Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Let's get to this
Speaker 1: balloon business, because you know, how is at Colorado in
Speaker 1: the Rocky Mountains ten eleven twelve looking did you see
Speaker 1: any I did not see any balloons, and I can't imagine.
Speaker 1: It's good to be in the balloon business these days.
Speaker 1: Mc mulroy, co founder of the Lobo Institute, joins us.
Speaker 1: He's a former Deputy Assistant Secretary of Defense for the
Speaker 1: Middle East at the US Department of Defense, former Power
Speaker 1: Military Operations officer at this thing called the c I A.
Speaker 1: I'm not sure what those guys are up to. Uh.
Speaker 1: And he was a marine for a very very long time,
Speaker 1: so we thank him for service. Hey, Mick, what is
Speaker 1: up with these balloons? Is this always been a thing,
Speaker 1: but now we're just kind of hearing about it. It's
Speaker 1: a it to be with you guys, balloons have you know,
Speaker 1: ever since we had them have been used in some
Speaker 1: capacity to collect intelligence. Those goes back World War One
Speaker 1: all the way until today obviously, but you know, now
Speaker 1: we're shooting down these haven't been identified yet, these objects.
Speaker 1: Some of those might simply be weather balloons. But um,
Speaker 1: you know, we won't know until we get to these
Speaker 1: remote sites and be able to collect and study the debris. Um. So,
Speaker 1: after such a long stint at the C, I a mick,
Speaker 1: when did you start there? Um? Are there aliens? Well?
Speaker 1: I came right after nine eleven, so I was kind
Speaker 1: of focused on the kind of terrorism issue, not the
Speaker 1: extra dress real issue. So I don't know. I know
Speaker 1: that there are people. Obviously we're taking it more serious.
Speaker 1: We are studying as uh. Pentagon has an office that's
Speaker 1: now looking at what these um anomalies are. You know,
Speaker 1: so I don't want to make a decision. Was only kidding,
Speaker 1: but I assume that these unidentified flying objects are like
Speaker 1: college experiments that have just floated away. It seems so
Speaker 1: much more likely, right And um, now that you think
Speaker 1: about it, if we haven't been looking you know, above
Speaker 1: sixties seventy uh feet, then maybe there is just a
Speaker 1: bunch of debris floating around there, just like there's a
Speaker 1: lot of space debris. Yes, absolutely, Yeah. Talking specifically about
Speaker 1: these objects that we've been shooting down in the last
Speaker 1: few days, I don't think there's any extraterrestrial thing about them.
Speaker 1: I think this is likely either it is a Chinese
Speaker 1: surveillance balloon it's a smaller size that they're using to
Speaker 1: try to probe our defenses, or these things may being
Speaker 1: up there and we just haven't seen them. Now that
Speaker 1: we're looking closer, now that we have a signature based
Speaker 1: on the on the on following the balloon that went
Speaker 1: all the way across the United States, which might have
Speaker 1: been able to find tune our radar so that we
Speaker 1: can see these type of things. It doesn't mean that
Speaker 1: these these are all new. It could be these these
Speaker 1: uh weather balloons. We just don't know. Until we get
Speaker 1: to the debris and do an analysis, we should withhold judgment.
Speaker 1: But if it is the Chinese and it looks like
Speaker 1: to me a deliberate provocation to the United States, So, Mike,
Speaker 1: I mean, we have satellites, lots of satellites. I'm assuming
Speaker 1: China has lots of satellites, aren't satellites better than balloons?
Speaker 1: I mean, isn't balloons so last century? Last on an
Speaker 1: early part of the last century. So that is what
Speaker 1: the common belief is that they Chinese have our satellites
Speaker 1: and as you might imagine, most of them are focused
Speaker 1: on the United States, so they can collect a lot
Speaker 1: of this information via their satellite program. But these balloons,
Speaker 1: they are steerable, they seem to be able to log
Speaker 1: or over areas. They're closer to the ground, so they
Speaker 1: can collect signals intelligence. So there is an advantage to
Speaker 1: having both platforms because you can't do that with satellites.
Speaker 1: They just simply can't just sit right over, say Maelstrom
Speaker 1: Airbase where I am in Montana and stare at our
Speaker 1: I C B M silos. This balloon could do that
Speaker 1: and did do that. So that's uh, that's a concern
Speaker 1: to us. We have to be able to defend ourselves
Speaker 1: from collection of this type of really sensitive information. It
Speaker 1: would be great, um if we were ready to defend ourselves,
Speaker 1: but it seems like what we'd like to do is
Speaker 1: take a week to think about it first. You know,
Speaker 1: we spotted this uh alleged spy balloon when it was
Speaker 1: over Alaska and then waited until it got to the
Speaker 1: Carolinas to shoot it down. Doesn't that seem to you
Speaker 1: a little bit stupid? I mean, if they're collecting intelligence, um,
Speaker 1: we let them have everything they could get and then
Speaker 1: stop them when they got back to the ocean. Yeah,
Speaker 1: that's a really good point. I mean, if you're if
Speaker 1: you're asking me, I want to advise the president to
Speaker 1: shoot it down as soon as we saw it. I
Speaker 1: don't know that we did see it until it was
Speaker 1: actually this was just my speculation until it was down
Speaker 1: in the comminentally United States, and then the military decided
Speaker 1: either it was too dangerous to shoot down over populated
Speaker 1: area or they saw and this has been reported that
Speaker 1: they stopped transmitting information back to China. So the US
Speaker 1: military and intelligence community may have wanted to let it
Speaker 1: go since it wasn't um sending information back to be
Speaker 1: able to collect on what it was doing and how
Speaker 1: it did interesting, and then we shot it down right
Speaker 1: after it got finished. But the Chinese, if it's true
Speaker 1: that they didn't transmit anything, never got the intelligence they
Speaker 1: collected because that went to the bottom of the ocean,
Speaker 1: and we are currently trying to get that up and
Speaker 1: analyze it. Mico, what does this mean about just or
Speaker 1: that doesn't mean anything, or what does it mean about
Speaker 1: US China? You know relations here over the last to
Speaker 1: ten days here, So we're we're hitting a pretty uh
Speaker 1: substantial law. Quite frankly, I don't think it's been my
Speaker 1: knowledge this way until before we normalize relations in nineteen
Speaker 1: seventy nine. So, but these things do happen. We collect
Speaker 1: intelligence on all our adversaries, they collect intelligence on us.
Speaker 1: We try to prevent them from collect intelligence on us
Speaker 1: just like they do. It's it is what nations do. Um.
Speaker 1: It has caused a diplomatic riff. Secretary blinking is canceled,
Speaker 1: is or postponed at least is tripped there. But I
Speaker 1: do think it's important for both countries to realize that
Speaker 1: we're completely intertwined on so many things. Were both superpowers,
Speaker 1: if you will, and we have to maintain diplomatic direct communications.
Speaker 1: Like the idea that they didn't answer Secretary Austin's call
Speaker 1: our Secretary defense is really irresponsible. We need to make
Speaker 1: sure that nothing leads to a broader conflict that neither country,
Speaker 1: uh would one? Right? All right, man, great stuff, good
Speaker 1: to check in with you on this evolving story. Mc mulroy.
Speaker 1: He's a co founder of the Lobo Institute. A lot
Speaker 1: of experience and all the power military stuff. Former power
Speaker 1: Military Operations officer at c I, A former U. S.
Speaker 1: Marine Infantry officer, and former Deputy Assistant Secretary of Defense
Speaker 1: for the Middle East at the U. S. Department of Defense.
Speaker 1: So broad range of experienced. Sara trying to the bottom
Speaker 1: of kind of this balloon issue which has kind of
Speaker 1: comeing become a top story over the last week or so.
Speaker 1: How important is it? Uh, you know, how concerned should
Speaker 1: we be? What does it mean for the future or
Speaker 1: even the immediate future international relationship between the U. S.
Speaker 1: And China. So we'll continue to monitor the reporting. They're
Speaker 1: looking at the markets here SMP up one half of
Speaker 1: one per cent. We'll love more coming up. This is Bloomberg.
Speaker 1: But it was a big night for the Kansas City Chiefs.
Speaker 1: A big night. I think we're gonna find out for America,
Speaker 1: for America, big night for Fox who the broadcast, right,
Speaker 1: So we'll get the ratings later today. I'm sure they're
Speaker 1: gonna be pretty pretty darn good. Question is how big
Speaker 1: a night was it for advertisers who put some big,
Speaker 1: big money to work. Seven million dollars for a thirty
Speaker 1: second spot. Mark Douglas, President and CEO of Mountain Joints,
Speaker 1: is here Mark again for advertisers, this is the biggest
Speaker 1: day of the year for a lot of these folks.
Speaker 1: They put up huge money to reach what is a
Speaker 1: huge audience. What are there you takeaways? Um, well, there
Speaker 1: were a lot of good ads. I mean, I think
Speaker 1: there are a few people going, Um, why did we
Speaker 1: do that? Because you watch a few of the ads
Speaker 1: and you're like, um, who approved that exactly? And then
Speaker 1: spend seven million dollars on top of it to area?
Speaker 1: So how much is seven million dollars for like a
Speaker 1: minute long spot or um? And just you know, five
Speaker 1: years ago was two million dollars, you know. So it's
Speaker 1: just amazing the inflation. And again the second was such
Speaker 1: a spectacle for me, having just come back from living
Speaker 1: in Berlin for the past six years. I'm not used
Speaker 1: to this kind of patriotism him. But then it's patriotism
Speaker 1: on steroids. And then it's almost like a parody of patriotism.
Speaker 1: It's like a circus making fun of how patriotic they are.
Speaker 1: It was pretty crazy, but I guess that's just where
Speaker 1: we are. Well, the NFL knows how to put on
Speaker 1: a good show. I was at last year's Super Bowl,
Speaker 1: and you know, I got Doctor Dre, I got Snoop Dog.
Speaker 1: The halftime show was the game basically last year. So well,
Speaker 1: we Re was apparently very good this year. Yeah, she
Speaker 1: put on a good show. She played all the hits
Speaker 1: and no one was complaining at all. And she she
Speaker 1: she's not afraid of heights. It was like practically the stadium,
Speaker 1: even with child. All right, so let me first get
Speaker 1: your take on how the game went, because I've heard
Speaker 1: a lot of complaints this morning that officials are deciding,
Speaker 1: you know, the outcome with calls that are kind of
Speaker 1: penny any Yeah, that that the call, and right before
Speaker 1: the last score, you know, they scored a field goal,
Speaker 1: and you know, the official I don't think there was
Speaker 1: a hole there, you know, when that's not a sports
Speaker 1: talk show, But I don't think that the defensive corner
Speaker 1: actually held the running back and that basically and created
Speaker 1: the game that basically, I mean Kansas City was already
Speaker 1: pretty close to the goal. Wasn't like they weren't going
Speaker 1: to be able to kick a field goal, but they
Speaker 1: brought got him a lot too. By the way, I
Speaker 1: was rooting for Kansas City only because I think, well,
Speaker 1: Philadelphia fans are the worst fans in the league. I mean,
Speaker 1: they're worse than Ohio State fans. And then, um, my favorite,
Speaker 1: one of my favorite commercials of all time is the
Speaker 1: Snickers commercial when the ground staff is doing the end
Speaker 1: zone in Kansas City and they accidentally right Kansas City chefs.
Speaker 1: They forget the eye. Well, I think I think all
Speaker 1: New Yorkers agree they don't like the Phillies, but you
Speaker 1: know they lit the Empire State Building and their colors
Speaker 1: just a few weeks that it's kind of crazy. So Mark,
Speaker 1: I mean, you buying a thirty second spot for seven
Speaker 1: million dollars, it's just a monster's premium to what you
Speaker 1: would ordinarily pay. Is there when you I mean you're
Speaker 1: in this business, there a payoff? Is there a payoff?
Speaker 1: Is there a payback? I mean, if you're trying, if
Speaker 1: you're in I think there's this fine line between your
Speaker 1: brand that people are starting to know but don't fully
Speaker 1: know yet, and this is your moment. And when I
Speaker 1: look at a lot of ads, I thought that there
Speaker 1: was an ad for pop Corners which was a take
Speaker 1: on Breaking Bad, So there there to give a real
Speaker 1: quick description on the ad. They're basically in the trailer
Speaker 1: and they have devised this new chip to eat and
Speaker 1: it's better than drugs. And the ad ends they're out
Speaker 1: in the desert doing a deal for these pop these
Speaker 1: pop chips. I beg popcorners. I wouldn't have known about
Speaker 1: that project otherwise. And I'm probably gonna try it when
Speaker 1: I go to the supermarket. I'm gonna buy it back.
Speaker 1: And I think I'm gonna try prime. I never heard
Speaker 1: about that, but apparently the kids, it's all the rage.
Speaker 1: It's like a sports drink. I don't know if it's
Speaker 1: any different from Gatorade or uh whatever any of the
Speaker 1: new ones are. But they got a lot of advertising
Speaker 1: terday and apparently they're already huge on social Yeah for sure.
Speaker 1: And then I think the whole night. Um, A lot
Speaker 1: of the best ads were remakes of like shows from
Speaker 1: the two thousands and nineties, so there was, you know,
Speaker 1: basically we just talked about Breaking Bad. There was like
Speaker 1: John Travolta to the musical ads, which was pretty funny. Um,
Speaker 1: the clueless like Alicia Silverstone basically and looking exactly the
Speaker 1: same and shout out to that film. I don't know
Speaker 1: if either of you guys have read Jane Austen's novel,
Speaker 1: but that's basically a redo of Emma. Ok yeah, so
Speaker 1: what a what a good film that it was? Okay
Speaker 1: that clueless And I lived in l A. So you know,
Speaker 1: I kind of as a matter of fact, while John
Speaker 1: Travolta was singing and dancing, I actually think I recognized
Speaker 1: the street in Los Angeles was on filming that. So
Speaker 1: what about this, I mean, as more and more programming
Speaker 1: goes to streaming services, what do you think the NFL
Speaker 1: is going to do with the rights to the big
Speaker 1: rights for the NFL, like during the season, the you know,
Speaker 1: obviously the playoffs, then of course the Super Bowl. Well,
Speaker 1: you know, that's interesting. There's been people who moved all
Speaker 1: over America and if I think basically streaming fits right
Speaker 1: into that if you want, I remember when I moved
Speaker 1: from New York City where I grew up, to California.
Speaker 1: At the time, I was a huge Giants fan, New
Speaker 1: York Giants fans, and like you couldn't really watch them anymore.
Speaker 1: You can do that now on direct TV, but it's
Speaker 1: so much better on streaming and you can watch it
Speaker 1: at any time. Of course you want to watch it live.
Speaker 1: So I think the NFL is really adepted just adapting
Speaker 1: and streaming just fits right in. It actually brings me
Speaker 1: back to Disney. You know, last couple weeks you've been
Speaker 1: talking about, um, the House of Mouse because uh, the
Speaker 1: CEO came back and they had earnings. And with ESPN,
Speaker 1: I feel like they're leaving so much money on the
Speaker 1: table because I'm not gonna get cable just to get ESPN.
Speaker 1: But I also ESPN Plus should be called ESPN My
Speaker 1: this like, it doesn't have anything, So why can't I
Speaker 1: stream that? I would pay them twenty five dollars a
Speaker 1: month if I had all the content. Yeah, I mean
Speaker 1: ESPN is actually a really good example of how basically
Speaker 1: just using the Internet you can basically reproduce a TV network.
Speaker 1: And so there's so much good sports content not on
Speaker 1: the ESPN that I think they have a lot of
Speaker 1: people like why do I need to watch ESPN? And
Speaker 1: they have to adapt, and I agree with you, they
Speaker 1: haven't done a great job, and it's it's a huge opportunity.
Speaker 1: They have the brand they have the following and and
Speaker 1: it needs to happen. So there's so much change on
Speaker 1: the Super Bowl streaming, you know, advertising, it's all changing,
Speaker 1: and I think it's huge opportunities for everyone. Thirty seconds Mark,
Speaker 1: anything to slow this NFL jugging out down in terms
Speaker 1: of just ratings. I mean, they had some issues a
Speaker 1: few years ago, but man, they seem to be just dominant. Well, Ryan,
Speaker 1: and you know, Ryan Reynolds is trying with Wrexham. Maybe
Speaker 1: we can get a few more soccer fans. So I
Speaker 1: think that works way better in Scotland. And here I
Speaker 1: was gonna say, I'll watch Ryan's content, but not if
Speaker 1: it's if I have to watch soccer exactly. That's right.
Speaker 1: I forgot about that. He's big over there. Well all right, yeah, Mark,
Speaker 1: we're going to let you go. Mark Douglas, President CEO
Speaker 1: of of Mountain, joining us live here on our Bloomberg
Speaker 1: Interact a broker studio, just kind of getting a breakdown
Speaker 1: a little bit of the the day after of the Super Bowl. Uh,
Speaker 1: we're gonna get some ratings later today from Nielsen for
Speaker 1: the Fox Network. Presumably those numbers are gonna be pretty
Speaker 1: darn impressive, and that's what advertisers are paying up for again.
Speaker 1: Seven million dollars for thirty second spot is a huge
Speaker 1: premium um, but a lot of those advertisers they think
Speaker 1: it's worth it more. Coming up this is Bloomberg, all right,
Speaker 1: I'm looking at my Bloomberg terminal. I got my two year,
Speaker 1: ten year thing on the bond stuff. I mean it's inverted.
Speaker 1: It's been inverted for a long time. And there's somebody
Speaker 1: out there who thinks that this is kind of a
Speaker 1: big deal. His name is Cam Harvey, uh, Professor Finance
Speaker 1: at the Fucal School of Business at Duke University, and
Speaker 1: he's kind of the go to person on this from
Speaker 1: a research perspective, being one of the leaders on this
Speaker 1: whole topic of looking at the yield curve and Camp I,
Speaker 1: I you know, full disclosure, I may have been on
Speaker 1: the Duke golf course when you talked about this way
Speaker 1: back in the day, so I might have missed it
Speaker 1: a little bit. I was known to do that back
Speaker 1: in my FUCAL days. UM, talk to us about kind
Speaker 1: of how you're looking at this yield curve. What is
Speaker 1: it telling us? What do you think the FETE is
Speaker 1: taking away from this? So it's complicated. Uh So the
Speaker 1: yield curve predicts economic growth, and indeed that was my
Speaker 1: dissertation in six at the University of Chicago. UM. It's
Speaker 1: got a great track record for forecasting recessions. So eight
Speaker 1: of the last eight and then since I published my dissertation,
Speaker 1: it's four be four with no false signals, and now
Speaker 1: it's inverted. And essentially when I look at this, UM,
Speaker 1: I see the model that I proposed, a very simple
Speaker 1: model and with only one thing that you look at,
Speaker 1: and that's the difference between the tenure yield and the
Speaker 1: three months a treature Bill yielled And I think that
Speaker 1: this time around it's giving a false signal. The three
Speaker 1: months ten years spread is uh way inverted, right, I
Speaker 1: mean negative one and one basis points. I can understand, UM,
Speaker 1: and we've talked about this before that now that we
Speaker 1: all know about it, since since you published UM, you know,
Speaker 1: that changes the equation a little bit because all market
Speaker 1: participants under you know, are expecting something or they know
Speaker 1: what they should or could expect when they see this inversion. UM.
Speaker 1: I can understand that if it was only a slight inversion,
Speaker 1: but since it's such a big inversion, doesn't that raise
Speaker 1: red flags? So it is a pretty substantial inversion. So
Speaker 1: I totally agree with you, But again, you need to
Speaker 1: look at the bigger picture here, and every single business
Speaker 1: cycle is different, and this one has a number of
Speaker 1: things that I think, uh, contrasted with other sort of
Speaker 1: business cycles. UH. And one thing that is really unusual
Speaker 1: is the excess demand for labor, where we've got like
Speaker 1: ten million job openings and one point eight job openings
Speaker 1: for every person that's unemployed. Like that is just really unusual.
Speaker 1: And that means that even if we do slow down,
Speaker 1: and I actually believe that we will slow down, but
Speaker 1: dodge a hard landing. So when we slow down, uh,
Speaker 1: there is enough capacity to absorb those that are laid off,
Speaker 1: and that kind of dulls the blow of the slow economy.
Speaker 1: And what do you say about people kind of expecting
Speaker 1: looking at the indicator and the changes behavior. That's what
Speaker 1: we've been seeing. So we see this deeply inverted yield curve.
Speaker 1: We see companies proactively taking measures to trim uh some
Speaker 1: of their workforce to put them in a stronger position
Speaker 1: when we do go into slower growth. They don't need
Speaker 1: to do anything drastic. And I think that that's overall
Speaker 1: good for the economy. So people are looking at it,
Speaker 1: they take it seriously. That's interesting. So so basically, you know,
Speaker 1: a few decades back you said, look, here's a signal,
Speaker 1: UM that shows us, uh that this outcome is is approaching.
Speaker 1: And now that everyone knows about it, companies say, hey, Cam,
Speaker 1: Harvey publishes paper and he's been right the last few times.
Speaker 1: So now that we see this signal, let's make changes
Speaker 1: to avoid this outcome. Yeah, exactly. So it's called risk management.
Speaker 1: And it's not just businesses, but I think consumers too.
Speaker 1: This indicators in their face and with the eight out
Speaker 1: of eate record, um, you take it seriously. And that
Speaker 1: means you don't uh borrow on your credit card to
Speaker 1: take a vacation at this point because you want to
Speaker 1: be careful. So all of this feeds into behavior, this
Speaker 1: risk management, and again the indicator is giving a correct
Speaker 1: signal in my opinion, in terms of slower growth. But
Speaker 1: I do think that we can dodge a recession, assuming
Speaker 1: the Federal Reserve doesn't mess it up. So that kind
Speaker 1: of goes to my next question, Cam. I mean, you know,
Speaker 1: we have a lot of ECO data this week we've
Speaker 1: what do you think the Federal Reserve should do over
Speaker 1: its next couple of meetings, Well, they should pause, and
Speaker 1: indeed they should have paused last time. So inflation over
Speaker 1: the last six months is running at less than two
Speaker 1: percent annualized. Right. So uh, if you look at the
Speaker 1: key drivers of inflation, a third of the c p
Speaker 1: I and four percent of the personal consumption and expenditure,
Speaker 1: a deflator is linked to shelter. And we've already seen
Speaker 1: what's happened to shelter. We've got rents going down, housing
Speaker 1: prices going down, housing starts permits down, so that is
Speaker 1: definitely cooled. It will take a while to work its
Speaker 1: way through into the inflation rate, but I think that
Speaker 1: the time to pause is now, and that they continue
Speaker 1: to raise. Every single time they do this, they heighten
Speaker 1: the probability pushing us into a hard landing recession, and
Speaker 1: that's completely unnecessary. Hey, can let's switch gears a little bit.
Speaker 1: I know in addition to all your someone will work
Speaker 1: on the yield curve and the FED, you've also done
Speaker 1: a lot of work and research on crypto. Um i'd
Speaker 1: love to get I'm just looking a bitcoin here, that's
Speaker 1: just kind of my go to on my screen here
Speaker 1: it's back up above pushing tys per token UM. So
Speaker 1: that's recovered. When people come up to you in a
Speaker 1: cocktail party and ask you your opinion on crypto, give
Speaker 1: us that level of discussion about how you think about it.
Speaker 1: So the way I look at it is the crypto
Speaker 1: is not just bitcoin, uh, it is a whole ecosystem,
Speaker 1: and it is a way to potentially rebuild our financial
Speaker 1: system whereby we can greatly reduce transactions costs, we can
Speaker 1: do many things that we couldn't do before. UH. And
Speaker 1: this idea of tokenizing all stocks, all bonds, all assets
Speaker 1: is very very attractive. So this builds potentially new companies,
Speaker 1: the so called web three revolution that's happening right now,
Speaker 1: and it shouldn't be just focused on bitcoin or doge coin.
Speaker 1: That this is very diverse, and much of what's happening
Speaker 1: is below the radar screen. The financial system that we've
Speaker 1: got essentially hasn't changed that much in a hundred years.
Speaker 1: There's no reason that it should take two days to
Speaker 1: settle a stock transaction. That should be something that happens instantly.
Speaker 1: But there's a thick layer of middle people that makes
Speaker 1: some money from all of these delays well also transfers,
Speaker 1: I should point out can that people uh you know,
Speaker 1: modern consumers still like reverse ability. I don't know what
Speaker 1: the official word is that in business school talk, but
Speaker 1: you know, if you uh send someone money with um,
Speaker 1: you know uh venmo or what's the one ze zell um,
Speaker 1: it happens instantly. That's great, but you can never get
Speaker 1: it back. So if you're scammed or if you decide
Speaker 1: you want to reverse it, you can do that with
Speaker 1: a normal bank. You can do that with like three
Speaker 1: day settlement, but you can't do it with an instant transfer. Yeah,
Speaker 1: so it's definitely true. So they're always trade offs here.
Speaker 1: So there's costs, there's benefits, and within the crypto space,
Speaker 1: everything is final, so you need to be very careful
Speaker 1: if you're sending something to somebody, um that you're sending
Speaker 1: into the right person. And uh, if you're receiving something
Speaker 1: like some goods, then you need to make sure there's
Speaker 1: some sort of escrow system whereby your money is transferred
Speaker 1: into escrow until you're satisfied with the good So so
Speaker 1: again this is again a technology that essentially gets rid
Speaker 1: of the commercial banking infrastructure makes things much easier to
Speaker 1: deal with much faster. It's a technology of financial inclusion. Also,
Speaker 1: you just need a mobile phone and you're banked. So
Speaker 1: so I do think it's a big deal, and I
Speaker 1: do think that it's largely below the radar, and and
Speaker 1: and what it does is it changes the way that
Speaker 1: we interact on the Internet. Also, we're super easy to
Speaker 1: be paid or to pay. You don't need to worry
Speaker 1: about the banks um because of the time. But we'll
Speaker 1: get back on that for sure. Cam Harvey, Professor Finance
Speaker 1: at Duke University. This is Bloomberg. What happens when Florida
Speaker 1: and Texas blacklist Wall Street's largest municipal bond underwriters because
Speaker 1: of their support for environmental, social and governance practice. Our
Speaker 1: next guest has the answer to that, Matt Winkler. He
Speaker 1: is the editor in chief emeritus for Bloomberg News. Hecky
Speaker 1: is the founder of Bloomberg News way back in the day. Matt,
Speaker 1: thanks for joining us here in our Bloomberg Interactive Broker studio.
Speaker 1: So again, what happens to states like Florida and Texas
Speaker 1: that bands And he's really big underwriters because of their
Speaker 1: stance on e s G and I guess other political stuff.
Speaker 1: Great to be with you. Florida and Texas right now,
Speaker 1: which you have perfect triple A ratings, are paying uh.
Speaker 1: In Florida's case, record spreads over inferior California in the market.
Speaker 1: That's what's happening since two Uh. Well, there are a
Speaker 1: number of reasons. But if you exclude, for example, say
Speaker 1: four banks that you've heard of, City Group, Goldman, Sachs, JP, Morgan,
Speaker 1: and Bank America, which account for of all municipal underwriting
Speaker 1: over the past four years, if you exclude them from
Speaker 1: your routine dead underwritings, it stands to reason that you
Speaker 1: may suffer at least a little liquidity and maybe worse
Speaker 1: than that. So that's uh, that's a start. Um. But
Speaker 1: when you exclude underwriters in general, you're taking away an
Speaker 1: opportunity to get the lowest rates the highest prices. It's
Speaker 1: called petitive bidding, and it's uncompetitive. It's interesting because to
Speaker 1: me it seems like it's part of a broader trend,
Speaker 1: maybe funded by all the fiscal spending that we've gotten.
Speaker 1: We saw a study in the UK that shows each
Speaker 1: household paid an extra thousand pounds because of Brexit now
Speaker 1: we're seeing a study with there's a FED economist that
Speaker 1: you site and a u PEN professor saying that Texas,
Speaker 1: for example, paid an extra five million and change because
Speaker 1: of because they shunned banks that they see as unfriendly
Speaker 1: to gunmakers. Yeah, well, it's not a bad analogy. I
Speaker 1: hadn't thought of it that way. But in the case
Speaker 1: of Brexit, as you bring up, Uh, so much of
Speaker 1: EU trade is with the UK, or was before Brexit,
Speaker 1: and now that the UK doesn't have access to that
Speaker 1: trade at least the way it did, it's paying a
Speaker 1: much higher cost as a result. So similarly, with respect
Speaker 1: to Florida and Texas, they're excluding, you know, banks that
Speaker 1: willingly want to compete to give Texas and Florida rate payers,
Speaker 1: if you like citizens, the lowest possible rate, and their
Speaker 1: governors and legislatures are saying, no, uh, we don't want
Speaker 1: you to participate because these banks advocate for gun safety.
Speaker 1: Because these banks acknowledge the importance of gun safety. I
Speaker 1: wouldn't say their lobbyists so much, it's just that their
Speaker 1: policies are we don't believe that people with an unlimited
Speaker 1: supply of weapons should go into elementary schools and cavalierly
Speaker 1: murder children. The banks are saying, you know, we should
Speaker 1: have gun safety laws that protect against that. Texas specifically says,
Speaker 1: if you take that view, we consider that hostile to
Speaker 1: the firearms industry. We're going to exclude you from underwriting
Speaker 1: our bonds. The real question should be among all of
Speaker 1: us is why are Florida and Texas citizens paying so
Speaker 1: much more than California. I mean, if we're all capitalists here,
Speaker 1: how come nobody's asking that question? So I guess, just
Speaker 1: from the perspective of I guess the governor's feel and
Speaker 1: the other elected officials in these states feel like it's
Speaker 1: popular from a political perspective that, if you know, it's
Speaker 1: hard to explain them paying more slightly higher yield on
Speaker 1: the municipal bond across the state. It's hard to explain
Speaker 1: that concept visa v Maybe the political benefits of saying, hey,
Speaker 1: we're standing up to some of these quote unquote woke
Speaker 1: establishments or entities, Well, they're actually doing the very thing
Speaker 1: they're accusing the banks of. They're actually saying, because of
Speaker 1: our ideology, we're gonna get in way of the free market.
Speaker 1: We're going to deprive our voters from getting the best
Speaker 1: possible rates because we think our ideology is superior to
Speaker 1: everybody else's. That's essentially it. Uh. And what is their ideology?
Speaker 1: They don't believe in diversity and exclusion and inclusion. Okay. Uh.
Speaker 1: And we're talking about Florida State where fifty years ago
Speaker 1: very racist policies prevailed. In Texas pretty much the same thing. Okay,
Speaker 1: So these are these are states that formally enslaved people
Speaker 1: and barely got past it just fifty years ago. Has
Speaker 1: there been any change in the political climate since you've
Speaker 1: alda since the murder of so many children in that school? Um,
Speaker 1: has there been any shift? And we just passed, you know,
Speaker 1: a gun control law, so that gives you some indication
Speaker 1: that public sentiment shifted. And if you look at polls,
Speaker 1: which is always a risky proposition, but if you do
Speaker 1: look at polls, most Americans favor gun safety laws. That's
Speaker 1: a popular position. Okay, that's not controversial. What are the
Speaker 1: big investment banks you mentioned Bank of America, you know,
Speaker 1: City and in a couple other golden sacks. What are they?
Speaker 1: I'm sure their bankers want to make be in these
Speaker 1: deals and get paid and do all that kind of stuff.
Speaker 1: But what's been the banks response? Are they're trying to
Speaker 1: work with these states or are they just acknowledging that
Speaker 1: we have a difference. These banks, by the way, like Bloomberg,
Speaker 1: have employees and have customers, and like Bloomberg, their customers
Speaker 1: and their employees believe in diversity and inclusion, believe in justice,
Speaker 1: believe in equality, believe in all kinds of things that
Speaker 1: come under this uh three letter thing called E s G,
Speaker 1: where sustainability is probably the central pillar of it, which
Speaker 1: is climate change is the biggest threat to all of us,
Speaker 1: and these banks are very mindful of that, and they're
Speaker 1: doing everything they can to try try. Is the right
Speaker 1: word be accommodative of sustainability. Um, So there's a lot
Speaker 1: of company here. Remember E s G is the convergence
Speaker 1: of people's preferences in public policy. It's what around the world,
Speaker 1: what recreasingly people want because they want to figure out
Speaker 1: how do we not harm ourselves going forward? Has that
Speaker 1: been borne out also by the investment data I mean
Speaker 1: um for example, inflos into E t f s or
Speaker 1: performance of E s G assets. Okay, so we're talking
Speaker 1: about assets of thirty five trillion dollars. Okay, that's the
Speaker 1: so called E s G pool of money that we're
Speaker 1: talking about as um you know, and that has happened,
Speaker 1: as I said, because around the world, this is where
Speaker 1: investment is increasingly going. UM. It's something that people want
Speaker 1: to do. It's not imposed upon them. They want to
Speaker 1: do it. And this is where both Texas and Florida
Speaker 1: cynically uh try to uh mislead because what they're arguing
Speaker 1: against is something that people want, not something that's being
Speaker 1: imposed upon them. It bears repeating that California only has
Speaker 1: a double A credit rating, UM, and yet pays less
Speaker 1: in interest than triple A credit rated Texas. I mean,
Speaker 1: it's just mind blowing to me, like twenty basis points correct.
Speaker 1: So we talked about Florida and Texas, and those are
Speaker 1: two huge states. Of course, are there other states that
Speaker 1: are looking to follow Texas and Florida. Interns. Look pretty much,
Speaker 1: if you like, every red state is got something going
Speaker 1: that is specifically opposed to uh E s G. Whether
Speaker 1: it's actually been enacted or it's in progress. Uh. We're
Speaker 1: talking about at least half a dozen states already that
Speaker 1: are following Florida and so we see data like this,
Speaker 1: is there a pushback within Florida, within within Texas when
Speaker 1: they see data like you've brought up in your column
Speaker 1: today about the incremental cost. Well, it's probably too early
Speaker 1: to say, because our profession isn't writing the headline. Why
Speaker 1: are the citizens of Florida and Texas paying more on
Speaker 1: their borrowing when lower rated California is paying a lot less? Yeah,
Speaker 1: that's not a recurring headline. All right, interesting, all right,
Speaker 1: great stuff. Really appreciate it. Matt Winkler, uh with his
Speaker 1: he's a emeritus editor guy at Bloomberg's a founder. Have
Speaker 1: you founded anything there? You founded anything? I mean, but
Speaker 1: he's a founder. This Saturday, to take New Jersey Transit
Speaker 1: into the city to go see a Portland Nets game,
Speaker 1: train was packed standing room only Todayturday on Saturday, people
Speaker 1: coming in to see shows, games, restaurants, party, whatever's today.
Speaker 1: I get on the train for my Monday commute. It
Speaker 1: was basically meaning the conductor that was it. Nobody coming
Speaker 1: into work on Monday's, probably Fridays, and who knows what else.
Speaker 1: That's called hybrid working. The question is what's it costing
Speaker 1: the city of New York. Unfortunately, that is the subject
Speaker 1: of the Bloomberg Big Take Story of the day. You
Speaker 1: know these big Take stories really deeply researched and extraordinarily
Speaker 1: well written, real deep dives into these things. Uh, today
Speaker 1: we have Donna Bore Actually he's a senior reporter for
Speaker 1: Bloomberg Industry Group co wrote this article. Here, Donna, what's
Speaker 1: this remote work this hybrid work model? What's it costing Manhattan?
Speaker 1: A whopping twelve point four billion dollars um? It's sort
Speaker 1: of amazing, right, yeah, a year per um, so per worker. Uh.
Speaker 1: We we ended up working with UM researchers out of
Speaker 1: the Work from Home UM Research Group and Jose Maria Berrero,
Speaker 1: who is a finance professor at Mexico's Institute Technological Autonomo
Speaker 1: and has been part of this team. He basically helped
Speaker 1: us to to figure out what this this giant whopping
Speaker 1: number was. So there's a Work from Home Research group.
Speaker 1: Did they ever come into the office. I suspect that
Speaker 1: they do. So this is what how do you calculate
Speaker 1: the costs? Hears this just me not buying, uh, you know,
Speaker 1: a lunch sandwich on Monday's and Fridays and kind of
Speaker 1: add all that up and everything. Yeah, so so what
Speaker 1: happened and and and what Jose's uh that this was
Speaker 1: exclusive data that was provided to Bloomberg News. Essentially, what
Speaker 1: they did is they've been working UM and tracking work
Speaker 1: from home habits uh and and trend lines for quite
Speaker 1: quite some time. And so in they had a survey
Speaker 1: that they asked participants, Hey, so what did you actually
Speaker 1: spend in on meals, shopping, entertainment UM near the workplace?
Speaker 1: And you know, they've been tracking this research long enough
Speaker 1: that they know that this trend line for work from
Speaker 1: home has really become permanent right there. At a moment,
Speaker 1: just even in the last year, there was a sense
Speaker 1: of like, oh, this is stickiness, but actually work from
Speaker 1: home is sort of a permanent phenomenon UM. And in
Speaker 1: Manhattan that's about thirty less. So people are coming in
Speaker 1: about three and a half days a week according to
Speaker 1: their research, and so they were able to scale what
Speaker 1: people were spending back in twenty nineteen UM to what
Speaker 1: it is, you know, based on a three and a
Speaker 1: half day work week. And so what they found was
Speaker 1: Manhattan was leading across twelve major cities, and per worker
Speaker 1: they were spending four thousand, six D sixty one dollars
Speaker 1: less per year, which is added all together with you
Speaker 1: know inward commuters and those that are residents in Manhattan
Speaker 1: that are working there, um a really giant number. So
Speaker 1: my first thought is where's that money going? I mean,
Speaker 1: are consumers banking it? Are they spending you know money
Speaker 1: at a launch place in Summit, New Jersey or you
Speaker 1: know Scarsdale, New York? Um? Are are they looking at
Speaker 1: entertainment options outside of the city. What's who are the
Speaker 1: winners if New York is the loser? Yeah, I mean
Speaker 1: there there are a couple of things going on here, right.
Speaker 1: So you know, throughout doing this reporting, I mean we
Speaker 1: definitely tried to look at was there a displacement of
Speaker 1: the economic shift of spending, right if you weren't coming
Speaker 1: into Manhattan where you then spending greater amounts you know,
Speaker 1: in your neighborhood or in the outer boroughs. I think
Speaker 1: we all saw that once the pandemic hit, people moved outwards, right,
Speaker 1: they left the they left, um, the island of Manhattan. Um.
Speaker 1: What our reporting has shown, and we used a wide
Speaker 1: range of data sources trying to quantify this, is that
Speaker 1: you really do see a significant uptick um in you know,
Speaker 1: bookings for you know, dining out, retail spending, um, you know,
Speaker 1: and so forth, really in different parts of Brooklyn and
Speaker 1: the Bronx outside of Manhattan. Manhattan is really lagged um
Speaker 1: when it comes to consumer spending. The thing that we
Speaker 1: couldn't answer because this is also fluid, right, We were
Speaker 1: just now getting a sense of like what the real
Speaker 1: impact is is that you can see how much Manhattan
Speaker 1: is losing, but it's much harder to quantify what the
Speaker 1: outer boroughs are actually gaining as a result of this.
Speaker 1: You can look at um sales tax revenue and you
Speaker 1: can see an uptick there, but it's gonna take some
Speaker 1: time for us to really get a sense of the
Speaker 1: full economic impact and how much has shifted. So, Donna,
Speaker 1: you have some great data in this uh, in this story,
Speaker 1: as usual in these big take stories, and one I
Speaker 1: liked was just kind of Manhattan office workers are returning,
Speaker 1: just not every day, and you have some foot traffic
Speaker 1: data percentage of you know, kind of normal traffic through
Speaker 1: a lot of famous buildings in New York City. Thirty
Speaker 1: rockeffell Or Plaza, two VC Street where I used to
Speaker 1: work back in the day, two Park Avenue, and the
Speaker 1: bottom line is it's like on a good day. I mean,
Speaker 1: when you talk to these companies, are I mean, are
Speaker 1: we ever gonna go back? Or is this really the
Speaker 1: new normal? Yeah? I think this really is the new normal.
Speaker 1: And you can see that, you know, even though companies
Speaker 1: have tried to impose work from home um sorry, you know,
Speaker 1: in person work policies, is that it's it's really not working.
Speaker 1: I think that because of the lasting effect of the pandemic,
Speaker 1: people's behavior, both when it comes to spending and how
Speaker 1: they live has really become UM entrenched. And so you know,
Speaker 1: we talked to a bunch of people UM doing field work,
Speaker 1: you know, getting a sense of what their weekly routines
Speaker 1: are these days, and everyone really wants to work from
Speaker 1: home on a on a Friday. It's you know, it's
Speaker 1: part of like an extension of of a long weekend.
Speaker 1: They can log off a little bit earlier, and so
Speaker 1: you can really see it in the data that you know,
Speaker 1: Friday's especially UM office attendance like tanks. What's interesting is
Speaker 1: um Linley Lynn, who helped us analyze a lot of
Speaker 1: this data. You know, really a lot of these trends
Speaker 1: are an exceleration of what was already happening. Um, you know,
Speaker 1: consumer spending was already you know a little bit down
Speaker 1: on Mondays and Fridays to begin with. Um, people came
Speaker 1: in a little bit less you know on those days,
Speaker 1: trying to have longer weekends. But really the pandemic has
Speaker 1: just accelerated all of that, and I think that business
Speaker 1: districts are now having to wrestle with what do we
Speaker 1: do next? What does it mean for the infrastructure, for
Speaker 1: the rail and roads. Yeah, I mean the fewer, fewer commuters,
Speaker 1: fewer people like foot traffic, um coming into Manhattan. Obviously
Speaker 1: it's going to translate into you know, less tax revenue,
Speaker 1: less fair revenue. Um. You end up having you know,
Speaker 1: fewer dollars in the coffer that you know eventually end
Speaker 1: up impacting just the vitality and the economic recovery of
Speaker 1: the city. Right if you have less tax revenue coming in,
Speaker 1: whether it's like personal income tax because people have decided
Speaker 1: that they don't want to they don't need to work
Speaker 1: in Manhattan anymore, they can work elsewhere, or less US revenue,
Speaker 1: you know, there's uh, it hurts, big, big, big story,
Speaker 1: big big numbers as well. Remote work is costing in
Speaker 1: Manhattan more than twelve billion dollars a year. That's a
Speaker 1: big Take story. You can find out a Bloomberg dot
Speaker 1: Com slash a Big Take or ni Space Big Take
Speaker 1: go on the Bloomberg terminal. Donna Barak one of the
Speaker 1: reporters joining us here to bring us that story. She's
Speaker 1: a senior reporter. Not here from home today. Why not?
Speaker 1: You can do it. It's a Monday. The kids are
Speaker 1: doing it. This is Bloomberg. Thanks for listening to the
Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews
Speaker 1: with Apple Podcasts or whatever podcast platform you prefer. I'm
Speaker 1: Matt Miller. I'm on Twitter at Matt Miller, three pt
Speaker 1: on Fall Sweey, I'm on Twitter at pt Sweeney. Before
Speaker 1: the podcast. You can always catch us worldwide at Bloomberg
Speaker 1: Radio