1 00:00:05,800 --> 00:00:08,360 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim 2 00:00:08,400 --> 00:00:11,440 Speaker 1: Fox along with my co host Lisa Bramowitz. Each day 3 00:00:11,480 --> 00:00:15,000 Speaker 1: we bring you the most important, noteworthy, and useful interviews 4 00:00:15,040 --> 00:00:17,520 Speaker 1: for you and your money, whether you're at the grocery 5 00:00:17,560 --> 00:00:20,560 Speaker 1: store or the trading floor. Find the Bloomberg p m 6 00:00:20,680 --> 00:00:31,960 Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. 7 00:00:32,000 --> 00:00:34,159 Speaker 1: I want to just sort of focus in on energy 8 00:00:34,240 --> 00:00:37,239 Speaker 1: just because we are seeing this pretty market decline in 9 00:00:37,320 --> 00:00:39,280 Speaker 1: oil prices, and I want to bring in John Kilduff, 10 00:00:39,280 --> 00:00:42,080 Speaker 1: who's a founding partner of Again Capital. I mean, there 11 00:00:42,159 --> 00:00:44,840 Speaker 1: was once upon a time when oil prices would dictate 12 00:00:44,880 --> 00:00:48,640 Speaker 1: the direction of stocks and bonds in a massive way. John, 13 00:00:48,680 --> 00:00:51,720 Speaker 1: do you think that this move lower is sort of 14 00:00:51,960 --> 00:00:55,160 Speaker 1: the end of this particular blip downward or do you 15 00:00:55,200 --> 00:00:59,440 Speaker 1: think that there is much more downside ahead. I think 16 00:00:59,440 --> 00:01:02,000 Speaker 1: there's certainly some more downside to come. I think we're 17 00:01:02,040 --> 00:01:06,319 Speaker 1: going to revisit belows from November at around forty two 18 00:01:06,800 --> 00:01:10,800 Speaker 1: barrel um, and that's it's a result of just the 19 00:01:12,480 --> 00:01:14,640 Speaker 1: pent up buying that came into this market on the 20 00:01:14,680 --> 00:01:18,800 Speaker 1: back of the OPEQ and non OPEC production accord um 21 00:01:18,840 --> 00:01:23,039 Speaker 1: being coming up short and and and being given back 22 00:01:23,240 --> 00:01:28,160 Speaker 1: because the deal is proving ineffective. We're still heavily oversupplied 23 00:01:28,800 --> 00:01:30,959 Speaker 1: UM with no real relief in sight. And that's what 24 00:01:31,000 --> 00:01:34,119 Speaker 1: you're seeing here. John. I'm wondering, if you know, all 25 00:01:34,160 --> 00:01:36,679 Speaker 1: those books and reports about peak oil, I'm never going 26 00:01:36,760 --> 00:01:38,680 Speaker 1: to get that time back having read them. Should I 27 00:01:38,720 --> 00:01:42,199 Speaker 1: just throw them out now? Absolutely? And actually I would 28 00:01:42,200 --> 00:01:44,040 Speaker 1: be the guy that Bloomberg would have me on to 29 00:01:44,160 --> 00:01:47,880 Speaker 1: come and refute, uh that that theory at the time, 30 00:01:48,360 --> 00:01:53,160 Speaker 1: So I kind of missed those gigs myself. But absolutely. 31 00:01:53,320 --> 00:01:55,080 Speaker 1: And you know, at the time when I was pushing 32 00:01:55,120 --> 00:01:58,440 Speaker 1: back against the argument of peak oil, it was because 33 00:01:58,560 --> 00:02:02,880 Speaker 1: of technology that I've figured would come into the oil 34 00:02:02,880 --> 00:02:05,240 Speaker 1: patch just as it was coming in, you know, to 35 00:02:05,400 --> 00:02:07,680 Speaker 1: every other aspect of our lives. You know, cell phones 36 00:02:07,720 --> 00:02:10,040 Speaker 1: that were you know, bigger than your head you're coming 37 00:02:10,080 --> 00:02:12,480 Speaker 1: into to fit into your shirt pocket. You know, why 38 00:02:12,520 --> 00:02:15,960 Speaker 1: couldn't some of that technology be transferred and brought to UM, 39 00:02:16,000 --> 00:02:18,760 Speaker 1: not just tracking per se, which was really a reinvented 40 00:02:18,800 --> 00:02:22,560 Speaker 1: old technology, but seismics, well, you know, being able to 41 00:02:22,560 --> 00:02:24,280 Speaker 1: look into the ground, things like that. So that's that's 42 00:02:24,280 --> 00:02:26,760 Speaker 1: why we're here. So John, you're saying that you think 43 00:02:26,800 --> 00:02:30,560 Speaker 1: that oil is headed to forty two dollars barrel Dave. 44 00:02:31,000 --> 00:02:34,600 Speaker 1: If oil gets there within the next, say, couple of weeks, 45 00:02:35,360 --> 00:02:37,360 Speaker 1: what do you expect the reaction to be on the stocks. 46 00:02:37,360 --> 00:02:39,720 Speaker 1: I mean, we already are seeing a down downturn in 47 00:02:39,760 --> 00:02:42,000 Speaker 1: the hya bond market. It's starting to track a little 48 00:02:42,000 --> 00:02:46,120 Speaker 1: bit more with with oil. But what about what about stocks? Well, 49 00:02:46,240 --> 00:02:48,560 Speaker 1: arguably more of the same. I mean you just look 50 00:02:48,600 --> 00:02:50,280 Speaker 1: at what's going on with the S and P five 51 00:02:50,840 --> 00:02:54,040 Speaker 1: Energy Index as a point of reference. Uh, that peak 52 00:02:54,160 --> 00:02:57,560 Speaker 1: back in the middle of December, and since then it's 53 00:02:57,600 --> 00:03:01,640 Speaker 1: fallen four cent. So you know, we've seen sort of 54 00:03:01,680 --> 00:03:04,720 Speaker 1: the air come out of the balloon to some extent already. 55 00:03:05,080 --> 00:03:07,280 Speaker 1: And if you get you know, more the same, well, 56 00:03:07,320 --> 00:03:10,760 Speaker 1: there's more reason for that particular move to keep going. 57 00:03:11,240 --> 00:03:13,440 Speaker 1: And I just point out on a day like today, 58 00:03:13,480 --> 00:03:16,080 Speaker 1: it's like pick your company that's out with results and 59 00:03:16,120 --> 00:03:20,120 Speaker 1: people aren't liking what they're seeing. Uh. Two examples Pioneer 60 00:03:20,200 --> 00:03:24,920 Speaker 1: Natural Resources, which has fallen three percent. They're lowering production 61 00:03:25,040 --> 00:03:28,600 Speaker 1: forecasts among other things. And Chesapeake Energy. You know, even 62 00:03:28,639 --> 00:03:31,120 Speaker 1: though they had their first profit in a couple of years, 63 00:03:31,560 --> 00:03:34,960 Speaker 1: that stocks down close to seven and a half percent, 64 00:03:35,080 --> 00:03:37,480 Speaker 1: So you know, put it all together, and it's not 65 00:03:37,480 --> 00:03:39,320 Speaker 1: like you're gonna get much on the ernie's front at 66 00:03:39,320 --> 00:03:43,040 Speaker 1: this point. That's going to head off more of what 67 00:03:43,080 --> 00:03:46,200 Speaker 1: we've been seeing lately. Hey John, just a quick note 68 00:03:46,240 --> 00:03:48,720 Speaker 1: to wondering about the coverage ratio, you know, the ability 69 00:03:48,760 --> 00:03:51,040 Speaker 1: of these oil companies to continue to pay dividends. I 70 00:03:51,080 --> 00:03:53,520 Speaker 1: was looking at a Royal Dutch Shell over seven percent 71 00:03:53,840 --> 00:03:56,360 Speaker 1: exce on Mobile now three and three quarters of a percent. 72 00:03:56,960 --> 00:03:59,360 Speaker 1: Are those the kind of things that people can invest 73 00:03:59,520 --> 00:04:01,480 Speaker 1: in an expect the dividend or are they're just going 74 00:04:01,520 --> 00:04:04,760 Speaker 1: to enjoy a wild ride and they're gonna enjoy a 75 00:04:04,800 --> 00:04:06,720 Speaker 1: bit of a wild ride. I will say there's a 76 00:04:06,720 --> 00:04:09,280 Speaker 1: there's two silver linings here for an investors. Just probably 77 00:04:09,400 --> 00:04:12,480 Speaker 1: within the SMP five hundred, the energy sector is down 78 00:04:12,600 --> 00:04:14,920 Speaker 1: a lot. It's it's maybe only eighteen percent I think 79 00:04:15,000 --> 00:04:18,559 Speaker 1: these days, right, Dave and UM as well. The oil 80 00:04:18,600 --> 00:04:23,440 Speaker 1: companies have really gone through a wrenching reorganization and are 81 00:04:23,560 --> 00:04:27,200 Speaker 1: a lot more profitable at lower oil prices. So to 82 00:04:27,240 --> 00:04:29,400 Speaker 1: the extent we do dip down to the levels that 83 00:04:29,400 --> 00:04:31,680 Speaker 1: that I see, there will be some short term hits 84 00:04:31,680 --> 00:04:33,760 Speaker 1: and the index has already taken a big hit. But 85 00:04:33,960 --> 00:04:36,120 Speaker 1: to the extent there's any kind of an upturner industry 86 00:04:36,160 --> 00:04:39,800 Speaker 1: reaction production wise, UM, the stocks will become goodbyes because 87 00:04:39,839 --> 00:04:41,640 Speaker 1: you will see some good earnings as we are seeing 88 00:04:42,240 --> 00:04:45,400 Speaker 1: relative to where prices are. I just point out looking 89 00:04:45,440 --> 00:04:48,000 Speaker 1: among the eleven million industry groups in the SMP five hundred, 90 00:04:48,120 --> 00:04:50,960 Speaker 1: energy is just about six percent, so it's really kind 91 00:04:51,000 --> 00:04:54,760 Speaker 1: of lost its sway over the stock market. Nonetheless, it's 92 00:04:54,800 --> 00:04:58,279 Speaker 1: definitely an area that's been hurting the SMP five hundred, 93 00:04:58,400 --> 00:05:01,000 Speaker 1: one of only two that's down this year, phone companies 94 00:05:01,000 --> 00:05:03,520 Speaker 1: being the other. And you're really talking about five stocks there. Yeah, 95 00:05:04,440 --> 00:05:07,400 Speaker 1: I'm sure it's really overtaken energy, John. I wanted to 96 00:05:07,400 --> 00:05:10,000 Speaker 1: get your take and if forty two dollars a barrel 97 00:05:10,080 --> 00:05:12,640 Speaker 1: would be the new normal for oil prices for a 98 00:05:12,720 --> 00:05:14,960 Speaker 1: longer period of time, or is that going to be 99 00:05:15,000 --> 00:05:17,920 Speaker 1: the inflection point at which prices can then rise again. 100 00:05:19,839 --> 00:05:22,880 Speaker 1: We're gonna have to see what the industry reaction is. Uh. 101 00:05:22,960 --> 00:05:25,520 Speaker 1: When we got down to these these levels or lower 102 00:05:25,560 --> 00:05:28,880 Speaker 1: than that. UM, we saw the rigs D recount here 103 00:05:28,880 --> 00:05:32,520 Speaker 1: in the US in particular really plummet since then, since 104 00:05:32,520 --> 00:05:34,480 Speaker 1: we hear a low point about a year or so ago, 105 00:05:34,640 --> 00:05:37,440 Speaker 1: it's doubled. So you know they've come racing back. And 106 00:05:37,440 --> 00:05:39,920 Speaker 1: they've also hedged a lot of their productions. So even 107 00:05:39,920 --> 00:05:42,599 Speaker 1: if prices fall, they're getting paid fifty dollars a barrel 108 00:05:42,680 --> 00:05:46,040 Speaker 1: no matter where they go. So we're gonna have to see, uh, 109 00:05:46,160 --> 00:05:48,680 Speaker 1: where we're at that point. Um, it could be an 110 00:05:48,720 --> 00:05:52,480 Speaker 1: interesting showdown with the OPEC and Saudi Arabia where they 111 00:05:52,520 --> 00:05:54,960 Speaker 1: decide to flood the market and really break the back 112 00:05:55,000 --> 00:05:59,599 Speaker 1: of prices again and um and potentially see a price war. 113 00:06:00,040 --> 00:06:02,120 Speaker 1: Got we got to leave it there, John Kildeff, thanks 114 00:06:02,240 --> 00:06:05,000 Speaker 1: very much, founding partner again the Capital our thanks also 115 00:06:05,040 --> 00:06:07,360 Speaker 1: to Dave Wilson, Bloomberg Stocks Commus go ahead send him 116 00:06:07,360 --> 00:06:22,719 Speaker 1: an email at d Wilson at Bloomberg dot net. Right now, however, 117 00:06:22,760 --> 00:06:26,080 Speaker 1: I want to discuss the ramifications from Puerto Rico's move 118 00:06:26,160 --> 00:06:28,680 Speaker 1: to file for bankruptcy like protection, and I want to 119 00:06:28,680 --> 00:06:31,880 Speaker 1: bring in David Hammer, head of the municipal bond portfolio 120 00:06:31,920 --> 00:06:35,960 Speaker 1: management at Pacific Investment Management Company in New York. David, 121 00:06:36,000 --> 00:06:38,719 Speaker 1: thank you so much for joining us. Uh. First, I 122 00:06:38,760 --> 00:06:41,480 Speaker 1: just want to get your take on what the implications 123 00:06:41,560 --> 00:06:45,040 Speaker 1: are for the holders of Puerto Rico seventy four billion 124 00:06:45,080 --> 00:06:48,880 Speaker 1: dollars of debt as a result of this Title three filing. Hi, 125 00:06:48,960 --> 00:06:51,200 Speaker 1: thanks for having me. You know, I think the most 126 00:06:51,240 --> 00:06:54,680 Speaker 1: important UH turn of events here is that the period 127 00:06:54,800 --> 00:06:59,000 Speaker 1: for consensual restructuring between the Oversight Board and the Government 128 00:06:59,000 --> 00:07:01,080 Speaker 1: of Puerto Rico and creditors appears to be coming to 129 00:07:01,120 --> 00:07:04,080 Speaker 1: a close. And what looks more likely is that the 130 00:07:04,120 --> 00:07:08,000 Speaker 1: Oversight Board will begin to use UH Title three of 131 00:07:08,080 --> 00:07:12,040 Speaker 1: the recently established Premise of Bankruptcy Code, which allows the 132 00:07:12,080 --> 00:07:16,440 Speaker 1: Oversight Board to effectively dictate recovery to creditors. UM. So 133 00:07:16,520 --> 00:07:19,520 Speaker 1: it opens up a door for UH. It's a potentially 134 00:07:19,560 --> 00:07:23,720 Speaker 1: lower lower prices on bonds, steeper haircuts than what's implied 135 00:07:23,800 --> 00:07:26,920 Speaker 1: in the market. And also importantly, you know this is 136 00:07:26,920 --> 00:07:30,120 Speaker 1: gonna take a while, so well, well, David, do you say, Yeah, 137 00:07:30,160 --> 00:07:34,440 Speaker 1: there's gonna be probably steepier, steeper implied prices, steeper declines 138 00:07:34,480 --> 00:07:37,080 Speaker 1: and prices that we're seeing currently in the market. One 139 00:07:37,120 --> 00:07:38,800 Speaker 1: thing that we don't hear a lot about is a 140 00:07:38,800 --> 00:07:42,280 Speaker 1: lot of the holders of these bonds are individual mom 141 00:07:42,280 --> 00:07:46,640 Speaker 1: and pop investors, UH, particularly in Puerto Rico. And how 142 00:07:46,720 --> 00:07:51,400 Speaker 1: much will that sort of political angle change the dynamic 143 00:07:51,480 --> 00:07:53,480 Speaker 1: of how much debt will get written down because people 144 00:07:53,480 --> 00:07:55,600 Speaker 1: think of like vulture hedge funds and that you know, 145 00:07:55,600 --> 00:07:57,480 Speaker 1: who cares if they get they get some of the 146 00:07:57,720 --> 00:08:00,920 Speaker 1: principle written down. But what about these retail invests? You 147 00:08:00,960 --> 00:08:03,400 Speaker 1: know what I'd say, for starters, we don't think that 148 00:08:03,400 --> 00:08:05,840 Speaker 1: that true. Mom and pop retail investors still own a 149 00:08:05,880 --> 00:08:09,080 Speaker 1: lot of this debt. Puerto Rico is downgraded to sub investment, 150 00:08:09,120 --> 00:08:13,840 Speaker 1: creating two thousand thirteen. UH default has been widely anticipated 151 00:08:13,880 --> 00:08:17,240 Speaker 1: and expected really for a number of years now. Bomb 152 00:08:17,280 --> 00:08:19,760 Speaker 1: prizes have been trading at really steep discounts for a 153 00:08:19,800 --> 00:08:21,920 Speaker 1: long period of time, so you know a lot of 154 00:08:22,000 --> 00:08:25,320 Speaker 1: risk transfers already occurred. And the primary holders of these 155 00:08:25,360 --> 00:08:29,400 Speaker 1: bonds now are a few mutual funds in primarily hedge funds. David, 156 00:08:29,480 --> 00:08:32,480 Speaker 1: Is there any possibility that this will just be the 157 00:08:32,559 --> 00:08:37,280 Speaker 1: opening act in other municipal filings such as Illinois? Will 158 00:08:37,320 --> 00:08:40,200 Speaker 1: they use the same route? Yeah? I don't think so 159 00:08:40,360 --> 00:08:42,320 Speaker 1: for a couple of reasons. You know that the three 160 00:08:42,320 --> 00:08:45,480 Speaker 1: point eight trillion dollar municipal market is where states and 161 00:08:45,559 --> 00:08:49,120 Speaker 1: cities and schools and toll roads and airports go for 162 00:08:49,200 --> 00:08:52,480 Speaker 1: their their financing needs. Puerto Rico is really a distinct case. 163 00:08:53,280 --> 00:08:57,200 Speaker 1: It's a territory and only territories are eligible to use 164 00:08:57,280 --> 00:09:01,920 Speaker 1: this law premises, so it applied just the territories. And 165 00:09:02,360 --> 00:09:05,400 Speaker 1: when you talk about other areas in the United States, 166 00:09:05,440 --> 00:09:08,680 Speaker 1: you know, they've experienced decent growth UH post crisis, post 167 00:09:08,679 --> 00:09:13,240 Speaker 1: financial crisis, UH, decent population trends. Puerto Rico's economy has 168 00:09:13,280 --> 00:09:15,840 Speaker 1: been in a recession for about a decade UH, and 169 00:09:15,880 --> 00:09:19,440 Speaker 1: they're experiencing out migration, so they're losing people every year. 170 00:09:19,600 --> 00:09:23,600 Speaker 1: What about the Virgin Islands, Yes, it's the Virgin Islands 171 00:09:23,679 --> 00:09:27,160 Speaker 1: is one that in theory UH could use PROMISSA in 172 00:09:27,160 --> 00:09:29,360 Speaker 1: the future. You know, I think it's a very different 173 00:09:29,360 --> 00:09:32,520 Speaker 1: situation and that they are having fiscal stress, but they're 174 00:09:32,520 --> 00:09:35,240 Speaker 1: really early in the process. They haven't done much to 175 00:09:35,280 --> 00:09:38,360 Speaker 1: cut their budget. They haven't done anything on pension reform. 176 00:09:38,640 --> 00:09:40,760 Speaker 1: Puerto Rico is very different. You know, they've already reformed 177 00:09:40,760 --> 00:09:43,880 Speaker 1: one of the biggest pensions. UH. Their average pension is 178 00:09:43,880 --> 00:09:47,440 Speaker 1: only about fourteen thousand dollars. So while there was a 179 00:09:47,440 --> 00:09:49,880 Speaker 1: lot of room to cut at one point in Puerto Rico, 180 00:09:50,200 --> 00:09:53,080 Speaker 1: there isn't anymore, so a bit different from Virgin Islands 181 00:09:53,120 --> 00:09:54,560 Speaker 1: as well. So what are you looking at? What do 182 00:09:54,600 --> 00:09:57,160 Speaker 1: you think is the best opportunity in the three point 183 00:09:57,200 --> 00:10:00,800 Speaker 1: eight trillion dollar US munsoot ball market. So we really 184 00:10:00,840 --> 00:10:03,080 Speaker 1: like a lot of debt at the moment, I'd say, 185 00:10:03,080 --> 00:10:06,280 Speaker 1: particularly in the low triple B too high double B range. 186 00:10:07,000 --> 00:10:10,040 Speaker 1: Municipal default rates continued to be really low. Despite these 187 00:10:10,040 --> 00:10:13,319 Speaker 1: headlines on Detroit and Jefferson County and now Puerto Rico, 188 00:10:14,120 --> 00:10:17,880 Speaker 1: municipal bonds continue to experience low default rates versus corporates. 189 00:10:18,200 --> 00:10:20,000 Speaker 1: One thing we look at quite a bit is the 190 00:10:20,480 --> 00:10:24,040 Speaker 1: default rate for triple B munies is currently less over 191 00:10:24,080 --> 00:10:26,400 Speaker 1: the last ten years as calculated by mood He's actually 192 00:10:26,520 --> 00:10:29,440 Speaker 1: less than double A corporate bonds, So we see a 193 00:10:29,440 --> 00:10:32,520 Speaker 1: lot of opportunity. The market has been I think a 194 00:10:32,559 --> 00:10:35,440 Speaker 1: bit wary this year due to the backdrop of tax reform. 195 00:10:35,720 --> 00:10:38,360 Speaker 1: So where we typically see pretty strong inflows into the 196 00:10:38,400 --> 00:10:41,120 Speaker 1: asset class early in the year, that hasn't been the 197 00:10:41,120 --> 00:10:43,240 Speaker 1: case this year. We've only seen about two billion dollars 198 00:10:43,240 --> 00:10:46,160 Speaker 1: coming to the municipal market compared to about a hundred 199 00:10:46,160 --> 00:10:49,360 Speaker 1: billion in the investment grade corporate market. David, we're just 200 00:10:49,440 --> 00:10:52,040 Speaker 1: to let you know we're waiting for President Donald Trump. 201 00:10:52,040 --> 00:10:53,960 Speaker 1: He is expected to make remarks as part of the 202 00:10:54,000 --> 00:10:56,360 Speaker 1: National Day of Prayer event from the Rose Garden at 203 00:10:56,360 --> 00:10:58,720 Speaker 1: the White House. Will be bringing those to you when 204 00:10:59,040 --> 00:11:01,760 Speaker 1: he appears. If someone were to call you, David on 205 00:11:01,760 --> 00:11:03,560 Speaker 1: the phone and say, all right, so, what's We're going 206 00:11:03,600 --> 00:11:06,319 Speaker 1: to give you the power to figure out what Puerto 207 00:11:06,440 --> 00:11:09,280 Speaker 1: Rico should do? Do Do you have any recommendations what should 208 00:11:09,320 --> 00:11:12,840 Speaker 1: happen next? If you were given that task? Yeah, so yeah, 209 00:11:12,920 --> 00:11:16,120 Speaker 1: I think importantly the oversight board that Congress established has 210 00:11:16,160 --> 00:11:18,360 Speaker 1: already been given that task. So that is exactly what 211 00:11:18,400 --> 00:11:20,559 Speaker 1: they're doing. And the you know, the first step in 212 00:11:20,600 --> 00:11:24,240 Speaker 1: the process was to approve a fiscal plan that sets 213 00:11:24,280 --> 00:11:27,680 Speaker 1: Puerto Rico on a sustainable path going forward. Uh, you know, 214 00:11:27,720 --> 00:11:30,920 Speaker 1: requires burden sharing in terms of further pension cuts and 215 00:11:30,920 --> 00:11:34,280 Speaker 1: they assume about a tem percent reduction and pensions uh 216 00:11:34,400 --> 00:11:39,760 Speaker 1: increasing uh the budget through reducing expenses and increasing revenues, 217 00:11:39,800 --> 00:11:43,480 Speaker 1: so enforcing tax collections. But all that, but I mean, 218 00:11:43,520 --> 00:11:45,199 Speaker 1: that's I mean I started to break into it, but 219 00:11:45,240 --> 00:11:49,480 Speaker 1: you know, all that makes complete sense, But that's doesn't 220 00:11:49,520 --> 00:11:51,800 Speaker 1: seem to be ruling the day at the moment, and 221 00:11:51,800 --> 00:11:55,320 Speaker 1: I'm wondering whether there are things that can be enacted. 222 00:11:55,320 --> 00:11:56,640 Speaker 1: I mean, you know, one of the things that always 223 00:11:57,040 --> 00:11:59,560 Speaker 1: talked about in Puerto Rico was the triple tax free 224 00:11:59,559 --> 00:12:02,240 Speaker 1: status was granted by the federal government, the tax breaks 225 00:12:02,280 --> 00:12:04,720 Speaker 1: to the pharmaceutical industry. Is there anything that can be 226 00:12:04,840 --> 00:12:08,440 Speaker 1: tangibly done in the next six months that will help 227 00:12:08,480 --> 00:12:11,760 Speaker 1: revive the Puerto Rican economy? So I think the Oversight 228 00:12:11,800 --> 00:12:13,679 Speaker 1: Board is doing it. You know where I disagree with you. 229 00:12:13,920 --> 00:12:17,320 Speaker 1: I think they are taking actions. They are taking steps, uh. 230 00:12:17,320 --> 00:12:19,960 Speaker 1: And it's it's deeper haircuts for bond holders. Uh. And 231 00:12:19,960 --> 00:12:22,440 Speaker 1: then we'd like to see some some pro growth reform. 232 00:12:22,559 --> 00:12:25,480 Speaker 1: So I think one example, there is a Cofina sales 233 00:12:25,480 --> 00:12:28,800 Speaker 1: tax bond uh and right now creditors are disputing is 234 00:12:28,840 --> 00:12:31,360 Speaker 1: that lean valid or not? Do I have a claim 235 00:12:31,400 --> 00:12:33,680 Speaker 1: on those sales tax revenues? You know, we think could 236 00:12:33,679 --> 00:12:36,480 Speaker 1: be beneficial the economy is actually reducing the sales tax 237 00:12:36,840 --> 00:12:40,280 Speaker 1: in Puerto Rico. It's a regressive tax. You could bring 238 00:12:40,320 --> 00:12:42,480 Speaker 1: more money into the economy. You know, it's not the 239 00:12:42,480 --> 00:12:44,760 Speaker 1: greatest thing for bondholders, but we think that could help 240 00:12:44,800 --> 00:12:55,640 Speaker 1: get the Puerto rico economy going. We want to take 241 00:12:55,679 --> 00:12:58,479 Speaker 1: a moment to let you know about something new from Bloomberg. 242 00:12:58,720 --> 00:13:01,800 Speaker 1: Starting right now, you can use our io s app 243 00:13:01,960 --> 00:13:05,439 Speaker 1: or our new Google Chrome extension to scan any news 244 00:13:05,480 --> 00:13:09,560 Speaker 1: story on any website, instantly revealing relevant news and market 245 00:13:09,640 --> 00:13:13,200 Speaker 1: data from Bloomberg and other sources related to companies and 246 00:13:13,320 --> 00:13:16,480 Speaker 1: people you're reading about. 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So we have been talking quite 252 00:13:36,200 --> 00:13:40,040 Speaker 1: a bit about the increasing weakness that we've seen in 253 00:13:40,320 --> 00:13:43,319 Speaker 1: consumer credit, and one story that was in the Wall 254 00:13:43,320 --> 00:13:46,920 Speaker 1: Street Journal last night that did catch my attention was that, 255 00:13:47,080 --> 00:13:49,319 Speaker 1: you know, some big banks have started to pull back 256 00:13:49,800 --> 00:13:52,640 Speaker 1: pretty pretty sharply from auto loans as a result of 257 00:13:52,679 --> 00:13:54,800 Speaker 1: the weakening credit quality, and this is sort of adding 258 00:13:54,800 --> 00:13:56,840 Speaker 1: to the weakness that we're seeing in sales. To make 259 00:13:56,880 --> 00:13:59,080 Speaker 1: sense of this and try to paint this in the 260 00:13:59,120 --> 00:14:01,839 Speaker 1: broader scheme of credit markets, I want to bring in 261 00:14:01,920 --> 00:14:05,840 Speaker 1: Matthew miss he's global credit strategist at UBS Securities in 262 00:14:06,080 --> 00:14:08,080 Speaker 1: New York. Matt, thank you so much for joining us. 263 00:14:08,679 --> 00:14:11,600 Speaker 1: I want to start with what your take on the 264 00:14:11,679 --> 00:14:15,640 Speaker 1: latest data at the latest results from Synchrony Capital one 265 00:14:16,080 --> 00:14:19,920 Speaker 1: the automakers with the deterioration in their sales numbers. I mean, 266 00:14:20,160 --> 00:14:22,200 Speaker 1: do you think that this points to some kind of 267 00:14:22,320 --> 00:14:28,400 Speaker 1: broader problem that is being underrated in markets today? Yeah, 268 00:14:28,560 --> 00:14:32,200 Speaker 1: I think there's UM. I think there's there's two two stories. 269 00:14:32,280 --> 00:14:36,520 Speaker 1: The more optimistic one is that aggregate consumer credit fundamentals 270 00:14:36,520 --> 00:14:41,000 Speaker 1: look relatively strong. The backdrop from macroeconomic perspective is fairly 271 00:14:41,040 --> 00:14:43,800 Speaker 1: resilient and stable, albeit at a lower base than I 272 00:14:43,800 --> 00:14:46,120 Speaker 1: think many would like. UM. I think what we've argued 273 00:14:46,160 --> 00:14:49,200 Speaker 1: to be clear is the rise in delinquencies. We think 274 00:14:49,320 --> 00:14:52,080 Speaker 1: is uh certainly an undercovered story, and it's driven by 275 00:14:52,160 --> 00:14:55,680 Speaker 1: three things. I think. The first is you've certainly seen lenders, 276 00:14:55,720 --> 00:14:59,600 Speaker 1: particularly non banks, go further down the credit spectrum to 277 00:14:59,720 --> 00:15:02,360 Speaker 1: base we meet loan growth hurdles. UM. So you've seen, 278 00:15:02,360 --> 00:15:04,920 Speaker 1: in particular, across a lot of different segments, not just 279 00:15:05,000 --> 00:15:08,360 Speaker 1: consumer or retail, but also commercial credit, you've seen non 280 00:15:08,400 --> 00:15:11,080 Speaker 1: banks be much more aggressive in terms of going down 281 00:15:11,080 --> 00:15:14,120 Speaker 1: the curve and lending to non primary subprime borrowers. But 282 00:15:14,200 --> 00:15:16,800 Speaker 1: I think the second thing, and we use a proprietary 283 00:15:16,840 --> 00:15:20,360 Speaker 1: survey from UBS Evidence Lab to uncover this, this dynamic 284 00:15:20,440 --> 00:15:22,960 Speaker 1: I think in in detail um is we think that 285 00:15:23,000 --> 00:15:27,720 Speaker 1: the underlying consumer population is pressured by essentially a lack 286 00:15:27,760 --> 00:15:30,160 Speaker 1: of real wage growth. So when you look at nominal 287 00:15:30,200 --> 00:15:33,480 Speaker 1: wage growth, it's been certainly positive, but in low to 288 00:15:33,600 --> 00:15:36,880 Speaker 1: mid single digits and fairly disappointing. But what we find 289 00:15:36,960 --> 00:15:40,560 Speaker 1: is that expenditures are rising if you think about education costs, 290 00:15:40,560 --> 00:15:43,160 Speaker 1: if you think about healthcare costs, and on balance, there 291 00:15:43,200 --> 00:15:45,840 Speaker 1: doesn't seem to be a lot of velocity or growth 292 00:15:45,880 --> 00:15:49,160 Speaker 1: and real incomes. And so you can you can rationalize 293 00:15:49,160 --> 00:15:51,680 Speaker 1: a world where default rates are rising, uh in the 294 00:15:51,760 --> 00:15:55,520 Speaker 1: sense that a lending conditions have gotten too loose. But 295 00:15:55,680 --> 00:15:58,600 Speaker 1: be ultimately, we think that credit quality is driven in 296 00:15:58,640 --> 00:16:01,760 Speaker 1: many cases by the ability and the willingness to pay. 297 00:16:02,000 --> 00:16:04,440 Speaker 1: And if the ability to pay is constrained by cash flow, 298 00:16:05,200 --> 00:16:08,360 Speaker 1: which we would say income is a good proxy for that, 299 00:16:08,480 --> 00:16:10,320 Speaker 1: it makes sense to us six or seven years into 300 00:16:10,320 --> 00:16:12,160 Speaker 1: the cycle again, when you started to lend down the 301 00:16:12,160 --> 00:16:16,000 Speaker 1: curve that some of that income inequality and essentially a 302 00:16:16,080 --> 00:16:18,000 Speaker 1: lack of real wage growth is really starting to come 303 00:16:18,000 --> 00:16:20,720 Speaker 1: through UH and uh and and and and show some 304 00:16:21,040 --> 00:16:23,520 Speaker 1: you know, some cracks on the consumer side. So, Matt, 305 00:16:23,560 --> 00:16:26,640 Speaker 1: if you can extrapolate out on the more barish view 306 00:16:26,800 --> 00:16:29,960 Speaker 1: on what these numbers mean and sort of give us 307 00:16:29,960 --> 00:16:32,880 Speaker 1: a sense of what the result would be if this 308 00:16:33,320 --> 00:16:37,120 Speaker 1: credit weakness in the consumer does continue to increase the 309 00:16:37,120 --> 00:16:40,240 Speaker 1: pace that we've seen recently, what what would be the 310 00:16:40,240 --> 00:16:45,560 Speaker 1: implications for say a credit investor, even an equity investor. Yes, 311 00:16:45,600 --> 00:16:47,840 Speaker 1: so I think this cycle, we would argue that central 312 00:16:47,840 --> 00:16:50,840 Speaker 1: bank policy has been very accommodative UM, and so some 313 00:16:50,880 --> 00:16:53,480 Speaker 1: of the traditional measures we look at UM, such as 314 00:16:53,520 --> 00:16:58,720 Speaker 1: financial condition indicators or lending standards, seem to look fairly benign. Again, 315 00:16:58,760 --> 00:17:00,920 Speaker 1: I think a lot of that is the liquidity that's 316 00:17:00,920 --> 00:17:03,800 Speaker 1: been provided by central banks. So one of the things 317 00:17:03,800 --> 00:17:06,879 Speaker 1: that we believe this cycle, UM is that delinquency and 318 00:17:06,880 --> 00:17:10,280 Speaker 1: default rates may need to be severe UH and elevated 319 00:17:10,359 --> 00:17:13,280 Speaker 1: enough to basically to scare out or to push back 320 00:17:13,920 --> 00:17:17,119 Speaker 1: on all of the liquidity UH and the investment money 321 00:17:17,560 --> 00:17:19,919 Speaker 1: that's basically reaching for yield. So I think the story 322 00:17:19,960 --> 00:17:22,480 Speaker 1: this time may actually end up being default rates and 323 00:17:22,480 --> 00:17:25,360 Speaker 1: delinquencies need to get high enough that essentially it shocks 324 00:17:25,480 --> 00:17:28,679 Speaker 1: or scares UH the investor community, and it basically causes 325 00:17:28,760 --> 00:17:31,719 Speaker 1: a pullback in liquidity UM. So I think that you 326 00:17:31,720 --> 00:17:34,720 Speaker 1: look for two things from our side, Either one very 327 00:17:34,800 --> 00:17:38,159 Speaker 1: severe increase in delinquency or default rates in a specific 328 00:17:38,200 --> 00:17:42,200 Speaker 1: market UM such as autos, or two, I think, more importantly, 329 00:17:42,200 --> 00:17:45,439 Speaker 1: a more broad based increase in delinquency rates UM that 330 00:17:45,480 --> 00:17:48,640 Speaker 1: again would affect lenders such as non banks and banks 331 00:17:49,160 --> 00:17:51,640 Speaker 1: on a more widespread scale. Matthew, I want to pick 332 00:17:51,680 --> 00:17:53,800 Speaker 1: ups on something having to do with these non bank 333 00:17:53,920 --> 00:17:56,840 Speaker 1: lenders that you say are being pressured to meet their 334 00:17:56,880 --> 00:18:03,600 Speaker 1: loan growth goals. If non bank lenders create the credit 335 00:18:03,840 --> 00:18:07,880 Speaker 1: and then sell on the loans to other people, they'll 336 00:18:07,920 --> 00:18:11,600 Speaker 1: be long gone before any of this paper starts to stink. 337 00:18:12,920 --> 00:18:17,159 Speaker 1: Is that accurate? Probably depends on the type of the 338 00:18:17,200 --> 00:18:20,480 Speaker 1: loan that you are referencing. So I mean they're not 339 00:18:20,520 --> 00:18:22,080 Speaker 1: going to hold it on their books, is my point. 340 00:18:22,160 --> 00:18:26,240 Speaker 1: No other ways. We just spoke to Mark Stefanski of 341 00:18:25,520 --> 00:18:30,000 Speaker 1: the of the Federal third Federal Savings and Loan they're 342 00:18:30,000 --> 00:18:31,600 Speaker 1: based in Cleveland. He said, no, no, when they make 343 00:18:31,640 --> 00:18:33,520 Speaker 1: the loan let's say for a house, they keep the 344 00:18:33,520 --> 00:18:35,919 Speaker 1: loan on their books, but most of these non bank lenders, 345 00:18:35,920 --> 00:18:39,600 Speaker 1: are they really keeping the loans? I think it really depends. 346 00:18:39,680 --> 00:18:41,720 Speaker 1: I mean again, I think you know, to be clear, 347 00:18:41,720 --> 00:18:44,399 Speaker 1: it depends whether you're talking about a mortgage versus a 348 00:18:44,520 --> 00:18:48,000 Speaker 1: student versus a credit card, or an auto loan. UM, 349 00:18:48,240 --> 00:18:50,119 Speaker 1: let's stick. But let's stick with auto and credit the 350 00:18:50,240 --> 00:18:52,399 Speaker 1: revolving credit, because those are the two areas that that 351 00:18:52,440 --> 00:18:55,520 Speaker 1: seemed to be at least in the crosshairs right now. 352 00:18:56,359 --> 00:19:00,280 Speaker 1: Autos and credit cards. Yes, I believe anywhere from a 353 00:19:00,400 --> 00:19:03,480 Speaker 1: quarter to let's say a little over a half of 354 00:19:03,560 --> 00:19:08,240 Speaker 1: loans are securitized. UM. You know, I think the the 355 00:19:08,440 --> 00:19:11,119 Speaker 1: the caveat there is not everything is securitized or not. 356 00:19:11,200 --> 00:19:14,800 Speaker 1: Everything is basically moved off balance sheet. UM. I think 357 00:19:14,880 --> 00:19:18,080 Speaker 1: you know, if you take mortgages, for example, UM, you 358 00:19:18,119 --> 00:19:21,000 Speaker 1: have residual rights in many cases on the servicing side, 359 00:19:21,680 --> 00:19:25,159 Speaker 1: and you also have UM, I think risks around certainly 360 00:19:25,200 --> 00:19:29,960 Speaker 1: if you're lending uh aggressively. We've seen with companies. UM. 361 00:19:30,000 --> 00:19:31,879 Speaker 1: You know, earlier in the month, we've seen with companies 362 00:19:31,880 --> 00:19:34,160 Speaker 1: on the mortgage side. Uh. You know that there's still 363 00:19:34,160 --> 00:19:37,480 Speaker 1: reputational or other risks if they're not essentially underwriting to 364 00:19:37,680 --> 00:19:41,040 Speaker 1: proper appropriate standards. So I think it's it's a fair 365 00:19:41,160 --> 00:19:44,800 Speaker 1: argument to say, well, isn't this just intermediated without any 366 00:19:44,840 --> 00:19:47,320 Speaker 1: skin in the game. Um. But I would point out 367 00:19:47,359 --> 00:19:49,000 Speaker 1: that a lot of the non banks, I think you 368 00:19:49,000 --> 00:19:52,119 Speaker 1: need to keep in mind, are funded either by wholesale 369 00:19:52,160 --> 00:19:55,480 Speaker 1: funding or by the banks themselves. Um. And we've seen 370 00:19:55,520 --> 00:19:57,960 Speaker 1: this issue with some of the Canadian mortgage companies in 371 00:19:58,000 --> 00:20:01,160 Speaker 1: the last week, which is like home capital, Yeah, yeah, 372 00:20:01,200 --> 00:20:04,359 Speaker 1: if the market confidence right, it pulls back that that 373 00:20:04,480 --> 00:20:07,879 Speaker 1: funding ultimately is either wholesale in many cases wholesale based, 374 00:20:08,520 --> 00:20:11,280 Speaker 1: or it's it's supported in many cases by banks. Now, 375 00:20:11,400 --> 00:20:14,000 Speaker 1: not speaking specifically to a given issue in Canada, but 376 00:20:14,240 --> 00:20:16,520 Speaker 1: when we look at the non bank lenders across the 377 00:20:16,640 --> 00:20:19,680 Speaker 1: US from any of the consumer loans, you know, the 378 00:20:20,000 --> 00:20:24,240 Speaker 1: backstop essentially is the banks. Well, so let's put aside 379 00:20:24,280 --> 00:20:27,639 Speaker 1: the armageddon or sort of systemic crisis type of scenario. 380 00:20:28,160 --> 00:20:31,520 Speaker 1: Under the current scenario scenario where we see delinquencies and 381 00:20:31,600 --> 00:20:35,800 Speaker 1: charge offs increasing, do you think that the unsecured bonds 382 00:20:35,880 --> 00:20:40,080 Speaker 1: of say Capital One or debt of Synchrony, or you know, 383 00:20:40,240 --> 00:20:42,760 Speaker 1: some of these lenders do you think that that the 384 00:20:43,440 --> 00:20:47,159 Speaker 1: risk is adequately priced in right now? I think what 385 00:20:47,200 --> 00:20:48,919 Speaker 1: you've seen over the last few weeks is it's not 386 00:20:49,359 --> 00:20:51,520 Speaker 1: um and I think structurally the view that we would 387 00:20:51,560 --> 00:20:54,199 Speaker 1: have is again two things. One is that a lot 388 00:20:54,280 --> 00:20:57,359 Speaker 1: of the loan growth has occurred in the non banks sector, 389 00:20:58,040 --> 00:21:01,840 Speaker 1: and too, to be clear, that those loans tend to 390 00:21:01,840 --> 00:21:05,080 Speaker 1: be much higher risk. And I think lenders have been 391 00:21:05,119 --> 00:21:08,119 Speaker 1: lulled into a sense of complacency. I you know, I 392 00:21:08,119 --> 00:21:09,960 Speaker 1: think they're telling you in the last few weeks these 393 00:21:10,000 --> 00:21:13,160 Speaker 1: loans and the loan losses that were expected, we're much 394 00:21:13,200 --> 00:21:15,520 Speaker 1: lower than what's being realized. And in an environment I 395 00:21:15,520 --> 00:21:18,360 Speaker 1: would say where we're not in a recession or from 396 00:21:18,359 --> 00:21:20,840 Speaker 1: our side, not close to a recession. You know, the 397 00:21:20,920 --> 00:21:23,440 Speaker 1: concern that we have is if it's still a fairly 398 00:21:24,080 --> 00:21:27,480 Speaker 1: stable or or or benign backdrop. And you know, I 399 00:21:27,520 --> 00:21:29,880 Speaker 1: would use that term gently, but I do think that's 400 00:21:29,880 --> 00:21:32,600 Speaker 1: the case. And structurally, as we look out two to 401 00:21:32,720 --> 00:21:35,920 Speaker 1: three years, if the environment were to deteriorate, I think 402 00:21:35,920 --> 00:21:38,360 Speaker 1: the pressure is going to intensify. We gotta leave it there. 403 00:21:38,400 --> 00:21:42,480 Speaker 1: Matthew miss Global Credit Strategies for UBS securities. This is 404 00:21:42,520 --> 00:21:57,240 Speaker 1: Bloomberg for honor to bring in Ning Tang, chief executive 405 00:21:57,280 --> 00:22:02,560 Speaker 1: officer and founder of Credit Ease, a Chinese lender that 406 00:22:02,840 --> 00:22:06,520 Speaker 1: is funneling money into the United States from China and 407 00:22:06,720 --> 00:22:10,040 Speaker 1: seeing really what the Chinese consumer was looking to buy 408 00:22:10,119 --> 00:22:12,880 Speaker 1: in the US and the big wealthy investor is as well. 409 00:22:13,280 --> 00:22:15,000 Speaker 1: Thank you so much for joining us. So can you 410 00:22:15,040 --> 00:22:17,840 Speaker 1: just give us UH an overview of credit ees which 411 00:22:17,840 --> 00:22:22,520 Speaker 1: overseas almost fifteen billion dollars and pioneered a peer to 412 00:22:22,560 --> 00:22:26,679 Speaker 1: peer lending model. Yes, and UH we are a leading 413 00:22:26,760 --> 00:22:30,879 Speaker 1: wealth management company in China. We're also in a lending 414 00:22:30,920 --> 00:22:35,720 Speaker 1: business and we've been around for eleven years now. One 415 00:22:35,760 --> 00:22:38,919 Speaker 1: of the key things we are doing is to help 416 00:22:39,840 --> 00:22:46,000 Speaker 1: high end, wealthy Chinese investors deployed their wealth globally and 417 00:22:46,080 --> 00:22:50,720 Speaker 1: the US is a great destination. And just this week 418 00:22:50,880 --> 00:22:54,520 Speaker 1: one I'm here, so our fund of funds team H 419 00:22:55,040 --> 00:23:00,560 Speaker 1: is here evaluating investment opportunities into funds like a KR 420 00:23:00,840 --> 00:23:05,080 Speaker 1: black Stone. And also we have a fintech investment fund 421 00:23:05,119 --> 00:23:11,840 Speaker 1: team here evaluating investment opportunities into financial technology companies. Well, 422 00:23:11,920 --> 00:23:15,320 Speaker 1: so this this is really interesting. Are people going into 423 00:23:15,920 --> 00:23:20,160 Speaker 1: properties or are they steering away from US property investments? 424 00:23:20,200 --> 00:23:25,520 Speaker 1: Actually the demand is huge for alternative assets such as 425 00:23:25,760 --> 00:23:29,760 Speaker 1: real estate and the venture capital, private equity, and also 426 00:23:30,200 --> 00:23:34,560 Speaker 1: credit solutions as well as hedge funds. So we are 427 00:23:34,640 --> 00:23:37,879 Speaker 1: the leader in helping people do that. What if you 428 00:23:37,920 --> 00:23:41,400 Speaker 1: could just give us a little detail on your partnership 429 00:23:41,440 --> 00:23:45,480 Speaker 1: agreement with Tishman Spire that's taking place in Beijing. That 430 00:23:45,560 --> 00:23:49,000 Speaker 1: may highlight some of the areas that you find investors 431 00:23:49,040 --> 00:23:53,000 Speaker 1: are attracted to. Yeah. So we've been working with Tischman 432 00:23:53,200 --> 00:23:58,600 Speaker 1: for many years, investing in their global funds, European funds 433 00:23:58,640 --> 00:24:02,639 Speaker 1: as well as China on a project and the incoming 434 00:24:02,720 --> 00:24:05,760 Speaker 1: three years together we're going to do a ten billion 435 00:24:06,160 --> 00:24:10,200 Speaker 1: an R and B projects and uh, some in China, 436 00:24:10,640 --> 00:24:14,760 Speaker 1: some outside of China, like the springs in Shanghai. Is 437 00:24:14,800 --> 00:24:18,880 Speaker 1: that one of the in Shanghai and also in Beijing. Well, 438 00:24:19,320 --> 00:24:21,159 Speaker 1: so you know, there's been a lot of discussion and 439 00:24:21,160 --> 00:24:23,800 Speaker 1: a lot of fear frankly over in the US about 440 00:24:23,920 --> 00:24:26,760 Speaker 1: China and the credit market in China and that people 441 00:24:27,240 --> 00:24:30,119 Speaker 1: uh and that is it getting overheated? Are people still 442 00:24:30,359 --> 00:24:33,959 Speaker 1: able to withdraw their money and bring it invest globally? 443 00:24:34,440 --> 00:24:35,800 Speaker 1: What do you what do you say to some of this? 444 00:24:35,840 --> 00:24:39,159 Speaker 1: Do you think the view of China's credit markets and 445 00:24:39,200 --> 00:24:42,280 Speaker 1: sort of the support from the government is overblown. Actually, 446 00:24:42,520 --> 00:24:48,520 Speaker 1: we see tremendous opportunity as Chinese consumers, micro entrepreneurs and 447 00:24:48,600 --> 00:24:52,639 Speaker 1: the small business owners as do a hungry for credit help. 448 00:24:53,040 --> 00:24:56,760 Speaker 1: Chinese people are very entrepreneurial and the new economy is 449 00:24:56,920 --> 00:25:00,439 Speaker 1: very vibrant looking for capital. But so do you find 450 00:25:00,600 --> 00:25:04,800 Speaker 1: that your wealthy clients have more difficulty funneling their money 451 00:25:04,840 --> 00:25:07,040 Speaker 1: out of China and into a place like the US 452 00:25:07,080 --> 00:25:09,440 Speaker 1: given the capital controls that the government's put in place. 453 00:25:09,840 --> 00:25:13,280 Speaker 1: We are a leading wealth management company in China, and 454 00:25:13,480 --> 00:25:18,679 Speaker 1: many of our clients have assets and currencies outside of 455 00:25:18,960 --> 00:25:24,439 Speaker 1: China already. They are successful entrepreneurs globally. So this is 456 00:25:24,440 --> 00:25:27,200 Speaker 1: not that you sue we have. You're also bringing this 457 00:25:27,280 --> 00:25:29,919 Speaker 1: model to trade finance. I believe I wonder if you 458 00:25:29,920 --> 00:25:32,720 Speaker 1: could expand a little bit about that because Trade Shift 459 00:25:32,880 --> 00:25:35,840 Speaker 1: is one of your businesses that you're partnering with. Yes, 460 00:25:36,200 --> 00:25:39,440 Speaker 1: trade Shift is a very interesting company, one of the 461 00:25:40,240 --> 00:25:44,840 Speaker 1: over ten investments that we've done through our Fintech investment 462 00:25:44,920 --> 00:25:49,000 Speaker 1: fund in the US, and so we are a equity 463 00:25:49,000 --> 00:25:53,840 Speaker 1: investor in Trade Shift. Also, we operationally and a strategically 464 00:25:54,119 --> 00:25:57,160 Speaker 1: work with it as a value adding partner. Is there 465 00:25:57,200 --> 00:26:00,879 Speaker 1: any place in the in the world that the Chinese 466 00:26:00,920 --> 00:26:03,840 Speaker 1: clients that you work with used to be interested in 467 00:26:04,119 --> 00:26:09,040 Speaker 1: but no longer are not really because Chinese investors are 468 00:26:09,160 --> 00:26:12,879 Speaker 1: going global big time, right, But as far as reducing 469 00:26:12,920 --> 00:26:15,919 Speaker 1: their allocation to a certain country in favor of another, 470 00:26:16,000 --> 00:26:17,800 Speaker 1: I mean, is there a place that Is there any 471 00:26:17,880 --> 00:26:21,040 Speaker 1: shift in the way that the investors that you deal 472 00:26:21,119 --> 00:26:24,280 Speaker 1: with are looking to deploy their money? Well, I think 473 00:26:24,320 --> 00:26:28,040 Speaker 1: the trend is that they now work one and more 474 00:26:28,240 --> 00:26:33,040 Speaker 1: with professional organizations as opposed to doing things on their 475 00:26:33,080 --> 00:26:36,040 Speaker 1: own or through their friends. So they used to be 476 00:26:36,200 --> 00:26:39,399 Speaker 1: not so professional. So I think the trend is moving 477 00:26:39,480 --> 00:26:42,760 Speaker 1: from not so professional way to professional way. You mean 478 00:26:42,840 --> 00:26:45,760 Speaker 1: to go towards, for example, of venture capital form or 479 00:26:45,840 --> 00:26:48,920 Speaker 1: a KKR, Carlyle or what of these. First of all 480 00:26:49,160 --> 00:26:54,040 Speaker 1: is through a wealth management organizations experts like us. Yes, 481 00:26:55,880 --> 00:26:58,320 Speaker 1: your company is listed on the New York Stock Exchange, 482 00:26:58,480 --> 00:27:01,480 Speaker 1: but that's our subsidiary. Come bunny, it is a small 483 00:27:01,520 --> 00:27:06,320 Speaker 1: business of ours doing marketplace lending. This is why are 484 00:27:06,359 --> 00:27:10,080 Speaker 1: the this is a year and die? Yes? Is that correct? Yes? Okay, 485 00:27:10,119 --> 00:27:13,600 Speaker 1: I just want to understand this because there's a platform 486 00:27:13,680 --> 00:27:17,120 Speaker 1: that has been launched right, which is supposed to give 487 00:27:17,160 --> 00:27:21,160 Speaker 1: the companies an ability to get data from you as 488 00:27:21,200 --> 00:27:26,000 Speaker 1: well as anti fraud technology customer acquisition capabilities. Does that 489 00:27:26,040 --> 00:27:28,600 Speaker 1: mean that you're going to be moving more deeply into 490 00:27:29,000 --> 00:27:33,760 Speaker 1: advising the people that borrow money? Um, it's actually a 491 00:27:33,840 --> 00:27:39,040 Speaker 1: platform working for both borrowers and lenders doing uh P 492 00:27:40,680 --> 00:27:44,440 Speaker 1: online and it was listed the end of two thousand fifteen. 493 00:27:44,720 --> 00:27:48,360 Speaker 1: But as a fintech leader, it has accumulated a lot 494 00:27:48,400 --> 00:27:53,240 Speaker 1: of data that can work for other players in China 495 00:27:53,359 --> 00:27:56,119 Speaker 1: for anti fraud so on. So it's kind of a 496 00:27:56,200 --> 00:27:59,760 Speaker 1: value adding service we offer to the whole industry. Well, 497 00:27:59,800 --> 00:28:02,480 Speaker 1: and it seems like from my research on peer to 498 00:28:02,560 --> 00:28:05,960 Speaker 1: peer lending in China there is a much bigger ground 499 00:28:06,000 --> 00:28:10,400 Speaker 1: swell of support for this particular form of financing than 500 00:28:10,440 --> 00:28:12,560 Speaker 1: in the US, where some of the peer to peer 501 00:28:12,640 --> 00:28:14,720 Speaker 1: lenders are are less peer to peer and more kind 502 00:28:14,760 --> 00:28:17,960 Speaker 1: of financed by bigger institutions uh and then they can 503 00:28:17,960 --> 00:28:19,919 Speaker 1: make micro loans. I mean, what do you think the 504 00:28:19,960 --> 00:28:22,560 Speaker 1: future of of the so called peer to peer in 505 00:28:22,600 --> 00:28:27,120 Speaker 1: the US really is? Yeah, Actually, a marketplace lending has 506 00:28:27,160 --> 00:28:30,399 Speaker 1: been around for over ten years. We invented that model 507 00:28:30,440 --> 00:28:34,359 Speaker 1: in China and the leading companies like uh Lending Club 508 00:28:34,440 --> 00:28:38,520 Speaker 1: and so long have done uh yeah well in the US. 509 00:28:38,640 --> 00:28:42,640 Speaker 1: And recently we invested invested in a company called upgrade 510 00:28:42,960 --> 00:28:46,560 Speaker 1: Um that's uh founded by a lending club founder and 511 00:28:46,800 --> 00:28:52,120 Speaker 1: x CEO renored, so we are great to be his investors. 512 00:28:52,160 --> 00:28:54,480 Speaker 1: So you weren't scared off by the whole KRIF fluffle 513 00:28:54,600 --> 00:28:57,000 Speaker 1: with the Lending Club a couple of years ago. I 514 00:28:57,040 --> 00:29:01,360 Speaker 1: believe the model is robust and the industry will be 515 00:29:01,840 --> 00:29:07,400 Speaker 1: for the long haul. The robot advisor topic is certainly 516 00:29:08,040 --> 00:29:11,080 Speaker 1: something that US investors have been grappling with. Do you 517 00:29:11,080 --> 00:29:15,320 Speaker 1: have robo advisors in China and are they going to expand? Yes? 518 00:29:15,480 --> 00:29:20,240 Speaker 1: And uh so our wealth management business while covering high 519 00:29:20,280 --> 00:29:24,080 Speaker 1: network ultra high net worth individuals the Mary Lynch and 520 00:29:24,120 --> 00:29:28,160 Speaker 1: the ubs way, we also serve a middle class uh 521 00:29:28,520 --> 00:29:33,400 Speaker 1: mass affluent investors, but we do that through utilizing technology 522 00:29:33,560 --> 00:29:36,760 Speaker 1: through robo advisor. So we have a leading robot advisory 523 00:29:36,800 --> 00:29:41,960 Speaker 1: service in China, so people can get their own customized 524 00:29:42,000 --> 00:29:47,160 Speaker 1: the solution through mobile phone. So based on your wealthy clients, 525 00:29:47,160 --> 00:29:50,200 Speaker 1: you were saying that your view is that the economy 526 00:29:50,480 --> 00:29:53,280 Speaker 1: is going well in China, are they at all concerned 527 00:29:53,360 --> 00:29:56,840 Speaker 1: about some of the issues that people are talking about 528 00:29:56,840 --> 00:29:59,440 Speaker 1: with respect of the slowing Chinese economy and whether or 529 00:29:59,480 --> 00:30:01,680 Speaker 1: not the uh, whether or not it can head for 530 00:30:01,680 --> 00:30:05,480 Speaker 1: a software Yeah, that's very interesting phenomena. We see that, 531 00:30:06,080 --> 00:30:11,040 Speaker 1: you know, many of our investors are successful entrepreneurs from 532 00:30:11,080 --> 00:30:14,680 Speaker 1: the old economy, so they are in manufacturing, in trading, 533 00:30:14,760 --> 00:30:17,600 Speaker 1: so on. But they realized that the new economy is coming, 534 00:30:17,800 --> 00:30:20,320 Speaker 1: so they like to embrace the new economy. How to 535 00:30:20,400 --> 00:30:22,840 Speaker 1: do that through fund of funds investment. So when you 536 00:30:22,880 --> 00:30:25,840 Speaker 1: say the new economy, you're talking services right, uh. And 537 00:30:25,920 --> 00:30:30,640 Speaker 1: also like a cloud computing for example, like Internet Plus, 538 00:30:30,680 --> 00:30:34,280 Speaker 1: like uh, you know, a mobile internet so on, all 539 00:30:34,360 --> 00:30:39,480 Speaker 1: like enabling the old economy to do better. The regulations 540 00:30:39,520 --> 00:30:42,920 Speaker 1: that exist in China over peer to peer lending, they've 541 00:30:42,960 --> 00:30:45,640 Speaker 1: claimed a couple of victims like for example home facts. 542 00:30:46,000 --> 00:30:51,920 Speaker 1: Uh no more, is there a regulatory regime that ensures 543 00:30:51,960 --> 00:30:55,280 Speaker 1: the stability and the safety of the system for investors. Yeah, 544 00:30:55,400 --> 00:30:59,480 Speaker 1: And actually talking about the fintech innovation, two sectors have 545 00:30:59,640 --> 00:31:05,160 Speaker 1: become relatively more mature, namely marketplace lending and payment. They 546 00:31:05,160 --> 00:31:08,480 Speaker 1: are like a trillion dollar in size. And also there 547 00:31:08,520 --> 00:31:12,480 Speaker 1: are regulatory regimes for them, but other sectors are still 548 00:31:12,560 --> 00:31:15,680 Speaker 1: up and coming, like a robo advisor, like crowdfunding so on. 549 00:31:16,040 --> 00:31:17,560 Speaker 1: All right, I want to thank you very much for 550 00:31:17,640 --> 00:31:20,720 Speaker 1: coming in and sharing all this with us. Tank is 551 00:31:20,720 --> 00:31:24,280 Speaker 1: the chief executive and the founder of Credit Yes, thank 552 00:31:24,280 --> 00:31:28,280 Speaker 1: you very much for being with us. Thanks for listening 553 00:31:28,360 --> 00:31:31,200 Speaker 1: to the Bloomberg P and L podcast. You can subscribe 554 00:31:31,240 --> 00:31:34,840 Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever 555 00:31:34,920 --> 00:31:38,400 Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter 556 00:31:38,680 --> 00:31:42,200 Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's 557 00:31:42,240 --> 00:31:45,280 Speaker 1: one before the podcast. You can always catch us worldwide 558 00:31:45,280 --> 00:31:46,240 Speaker 1: on Bloomberg Radio