WEBVTT - US May Have To Target Korea's Nuclear Infrastructure: General McPeak 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.440 Along with my co host Lisa A. Bramowitz. Each day 0:00:11.480 --> 0:00:15.000 we bring you the most important, noteworthy, and useful interviews 0:00:15.040 --> 0:00:17.520 for you and your money, whether you're at the grocery 0:00:17.560 --> 0:00:20.560 store or the trading floor. Find the Bloomberg p m 0:00:20.680 --> 0:00:33.320 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. 0:00:33.360 --> 0:00:37.160 Donald Trump has tweeted that caught red handed, very disappointed 0:00:37.159 --> 0:00:40.080 that China is allowing oil to go into North Korea. 0:00:40.520 --> 0:00:42.920 There will never be a friendly solution to the North 0:00:43.000 --> 0:00:48.120 Korea problem if this continues to happen. Exclamation point. Here 0:00:48.120 --> 0:00:50.640 to tell us a little bit more about North Korea 0:00:50.800 --> 0:00:54.120 and the strategic options that the United States has is 0:00:54.200 --> 0:00:58.240 a General Meryl mcpeaky's a retired four star general Formula 0:00:58.320 --> 0:01:01.639 Air Force Chief of Staff. He can be followed on 0:01:01.680 --> 0:01:07.120 Twitter at General McPeak He basically is currently in Lake Oswego, Oregon. 0:01:07.319 --> 0:01:09.319 Thank you very much for being with us, sir, and 0:01:09.640 --> 0:01:13.160 he is also the author of the recently completed The 0:01:13.319 --> 0:01:17.360 Aerial View Trilogy. It is a three volume memoir that 0:01:17.400 --> 0:01:21.560 takes the reader throughout his career. General mcpeaque, thank you 0:01:21.600 --> 0:01:25.080 for your service as we honor all of our servicemen 0:01:25.200 --> 0:01:29.000 and women. Your comments on North Korea, your thoughts and 0:01:29.040 --> 0:01:33.679 reactions to the President's handling of the situation. Good morning, 0:01:34.080 --> 0:01:38.000 dam Well. I think the North Korea problem is the 0:01:38.040 --> 0:01:44.880 most important one facing our country, most important national security problem. 0:01:45.120 --> 0:01:49.120 And uh, it's visible to on the horizon. Everybody can 0:01:49.160 --> 0:01:52.360 see it. Even those who don't want to do anything 0:01:52.440 --> 0:01:55.760 about it, understand that it constitutes a real threat to 0:01:56.440 --> 0:02:01.120 the United States. Uh, probably now and certainly in the 0:02:01.200 --> 0:02:04.559 next six months to a year. So I do believe 0:02:04.680 --> 0:02:07.760 we ought to do something about it, to take vigorous action. 0:02:08.600 --> 0:02:12.440 I'm not sure the President has gone about it in 0:02:12.440 --> 0:02:15.399 the right way. I would have done it perhaps differently, 0:02:15.440 --> 0:02:19.480 but he's right in saying that we probably have to 0:02:19.520 --> 0:02:21.440 do something here, and it may end up being a 0:02:21.480 --> 0:02:25.880 military action that's required. Now. You previously served as the 0:02:25.919 --> 0:02:30.360 chief of staff of the Air Force. You served in 0:02:30.680 --> 0:02:35.079 Vietnam over two d and sixty missions. There a variety 0:02:35.080 --> 0:02:39.120 of awards, a Silver Star, Legion of Merit, Distinguished Flying Cross. 0:02:39.600 --> 0:02:43.639 If the President or someone on his staff called General 0:02:43.760 --> 0:02:47.680 McPeak and said, Tony, I know they're the only ones 0:02:47.720 --> 0:02:51.320 that get to call you that if they said, Tony, 0:02:51.760 --> 0:02:55.760 lay out for us, what would be some of my options, 0:02:55.760 --> 0:02:59.239 What would be some of the options that wouldn't blow 0:02:59.360 --> 0:03:04.680 us all but would really try to solve this problem. Well, 0:03:05.360 --> 0:03:08.640 blowing us all up as a real life possibility here, 0:03:08.760 --> 0:03:13.000 especially if we do nothing so UH. First of all, 0:03:13.040 --> 0:03:16.040 I would favor any kind of action that we could 0:03:16.040 --> 0:03:21.079 take short of military intervention. You want diplomacy, sign me up. 0:03:22.000 --> 0:03:23.760 You want to try to get China to lean on 0:03:23.840 --> 0:03:30.760 them Great Russia, economic sanctions, I'm all for all these steps, 0:03:30.800 --> 0:03:33.440 but so far we've tried them all, it seems to me, 0:03:33.480 --> 0:03:38.080 and nothing's really worked. My opinion is that we'll probably 0:03:38.120 --> 0:03:43.400 have to intervene and help the North dismantle UH their 0:03:43.480 --> 0:03:47.119 nuclear capability, and that means we would have to do 0:03:47.200 --> 0:03:52.400 some very specific targeting against nuclear infrastructure in the North 0:03:53.080 --> 0:03:56.640 and command and control UH. And of course, at the 0:03:56.680 --> 0:03:58.800 same time, we'd have to go to work on those 0:03:58.840 --> 0:04:01.760 guns that are dug and in the reverse slopes of 0:04:01.840 --> 0:04:07.120 the hills north of the demilitarized zone which range Soul. 0:04:07.400 --> 0:04:10.720 So Soul will be badly damaged in the opening moments 0:04:10.720 --> 0:04:14.720 of any military action there, and we simply have to 0:04:14.760 --> 0:04:18.240 start work immediately trying to dig those guns out of 0:04:18.279 --> 0:04:21.039 the caves that they're in north of the d MZ. 0:04:21.920 --> 0:04:25.920 So this target set PIM is rich. I mean, there's 0:04:25.920 --> 0:04:28.800 a very very large number of aiming points that we 0:04:28.880 --> 0:04:33.280 have to go after immediately. And uh and it will 0:04:33.320 --> 0:04:36.599 be a tough campaign, no doubt about it. Especially Soul 0:04:36.640 --> 0:04:40.000 will take a lot of damage. But our alternative is 0:04:40.040 --> 0:04:44.960 to allow this crazy, uh perhaps non deterable regime in 0:04:44.960 --> 0:04:48.680 the North to have the capability to wipe out Washington 0:04:48.800 --> 0:04:52.440 and New York City in Chicago. Uh, you know, with 0:04:53.560 --> 0:04:58.960 minutes notice. And that's unacceptable in general? Is it? Is 0:04:58.960 --> 0:05:00.719 there any tempt? Is there any way we can look at, 0:05:00.760 --> 0:05:05.599 for example, our relationship with Pakistan, which is a nuclear power. 0:05:06.720 --> 0:05:10.760 Is it possible to leave North Korea with a with 0:05:10.920 --> 0:05:15.760 nuclear weapons and still reach some kind of accommodation that 0:05:15.800 --> 0:05:19.719 would leave them in place? But without these threats, I 0:05:19.760 --> 0:05:25.120 don't see it. I mean, look, the Pakistani's have nuclear 0:05:25.160 --> 0:05:31.680 weapons to give them a deterrence capability against India. I'm 0:05:31.720 --> 0:05:35.599 not happy about that. I'd be much happier if nobody 0:05:35.680 --> 0:05:38.279 had nuclear weapons. I think we'd be much more secure 0:05:38.680 --> 0:05:43.440 in the United States because our conventional military capabilities are 0:05:43.480 --> 0:05:48.120 far greater than anybody else's. So if all nuclear weapons disappeared, 0:05:48.400 --> 0:05:51.760 we'd all be better off for it. But in the 0:05:51.920 --> 0:05:55.520 case of judging, you know, from the more extreme to 0:05:55.600 --> 0:06:01.400 the less extreme, UH, this government North Korea is perhaps 0:06:01.440 --> 0:06:04.640 the worst in the world that we should want to 0:06:04.680 --> 0:06:09.280 see have nuclear weapons, and there's the risk is simply 0:06:09.320 --> 0:06:15.400 too great to let them hold large American cities at hostage. 0:06:16.440 --> 0:06:19.640 We simply, in my opinion, we simply have to dismantle 0:06:20.360 --> 0:06:26.440 their nuclear capability and put them under International instruction UH 0:06:26.680 --> 0:06:30.520 inspection for years to make sure that that doesn't rebuild. 0:06:31.320 --> 0:06:34.080 I want to turn your attention now to the Middle 0:06:34.080 --> 0:06:37.440 East and Iran, which, of course UH then begs the 0:06:37.560 --> 0:06:41.919 question of potential nuclear weapons. Your thoughts on what is 0:06:41.920 --> 0:06:45.080 going on currently in the Middle East with the potential 0:06:45.120 --> 0:06:48.400 confrontation between Iran and Saudi Arabia, And just as a note, 0:06:48.600 --> 0:06:50.800 you know you've taken a lot of flak over the 0:06:50.839 --> 0:06:52.640 course of your career for some of your thoughts about 0:06:52.680 --> 0:06:57.760 the Middle East. Give us your ideas well. I think 0:06:57.800 --> 0:07:02.440 the Middle East is a chronic problem, you know, that's 0:07:02.440 --> 0:07:06.400 been with us forever, UH, and there's no sign that 0:07:06.680 --> 0:07:09.520 we can sort out the issues that are involved there. 0:07:10.480 --> 0:07:14.560 I do think that the treaty or the agreement with 0:07:14.640 --> 0:07:17.720 the Iranians to put a pause on their nuclear program 0:07:17.760 --> 0:07:20.200 for a decade or so was a very good one 0:07:20.240 --> 0:07:24.480 and one one we should support UH and perhaps gives 0:07:24.560 --> 0:07:27.600 us time to work out some longer term relationship with 0:07:27.640 --> 0:07:31.640 the Iranians. At the end of the day, it's just 0:07:31.720 --> 0:07:35.800 gonna be hard for us to pick the course that 0:07:35.880 --> 0:07:38.600 makes sense in the Middle East. I mean, every everything 0:07:38.640 --> 0:07:41.560 we try to do seems to have awful consequences, including 0:07:41.560 --> 0:07:44.280 what we're doing today. I mean, we spent what a 0:07:44.320 --> 0:07:48.600 trillion dollars in Iraq with the Second Iraq War, maybe 0:07:48.600 --> 0:07:52.640 more than that before we're done, and lost thousands of people, 0:07:53.400 --> 0:07:56.600 and it's not obvious to me that Iraq is better 0:07:56.680 --> 0:07:58.880 off to day than it was before we intervene to 0:07:58.960 --> 0:08:04.960 remove Sadamus. So I don't have any brilliant ideas about 0:08:04.960 --> 0:08:07.600 what to do there. It's kind of like having cancer. 0:08:07.720 --> 0:08:10.080 You just sort of earned to live with it and 0:08:10.160 --> 0:08:13.160 hope you can die of something else. Well. I think, 0:08:13.200 --> 0:08:14.840 thank you very much for your time and just want 0:08:14.880 --> 0:08:19.360 to mention once again, UH, you're the Aerial View trilogy, 0:08:19.480 --> 0:08:23.960 the three volume memoir. Just quickly, General, can you tell 0:08:24.080 --> 0:08:27.360 what was the favorite single seat aircraft that you flew? 0:08:27.360 --> 0:08:30.080 Because I know you flew F one Super Sabers and 0:08:30.520 --> 0:08:34.360 F one of four Starfighters. What was your favorite aircraft? 0:08:34.960 --> 0:08:40.280 My all time favorite was the F sixteen. Wonderful airplane. Uh, 0:08:40.280 --> 0:08:43.920 you know, a lot of innovation there. But the thing is, 0:08:43.960 --> 0:08:46.080 when you climb up the ladder and strap the thing on, 0:08:46.200 --> 0:08:49.280 you feel small. It's really good to feel small when 0:08:49.280 --> 0:08:55.160 you're entering a fight. Thanks. General Merrow McPeak, retired four 0:08:55.240 --> 0:08:59.120 star general, former Air Force Chief of Staff, his book 0:08:59.400 --> 0:09:20.280 The air View Trilogy. Delinquencies auto loan delinquencies they arise 0:09:20.360 --> 0:09:23.480 in credit card charge offs have increased. Is this a 0:09:23.559 --> 0:09:26.199 problem for US banks? Let's ask David Fanger. He is 0:09:26.280 --> 0:09:29.760 senior analyst at Moody's Investors Services and he joins us 0:09:29.760 --> 0:09:32.240 in our eleven three oh studios. David, thank you for 0:09:32.320 --> 0:09:35.160 being here. So are these problems for banks or have 0:09:35.200 --> 0:09:39.240 they figured out a way around this? Well, certainly what 0:09:39.360 --> 0:09:41.480 you cited on in terms of auto loan delinquacies credit 0:09:41.480 --> 0:09:44.760 card delinquencies is um. I would say both of those 0:09:44.760 --> 0:09:46.800 markets are in a little bit of a different position 0:09:46.840 --> 0:09:50.440 in terms of where they are post crisis. UH no 0:09:50.600 --> 0:09:53.880 bank has Most banks do not have significant exposures to 0:09:54.040 --> 0:09:57.160 either of those businesses. They're one of many businesses that 0:09:57.280 --> 0:09:59.960 US banks are engaged in. So what we are expect 0:10:00.040 --> 0:10:04.280 think those delinquencies UM could rise further UM as long 0:10:04.320 --> 0:10:07.400 as the employment picture is healthy and it is are 0:10:07.480 --> 0:10:11.199 unlikely to to significantly rock the boat. Of what we've 0:10:11.240 --> 0:10:16.080 seen in both cases is, you know, graduate deturation underwriting standards, 0:10:16.120 --> 0:10:18.240 particularly an on a lending where we've seen for the 0:10:18.280 --> 0:10:22.439 past several years weaker underwriting standards, which is now leading 0:10:22.440 --> 0:10:28.000 to higher delinquencies. Weaker underwriting standards and longer duration of 0:10:28.040 --> 0:10:31.400 the actual loan. Correct that's correct, Yes, would that also 0:10:31.559 --> 0:10:34.600 have an effect on people's ability to pay well? Actually, 0:10:34.760 --> 0:10:38.240 the longer duration loan should be helped, intended intended to 0:10:38.280 --> 0:10:41.840 help them. So so when auto buyer is looking at 0:10:41.880 --> 0:10:45.320 their payment the amount of the payment UM, a longer 0:10:45.360 --> 0:10:48.040 live loan makes it easier to meet your monthly payments. 0:10:48.280 --> 0:10:53.120 The challenge for longer tenored loans is UM really again 0:10:53.280 --> 0:10:57.600 in in a weaker economic environment, UM, the the the 0:10:57.640 --> 0:11:00.920 ability to pay back the remainder of that loan may 0:11:00.920 --> 0:11:04.160 be more challenged. Uh. And what we see, indeed is 0:11:04.360 --> 0:11:07.640 increasing willingness in the part of lenders. When a buyer 0:11:07.720 --> 0:11:11.760 wants to auto owner wants to buy a new car, 0:11:12.640 --> 0:11:15.600 they have a significant remaining balance on their existing loan, 0:11:16.080 --> 0:11:18.880 and lenders have been increasingly going to roll those into 0:11:18.920 --> 0:11:23.319 the new loan, which creates an even larger problem potentially 0:11:23.320 --> 0:11:26.240 down the road. Okay, but before we get to that road, 0:11:26.320 --> 0:11:28.600 I have a feeling that banks have a way to 0:11:28.679 --> 0:11:33.560 become profitable despite all this. And you've issued a recent report, 0:11:33.600 --> 0:11:36.160 what about the health of the US banking system right now? 0:11:36.240 --> 0:11:41.160 Over capitalized? Um? Well, again, so Moody's rates banks. We 0:11:41.280 --> 0:11:43.640 focus on the interest of bondholders, and we would not 0:11:43.800 --> 0:11:46.840 view banks as being over capitalized. We certainly think the 0:11:46.840 --> 0:11:50.880 improvements to capital at banks have been positive for creditors 0:11:50.880 --> 0:11:55.319 and bondholders. UM in the aftermath of financial crisis. UM. 0:11:55.360 --> 0:11:58.679 The trajectory we think over the next year UM, particularly 0:11:58.679 --> 0:12:01.400 for the largest US banks, the global investment banks, is 0:12:01.440 --> 0:12:06.240 positive because we are looking at a gradual broadening of 0:12:06.400 --> 0:12:10.360 growth across the global economy. We're looking at higher interesting 0:12:10.480 --> 0:12:12.680 than the US, and so particularly for those banks that 0:12:12.720 --> 0:12:16.560 are core funded that is as significant reliance on deposits 0:12:16.559 --> 0:12:19.960 for funding UM. Higher interest rates have been positive and 0:12:20.000 --> 0:12:23.000 are likely to continue to be positive for US banks. 0:12:23.040 --> 0:12:27.840 So expanding net interest margins exactly the loans that the 0:12:27.880 --> 0:12:32.600 banks make, have they at all been crowded out by 0:12:32.760 --> 0:12:36.800 non bank financial lenders because you keep hearing that banks 0:12:36.920 --> 0:12:40.920 can't hold certain assets, don't hold certain assets, and that 0:12:41.440 --> 0:12:45.960 the place has been taken by non bank financials. Well 0:12:46.000 --> 0:12:49.640 to some extent, that's by choice. UM. Certainly, for example, 0:12:49.720 --> 0:12:52.800 in auto ending, there's a significant portion of the auto 0:12:52.880 --> 0:12:56.880 ending business is conducted through by non bank financials. UM. 0:12:57.720 --> 0:13:01.400 I think the bank always represent about the total auto 0:13:01.440 --> 0:13:04.839 loan market. UM. And there where we've seen weaker underwriting, 0:13:04.840 --> 0:13:09.200 deteriorating underwriting standards. UM. Now there's there's paper that banks 0:13:09.280 --> 0:13:11.480 don't want to hold their loans, banks don't want to 0:13:11.559 --> 0:13:14.560 make that the non bank financial sector is more willing 0:13:14.559 --> 0:13:18.000 to make and and and frankly that's positive for banks 0:13:18.000 --> 0:13:21.400 in terms of credit risk. Talk about real estate. Let's 0:13:21.400 --> 0:13:24.840 start with commercial real estate and bank exposure to see 0:13:24.840 --> 0:13:29.000 ANIE loans for example, UM. So we had been concerned 0:13:29.040 --> 0:13:32.200 about the rate of growth of CNI loans UM over 0:13:32.240 --> 0:13:36.079 the past couple of years. UH. Normally we look at 0:13:36.240 --> 0:13:39.680 CNI loan growth as as you know, a healthy rate 0:13:39.679 --> 0:13:42.720 of growth for SEENI loans should not deviate that much 0:13:42.760 --> 0:13:45.680 from the rate of nominal GDP growth. Think about the 0:13:45.760 --> 0:13:47.840 rate of growth of the economy is rate at which 0:13:47.880 --> 0:13:51.360 loan should go out exither growing much faster than corporations 0:13:51.360 --> 0:13:54.800 are leveraging up um, which ultimately can be negative for 0:13:54.880 --> 0:13:57.640 credit risk UM. We saw a rate of growth for 0:13:57.679 --> 0:14:02.319 SEINGI landing in excessive nominal GDP growth for several years. However, 0:14:02.400 --> 0:14:04.839 over the most recent year that rad of growth has 0:14:04.880 --> 0:14:08.800 slowed some extent as well, and nominal GDP growth has accelerated, 0:14:09.080 --> 0:14:11.800 So we're we're a little bit more comfortable, if you will, 0:14:11.880 --> 0:14:13.920 with the current rate of growth for seeing is landing. 0:14:14.280 --> 0:14:17.319 Are there any specific geographical issues that we need to 0:14:17.360 --> 0:14:21.320 pay attention to, because many of the problems that created 0:14:21.360 --> 0:14:25.440 the two thousand seven two thousand eight financial crisis were 0:14:25.520 --> 0:14:29.720 centered in areas where mortgages were made very inexpensive for 0:14:29.760 --> 0:14:32.600 people that probably should not have been able to access them. 0:14:32.640 --> 0:14:35.680 But some were exceptions, like for example, in Texas. You 0:14:35.720 --> 0:14:39.760 didn't see this happen um at this point, I'm not 0:14:39.880 --> 0:14:42.160 sure I can in the US at any rate can 0:14:42.240 --> 0:14:47.680 highlight specific geographic regions UM that are are are performing 0:14:47.720 --> 0:14:51.160 better or worse off than initiarily affecting the banks UH 0:14:51.200 --> 0:14:53.800 credit profile. I think it's we we focus on the 0:14:53.920 --> 0:14:57.480 larger banks. Of those banks typically tend to have fairly 0:14:57.560 --> 0:15:00.720 broad footprints UM and so they're for are a little 0:15:00.720 --> 0:15:04.120 bit less exposed or vulnerable to a specific to an 0:15:04.240 --> 0:15:07.600 energy market or to a housing market. Precisely, and certainly 0:15:07.600 --> 0:15:10.400 the energy markets have had some challenges of the last 0:15:10.440 --> 0:15:13.240 couple of years, and and but the but the banks 0:15:13.240 --> 0:15:16.000 have been able to Although they have did suffer a 0:15:16.000 --> 0:15:18.840 period of higher loss rates on some energy loans, the 0:15:18.920 --> 0:15:22.960 overall impact on bank earnings and risk profile was relatively modest. 0:15:23.200 --> 0:15:25.000 Thank you very much for coming in and spending time 0:15:25.000 --> 0:15:29.160 with us. David Fanger is senior analyst for Moody's Investors Services, 0:15:29.560 --> 0:15:49.280 giving us an outlook for the US banking industry. Joining 0:15:49.320 --> 0:15:52.080 me now is Brian Schappatta. He is our US Treasury 0:15:52.120 --> 0:15:55.360 as reporter for Bloomberg News, and Bryan can be followed 0:15:55.400 --> 0:15:58.960 on Twitter at beach Chapatta. That's h A double P 0:15:59.320 --> 0:16:04.200 A double T A alright, double P a T T. 0:16:04.480 --> 0:16:08.040 A great story today where you go through with the 0:16:08.120 --> 0:16:11.880 experts like black Rock and Goldman Sacks are saying about 0:16:11.920 --> 0:16:15.520 the bond market and their calls for eighteen. Let's go 0:16:15.560 --> 0:16:18.320 through and let's begin with black Rock. What are they 0:16:18.400 --> 0:16:21.240 suggesting if you are in the world of fixed income, Well, 0:16:21.280 --> 0:16:23.800 I was going to alphabetical order these big money managers. 0:16:23.800 --> 0:16:25.560 So the thing about black Rock is that you go 0:16:25.600 --> 0:16:27.640 through their twenty you're not looking. What's interesting is they 0:16:27.680 --> 0:16:32.800 have no overweight recommendations in the entire fixed income landscape. UM. 0:16:32.840 --> 0:16:36.080 You know, whether it's you know, their neutral communities, US credit, 0:16:36.160 --> 0:16:39.800 emerging markets, things like that, don't like treasuries much or 0:16:39.880 --> 0:16:44.520 European sovereigns um. But there their chief fixed income start 0:16:44.520 --> 0:16:47.120 as Jeff Rosenberg basically said, you know, it's all well 0:16:47.160 --> 0:16:50.680 and good when everyone's buying and you can flip bonds 0:16:50.760 --> 0:16:53.320 and make a profit everyone everyone gets a trophy essentially, 0:16:53.960 --> 0:16:56.160 But the risk is that once that stops and the 0:16:56.160 --> 0:16:59.520 selling begins, everyone's left with all these liquid securities you 0:16:59.560 --> 0:17:02.080 can't sell and you have to take big losses. So, 0:17:02.640 --> 0:17:04.399 you know, and he wants to be on that side 0:17:04.400 --> 0:17:05.880 of the would rather be on that side of sha 0:17:05.920 --> 0:17:08.600 he says, go up in credit quality and you know, 0:17:08.720 --> 0:17:10.879 be content with you know, maybe a little bit lower 0:17:10.920 --> 0:17:13.919 returns in return for being able to get out of 0:17:13.960 --> 0:17:16.280 your position if you absolutely need to. Was the black 0:17:16.359 --> 0:17:19.399 rock was his position an outlier when it came to 0:17:19.480 --> 0:17:22.320 some of the others that you interviewed, for example at 0:17:22.359 --> 0:17:25.679 Fidelity Investments or Goldmen Sacks. You know, uh, there's a 0:17:25.720 --> 0:17:28.480 lot of caution I think underlying a lot of these 0:17:30.359 --> 0:17:33.040 Yeah they are so they're they're yeah, they're pessimists by 0:17:33.240 --> 0:17:36.320 uh by trade now. Um. But you know Ford O'Neil 0:17:36.359 --> 0:17:39.560 at Fidelity Investments, he was morning Stars Fixed Income Fund 0:17:39.560 --> 0:17:42.840 Manager of the Year this year. Uh and basically sorry 0:17:42.840 --> 0:17:46.040 in sixteen and he basically said, you know, I really 0:17:46.080 --> 0:17:48.560 want to protect all the gains I made over the 0:17:48.640 --> 0:17:51.199 last two years next year. Um, trying not to do 0:17:51.240 --> 0:17:54.919 anything too uh too exotic. Uh, you know, add some 0:17:54.960 --> 0:17:59.800 inflation protection uh chips. He likes those inflation Treasury inflation 0:17:59.840 --> 0:18:04.240 for protected security. He says, inflation is going to accelerate 0:18:04.280 --> 0:18:06.440 in YEP. I mean people said I was going to 0:18:06.440 --> 0:18:08.320 accelerate this year. So you do have to take it 0:18:08.359 --> 0:18:10.600 with a little bit with a grain of salt. Um. 0:18:10.680 --> 0:18:13.520 But again, like the reflation trade this year. I mean 0:18:13.520 --> 0:18:15.520 that was like the buzzword going into the start of 0:18:17.119 --> 0:18:20.960 UM didn't exactly materialize, but we'll see what happens this year. 0:18:21.000 --> 0:18:24.280 He also likes, uh, some floating rate securities which will 0:18:24.320 --> 0:18:27.400 reset higher with FED rate hikes, so you know, protecting 0:18:27.440 --> 0:18:30.160 yourself both on a long end if inflation starts to accelerate, 0:18:30.400 --> 0:18:32.840 also on the short end if the FED continues hiking rates. 0:18:33.000 --> 0:18:37.480 And he also mentioned Brazil and Mexico. Yeah, Brazil's a 0:18:37.560 --> 0:18:40.720 fan favorite among these among all these folks. UM. You know, 0:18:40.760 --> 0:18:43.399 obviously they offer you know, much higher yields that you 0:18:43.400 --> 0:18:45.720 can get anywhere and sort of the you know, typical 0:18:45.760 --> 0:18:49.080 developed markets. So if you're looking for some yield pick up, 0:18:49.760 --> 0:18:52.800 that's a place to be along with Mexico. UM, I 0:18:52.840 --> 0:18:55.960 know that. Goldman Sachs also mentioned places like Hungary, Poland, 0:18:56.800 --> 0:19:01.960 Columbia to stay in South America and Czech Republic. Yeah, 0:19:02.000 --> 0:19:05.120 this is Mike Swell right over at the Goldman Sex 0:19:05.200 --> 0:19:08.919 Asset Management. He also says volatility, so let's just go 0:19:08.960 --> 0:19:12.439 to just we understand this black rock. They're basically not 0:19:12.520 --> 0:19:19.000 that excited. Be careful. Increased credit quality, fidelity inflation may 0:19:19.040 --> 0:19:22.200 be accelerating so be mindful there. But we like Brazilian Mexico, 0:19:22.400 --> 0:19:27.040 Goldman Sex also Brazilian Mexico. But volatility, right, volatility, I 0:19:27.080 --> 0:19:29.440 mean it's so low. I mean well, I mean I'm 0:19:29.480 --> 0:19:31.680 sure you know with the VIX, whether what you okay 0:19:31.680 --> 0:19:34.600 at the VIX or whether you're looking at UM measures 0:19:34.600 --> 0:19:37.880 of bond market volatility like the move Index from Merrill Lynch. 0:19:38.160 --> 0:19:39.960 I mean, they're all they set record lows this year, 0:19:40.080 --> 0:19:43.240 just kept grinding lower. Um. It's just been a study 0:19:43.280 --> 0:19:46.359 march higher in equities and sort of a range bound 0:19:46.760 --> 0:19:51.240 treasury market. So the idea that volatility will pick up, UM, 0:19:51.280 --> 0:19:53.359 it's sort of something that's you know, I mean, it 0:19:53.440 --> 0:19:56.520 might happen, but also it's like everyone wants that to happen, 0:19:56.640 --> 0:19:59.560 so they're hoping that it happens. UM in a lot 0:19:59.560 --> 0:20:02.920 of ways, because you know, if you have active fixed income, 0:20:03.119 --> 0:20:05.480 which all these all these people are basically with the 0:20:05.480 --> 0:20:08.000 exception I guess of a vanguard who I also spoke 0:20:08.080 --> 0:20:10.320 with UM. I mean, you wanted to pick up, you 0:20:10.359 --> 0:20:13.840 want opportunities. Everything is being bought right now, so there's 0:20:13.840 --> 0:20:15.800 not a lot of opportunities to sort of find things 0:20:16.040 --> 0:20:19.720 on the cheap. What is JP Morgan Asset Managements as 0:20:19.800 --> 0:20:24.320 a good strategy for so. Bob Michelle at JP Morgan 0:20:24.840 --> 0:20:27.720 Asset Management UH is probably one of the more aggressive 0:20:27.720 --> 0:20:30.840 folks that I that I talked with. UM. He likes 0:20:30.880 --> 0:20:34.919 a European additional tier one securities UH Coco bonds. I 0:20:34.920 --> 0:20:37.560 believe they're also referred to as UH and high yield 0:20:38.240 --> 0:20:41.080 within Europe. He just thinks of Europe looks healthy UH 0:20:41.119 --> 0:20:43.920 and its economy is you know, maybe a year or 0:20:43.960 --> 0:20:46.920 so behind the US as far as picking up so 0:20:47.520 --> 0:20:50.840 UH more good things to come from there. Also likes 0:20:50.840 --> 0:20:54.040 the steeper yield curve, which is kind of interesting. UM. 0:20:54.160 --> 0:20:57.800 Other people are saying that as well. If PIMCO also 0:20:57.840 --> 0:21:01.880 thinks the yield curve uh uh will steep in as well. 0:21:01.920 --> 0:21:04.800 So that would be a departure, obviously from this year 0:21:04.840 --> 0:21:06.840 where the big trend has been, especially in the last 0:21:06.840 --> 0:21:10.440 few months of the year, this relentless flattening as short 0:21:10.560 --> 0:21:13.000 term meelds rise with a long term meals hold study. 0:21:13.280 --> 0:21:16.040 I like the point from a JP work and asset management. 0:21:16.119 --> 0:21:19.760 What don't they like anything? The Central Bank in Europe, 0:21:19.760 --> 0:21:22.720 the European Central Bank has purchased t c W Let's 0:21:22.840 --> 0:21:25.919 tell us. What did Ted Revella TCW say, Yeah, I 0:21:25.920 --> 0:21:28.080 mean he is sort of in the camp of black rock. 0:21:28.119 --> 0:21:31.200 I would say, um, just sort of protecting yourself against 0:21:32.040 --> 0:21:35.600 uh potential swing in the other direction where there's a 0:21:35.600 --> 0:21:39.399 big sell off in bonds or stocks or both just 0:21:39.520 --> 0:21:42.520 markets in general. Uh, he's just saying, be happy with 0:21:42.520 --> 0:21:43.920 the two and a half to three and a half 0:21:43.960 --> 0:21:47.680 percent return um. You know, obviously in an era where 0:21:48.000 --> 0:21:49.960 you know, the SMP five hundred games, you know, six 0:21:49.960 --> 0:21:52.399 and a half percent and a quarter. Uh. You know, 0:21:52.400 --> 0:21:54.480 maybe people might not be too pleased with that, but 0:21:54.520 --> 0:21:56.840 it's something that you know, if you want to diversify 0:21:57.000 --> 0:21:59.920 and you know, not be too exposed if you feel 0:22:00.080 --> 0:22:03.800 markets are a little frothy. Um, you know, going up 0:22:03.800 --> 0:22:08.439 in credit quality, high quality corporate bonds, agency mortgages. You know, 0:22:08.560 --> 0:22:11.800 take that clip that coupon essentially, and I have less 0:22:11.800 --> 0:22:14.760 price volatility than some of the other more risky securities. 0:22:15.119 --> 0:22:17.720 Thanks for being with us, Always a pleasure. Brian Sappada. 0:22:18.000 --> 0:22:21.560 He is a US Treasurer supporter for Bloomberg News and Yes. 0:22:21.600 --> 0:22:24.680 He can be followed on Twitter at b Shapata c 0:22:25.040 --> 0:22:47.000 H A double P, A double T A Ford's luxury 0:22:47.119 --> 0:22:50.320 brand Lincoln, what is the future for the brand? Well, 0:22:50.359 --> 0:22:52.960 here to help us understand it is Jamie Butters. He's 0:22:52.960 --> 0:22:57.240 our US auto supporter for Bloomberg and Jamie always a pleasure. 0:22:57.280 --> 0:23:00.600 You can be followed on Twitter at mid in Hawk 0:23:01.040 --> 0:23:04.160 M I T T E N and then just Hawk 0:23:04.520 --> 0:23:06.959 H A W K all right, mitten Hawk. Tell us 0:23:07.000 --> 0:23:10.399 what is the deal with the Lincoln brand? For tell us? 0:23:10.400 --> 0:23:13.359 How many they sell and what are they trying to accomplish? 0:23:13.520 --> 0:23:16.160 You know, Lincoln is a is a challenge brand here 0:23:16.160 --> 0:23:19.119 in the US. It's uh, you know, the big brands, 0:23:19.160 --> 0:23:22.560 the leaders in the luxury market, the volume luxury market 0:23:22.640 --> 0:23:26.840 are Mercedes, BMW and Lexus and they all sell three 0:23:27.240 --> 0:23:30.399 thousand or more a year and Lincoln, you know, barely 0:23:30.440 --> 0:23:34.040 cracks a hundred thousand, so it's not really getting enough 0:23:34.119 --> 0:23:37.400 volume to justify you know, the cost of product development 0:23:38.000 --> 0:23:41.480 and and advertising support and all that. But it's not 0:23:41.560 --> 0:23:44.880 a simple decision at all. You've got you've got these 0:23:44.920 --> 0:23:47.320 contracts with dealers out there, and you've got a lot 0:23:47.320 --> 0:23:50.640 of growth coming for Lincoln in China. And it's kind 0:23:50.640 --> 0:23:53.399 of like with GM and Buick. Buick is not a 0:23:53.400 --> 0:23:56.400 great brand in the US either, but it I think 0:23:56.440 --> 0:23:59.240 there's a sense that in order for an American brand 0:23:59.240 --> 0:24:02.280 to have credibility in China, it needs to continue to 0:24:02.320 --> 0:24:04.919 be sold in the US. So it's a it's a 0:24:04.920 --> 0:24:08.080 tough tough call for Jim Hackett at the CEO of Ford. 0:24:08.440 --> 0:24:12.000 So you mean that Matthew McConaughey is not really going 0:24:12.040 --> 0:24:14.400 to be able to move these Lincolns off the off 0:24:14.480 --> 0:24:16.240 the lot. I understand he's going to be starring in 0:24:16.280 --> 0:24:19.280 a couple of new Lincoln commercials and you get to 0:24:19.320 --> 0:24:23.000 watch them during college football playoffs on New Year's Day. 0:24:23.600 --> 0:24:27.240 That'll be fun. The commercials have been entertaining at times. 0:24:27.280 --> 0:24:30.440 They've certainly inspired some other entertainment. A lot of comedians 0:24:30.440 --> 0:24:34.639 have had fun riffing on spoofing on him. But no, 0:24:34.840 --> 0:24:37.320 you know, I think he brings some uh some fun 0:24:37.480 --> 0:24:40.760 to the brand and gets some attention and maybe hits 0:24:40.800 --> 0:24:43.960 at some of the the cool factor that they're trying 0:24:44.000 --> 0:24:47.440