think you know, gets a 0:02:08.240 --> 0:02:12.200 lot of attention, justifiably because it represents the perspective of 0:02:12.200 --> 0:02:15.200 the administration and the way they view climate and frankly, 0:02:15.200 --> 0:02:17.720 whether they care about climate at all, which is unclear. 0:02:18.680 --> 0:02:20.960 But it's very important to put this in the larger 0:02:21.000 --> 0:02:23.400 context of the trends that are going on in the 0:02:23.440 --> 0:02:26.639 power sector anyway, And as I mentioned, you know, we've 0:02:26.680 --> 0:02:30.679 reduced our missions from two thousand five levels already as 0:02:30.720 --> 0:02:34.000 of your end two thousand seventeen. Our view is that 0:02:34.040 --> 0:02:38.040 the US power sector will continue to de carbonize. Natural 0:02:38.080 --> 0:02:42.000 gas is cheap, renewables are cheap, and essentially coal is 0:02:42.000 --> 0:02:46.200 getting phased out, and frankly, this regulation probably won't change 0:02:46.240 --> 0:02:50.600 that in any substantial way. So symbolically it's important, But 0:02:50.639 --> 0:02:53.400 as far as the market's concerned, UH and as far 0:02:53.440 --> 0:02:56.400 as the US emissions path is concerned, from the power sector, 0:02:57.160 --> 0:02:59.120 at least an our view is not likely to make 0:02:59.160 --> 0:03:01.000 a big difference. Can you give us any update on 0:03:01.040 --> 0:03:03.239 the coal industry and whether there has been an increased 0:03:03.280 --> 0:03:07.000 in UH in jobs there or an increase in profitability 0:03:07.080 --> 0:03:09.640 since President Trump took office. I'm looking right now at Peabody, 0:03:09.680 --> 0:03:12.320 for example, one of the big US coal companies. Their 0:03:12.360 --> 0:03:15.000 shares are up more than this year, so they are 0:03:15.040 --> 0:03:18.920 beating the broader large indexes. Well, it's all it's all 0:03:18.960 --> 0:03:20.919 relative to I mean, take a look at where they were. 0:03:21.440 --> 0:03:25.680 They were there fair enough and and I think generally speaking, 0:03:25.760 --> 0:03:27.760 you know, I think there's been plenty of sort of 0:03:28.000 --> 0:03:31.680 favorable publicity around the coal industry with this administration saying 0:03:31.720 --> 0:03:33.600 they want to do more things, and they are taking 0:03:33.600 --> 0:03:36.600 a number of regulatory steps to try to be supportive. 0:03:36.640 --> 0:03:40.080 But but our general view is that the economics are 0:03:40.120 --> 0:03:42.760 the economics, and gas is very cheap in the US, 0:03:43.080 --> 0:03:45.080 and the consensus view is that it's going to stay 0:03:45.160 --> 0:03:47.720 cheap for a very long time. Renewable prices have been 0:03:47.760 --> 0:03:51.320 down substantially, and with the text credits to support them, 0:03:51.640 --> 0:03:54.760 they also undercut coal. So it's hard to see the 0:03:54.880 --> 0:03:59.520 US coal power sector making a major rebound regardless of 0:03:59.560 --> 0:04:01.400 these very US efforts. You know, I want to put 0:04:01.440 --> 0:04:03.320 you on the spot here and talk about the flip 0:04:03.360 --> 0:04:05.720 side of of coal and what you're talking about, which 0:04:05.760 --> 0:04:09.800 is the renewable side solar, uh when other types of 0:04:10.680 --> 0:04:14.680 energy production that's considered to be more environmentally friendly. The 0:04:14.760 --> 0:04:17.680 US had been accelerating the production of those types of 0:04:17.760 --> 0:04:21.440 energy quite significantly under Obama. I'm wondering has that changed 0:04:21.480 --> 0:04:24.560 at all, or has the pace of adoption continued to 0:04:24.680 --> 0:04:29.080 gain steam under President Trump. I would say that, you know, 0:04:29.120 --> 0:04:31.359 we have seen a bit of a slowing on the 0:04:31.400 --> 0:04:35.800 renewables build side post Trump um. But I wouldn't directly 0:04:35.839 --> 0:04:38.440 attribute that to any actions that he's taken. There have 0:04:38.600 --> 0:04:41.880 been policies in place that essentially we're due to sunset 0:04:41.920 --> 0:04:43.960 and we're coming up towards the end of some of those, 0:04:44.000 --> 0:04:46.680 and that's part of what sort of frontloaded some of 0:04:46.720 --> 0:04:51.320 the activity, uh, sort of coincidentally into Obama's term. But 0:04:51.640 --> 0:04:54.880 generally speaking, you know, we continue to see projects get built. 0:04:55.240 --> 0:04:57.360 There is support for renewables at the state level on 0:04:57.400 --> 0:05:00.240 a policy basis, there are tax credits, but most importanly 0:05:00.279 --> 0:05:03.839 for renewables, the price of the equipment has just come down, 0:05:03.839 --> 0:05:06.560 particularly for solar, so enormously. I mean, by the end 0:05:06.560 --> 0:05:08.920 of the year. To put this in context, a solar 0:05:09.000 --> 0:05:12.239 module sold from a Chinese company will sell for about 0:05:12.800 --> 0:05:15.200 cents a lot. I realized that means nothing to your listeners, 0:05:15.240 --> 0:05:17.880 but ten years ago that number was about eight dollars 0:05:17.880 --> 0:05:22.760 a lot, ten dollars a lot. So the technological advancements 0:05:22.760 --> 0:05:26.000 and the cost declines have just been tremendous. Okay, So 0:05:26.080 --> 0:05:29.960 I'm just wondering going forward, how much can one presidential 0:05:29.960 --> 0:05:33.120 administration shift the policies and sort of shift the landscape 0:05:33.120 --> 0:05:35.240 for energy consumption at this point, and how much really 0:05:35.320 --> 0:05:39.800 is it just the market determining what people use. It's 0:05:39.920 --> 0:05:43.520 mostly market. I think that the administration can sort of 0:05:43.560 --> 0:05:46.240 try and steer a ship, but it takes years to 0:05:46.279 --> 0:05:48.679 try and make real adjustments. And I would also argue 0:05:48.680 --> 0:05:51.400 that some of the most important sort of policies that 0:05:51.440 --> 0:05:54.719 can affect energy, that the course of direction for the 0:05:54.760 --> 0:05:59.480 power sector, are not ones that an administration can do unilaterally. 0:05:59.560 --> 0:06:02.839 You would be Congress um. So, for instance, if you 0:06:02.920 --> 0:06:04.880 really wanted to help the coal industry, the best thing 0:06:04.920 --> 0:06:07.880 you could do is probably create a new tax credit 0:06:08.000 --> 0:06:11.159 or subsidy to support that. But that is not something 0:06:11.839 --> 0:06:14.200 that the administration can do on its own. It's something 0:06:14.240 --> 0:06:17.120 Congress needs to help it within um. Despite the fact 0:06:17.160 --> 0:06:19.640 that Congress seems very inclined to help this administration in 0:06:19.680 --> 0:06:22.440 a lot of ways, I think people would say that 0:06:22.440 --> 0:06:24.480 that would be a tough thing to get through even 0:06:24.560 --> 0:06:27.080 this Congress, and certainly the one that's coming would be 0:06:27.200 --> 0:06:30.200 less would probably be less inclined to be supportive of 0:06:30.279 --> 0:06:33.760 something like that, given the fact that the Republican part 0:06:33.839 --> 0:06:35.880 of the government is expected to lose some seats in 0:06:35.920 --> 0:06:38.240 the upcoming interm election. Is that what you're imply Yeah, 0:06:38.279 --> 0:06:39.920 that does seem to be what people think is going 0:06:39.960 --> 0:06:42.320 to happen so far. One thing I'm wondering is if 0:06:42.320 --> 0:06:46.200 you stripped away all subsidies for solar and wind, would 0:06:46.400 --> 0:06:51.960 those methods of energy production still be economically competitive with 0:06:52.080 --> 0:06:55.640 the fossil fuels? Yes, in some places, know and others? 0:06:55.800 --> 0:06:57.800 Is the long, long story short. If the winds are 0:06:57.800 --> 0:07:01.800 strong enough and the sun shine bright enough, projects are 0:07:01.800 --> 0:07:05.040 absolutely cost competitive. We're seeing that in places like Oklahoma 0:07:05.120 --> 0:07:07.720 and Arizona and other parts of the California and other 0:07:07.760 --> 0:07:10.320 parts of the world. The other question is how expensive 0:07:10.400 --> 0:07:14.960 is the existing generation from those fossil sources. Uh. It 0:07:15.480 --> 0:07:18.239 really varies from different parts of the country. But the 0:07:18.280 --> 0:07:21.360 long story short is right now renewables are cost competitive 0:07:21.520 --> 0:07:24.600 in a number of places around the world, including number 0:07:24.600 --> 0:07:27.080 of prices in the United States, but not everywhere. And 0:07:27.160 --> 0:07:29.600 coal with respect to that, is there anything that President 0:07:29.640 --> 0:07:31.400 Trump can do or that you're watching that will have 0:07:31.520 --> 0:07:36.559 material impact to support coal unilaterally? I think the Trump 0:07:36.560 --> 0:07:39.120 administration is trying to do most of the things that 0:07:39.280 --> 0:07:43.080 it has within its power to support the coal industry. Um, 0:07:43.080 --> 0:07:45.360 but it is it is frankly just going to be 0:07:45.440 --> 0:07:49.560 challenging so long as gas prices remain low um if 0:07:49.600 --> 0:07:52.040 they frankly, if the administration wanted to do something to 0:07:52.120 --> 0:07:56.160 sort of artificially raise the cost of um of gas production, 0:07:56.200 --> 0:07:58.440 I don't know what that step would be, tax or whatever. 0:07:59.000 --> 0:08:02.280 UM That would probably also helped Cole, but again that's 0:08:02.320 --> 0:08:04.600 something that Congress would probably have to be involved in. 0:08:04.800 --> 0:08:07.320 Ethan Zindler, thank you so much for that wonderful perspective. 0:08:07.440 --> 0:08:11.400 Ethan Zindler's head of America's for Bloomberg based in Washington, 0:08:11.640 --> 0:08:15.040 d C. That's Bloomberg and E f uh And definitely 0:08:15.040 --> 0:08:20.000 an interesting time with some revocation of Obama era environmental rules. 0:08:20.160 --> 0:08:24.040 How much effective they actually have that remains to be determined. 0:08:37.200 --> 0:08:40.120 There are some companies that are the the intersection of 0:08:40.160 --> 0:08:42.839 some of the trade tensions that have been ongoing, and 0:08:42.880 --> 0:08:46.640 then there's some that face a changing landscape with respect 0:08:46.760 --> 0:08:51.439 to new regulations or regulatory rollbacks. Our next guest potentially 0:08:51.600 --> 0:08:54.439 is at the intersection of both, and that is Mark Vignano. 0:08:54.840 --> 0:08:58.680 He is chief executive of Commoors, which is based in Wilmington, Delaware. 0:08:58.679 --> 0:09:01.200 You might know Commors by some of its brands like 0:09:01.320 --> 0:09:05.640 tef Line, which is sort of means so much to 0:09:05.679 --> 0:09:08.000 so many people as well as free on Mark. Thank 0:09:08.040 --> 0:09:09.559 you so much for being with us. So happy to 0:09:09.559 --> 0:09:12.240 be here. So I want to start with the concept 0:09:12.240 --> 0:09:15.800 of this company has its business the US and the 0:09:15.840 --> 0:09:18.079 rest of its outside of the United States. And I'm wondering, 0:09:18.080 --> 0:09:20.720 at a time when you do have escalating trade tensions, 0:09:21.280 --> 0:09:23.520 how have you been affected. Yeah, so if you think 0:09:23.520 --> 0:09:26.440 about trade, you know, and I know the administration today 0:09:26.520 --> 0:09:29.839 is really trying to get this level playing field. Um. 0:09:29.840 --> 0:09:32.040 From from our standpoint, there's lots of ways to deal 0:09:32.080 --> 0:09:35.280 with that level playing field. One area is something that 0:09:35.400 --> 0:09:38.360 we are very important to us as the key Galley Agreement. 0:09:38.360 --> 0:09:42.320 That ke Galley Agreement is connected to the Montreal Protocol. Basically, 0:09:42.760 --> 0:09:45.640 it's a business first, a US business first kind of 0:09:46.240 --> 0:09:49.880 effective trade agreement where American can win. So it's it's 0:09:49.920 --> 0:09:53.559 allows us to can just lay out when this went 0:09:53.600 --> 0:09:57.240 into so what it is. We manufacture a refrigent called Optition, 0:09:57.320 --> 0:10:00.640 which is low the lowest global warming potential refrigerant in 0:10:00.640 --> 0:10:05.320 the world, lower global warming than any other refrigerants. Many 0:10:05.440 --> 0:10:09.199 countries have adopted the Gali Agreement, which allows the use 0:10:09.240 --> 0:10:14.280 of those in relationship to hfc's or there are traditional refrigerants, 0:10:14.480 --> 0:10:16.880 and so here in the US, we want to see 0:10:16.880 --> 0:10:19.520 that adoption happen as well, because it's going to benefit 0:10:19.920 --> 0:10:24.119 companies like Commor's, companies like Honeywell that actually have developed 0:10:24.120 --> 0:10:26.640 this molecule and be able to bring it in So 0:10:26.679 --> 0:10:29.640 you can, jobs are created here in the US because 0:10:29.679 --> 0:10:32.480 of it, Manufacturing facilities are being put in place here 0:10:32.480 --> 0:10:34.640 in the US because of it, and so it's a 0:10:34.679 --> 0:10:37.439 way for US to be able to utilize US based 0:10:37.440 --> 0:10:41.040 technology versus Chinese based technology which is in our refrigerants today. 0:10:41.080 --> 0:10:43.480 All right, So this is actually really interesting because what 0:10:43.559 --> 0:10:46.720 it hints at is this idea that if the US 0:10:46.800 --> 0:10:48.840 tries to go it alone and have a different set 0:10:48.840 --> 0:10:55.880 of regulations with respect to curbing certain environmentally harmful gases, 0:10:57.040 --> 0:10:59.719 that perhaps it won't be privy to agreements that will 0:10:59.720 --> 0:11:02.640 actually foster jobs and opportunities in the US. Is that 0:11:02.679 --> 0:11:08.119 basically what's it's effectively a business trade agreement that benefits 0:11:08.120 --> 0:11:11.760 and creates a win for the US. So you're exactly right, 0:11:11.960 --> 0:11:14.319 you know, we're going to manufacture that here in the US. 0:11:14.360 --> 0:11:17.160 It's going to create thousands of jobs because of it, 0:11:17.559 --> 0:11:19.559 and it's going to be exported to the whole world, 0:11:19.760 --> 0:11:21.720 but also can be used here in the US at 0:11:21.720 --> 0:11:24.640 the same time. So as we talk about trade, you know, 0:11:24.960 --> 0:11:27.199 it's it's about how do you how do you create 0:11:27.240 --> 0:11:30.319 free trade for companies like commors, And that's really what 0:11:30.320 --> 0:11:33.720 we're looking for, Okay, But arguably, I mean, if you're 0:11:33.720 --> 0:11:35.720 selling this, why does it matter whether the US is 0:11:35.720 --> 0:11:38.240 involved in those agreements or not, Because the more it's 0:11:38.280 --> 0:11:41.960 a huge market opportunity here in the US. So of 0:11:41.960 --> 0:11:46.760 automobiles in Europe already used this refrigerant. About half of 0:11:46.800 --> 0:11:49.640 the auto park here in the US uses it. But 0:11:50.000 --> 0:11:54.760 stationary refrigeration, stationary air conditioning is really a driver for US, 0:11:54.920 --> 0:11:56.679 and the growth is here in the US. This is 0:11:56.720 --> 0:11:59.959 really interesting to me. It also makes raises a question 0:12:00.320 --> 0:12:03.120 of whether a greater proportion of your business has actually 0:12:03.640 --> 0:12:06.320 gone outside of the US as you've seen some of 0:12:06.320 --> 0:12:08.160 these other countries adopted. Have you seen the mix of 0:12:08.200 --> 0:12:12.079 business shift more to UH foreign countries rather than the 0:12:12.160 --> 0:12:14.440 US over the bunch. Well, it's interesting because as a 0:12:14.440 --> 0:12:16.600 as a global company, you know, we we're the world 0:12:16.679 --> 0:12:19.280 leader in t O two or the world leader in refrigerants, 0:12:19.320 --> 0:12:22.560 with the world leader in Flora polymers um. But this 0:12:22.920 --> 0:12:27.480 specific product we're talking about, which is a refrigerant. You know, 0:12:27.600 --> 0:12:30.400 we think of refrigerants as the old freon, right optition 0:12:30.559 --> 0:12:32.880 is the new free on, if you will. Most of 0:12:32.920 --> 0:12:37.359 our sales are outside the US because of adoption of 0:12:37.440 --> 0:12:40.240 these regulations, and we think this could be a great 0:12:40.320 --> 0:12:44.160 opportunity for the US for business purposes. It creates jobs here. 0:12:44.200 --> 0:12:47.040 It's just not great for the environment. It creates jobs here, 0:12:47.080 --> 0:12:49.800 and it really rewards the companies that have developed this. 0:12:50.160 --> 0:12:52.160 So UM, I want to talk a little bit about 0:12:52.160 --> 0:12:55.440 some other policies that are being implemented or at least 0:12:56.360 --> 0:13:01.800 trying to be affected across the Trumpetitus straation. Antiregulation has 0:13:01.840 --> 0:13:05.440 been a huge theme, and we've seen certain regulatory rollbacks, 0:13:05.440 --> 0:13:08.480 in particular today with proposals to make it easier for 0:13:08.559 --> 0:13:11.920 coal companies to exist and thrive. I'm just wondering, in 0:13:12.080 --> 0:13:16.040 terms of your industry, have you seen a significant regulatory rollback. 0:13:16.800 --> 0:13:19.440 We haven't. You know, we participate in the chemistry industry, 0:13:19.920 --> 0:13:22.680 so from that standpoint, we haven't seen a significant rollback. 0:13:22.760 --> 0:13:24.920 And you know, the way we look at it is, 0:13:25.160 --> 0:13:28.400 you know, regulation isn't always bad for business. It could 0:13:28.440 --> 0:13:30.480 be a positive for business. You know, I gave the 0:13:30.520 --> 0:13:33.000 example of Cagali a second ago, where it could be 0:13:33.080 --> 0:13:35.400 a positive. But at the same time, it can also 0:13:35.520 --> 0:13:38.600 create clarity for a company in terms of how to operate, 0:13:38.920 --> 0:13:41.199 so you don't have to operate differently state to state. 0:13:41.240 --> 0:13:43.960 You can operate the same across So we haven't seen 0:13:44.160 --> 0:13:48.000 significant rollbacks that are affecting us, But to us, regulation, 0:13:48.040 --> 0:13:51.400 if it's based on science and if it's based on risk, 0:13:51.800 --> 0:13:54.160 can be very helpful to a company. At the same time, Um, 0:13:54.320 --> 0:13:57.040 I'm I was interested. I saw a couple of articles 0:13:57.040 --> 0:13:59.520 about this pollution SADA. It's been going on with commors 0:14:00.080 --> 0:14:03.559 and some North Carolina residents about a spill and how 0:14:03.640 --> 0:14:06.640 much you're getting involved or not. And one thing that 0:14:06.679 --> 0:14:10.520 I'm wondering is do regulations protect you in a way 0:14:11.080 --> 0:14:14.319 or if they did roll back some of these regulations, 0:14:14.520 --> 0:14:17.280 would you change anything about your business? Yeah? For us, 0:14:17.440 --> 0:14:20.680 you know, um, so you you mentioned the situation that 0:14:20.720 --> 0:14:23.680 we're dealing with. What would she take very seriously, Again, 0:14:23.720 --> 0:14:26.400 we don't believe we have any health hazard, but the 0:14:26.440 --> 0:14:30.120 community doesn't like things being put into the error into 0:14:30.160 --> 0:14:32.720 the water, So I don't think it would change the 0:14:32.760 --> 0:14:35.320 way we operate because We're going to try to operate 0:14:35.920 --> 0:14:38.280 within the realm of the community and what they want 0:14:38.320 --> 0:14:42.200 and what they need from that standpoint. But again, when 0:14:42.200 --> 0:14:44.800 you're looking at a level playing field across the US, 0:14:44.880 --> 0:14:47.200 it's hard to be able to navigate state to state. 0:14:47.280 --> 0:14:49.320 You want to be able to have something that gives 0:14:49.360 --> 0:14:52.080 you clarity across the whole US as you're operating. That's 0:14:52.080 --> 0:14:54.320 a really good point and one that I hadn't thought 0:14:54.320 --> 0:14:55.840 that much about. Thank you so much for being here. 0:14:56.000 --> 0:14:58.880 It's always it's really a pleasure speaking with you. Mark Vicnano. 0:14:59.000 --> 0:15:02.960 He is chief executive of Commore's UH, the leading I 0:15:03.000 --> 0:15:06.440 Guess refrigerant company and UH and creator of Teflon and 0:15:06.520 --> 0:15:08.720 free on and all of those things and the new 0:15:08.760 --> 0:15:11.200 free On. It's based in Wilmington, Delaware, but he's here 0:15:11.240 --> 0:15:30.160 in our eleven three oh studios. The Year of zero 0:15:30.920 --> 0:15:33.800 investors do not want to pay anything, and investment firms 0:15:33.800 --> 0:15:36.600 are realizing to keep said investors they need to offer 0:15:36.720 --> 0:15:40.440 them free funds and free trading. Evidently here to talk 0:15:40.440 --> 0:15:44.800 about that. Eric Balcuna, Senior et F analysts for Bloomberg Intelligence. 0:15:44.800 --> 0:15:47.480 So Eric to this morning's news. JP Morgan is planning 0:15:47.520 --> 0:15:51.720 to roll out a mobile brokerage platform next week, including 0:15:51.840 --> 0:15:57.400 free research as well as some free trading discuss Yeah, 0:15:57.440 --> 0:15:59.120 and you know, you just hit on one of the 0:15:59.160 --> 0:16:01.840 things that was buried lead in my opinion, which is 0:16:01.880 --> 0:16:05.560 free research. That's the department I'm in. So knowing that 0:16:05.600 --> 0:16:09.240 it's going to start being becoming free hits home for me. 0:16:09.840 --> 0:16:12.120 This is where we've been going for a while. There's 0:16:12.160 --> 0:16:16.120 been a lot of startups like robin Hood or robo Advisors. 0:16:16.520 --> 0:16:18.760 You know, on the streets you see people offering this 0:16:18.800 --> 0:16:21.920 stuff already for free, and then you see Vanguard get 0:16:21.920 --> 0:16:24.760 in and then of course, uh, you know, the big 0:16:24.800 --> 0:16:27.560 guys are going to follow suit. And the reason is 0:16:27.640 --> 0:16:30.760 because people want it that way, the customers speak with 0:16:30.800 --> 0:16:33.400 their with their feet, and for JPM, we're going to 0:16:33.440 --> 0:16:35.720 do it. It's especially huge. It reminds me of the 0:16:35.760 --> 0:16:39.640 Fidelity zero thing, where when you heard Vanguard offering free 0:16:39.680 --> 0:16:42.000 t F trading, it's like, well that's what they do, 0:16:42.040 --> 0:16:44.960 they're you know, but you know when Fidelity went zero, 0:16:44.960 --> 0:16:47.000 it's like, whoa, aren't they the big active shop. And 0:16:47.040 --> 0:16:49.680 now here you have JP Morgan, who people just don't 0:16:49.720 --> 0:16:53.360 associate with that kind of mentality offering free so I 0:16:53.400 --> 0:16:56.760 think this is equal to the Fidelity announcement in terms 0:16:56.840 --> 0:17:01.120 of just shaking people to their core in the financial industry. 0:17:01.240 --> 0:17:03.680 So you said this is what customers want. I also 0:17:03.680 --> 0:17:06.680 want free housing. I also want, you know, free incredible 0:17:06.800 --> 0:17:09.800 dinners with my husband, and hey, it would be really 0:17:09.920 --> 0:17:13.080 nice to have a free manicures. People want a lot 0:17:13.119 --> 0:17:15.600 of things free. They don't get them. And my question 0:17:15.720 --> 0:17:19.119 is how can these firms be offering zero fee funds 0:17:19.119 --> 0:17:21.640 and zero fee trading? At what point do they make 0:17:21.640 --> 0:17:24.920 no money as a result. Yeah, it's a good question, 0:17:25.080 --> 0:17:27.399 and so for let's go for it, just JP Morgan. 0:17:28.080 --> 0:17:30.320 One way they can do this is by free t 0:17:30.440 --> 0:17:34.760 F trading. You can sell the order flow to market makers. Um, 0:17:34.840 --> 0:17:37.520 and that is worth something. Last year Schwab made, according 0:17:37.560 --> 0:17:40.040 to Dave rid Or, my colleague, a hundred and fourteen 0:17:40.080 --> 0:17:42.879 million in selling that order flow of e t F 0:17:42.960 --> 0:17:44.720 trading and stock trading. Wait, hold on a second, what 0:17:44.760 --> 0:17:47.280 does that mean? So basically they can sell to a 0:17:47.280 --> 0:17:49.880 market maker all of the orders that come in. They 0:17:49.920 --> 0:17:53.200 can then offer that and sell that to a market 0:17:53.240 --> 0:17:55.440 maker who will then get first DIBs on that order 0:17:55.440 --> 0:17:58.960 flow for a very small fee. It might affect the 0:17:59.560 --> 0:18:02.800 retail client in a basis point, so it's minimal, but 0:18:02.840 --> 0:18:05.600 if you add all that up, you do get some revenue. 0:18:05.640 --> 0:18:08.600 It's not a lot though. Some people overestimate this thing 0:18:09.000 --> 0:18:11.679 of order flow. They all also on the fidelity side 0:18:12.160 --> 0:18:15.800 with a free fund people overestimate securities lending that is 0:18:15.840 --> 0:18:19.040 not worth that much either. Both of these cases, these 0:18:19.080 --> 0:18:21.920 are lost leaders right. What they're really trying to sell 0:18:21.960 --> 0:18:24.520 you is is loans, credit cards in chaping Works case, 0:18:24.600 --> 0:18:27.399 or fidelities case, active mutual funds. They have plenty of 0:18:27.440 --> 0:18:29.879 products that make a lot of revenue, and so I 0:18:29.880 --> 0:18:31.680 think they're just reading the writing on the wall and 0:18:31.720 --> 0:18:34.280 they're going, look, this is the way millennials wanted the 0:18:35.600 --> 0:18:38.040 a lot of investors who are following them. Let's just 0:18:38.080 --> 0:18:40.280 go there now, you know, rip the band aid off 0:18:40.720 --> 0:18:43.879 and we'll work out how to make money in other ways. 0:18:44.000 --> 0:18:47.879 But I don't really see any other direction this is 0:18:47.880 --> 0:18:51.160 going to go, because again, this is what the people want. 0:18:51.600 --> 0:18:55.399 So tdmre trade right now shares down more than five 0:18:56.520 --> 0:18:59.840 Charles Schwab shares also sharply down. I'm just trying to 0:19:00.000 --> 0:19:01.879 figure out, are we going to look at some kind 0:19:01.920 --> 0:19:05.560 of massive consolidation in the brokerage industry similar to what 0:19:05.640 --> 0:19:08.119 we have been seeing, or perhaps it needs to frankly 0:19:08.280 --> 0:19:11.920 escalate to meet analysts expectations in the asset management industry. 0:19:12.040 --> 0:19:14.560 I think you have to all signs point to consolidation 0:19:14.560 --> 0:19:19.720 across the financial industry because of this intense cost obsession, 0:19:19.760 --> 0:19:23.480 whether it's a cost obsession and expense ratios of funds 0:19:23.640 --> 0:19:27.199 or for free trading um. You can't live on a 0:19:27.240 --> 0:19:29.560 couple of basis points alone. Everybody knows that, right, so 0:19:29.640 --> 0:19:32.440 scale is one way to get cheaper, obviously up selling 0:19:32.480 --> 0:19:35.359 them on higher price products. The reason you're probably not 0:19:35.400 --> 0:19:38.920 going to see this kind of mass consolidation right now 0:19:39.160 --> 0:19:41.560 or in the near term is the market has been 0:19:41.600 --> 0:19:44.240 so good to these companies. I just looked at you know, 0:19:44.280 --> 0:19:47.360 active mutual funds alone have grown assets by seven trillion 0:19:47.520 --> 0:19:50.560 just in the last ten years on market appreciation alone, 0:19:50.840 --> 0:19:54.560 no flows. So the market has really helped the financial 0:19:54.560 --> 0:19:59.240 industry not have to really face this challenge. So I 0:19:59.280 --> 0:20:02.119 do think if the market gets choppy or goes down, 0:20:02.560 --> 0:20:05.399 then I think you'll see people sort of looking to 0:20:05.480 --> 0:20:08.840 partner up UM and get scale and go cheaper. You know, 0:20:08.880 --> 0:20:11.479 I have to wonder there's really no free lunch, right, 0:20:11.560 --> 0:20:13.600 And I have to wonder when you start seeing all 0:20:13.640 --> 0:20:18.000 of these look no fee UH funds or offerings, there 0:20:18.000 --> 0:20:20.119 are fees for somebody. Is someone going to bear the 0:20:20.119 --> 0:20:25.040 brunt of this, either through inefficiencies or extra cars costs elsewhere. Yeah, 0:20:25.080 --> 0:20:27.080 I think that's the big case here. You have with 0:20:27.280 --> 0:20:29.720 UH you know this idea of selling order flow, which 0:20:30.000 --> 0:20:33.040 you know your own money. But again, I don't look. 0:20:33.119 --> 0:20:35.200 I know there's a lot of ways to look at this. 0:20:35.359 --> 0:20:37.800 And what's the catch, right, That's that's what Vanguard that 0:20:38.160 --> 0:20:41.160 their reaction to Fidelity going to zero fee. But in 0:20:41.200 --> 0:20:44.399 this case, if you're a disciplined person, it's sort of 0:20:44.440 --> 0:20:46.240 like your credit card. You know, my wife and I 0:20:46.359 --> 0:20:49.560 use it a lot, but we pay it back like clockwork. 0:20:49.560 --> 0:20:51.600 It's more my wife, I'm a little easier, but we 0:20:51.720 --> 0:20:55.119 pay it back like clock was. Yeah, it's all her. 0:20:55.160 --> 0:20:57.320 I get to give her credit. If you can really 0:20:57.720 --> 0:21:01.440 discipline yourself and and not and resist temptation, I think 0:21:01.480 --> 0:21:04.480 you can really get basically free exposure and all of 0:21:04.480 --> 0:21:07.760 your investments and finances for almost nothing. I think they're 0:21:08.160 --> 0:21:11.240 it's the people who can't control themselves. Maybe you trade 0:21:11.240 --> 0:21:13.080 a lot and you get more involved in they're in 0:21:13.080 --> 0:21:15.840 there sort of like universe than they upsell you. You 0:21:15.880 --> 0:21:18.560 start using options. Next thing you know, they're making a 0:21:18.600 --> 0:21:20.280 lot of money off you. So I think this is 0:21:20.320 --> 0:21:24.240 sort of the same situation here. But discipline will help 0:21:24.280 --> 0:21:28.640 investors who are looking to enter these free situations. Um, 0:21:28.680 --> 0:21:30.720 and that's important. Yeah, It's sort of like free drinks 0:21:30.760 --> 0:21:33.160 in Las Vegas. Right. It's fine for people who are disciplined, 0:21:33.200 --> 0:21:36.320 but for those heavy gamblers might be tougher. Eric Felt, 0:21:36.880 --> 0:21:41.040 Senior et F analyst for Bloomberg Intelligence, always with insightful 0:21:41.080 --> 0:21:53.080 comments today on the race to zero throughout the financial industry. 0:22:00.080 --> 0:22:04.919 President Trump is disappointed in Jerome Powell. He said in 0:22:05.000 --> 0:22:08.840 comments to a number of different outlets that he thought 0:22:08.920 --> 0:22:11.760