WEBVTT - In the End, China Will Ensure North Korea Security: Harshaw 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg P M L 0:00:20.840 --> 0:00:33.599 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. President 0:00:33.640 --> 0:00:36.200 Donald Trump's saying that he's open to talks with North 0:00:36.320 --> 0:00:41.280 Korea after Kim Jong n's regime tells South Korean envoys 0:00:41.360 --> 0:00:44.159 that he is willing to consider giving up his nuclear weapons, 0:00:44.560 --> 0:00:48.479 a potential breakthrough after months of threats from both leaders. 0:00:48.520 --> 0:00:51.120 Here to help us understand the situation is Toby Harshaw, 0:00:51.159 --> 0:00:54.880 Bloomberg view editor and expert with all things strategic and 0:00:55.160 --> 0:00:58.360 geopolitical and military. Toby, thanks for being here with our 0:00:58.680 --> 0:01:00.760 with in our eleven three oh studio. So what do 0:01:00.800 --> 0:01:03.160 you make of this, uh, this report? I mean, is 0:01:03.240 --> 0:01:06.319 this real progress or is it? And who is this problem? 0:01:07.680 --> 0:01:10.400 He's got his feed up on the desk. It's over, Yeah, 0:01:10.600 --> 0:01:12.840 it is not over. And Pim, you actually made a 0:01:12.959 --> 0:01:15.959 very important distinction right there, which is that the North 0:01:16.000 --> 0:01:19.160 has told South Korea that is open to these things, 0:01:19.280 --> 0:01:21.760 or so the South Koreans tell us, when the North 0:01:21.840 --> 0:01:24.280 Koreans tell us they're open to these things, then maybe 0:01:24.280 --> 0:01:27.399 we'll start listening a little bit more openly. But we're 0:01:27.400 --> 0:01:29.640 playing a game a telephone right here, and we don't 0:01:29.680 --> 0:01:32.280 know what messages coming from the other side. We know 0:01:32.400 --> 0:01:35.280 what messages coming from President Trump, which seems to be 0:01:35.319 --> 0:01:37.280 that he wants to make sure that he gets in 0:01:37.319 --> 0:01:39.759 the middle of this and gets to uh get some 0:01:39.880 --> 0:01:42.399 credit for everything being resolved, or that's what it seems anyway, 0:01:42.400 --> 0:01:44.920 for him coming out and saying, uh, you know, well, 0:01:44.959 --> 0:01:46.840 you know, we're we're open to things, things seem to 0:01:46.880 --> 0:01:49.160 be evolving. I think that you're going to get a 0:01:49.160 --> 0:01:51.720 lot of people claiming credit from both sides, at least 0:01:51.760 --> 0:01:54.240 until this whole thing falls apart. I think that the 0:01:54.280 --> 0:01:57.800 Trump side will will claim that they're tougher sanctions, that 0:01:57.880 --> 0:02:01.320 they're hard approach has brought the the North Koreans to 0:02:01.400 --> 0:02:04.880 the table. And I think that a lot of people 0:02:05.120 --> 0:02:08.320 on uh this side of the ocean who are opposed 0:02:08.320 --> 0:02:11.359 to the Trump side will say that this shows that 0:02:11.400 --> 0:02:13.280 the way to talk to deal with the North Koreans 0:02:13.400 --> 0:02:16.360 is through talks not through threats, alright, So putting this 0:02:16.440 --> 0:02:19.280 together though, this seems like a very positive move. I mean, 0:02:19.919 --> 0:02:23.680 whatever you can speculate about the future, it's better that 0:02:23.760 --> 0:02:28.359 we're having this kind of conversation than other kinds of Oh. 0:02:28.400 --> 0:02:32.080 Absolutely absolutely. As as Churchill is said to have said, 0:02:32.120 --> 0:02:34.400 it is better to jaw jaw than to war war. 0:02:34.600 --> 0:02:38.399 I think there is always UM a place for diplomacy, 0:02:38.400 --> 0:02:41.520 and diplomacy is the next step in this UM. But 0:02:41.680 --> 0:02:44.480 we've been here before. We've seen this movie. We saw 0:02:44.520 --> 0:02:47.799 it under President Clinton when the US was actually willing 0:02:47.840 --> 0:02:51.760 to give similar security guarantees. UM. In writing to the 0:02:51.800 --> 0:02:55.800 North Koreans, UM, we've you know, this is sort of 0:02:55.840 --> 0:02:58.840 the game that the North has played UM back and forth, 0:02:58.880 --> 0:03:00.840 and a lot of times it's just seem that they 0:03:00.840 --> 0:03:04.200 are stalling to advance their nuclear program. Toby, one thing 0:03:04.240 --> 0:03:07.120 that I'm confused by is who's driving the bus with 0:03:07.160 --> 0:03:10.920 diplomacy efforts. Is its South Korea? Now? Uh, where is 0:03:11.080 --> 0:03:14.880 China in this, especially as uh, you know, the tariff 0:03:14.919 --> 0:03:18.000 talk and potential trade wars heat up between the US 0:03:18.080 --> 0:03:21.480 and China. The South Koreans maybe driving the bus, but 0:03:21.560 --> 0:03:25.720 the Chinese own it. UM. There is no question that 0:03:25.960 --> 0:03:28.880 nothing is going to get done UM without the Chinese 0:03:28.919 --> 0:03:33.000 on board. They are responsible for nine of North Korea's 0:03:33.080 --> 0:03:36.520 trade UM. They insist that they have cut off about 0:03:36.520 --> 0:03:40.280 a third of that UM, although there's some speculation they 0:03:40.720 --> 0:03:43.040 they have phrased that in a monetary value, so there's 0:03:43.040 --> 0:03:47.080 some speculation that they're using exchange rates to sort of 0:03:47.200 --> 0:03:49.480 monkey this and make it seem like they're getting less 0:03:49.520 --> 0:03:53.640 fewer exports than they actually are UM. The question is 0:03:53.760 --> 0:03:57.080 whether you can have bilateral talks between the US and 0:03:57.120 --> 0:04:00.560 the North or trilateral talks between the US and the 0:04:00.600 --> 0:04:03.400 North and the South. It doesn't matter unless the Chinese 0:04:03.440 --> 0:04:05.560 are at the table, nothing real is going to happen. 0:04:05.680 --> 0:04:10.440 And look what Kim is supposedly talking about. According to 0:04:10.480 --> 0:04:14.120 the South Koreans is some sort of security guarantee and 0:04:14.200 --> 0:04:17.560 in the end their security will be guaranteed by China. 0:04:17.960 --> 0:04:21.080 Toby to just move you slightly off what's going on 0:04:21.120 --> 0:04:24.640 in the Korea Peninsula. North Korea has been linked to 0:04:24.720 --> 0:04:31.680 supplying Syria with the uh material and the services of 0:04:31.800 --> 0:04:35.440 producing chemical weapons. This is according to United Nations Security 0:04:35.440 --> 0:04:41.040 Council diplomat is that at all relevant to the stance 0:04:41.080 --> 0:04:45.000 that the United States has taken against North Korea. UM, 0:04:45.279 --> 0:04:48.000 not immediately, I would say, we don't actually know when 0:04:48.040 --> 0:04:52.080 these chemical weapons may have come from from North Korea. UM. 0:04:52.120 --> 0:04:55.960 It's pretty clear that in eastern Guta, Uh, the Assad 0:04:56.000 --> 0:05:01.279 administration has used chemical weapons against civilians, chlorine gas being 0:05:01.800 --> 0:05:05.360 what we suspect or what the traces have shown. UM. Yes, 0:05:05.480 --> 0:05:08.000 we have accused the North Koreans of being responsible for 0:05:08.240 --> 0:05:11.400 chlorine and you know other nerve agents that have ended 0:05:11.480 --> 0:05:14.599 up in Syria. We know that they export them. UM. 0:05:14.920 --> 0:05:18.680 I don't think it bears an immediate connection between the two, 0:05:18.720 --> 0:05:20.839 simply because we don't know how long it's been there. Okay. 0:05:20.880 --> 0:05:23.800 The reason I bring this up is because while we're 0:05:23.920 --> 0:05:27.680 discussing the potential for North Korea to change its stance 0:05:27.920 --> 0:05:32.479 on its nuclear weapons program, this is something that is 0:05:32.600 --> 0:05:39.520 actually happening and is a horrible situation in in Syria. 0:05:39.839 --> 0:05:43.560 What makes anybody think that if you can't solve that, that 0:05:42.960 --> 0:05:47.159 that you're going to solve this hypothetical i' do with 0:05:47.240 --> 0:05:53.479 nuclear weapons. UM, that's a tough question. I as I said, 0:05:53.520 --> 0:05:55.320 I don't think I would I would tie them to 0:05:55.640 --> 0:05:58.880 too closely together. Syria is a situation of its own 0:05:58.920 --> 0:06:01.040 that looks hopeless at them moment. There may be some 0:06:01.120 --> 0:06:04.120 sort of international break through, UM. But in that the 0:06:04.200 --> 0:06:06.839 Russians are just as important as the Chinese are to 0:06:06.920 --> 0:06:10.600 North Korea well so. But one thing that it does 0:06:11.080 --> 0:06:13.880 raise the issue about is North Korea as a regime 0:06:13.960 --> 0:06:16.560 and how it is viewed around the world. And one 0:06:16.600 --> 0:06:18.919 of the sort of preconditions that South Korea said that 0:06:18.960 --> 0:06:21.680 North Korea said that it wanted talking about the Game 0:06:21.720 --> 0:06:25.680 of Telephone was for security guarantees at the North Korean 0:06:25.720 --> 0:06:30.120 regime would not be attacked or that it would remain present. 0:06:30.920 --> 0:06:35.080 How amenable might the US be to that precondition to 0:06:35.520 --> 0:06:39.120 keeping two Korea's I think the US is fine with that, UM. 0:06:39.160 --> 0:06:41.640 I think the US what wants to isolate the threat 0:06:42.000 --> 0:06:44.760 of the I, C, B M, the threat of North 0:06:44.839 --> 0:06:46.680 Korean nukes, and we'd be able to go a long 0:06:46.720 --> 0:06:49.360 way toward that. Another thing that they would like is 0:06:49.400 --> 0:06:52.280 the U S forces removed from South Korea from the 0:06:52.400 --> 0:06:54.800 d m Z. I would put that on the table 0:06:54.960 --> 0:06:57.000 if I were the US. What I would not put 0:06:57.000 --> 0:07:00.440 on the table, UM is the the inner actions and 0:07:00.520 --> 0:07:04.000 exercises between the US and South Korea, which are far 0:07:04.120 --> 0:07:09.359 more important to regional security, particularly against rising China. UM. 0:07:09.680 --> 0:07:11.920 The sea is a very hard place. We lost to 0:07:12.080 --> 0:07:15.280 destroyers last year through accidents. That kind of stuff happens. 0:07:15.520 --> 0:07:19.400 You need to have exercises between our navy and the 0:07:19.440 --> 0:07:22.320 North Korean Navy and the Japanese navy and anyone else 0:07:22.320 --> 0:07:24.320 and in the Pacific. Who wants to do that? And 0:07:24.360 --> 0:07:27.760 that's maybe more about China than it is about North Korea, 0:07:28.000 --> 0:07:31.080 although it's important for you know, blockading North Korea. If 0:07:31.120 --> 0:07:33.280 we want to get to that point, that should be 0:07:33.280 --> 0:07:36.000 non negotiable for the US. Well, a lot going on. 0:07:36.160 --> 0:07:38.800 We really appreciate you taking the time, Toby Harshaw. I'm 0:07:38.840 --> 0:07:41.240 sure you'll go be going off and writing about why, 0:07:41.360 --> 0:07:43.840 you know, before you pop the champagne and are convinced 0:07:43.840 --> 0:07:46.280 that there is no nuclear threat threat anymore. Hey, in 0:07:46.320 --> 0:07:49.080 our lifetime, do you think that there will be? I 0:07:49.120 --> 0:07:52.040 think so. I think the north that North Korea is 0:07:52.040 --> 0:07:56.520 is you know, UM, it has too many internal contradictions. 0:07:56.560 --> 0:07:59.640 It's not gonna last, but it's a long term project. Well, 0:07:59.760 --> 0:08:02.880 an out of optimism on this Tuesday, Toby Harshaw, editor 0:08:03.000 --> 0:08:05.240 at Bloomberg View in New York, joining us here in 0:08:05.240 --> 0:08:21.320 our eleven three oh studios. Ray Dalio, co founder of Bridgewater, 0:08:21.520 --> 0:08:25.480 said in a LinkedIn post yesterday, that the tariff talk 0:08:25.840 --> 0:08:29.840 was just that, mostly talk and is unlikely to come 0:08:30.000 --> 0:08:34.000 to reality. Here to discuss what the likelihood is and 0:08:34.000 --> 0:08:36.480 and sort of what we're seeing with respect to this 0:08:36.559 --> 0:08:39.360 discussion and what it indicates for the broader economy is 0:08:39.400 --> 0:08:42.640 Brendan Brown, chief economist and head of economic research at 0:08:42.679 --> 0:08:47.960 Mitsubishi UFJ Securities, joining us from our studios in Washington, 0:08:48.040 --> 0:08:50.040 d C. Brandon, can you just give us a sense 0:08:50.240 --> 0:08:53.280 how likely, given the back and forth, given Gary Cohene, 0:08:53.480 --> 0:08:56.240 given Paul Ryan, given what we're seeing today, how likely 0:08:56.360 --> 0:08:59.120 is it that the tariffs that President Trump have been 0:08:59.120 --> 0:09:02.640 talking about will come to pass? It seems quite lightly 0:09:02.720 --> 0:09:05.240 they will come to pass. But one has to also 0:09:05.320 --> 0:09:09.800 say that it affects a very small part of the 0:09:09.920 --> 0:09:14.160 overall trade picture, and the much bigger question as regards 0:09:14.280 --> 0:09:19.040 US trade and unfair competition is to do with currency manipulation. 0:09:19.760 --> 0:09:22.960 And I think that's why you're seeing this background dollar weakness. 0:09:22.960 --> 0:09:25.040 But there is a suspicion there in the markets for 0:09:25.240 --> 0:09:28.000 all of us talk about trade ultimately is going to 0:09:28.040 --> 0:09:32.680 percolate through two more dollar depreciation. Explain that a little 0:09:32.679 --> 0:09:35.320 bit more. When you talk about currency manipulation, what do 0:09:35.360 --> 0:09:39.320 you think the goal is. Well, the currency manipulation is 0:09:39.760 --> 0:09:43.280 being led at the moment by Japan and Europe. Japan 0:09:43.400 --> 0:09:47.240 keeping a long term interest rate pegged zero, the ECB 0:09:47.679 --> 0:09:52.199 keeping interest rates at negative levels. Those two actions keep 0:09:52.240 --> 0:09:55.800 their currencies cheap against the dollar. There's no intimation as 0:09:55.880 --> 0:09:59.840 yet fit the US administration is actually asking Japan or 0:10:00.000 --> 0:10:03.080 Europe to abandon those policies. But for suspicion is that 0:10:03.760 --> 0:10:08.280 the new FED chair pal, who apparently gets on well 0:10:08.400 --> 0:10:10.120 or was chosen because he gets on well with the 0:10:10.160 --> 0:10:13.240 Treasury Secretary and the Treasury Secretary once dollar depreciation or 0:10:13.280 --> 0:10:15.439 a cheap dollar. But this is all going to feed 0:10:15.440 --> 0:10:20.719 back to somewhat easier and otherwise monetary policy and dollar depreciation, 0:10:20.800 --> 0:10:24.640 and that's being reflected I think in markets broadly. So, Brendan, 0:10:25.760 --> 0:10:27.160 do you think that it's possible that we're going to 0:10:27.240 --> 0:10:30.280 see a currency war? I mean, forget, uh, forget a 0:10:30.320 --> 0:10:31.920 trade war. Are we're going to see some kind of 0:10:32.000 --> 0:10:35.200 race to the bottom here? Well, the history of the 0:10:35.320 --> 0:10:38.120 last few years since the crash of two thousand and 0:10:38.160 --> 0:10:41.000 eight has been perpetual currency war. It started off with 0:10:41.160 --> 0:10:45.600 US currency warfare, and and and then of course Japan 0:10:45.679 --> 0:10:49.560 and Europe and China have retaliated in various ways. But 0:10:49.640 --> 0:10:54.640 I do think for the trade UM conflict is going 0:10:54.679 --> 0:11:01.719 to manifest manifest itself in continued and probably intensified currency warfare. Well, 0:11:01.760 --> 0:11:04.400 if that's the case, then what do you believe investors 0:11:04.440 --> 0:11:08.200 ought to do to protect themselves or to profit from it? Well, 0:11:08.400 --> 0:11:11.920 gold of course rises in this environment because if if 0:11:11.960 --> 0:11:15.760 everyone's racing to the bottom, as you say, keeping interest 0:11:15.880 --> 0:11:19.839 rates artificially low worth trying to keep their currencies cheap, 0:11:20.240 --> 0:11:25.440 the beneficiary of that is clearly gold UM. So that's 0:11:25.480 --> 0:11:31.440 one aspect the the equity markets clearly like a general 0:11:31.679 --> 0:11:38.440 monetary ease story as part of this trade background UM. 0:11:38.520 --> 0:11:42.800 But the downside of that is that the the you 0:11:42.800 --> 0:11:45.880 can get mini crashes or worse, such as one had 0:11:45.960 --> 0:11:49.280 in in early February, so you foresee more of those 0:11:49.360 --> 0:11:53.000 kinds of virtal days. Well, my focus is is really 0:11:53.080 --> 0:11:56.760 on the credit markets for the biggest and the most 0:11:56.760 --> 0:11:59.920 worrying aspect of this prolonged asset inflation due to the 0:12:00.280 --> 0:12:05.840 monetary stance is for credit markets and UM, the Italian 0:12:05.880 --> 0:12:11.640 elections at the weekend really highlight that risk. But you've 0:12:11.640 --> 0:12:14.240 got a two point eight seven percent tenure right now 0:12:14.240 --> 0:12:17.120 on the US Treasury. Where do you see that going? 0:12:17.320 --> 0:12:22.040 If we get that kind of volatility you describe, well, 0:12:22.080 --> 0:12:27.840 a ten yuere is going to continue to reflect the 0:12:28.440 --> 0:12:33.120 some background risk aversion, so that we know that there's 0:12:33.760 --> 0:12:40.760 potential increased volatility setbacks. So, however much the bond bears 0:12:41.160 --> 0:12:45.760 talk about interest rates rising, in inflation rising, there is 0:12:45.800 --> 0:12:49.640 a long a bid in the long run markets for safety. 0:12:49.800 --> 0:12:54.280 So I I don't see these long yields rising a 0:12:54.320 --> 0:12:58.360 long way. My focus is much more on the credit 0:12:58.400 --> 0:13:01.040 spreads and what's going to happen to those. Uh So, 0:13:01.160 --> 0:13:03.680 speaking about that, we just were talking about the CVS 0:13:03.720 --> 0:13:06.559 deal that's coming that could prices soon as today, potentially 0:13:06.559 --> 0:13:09.880 forty billion dollars of bonds. Do you think that yields 0:13:09.880 --> 0:13:13.240 on investment grade corporate debt are going to go materially 0:13:13.280 --> 0:13:17.840 higher from here between now and the end of the year. Yes. Um. 0:13:18.240 --> 0:13:23.200 The the leverage in this cycle, um is very much 0:13:23.400 --> 0:13:26.280 in the corporate debt markets and in the emerging market 0:13:26.400 --> 0:13:30.280 debt markets and expanning corporate debts and and and those countries. 0:13:30.840 --> 0:13:34.040 So so that's where the shakeout is going to be. 0:13:34.080 --> 0:13:38.640 And given the increased volatility, um we know that in principal, 0:13:38.880 --> 0:13:43.920 corporate debt and risky debt is priced off volatility and 0:13:45.040 --> 0:13:49.360 the price of priced off options and and those are 0:13:49.400 --> 0:13:52.240 all affected by the increased volatility. I want to thank 0:13:52.240 --> 0:13:54.000 you very much for joining us. Brendan Brown is the 0:13:54.080 --> 0:13:57.000 chief economist and the head of economic research at Mitsubishi 0:13:57.320 --> 0:14:01.000 u f J Securities, giving us his thoughts on the 0:14:01.000 --> 0:14:05.120 current economic outlook and the tight rope that Federal Reserve 0:14:05.400 --> 0:14:23.960 Charon J. Powell has to walk. Yesterday, news came out 0:14:24.000 --> 0:14:27.280 that Amazon dot Com is working with banks including JP 0:14:27.520 --> 0:14:32.040 Morgan to provide checking like accounts to its customers. And 0:14:32.080 --> 0:14:34.400 here to sort of put this in a context, explain 0:14:34.480 --> 0:14:37.320 what this might mean and look forward to the future 0:14:37.560 --> 0:14:41.560 of these types of alliances, is from Alawalia, chief executive 0:14:41.600 --> 0:14:44.920 officer and co founder of pere i Q, based in 0:14:44.960 --> 0:14:47.160 New York. Thank you so much for joining us from 0:14:47.280 --> 0:14:49.680 what was your impression when you saw this news at 0:14:49.720 --> 0:14:52.920 Amazon dot Com was teaming up with big Wall Street 0:14:53.000 --> 0:14:58.239 banks to act more bank like Well, it's a significant announcement. 0:14:58.520 --> 0:15:02.080 The financial services sector just had its Amazon moment, and 0:15:02.120 --> 0:15:04.000 if you look at it from Amazon's point of view, 0:15:04.240 --> 0:15:07.920 the financing and payments of retail transactions is a logical 0:15:07.960 --> 0:15:10.880 next step for their business as I sit and look 0:15:10.960 --> 0:15:14.880 for additional profit pools. There's also a strong financial motivation 0:15:14.960 --> 0:15:18.680 for for Amazon. Today, Amazon spends about two and fifty 0:15:18.680 --> 0:15:22.480 million dollars in interchange fees about two percent per transaction 0:15:23.040 --> 0:15:27.200 to visa master card and issuing banks with an Amazon 0:15:27.280 --> 0:15:30.600 checking account, Amazon can avoid all those fees, and if 0:15:30.640 --> 0:15:35.400 Amazon converts their customers to this deposit account, that can 0:15:35.480 --> 0:15:37.760 drop fifty million dollars at the bottom line, which has 0:15:37.800 --> 0:15:42.320 a significant market kept impact. From a bank perspective, it's 0:15:42.320 --> 0:15:47.480 it's very significant news. The banks today are struggling to differentiate. 0:15:47.760 --> 0:15:52.360 Bank branches are consolidating as you have customers prefer an online, mobile, 0:15:53.240 --> 0:15:57.120 personal experience. And if you look at the customers segment 0:15:57.200 --> 0:16:00.960 that Amazon is targeting, the younger generation on bank populations, 0:16:01.480 --> 0:16:04.160 these are segments that are notoriously low in terms of 0:16:04.160 --> 0:16:08.920 fee revenue and profitability for banks. So Amazon's targeted inappropriate 0:16:08.960 --> 0:16:12.520 segment where it'll be difficult for banks to compete. That said, 0:16:12.840 --> 0:16:16.240 Amazon needs to partner with banks because there's no clear 0:16:16.400 --> 0:16:20.960 regulatory framework for Amazon as a commerce company to act 0:16:20.960 --> 0:16:22.920 and compete as a national bank, and so that's why 0:16:22.880 --> 0:16:25.880 they reporting has discussed the idea of a partnership potentially 0:16:25.880 --> 0:16:29.120 with JP Morgan rum. Does this have any implications for 0:16:29.320 --> 0:16:34.040 third party merchants that sell through Amazon and the fees 0:16:34.120 --> 0:16:39.280 that are typically charged by whether it's Visa, MasterCard, American Express, 0:16:39.320 --> 0:16:46.360 those fees that card companies you know, take from the merchants. Yeah, 0:16:46.560 --> 0:16:50.320 it can be an opportunity for Amazon to um number one, 0:16:50.360 --> 0:16:53.760 avoid interchange economics to some of the companies you site 0:16:53.760 --> 0:16:57.840 in the network charges there for the merchants on their platform. 0:16:57.920 --> 0:17:01.480 You know. Today Amazon provides financing merchants that sell online 0:17:02.120 --> 0:17:06.360 and potentially Amazon longer term could could look to defray 0:17:06.440 --> 0:17:09.879 the the economic transaction costs at the merchants pay, but 0:17:09.960 --> 0:17:14.560 that's not contemplated in this announcement. So in order to 0:17:14.720 --> 0:17:19.880 get clients to move to an Amazon dot Com sponsored 0:17:19.960 --> 0:17:23.040 checking account with the banks, are they going to offer 0:17:23.119 --> 0:17:26.560 some enticement do you think to customers? And what would 0:17:26.600 --> 0:17:30.440 be the financials between the bank and Amazon dot Com, 0:17:30.680 --> 0:17:34.000 which really loves having access to all the data that 0:17:34.119 --> 0:17:38.879 it's clients exact exactly, No, I would imagine that you 0:17:39.000 --> 0:17:42.600 see some type of rewards value proposition. Amazon recently announced 0:17:43.160 --> 0:17:45.639 a new credit card in partnership with a bank that 0:17:45.680 --> 0:17:48.840 offers discounts when you purchase that whole foods or online 0:17:49.000 --> 0:17:53.359 or at restaurants. With the two savings on the avoidance 0:17:53.359 --> 0:17:56.520 of interchange fees, Amazon can redirect a portion of that 0:17:57.160 --> 0:18:00.679 UH to defray the costs of purchasing online or some 0:18:00.880 --> 0:18:05.080 other type of bonus. In terms of the relationship between 0:18:05.160 --> 0:18:08.959 Amazon and a bank, usually these are co brand relationships, 0:18:08.960 --> 0:18:11.679 and co brand relationships have been around for four decades 0:18:11.720 --> 0:18:14.000 an how right. For example, Chase has a United Knowledge 0:18:14.080 --> 0:18:18.440 Plus card, where United provides the marketing, Chase provides the servicing, 0:18:18.920 --> 0:18:22.840 the legal framework, the balance sheet capacity, and the risk management. 0:18:23.200 --> 0:18:25.440 So I think a similar type of model will take 0:18:25.480 --> 0:18:29.520 place here, where Amazon will provide the customer access access 0:18:29.520 --> 0:18:33.320 to the data for underwriting UH, and then a bank 0:18:33.359 --> 0:18:36.200 on the back end we'll we'll service those customers. So 0:18:36.359 --> 0:18:38.840 at a certain point, I guess that this raises the 0:18:38.920 --> 0:18:42.960 big hundred million dollar question here, a hundred billion dollar 0:18:43.040 --> 0:18:47.679 questions potentially, which is UH is Amazon dot Com dipping 0:18:47.720 --> 0:18:51.440 its toe into this with the idea of always partnering 0:18:51.520 --> 0:18:56.119 with Wall Street or becoming a direct rival to Wall Street. 0:18:57.440 --> 0:19:00.520 I would say Amazon is is learning from this experience. 0:19:00.600 --> 0:19:03.440 Number one is they don't have the regulatory framework to 0:19:03.520 --> 0:19:06.479 take on the bank's head to head. Today, there's been 0:19:06.520 --> 0:19:09.520 discussion of a fintech charter that could be awarded by 0:19:09.560 --> 0:19:12.240 the Office of the Control of the Currency that would 0:19:12.280 --> 0:19:16.000 give Amazon and other fintech companies the opportunity to compete 0:19:16.359 --> 0:19:21.000 on a national basis with the banks. Today, that regulatory 0:19:21.119 --> 0:19:24.679 swim ling doesn't exist, so Amazon really does have to 0:19:24.760 --> 0:19:28.560 partner with a bank. However, you know there are precedents 0:19:28.560 --> 0:19:30.760 out there. If you look internationally in the China market, 0:19:31.200 --> 0:19:35.040 there are large technology companies such as and Financial Intent 0:19:35.160 --> 0:19:38.440 Scent which have banking charters, and that certainly has inspired 0:19:38.520 --> 0:19:42.240 Amazon and Amazon's competitors to go after this opportunity. So 0:19:42.240 --> 0:19:46.280 I think Amazon will learn from their experience as they 0:19:46.320 --> 0:19:48.439 develop these new products, both on how do you acquire 0:19:48.480 --> 0:19:50.640 the customers, how do you underwrite the customers, which data 0:19:50.720 --> 0:19:55.080 is relevant? UH, and then as that regulatory framework evolves, 0:19:55.520 --> 0:19:57.840 I think you would see Amazon UH and to more 0:19:57.880 --> 0:20:00.359 deeply into lending, constumer banking more gener really and the 0:20:00.440 --> 0:20:03.840 other opportunities run asset management insurance. Well, I wanted to 0:20:03.880 --> 0:20:06.320 just quickly offer you the chance with pere i q, 0:20:06.560 --> 0:20:09.399 which is your company. Is it possible that a company 0:20:09.440 --> 0:20:12.680 like Amazon would partner with you in order to provide 0:20:12.720 --> 0:20:15.520 that conduit to the businesses that are looking for those 0:20:15.560 --> 0:20:20.480 alternative forms of credit. So pure i q provides the 0:20:20.560 --> 0:20:23.600 data and risk management analytics for owners and providers of 0:20:23.680 --> 0:20:26.080 financing for consumer credit risk. So we're able to help 0:20:26.680 --> 0:20:29.960 Amazon and banks to understand the health of the US 0:20:30.040 --> 0:20:32.240 consumer and understand where we are in the business cycle, 0:20:32.320 --> 0:20:35.480 makes better risk and lending decisions. I want to thank 0:20:35.520 --> 0:20:37.840 you very much for being with us. Rum Ada Walia 0:20:37.920 --> 0:20:40.280 he is the chief executive and the co founder of 0:20:40.640 --> 0:20:43.360 peer i q, giving us his thoughts on what's going 0:20:43.400 --> 0:20:45.879 on with Amazon and the possibility that maybe you'll have 0:20:45.920 --> 0:20:49.000 a checking account and it will be from Amazon, maybe 0:20:49.000 --> 0:20:53.000 with a two fee reduction for Amazon. This is such 0:20:53.040 --> 0:20:56.640 a fascinating issue because every other area that Amazon has 0:20:56.680 --> 0:21:00.240 gotten into, there's the Amazon effect where shares in that 0:21:00.359 --> 0:21:04.199 industry just plummet, and you're not necessarily seeing that in 0:21:04.680 --> 0:21:07.560 the in the banking sector. Well, because they've got the 0:21:07.560 --> 0:21:10.600 partners the partnership with JP morgan Chase, because they've got 0:21:10.640 --> 0:21:13.240 the partnership and they don't have the charter. Yeah, indeed, 0:21:13.320 --> 0:21:15.760 and it may be too expensive and too owners to 0:21:15.760 --> 0:21:18.320 get it yourself, so just rent it from JP morgan Chase. 0:21:33.000 --> 0:21:35.679 Is a rally in stocks a time to sell? Well, 0:21:35.760 --> 0:21:37.720 let's find out from David Kats. He is the chief 0:21:37.760 --> 0:21:41.320 investment officer from Matrix Asset Advisors. He's got more than 0:21:41.359 --> 0:21:45.840 seven million dollars of assets under management and he joins 0:21:45.920 --> 0:21:48.439 us now, David, thanks very much for being with us. 0:21:48.480 --> 0:21:50.560 Maybe just start off by doing the whole thing, you know, 0:21:50.720 --> 0:21:53.800 by the dips, sell the rally. Is there any strategy 0:21:54.240 --> 0:21:57.439 that is worth following that is along those lines, Well, 0:21:57.440 --> 0:22:00.199 we think that is going to be the watch for 0:22:00.240 --> 0:22:03.959 two thousand and eighteen. We think that ultimately the market 0:22:04.040 --> 0:22:07.320 probably is up in the high single digits, low double 0:22:07.359 --> 0:22:10.879 digits area, And the time to get more optimistic about 0:22:10.920 --> 0:22:13.520 stock is after selloffs like we've had over the last 0:22:13.520 --> 0:22:16.440 few weeks. Uh, and the time to be less optimistic 0:22:16.480 --> 0:22:19.840 and taking proferences after you've had a significant run to 0:22:19.920 --> 0:22:22.960 the upside. It's important to point out that when the 0:22:23.000 --> 0:22:25.080 stock market is selling off, there's a lot of doom 0:22:25.119 --> 0:22:27.080 and gloom, so you've got to be prepared to buy 0:22:27.200 --> 0:22:30.200 into that uncertainty. Uh. And the flip side is after 0:22:30.240 --> 0:22:32.160 the market has had a great run like it did 0:22:32.200 --> 0:22:35.359 in January, everything looks wonderful. Don't get caught up in 0:22:35.359 --> 0:22:41.520 that enthusiasm. How often do you end up trading? Well, basically, 0:22:41.560 --> 0:22:44.840 we were on portfolio, so we're looking at individual stocks, 0:22:44.840 --> 0:22:47.320 and on that basis, you know, we're happy to take 0:22:47.359 --> 0:22:49.159 profits if the stock has run up a lot, and 0:22:49.200 --> 0:22:52.000 by the same token, we're happy to put money to 0:22:52.080 --> 0:22:55.560 work into a decline if we've got cash on the sidelines. 0:22:55.760 --> 0:22:58.720 So here here's the reason why I'm asking. Morning started 0:22:58.760 --> 0:23:01.640 put out a survey the week saying that last year 0:23:02.520 --> 0:23:05.520 of active managers beat their benchmarks and that was up 0:23:05.520 --> 0:23:11.200 from in but still less than half. And I'm wondering, 0:23:11.520 --> 0:23:16.560 you know, for an active manager, how do you add 0:23:16.600 --> 0:23:21.639 that alpha? How frequently does it take trading, especially at 0:23:21.680 --> 0:23:23.960 a time when there's a lot of volatility. Of volatility 0:23:23.960 --> 0:23:26.080 in other words, it's hard to predict when things are 0:23:26.080 --> 0:23:31.639 going to spike or rally. Great question. So we're long 0:23:31.840 --> 0:23:34.920 term value investors. We have a large cap value product 0:23:34.920 --> 0:23:37.800 and a dividend product. We're pretty low turnover anywhere from 0:23:37.800 --> 0:23:41.119 the area of fifteen to twenty so we're not adding 0:23:41.119 --> 0:23:44.600 our alpha by trading the market. We're hopefully adding our 0:23:44.640 --> 0:23:49.280 alpha by buying good long term investments at attractive prices. 0:23:49.320 --> 0:23:52.680 When we talk on your show on the margin, we're 0:23:52.680 --> 0:23:55.040 talking about investors that have had cash on the sidelines 0:23:55.040 --> 0:23:57.640 that they're talking about putting to work. We'd buy into 0:23:57.680 --> 0:24:00.159 that dip. And by the same token, we work with 0:24:00.200 --> 0:24:03.040 a lot of individual investors and they tend to get 0:24:03.080 --> 0:24:05.720 a lot more enthusiastic about throwing money into the market 0:24:05.760 --> 0:24:08.800 after a rally. To our best advices don't do that. 0:24:08.920 --> 0:24:12.399 But from our perspective, long term investing by businesses you 0:24:12.520 --> 0:24:15.920 like it, attractive prices, UH, and over time you'll do well. 0:24:16.000 --> 0:24:19.520 The last few years have been pretty tough for value investors. UH. 0:24:19.720 --> 0:24:23.000 Generally after periods like that, value comes back with a vengeance. 0:24:23.000 --> 0:24:25.679 So while we've got a good long term record, we 0:24:25.800 --> 0:24:28.720