1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:32,120 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We 7 00:00:32,159 --> 00:00:34,839 Speaker 1: are now turning our attention to Canada, in particular the 8 00:00:34,880 --> 00:00:39,720 Speaker 1: Canadian housing market. This week, Moody's Investors Service downgraded Canada 9 00:00:39,800 --> 00:00:43,120 Speaker 1: banks for the first time in more than four years. 10 00:00:43,159 --> 00:00:47,120 Speaker 1: Why expanding levels of private sector debt could weaken asset 11 00:00:47,200 --> 00:00:49,600 Speaker 1: quality in the future. That's according to David beat, senior 12 00:00:49,680 --> 00:00:53,320 Speaker 1: vice president in the Financial Institutions Group at Moody's, and 13 00:00:53,320 --> 00:00:56,760 Speaker 1: he is based in Toronto, and he comes to us now. David, 14 00:00:57,000 --> 00:00:59,120 Speaker 1: thank you so much for joining us. Thanks for having 15 00:00:59,760 --> 00:01:03,440 Speaker 1: so I wanted just to start with, how much the 16 00:01:03,520 --> 00:01:08,360 Speaker 1: troubles at alternative mortgage lender Home Capital Group weighed in 17 00:01:09,000 --> 00:01:13,960 Speaker 1: your decision to downgrade other Canadian banks? Uh, not at all. 18 00:01:14,040 --> 00:01:17,160 Speaker 1: These Um, we do not rate Home Capital as a 19 00:01:17,240 --> 00:01:19,720 Speaker 1: matter of fact, so I can't comment on the details 20 00:01:19,760 --> 00:01:23,960 Speaker 1: of their situation. But I would just note that at 21 00:01:24,040 --> 00:01:28,600 Speaker 1: about sixteen billion dollars in mortgages mortgage assets there you know, 22 00:01:28,680 --> 00:01:31,039 Speaker 1: a very small part of the one point five trillion 23 00:01:31,080 --> 00:01:34,520 Speaker 1: dollar Canadian mortgage market. Uh. The reasons for their current 24 00:01:34,840 --> 00:01:37,680 Speaker 1: troubles are very idiosyncratic, and they're not anything to do 25 00:01:37,720 --> 00:01:39,480 Speaker 1: with the assets they have on their books. It's more 26 00:01:39,520 --> 00:01:43,040 Speaker 1: confidence around funding. UM. So we don't view it as 27 00:01:43,120 --> 00:01:45,480 Speaker 1: a as a probable source of contagion for the rest 28 00:01:45,520 --> 00:01:48,800 Speaker 1: of the banks. Uh. And um, it didn't factor into 29 00:01:48,800 --> 00:01:52,120 Speaker 1: our decision. Okay, So home capital might not be the 30 00:01:52,160 --> 00:01:54,680 Speaker 1: problem or even the catalysts. Isn't like the asset back 31 00:01:54,720 --> 00:01:58,120 Speaker 1: commercial paper market uh circa two thousand seven in Canada 32 00:01:58,160 --> 00:02:00,920 Speaker 1: collapsing and then you know, singling and petting doom for 33 00:02:00,920 --> 00:02:05,240 Speaker 1: everybody else. But it could potentially, just on a broader level, 34 00:02:05,280 --> 00:02:08,720 Speaker 1: the housing market in Canada, particularly in Toronto, has been 35 00:02:08,840 --> 00:02:12,359 Speaker 1: under quite a bit of scrutiny for getting quite inflated. Um. 36 00:02:12,520 --> 00:02:15,840 Speaker 1: And you think that this could be a potential concern 37 00:02:16,080 --> 00:02:19,440 Speaker 1: for the banks in Canada, Well, yes, indeed, and that 38 00:02:20,200 --> 00:02:23,000 Speaker 1: elevated housing prices, particularly in the g t A, the 39 00:02:23,040 --> 00:02:27,079 Speaker 1: Greater Toronto Area and the Greater Vancouver area have been 40 00:02:27,080 --> 00:02:28,720 Speaker 1: on our radar for a number of years and have 41 00:02:28,800 --> 00:02:33,200 Speaker 1: figured UH quite prominently in the research that we've published 42 00:02:33,200 --> 00:02:37,079 Speaker 1: over that time. But the first the first stage of 43 00:02:37,080 --> 00:02:39,360 Speaker 1: of our credit analysis for bank starts with what we 44 00:02:39,400 --> 00:02:42,160 Speaker 1: call the macro profile, which is our assessment of the 45 00:02:42,200 --> 00:02:46,160 Speaker 1: operating environment in which the banks operate and UH. In 46 00:02:46,240 --> 00:02:51,120 Speaker 1: our view UM, the degree of leverage in the in 47 00:02:51,200 --> 00:02:54,640 Speaker 1: the system overall has is at a very high level 48 00:02:54,639 --> 00:02:57,320 Speaker 1: and continues to rise, and that gives us concern about 49 00:02:57,960 --> 00:03:03,040 Speaker 1: the future knock on negative effects on asset quality. When 50 00:03:03,080 --> 00:03:04,920 Speaker 1: you see the amount of leverage in this system, are 51 00:03:04,960 --> 00:03:09,280 Speaker 1: you're talking about the dwindling down payments that consumers are 52 00:03:09,360 --> 00:03:11,400 Speaker 1: making on houses relative to the amount of debt that 53 00:03:11,440 --> 00:03:15,000 Speaker 1: they're taking on. Are you talking about hedge funds and 54 00:03:15,120 --> 00:03:18,440 Speaker 1: other investors borrowing short term to lend long term? What 55 00:03:18,520 --> 00:03:21,880 Speaker 1: exactly where are you seeing the biggest build up of leverage? Well, 56 00:03:22,320 --> 00:03:24,320 Speaker 1: our primary metric when we look at this, and this 57 00:03:24,440 --> 00:03:28,120 Speaker 1: the metric we use globally for assessment of our preating 58 00:03:28,160 --> 00:03:31,960 Speaker 1: environments is private debt to GDP and the rate of 59 00:03:31,960 --> 00:03:34,840 Speaker 1: growth of that metric. So we get our data from 60 00:03:35,240 --> 00:03:38,440 Speaker 1: Statistics Canada and we review that on a regular basis. 61 00:03:39,200 --> 00:03:42,680 Speaker 1: That includes consumer debt, both mortgage and non mortgage, as 62 00:03:42,720 --> 00:03:46,280 Speaker 1: well as corporate and commercial debt UM. The corporate component 63 00:03:46,360 --> 00:03:48,400 Speaker 1: is largely not held on the bank's balance sheets. We 64 00:03:48,400 --> 00:03:51,480 Speaker 1: have a robust debt capital markets here in Canada and 65 00:03:51,800 --> 00:03:54,720 Speaker 1: it's largely institutional investors that have the corporate book. But 66 00:03:55,000 --> 00:04:00,880 Speaker 1: the consumer mortgages and non real estate security the lending 67 00:04:01,000 --> 00:04:03,040 Speaker 1: is where we have been more focused. And not even 68 00:04:03,040 --> 00:04:06,880 Speaker 1: really the mortgages. There are obviously concerns with the inflated 69 00:04:06,920 --> 00:04:11,000 Speaker 1: housing prices um and what that might do under stress um, 70 00:04:11,080 --> 00:04:15,320 Speaker 1: but there would still be significant collateral back in those mortgages. 71 00:04:15,800 --> 00:04:18,919 Speaker 1: It's the credit cards and the indirect auto finance and 72 00:04:18,960 --> 00:04:21,960 Speaker 1: those types of less well secured exposures that would have 73 00:04:22,520 --> 00:04:26,000 Speaker 1: you know, loss given default in the area of a 74 00:04:26,080 --> 00:04:29,479 Speaker 1: hundred percent, which would be probably the driver of larger losses. 75 00:04:29,720 --> 00:04:32,440 Speaker 1: When was the last time that you saw the levels 76 00:04:32,440 --> 00:04:35,240 Speaker 1: of leverage by the metric metric that you just laid 77 00:04:35,240 --> 00:04:37,560 Speaker 1: out that are as high as they are today. I 78 00:04:37,600 --> 00:04:39,719 Speaker 1: don't believe they've ever been as high as they are today, 79 00:04:39,760 --> 00:04:43,480 Speaker 1: and certainly the component of it which relates to household 80 00:04:43,520 --> 00:04:48,760 Speaker 1: debt has never been as high. Which banks are most exposed. UM, 81 00:04:48,920 --> 00:04:52,720 Speaker 1: there's relative degrees depending on how you cut the data 82 00:04:52,760 --> 00:04:57,160 Speaker 1: of exposure to the Canadian consumer across the banking system. UM. 83 00:04:57,400 --> 00:04:59,720 Speaker 1: UH suffice it to say that that we feel the 84 00:05:00,640 --> 00:05:03,080 Speaker 1: that are baseline credit assessments, which is sort of our 85 00:05:03,120 --> 00:05:06,799 Speaker 1: starting point for rating the banks. UH is the best UH, 86 00:05:06,839 --> 00:05:10,719 Speaker 1: you know, indicator of of relative exposure. In that case, 87 00:05:11,360 --> 00:05:14,400 Speaker 1: uh TD would be the highest rated of the Canadian 88 00:05:14,400 --> 00:05:16,719 Speaker 1: banks and National Bank of Canada would be the lowest 89 00:05:16,720 --> 00:05:19,640 Speaker 1: of those six. David Beattie, thank you so much for 90 00:05:19,680 --> 00:05:21,800 Speaker 1: joining us. This is a really important topic and we 91 00:05:21,839 --> 00:05:24,560 Speaker 1: look forward to hearing from you again. David Beatty is 92 00:05:24,600 --> 00:05:28,400 Speaker 1: senior vice president in the Financial Institutions Group at Moody's 93 00:05:28,440 --> 00:05:32,880 Speaker 1: Investors Service. Moody's did downgrade UH a number of Canadian 94 00:05:32,920 --> 00:05:35,120 Speaker 1: banks for the first time in more than four years 95 00:05:35,160 --> 00:05:39,720 Speaker 1: this week in part because of UH. Frankly, this incredible 96 00:05:39,720 --> 00:05:43,800 Speaker 1: expansion of consumer debt relative to g d P that 97 00:05:43,880 --> 00:05:45,960 Speaker 1: we have seen, and David just said that he has 98 00:05:46,080 --> 00:05:49,320 Speaker 1: not seen a level that has been this high UH 99 00:05:49,360 --> 00:06:03,960 Speaker 1: in recent memory. Right now, I want to dig a 100 00:06:04,040 --> 00:06:06,680 Speaker 1: little bit further into a political development that does not 101 00:06:06,839 --> 00:06:10,040 Speaker 1: have to do with James Comey, the fired FBI director 102 00:06:10,080 --> 00:06:13,120 Speaker 1: that has gained so much attention in Washington, d C. 103 00:06:13,360 --> 00:06:16,800 Speaker 1: But in fact, President Trump issued a commission ordered a 104 00:06:16,800 --> 00:06:21,720 Speaker 1: commission on Fraudulent Voting in elections, which caught my attention 105 00:06:21,880 --> 00:06:26,160 Speaker 1: because this could potentially rerange the landscape for how votes 106 00:06:26,240 --> 00:06:29,200 Speaker 1: are broken up across the country and could potentially have 107 00:06:29,279 --> 00:06:32,839 Speaker 1: longer term effects. To understand a little bit more about 108 00:06:32,920 --> 00:06:34,960 Speaker 1: what the stakes are here, I want to bring in 109 00:06:35,040 --> 00:06:38,560 Speaker 1: Ken Doyle, senior editor of Bloomberg Bona's Money and Politics 110 00:06:38,560 --> 00:06:43,000 Speaker 1: Reporter report, coming to us from Arlington, Virginia. Ken, thank 111 00:06:43,040 --> 00:06:45,440 Speaker 1: you so much for joining us. Can you can you 112 00:06:45,480 --> 00:06:48,280 Speaker 1: first just give me a sense of what this Commission 113 00:06:48,560 --> 00:06:53,239 Speaker 1: on Fraudulent Voting in Elections actually is? Well, it's it's 114 00:06:53,279 --> 00:06:56,640 Speaker 1: not it's not clearer exactly yet. What they haven't met, 115 00:06:56,720 --> 00:06:59,200 Speaker 1: they haven't actually started up that it was announced in 116 00:06:59,240 --> 00:07:03,160 Speaker 1: an executive order at the White House yesterday exactly. It's 117 00:07:03,200 --> 00:07:05,760 Speaker 1: supposed to be a fifteen member commission. They only announced 118 00:07:05,800 --> 00:07:10,720 Speaker 1: about five or six members. It's headed by uh, well, 119 00:07:10,880 --> 00:07:13,840 Speaker 1: it is headed by Advice President Pence, but it's the 120 00:07:13,920 --> 00:07:17,520 Speaker 1: vice chairman is going to be Chris Koback. Who's the 121 00:07:17,560 --> 00:07:20,840 Speaker 1: Secretary of State for Kansas, who's been a very outspoken, 122 00:07:21,560 --> 00:07:26,840 Speaker 1: UH person on immigration and voter fraud issues, somebody who 123 00:07:26,880 --> 00:07:31,240 Speaker 1: has really staked out a position on these issues. And UH, 124 00:07:31,280 --> 00:07:33,440 Speaker 1: it seems like what they want to do with this 125 00:07:33,680 --> 00:07:39,080 Speaker 1: is UM uh, you know, emphasize the claims that that 126 00:07:39,160 --> 00:07:41,640 Speaker 1: Trump and other President Trump and others have made about 127 00:07:42,360 --> 00:07:46,280 Speaker 1: voter fraud being a major problem. This, of course, is 128 00:07:46,320 --> 00:07:50,720 Speaker 1: not a view that's shared by UM everybody and and 129 00:07:50,920 --> 00:07:54,600 Speaker 1: many Democrats view this is a basically a partisan effort 130 00:07:54,640 --> 00:07:59,840 Speaker 1: to UM to pass more voter I d UH legislation 131 00:08:00,160 --> 00:08:03,680 Speaker 1: would basically, you know, has the potential to suppress turnout, 132 00:08:03,800 --> 00:08:07,560 Speaker 1: especially among minorities and people that might support Democrats. So 133 00:08:07,760 --> 00:08:11,680 Speaker 1: it's a very controversial UM topic. It was something that 134 00:08:11,760 --> 00:08:14,720 Speaker 1: was emphasized by Trump after the election in which he 135 00:08:15,040 --> 00:08:18,239 Speaker 1: lost the popular vote by about three million votes, and 136 00:08:18,240 --> 00:08:22,880 Speaker 1: and it hasn't been talked about for the last really 137 00:08:22,920 --> 00:08:26,440 Speaker 1: for a couple of months. UM. But they decided to 138 00:08:26,520 --> 00:08:29,680 Speaker 1: make this announcement yesterday. And I think the suspicion from 139 00:08:29,680 --> 00:08:31,680 Speaker 1: Trump's critics you said at the beginning that this is 140 00:08:31,720 --> 00:08:35,520 Speaker 1: something other than the Russia comy issue, but the suspicion 141 00:08:35,559 --> 00:08:38,439 Speaker 1: from Trump's critics is that, um they wanted to talk 142 00:08:38,480 --> 00:08:40,200 Speaker 1: about something else, and that's why it was brought up 143 00:08:40,240 --> 00:08:43,199 Speaker 1: this week. Well, okay, so let's put this in a perspective. 144 00:08:43,200 --> 00:08:45,319 Speaker 1: I mean, should we care about this or is this 145 00:08:45,480 --> 00:08:49,880 Speaker 1: window dressing from President Trump trying to appease his his 146 00:08:50,200 --> 00:08:53,720 Speaker 1: core supporters. I think that that's the question is whether 147 00:08:53,760 --> 00:08:58,400 Speaker 1: this would be a legitimate investigation. There have been similar 148 00:08:58,440 --> 00:09:01,760 Speaker 1: investigations in the past of problems with the voting system. 149 00:09:01,840 --> 00:09:05,720 Speaker 1: They generally have been more sort of on a bipartisan basis, 150 00:09:05,720 --> 00:09:08,040 Speaker 1: where we look at all the issues. This is, you know, 151 00:09:08,400 --> 00:09:11,000 Speaker 1: a commission that was out to look at just one issue, 152 00:09:11,040 --> 00:09:14,800 Speaker 1: the voter fraud issue that the Republicans have emphasized and 153 00:09:14,800 --> 00:09:18,080 Speaker 1: that I say has been you know, very controversial. There 154 00:09:18,080 --> 00:09:21,400 Speaker 1: were a couple of Democrats that were named yesterday, um 155 00:09:21,640 --> 00:09:25,240 Speaker 1: uh to who who were going to participate in the commission? 156 00:09:25,720 --> 00:09:28,120 Speaker 1: Bill Gardner, the Secretary of State of New Hampshire, and 157 00:09:28,880 --> 00:09:31,160 Speaker 1: I think it's Matt Dunlap, who's the Secretary of State 158 00:09:31,160 --> 00:09:34,720 Speaker 1: of Maine. But both of those people have actually you know, 159 00:09:34,800 --> 00:09:37,559 Speaker 1: pushed back against the Trump claims that there was widespread 160 00:09:37,640 --> 00:09:40,720 Speaker 1: voter fraud, and it's you know, it's difficult to find 161 00:09:41,400 --> 00:09:45,760 Speaker 1: any Democrats, and really many Republicans, you know, also feel 162 00:09:45,800 --> 00:09:48,280 Speaker 1: that there was not um that this is just not 163 00:09:48,360 --> 00:09:50,800 Speaker 1: a major issue. It's not an issue that affects um 164 00:09:51,760 --> 00:09:54,920 Speaker 1: election results in any kind of um significant way. Well, 165 00:09:55,000 --> 00:09:57,080 Speaker 1: let's let's zoom back a little bit and get a 166 00:09:57,200 --> 00:10:02,160 Speaker 1: sense of how quickly official can move to change these 167 00:10:02,200 --> 00:10:05,440 Speaker 1: standards by which people have to adhere in order to vote, 168 00:10:05,559 --> 00:10:09,480 Speaker 1: or potentially even rearranged districts. I mean, can people move 169 00:10:09,559 --> 00:10:15,560 Speaker 1: quickly without say, legislative action to rearrange the voting parameters? No, 170 00:10:15,960 --> 00:10:18,120 Speaker 1: I mean that's the thing. That's The laws on this 171 00:10:18,240 --> 00:10:21,920 Speaker 1: are set state by state. Um. There there have been 172 00:10:22,120 --> 00:10:25,520 Speaker 1: significant changes in the laws in some states. They they 173 00:10:26,040 --> 00:10:29,040 Speaker 1: the states that have taken up this issue are generally 174 00:10:29,040 --> 00:10:32,920 Speaker 1: those states that have Republican majority legislatures and have have 175 00:10:33,040 --> 00:10:35,600 Speaker 1: moved ahead on this. There have been some significant Supreme 176 00:10:35,640 --> 00:10:38,400 Speaker 1: Court decisions that have allowed more of that activity and 177 00:10:38,440 --> 00:10:40,800 Speaker 1: some of the states to move ahead. But this commission, 178 00:10:41,400 --> 00:10:44,400 Speaker 1: the only thing that it's actually charged to do is 179 00:10:44,440 --> 00:10:47,440 Speaker 1: to write a report to the President that says, you know, 180 00:10:47,480 --> 00:10:51,480 Speaker 1: what what ought to be done, presumably about this Uh, 181 00:10:51,520 --> 00:10:54,040 Speaker 1: they say that the report won't come out until some 182 00:10:54,120 --> 00:10:57,200 Speaker 1: time next year. UM, and then at that point, presumably 183 00:10:57,200 --> 00:10:59,719 Speaker 1: they might pass along recommendations either to the states or 184 00:11:00,120 --> 00:11:03,800 Speaker 1: possibly to Congress. I mean, there's some suspicion that, um, 185 00:11:03,920 --> 00:11:06,800 Speaker 1: the the Republicans might try to use this to roll 186 00:11:06,840 --> 00:11:10,800 Speaker 1: back what's called the Motor Voter Act and National Voter 187 00:11:10,920 --> 00:11:14,319 Speaker 1: Registration Act, which was the national law that was put 188 00:11:14,360 --> 00:11:18,120 Speaker 1: in place to ease voter registration requirements that there would be, 189 00:11:18,160 --> 00:11:20,920 Speaker 1: you know, basically you could fill out a postcard and 190 00:11:20,960 --> 00:11:24,360 Speaker 1: send it into state officials to register more easily, and 191 00:11:24,400 --> 00:11:29,160 Speaker 1: also requiring states to allow registration through you know, um, 192 00:11:29,440 --> 00:11:34,040 Speaker 1: driver license and other other state facilities. So the Republicans 193 00:11:34,080 --> 00:11:35,560 Speaker 1: might try to use it for something like that, but 194 00:11:35,640 --> 00:11:38,160 Speaker 1: not not immediately, you know. Can I have to wonder 195 00:11:38,200 --> 00:11:40,559 Speaker 1: if this is window dressing or if this is basically 196 00:11:41,160 --> 00:11:46,120 Speaker 1: plead or diversion to give core supporters of President Trump 197 00:11:46,120 --> 00:11:50,200 Speaker 1: something to think about other than the hurrah around James 198 00:11:50,280 --> 00:11:53,760 Speaker 1: come and his uh and his is getting fired. Is 199 00:11:53,800 --> 00:11:58,360 Speaker 1: it is this emblematic of Washington spinning its wheels and 200 00:11:58,400 --> 00:12:01,920 Speaker 1: getting admired and stuff that is is not going to 201 00:12:01,960 --> 00:12:04,880 Speaker 1: go anywhere and is a waste of time. Well, I mean, 202 00:12:04,960 --> 00:12:07,720 Speaker 1: I think that there's a lot of interest in sort 203 00:12:07,720 --> 00:12:11,600 Speaker 1: of controlling the narrative, right, I mean, whether and especially 204 00:12:11,600 --> 00:12:13,959 Speaker 1: at the White House, that they may feel like they've 205 00:12:14,000 --> 00:12:16,520 Speaker 1: lost some control of what's going on and they're trying 206 00:12:16,559 --> 00:12:19,439 Speaker 1: to get it back and have Trump be more you know, 207 00:12:20,200 --> 00:12:22,560 Speaker 1: on the offense rather than the defense. This was something 208 00:12:22,600 --> 00:12:25,080 Speaker 1: that he was pushing, he was talking about a lot 209 00:12:25,120 --> 00:12:28,319 Speaker 1: earlier in the year. And actually, I mean it's interesting 210 00:12:28,320 --> 00:12:30,319 Speaker 1: because a lot of people said, you know, that he 211 00:12:30,320 --> 00:12:32,720 Speaker 1: shouldn't be talking about this because there was there wasn't 212 00:12:32,760 --> 00:12:34,400 Speaker 1: a lot of evidence to back it up, and it 213 00:12:34,480 --> 00:12:38,120 Speaker 1: was kind of problematic. But it does I think it 214 00:12:38,160 --> 00:12:39,960 Speaker 1: does show the point that we're at that they've brought 215 00:12:40,080 --> 00:12:45,120 Speaker 1: this up as as you know, an alternative, um, you know, 216 00:12:45,240 --> 00:12:48,200 Speaker 1: thing to talk about as opposed to the Russia coomy thing. 217 00:12:48,280 --> 00:12:50,959 Speaker 1: And clearly they're they're very people in the White House 218 00:12:51,000 --> 00:12:53,040 Speaker 1: are very preoccupied by this at this point. This is 219 00:12:53,080 --> 00:12:56,200 Speaker 1: such a huge story this week that um, you know 220 00:12:56,280 --> 00:12:59,640 Speaker 1: that it's hard for them to to talk about something else, 221 00:12:59,679 --> 00:13:01,839 Speaker 1: but they like to. Obviously, is there anything else that 222 00:13:01,880 --> 00:13:04,319 Speaker 1: we can expect them to try to divert the attention 223 00:13:04,320 --> 00:13:08,080 Speaker 1: to I mean something even worthwhile like health care, taxes. Well, 224 00:13:08,120 --> 00:13:10,080 Speaker 1: I think that that's what they would certainly, that's what 225 00:13:10,120 --> 00:13:11,800 Speaker 1: the Republicans on the Hill would like to talk about. 226 00:13:11,840 --> 00:13:13,280 Speaker 1: They'd like to be able to get back to that. 227 00:13:13,679 --> 00:13:16,360 Speaker 1: I think that that's certainly what um, you know, what 228 00:13:16,480 --> 00:13:18,640 Speaker 1: the White House would like to They want to find 229 00:13:18,640 --> 00:13:21,959 Speaker 1: a way back to talking about other things, including those issues. 230 00:13:22,000 --> 00:13:24,400 Speaker 1: But that's gonna be hard for everybody. It's gonna be 231 00:13:24,440 --> 00:13:26,800 Speaker 1: hard for people in Congress. I think that to talk 232 00:13:26,800 --> 00:13:28,640 Speaker 1: about those issues as well when they're going to be 233 00:13:28,679 --> 00:13:32,680 Speaker 1: asked questions about you know, this latest controversy. Yeah. Well 234 00:13:32,720 --> 00:13:35,080 Speaker 1: the other is, I guess, Ron Meat, it's probably easier 235 00:13:35,120 --> 00:13:37,319 Speaker 1: for people to care about and get excited about rather 236 00:13:37,360 --> 00:13:41,040 Speaker 1: than very tricky things with lots of sides, like healthcare 237 00:13:41,040 --> 00:13:43,720 Speaker 1: and taxes. Ken do thank you so much for joining us. 238 00:13:43,760 --> 00:13:46,760 Speaker 1: Ken Doyle is senior editor for Bloomberg Bonna's Money and 239 00:13:46,840 --> 00:13:51,280 Speaker 1: Politics Report. Coming to us from Arlington, Virginia. Talking about 240 00:13:51,720 --> 00:13:55,600 Speaker 1: the latest President Trump executive order ordering a commission on 241 00:13:55,640 --> 00:13:58,400 Speaker 1: fraudulent voting in elections? Is it just a diversion tactic 242 00:13:58,480 --> 00:14:02,360 Speaker 1: to move some IV halls away from the James comey drama. 243 00:14:02,520 --> 00:14:14,000 Speaker 1: Perhaps we want to take a moment to let you 244 00:14:14,040 --> 00:14:16,920 Speaker 1: know about something new from Bloomberg. 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Learn more at Bloomberg dot com slash lens. 254 00:14:52,600 --> 00:14:55,600 Speaker 1: We got some retail sales numbers today, and we've got 255 00:14:55,600 --> 00:14:58,600 Speaker 1: a whole host of results from department stores over the 256 00:14:58,600 --> 00:15:01,720 Speaker 1: past twenty four hour and they kind of paint a 257 00:15:01,760 --> 00:15:04,600 Speaker 1: conflicting picture. To get a better sense of what it 258 00:15:04,680 --> 00:15:07,200 Speaker 1: all means, I want to bring in Sema Show, consumer 259 00:15:07,400 --> 00:15:11,160 Speaker 1: discretionary analyst for Bloomberg Intelligence, as well as Bert Flickinger, 260 00:15:11,200 --> 00:15:14,440 Speaker 1: Managing director at Strategic Resource Group H and seem I 261 00:15:14,480 --> 00:15:16,640 Speaker 1: want to start with you to set the stage with 262 00:15:16,680 --> 00:15:19,320 Speaker 1: respect to these US retail sales numbers that we got 263 00:15:19,360 --> 00:15:22,600 Speaker 1: for April that seemed to be okay. They weren't terrible, 264 00:15:23,120 --> 00:15:26,080 Speaker 1: thank you Lisa. They were okay compared to last month, 265 00:15:26,160 --> 00:15:28,880 Speaker 1: but they still missed expectations. And I think part of 266 00:15:28,920 --> 00:15:32,520 Speaker 1: the benefit was from the easter shift from March to April. 267 00:15:33,200 --> 00:15:35,120 Speaker 1: Um but I think if you step back and you 268 00:15:35,120 --> 00:15:37,600 Speaker 1: think about and also you look at what the components 269 00:15:37,640 --> 00:15:39,760 Speaker 1: were of retail sales, the a lot of the growth 270 00:15:39,800 --> 00:15:43,000 Speaker 1: was coming from categories where we've seen growth before, building materials, 271 00:15:43,680 --> 00:15:47,520 Speaker 1: non store retails, so basically online um so. And you 272 00:15:47,560 --> 00:15:52,120 Speaker 1: saw positive sales from autos, though they've declined since last year. 273 00:15:52,200 --> 00:15:54,520 Speaker 1: So I think going forward that's going to be a 274 00:15:54,640 --> 00:15:59,160 Speaker 1: risk for retail sales. And Bert certainly we saw nothing 275 00:15:59,240 --> 00:16:04,080 Speaker 1: Rosie out the numbers out of most of the department stores, calls, UH, Nordstrom's, 276 00:16:04,160 --> 00:16:09,480 Speaker 1: Macy's really some devastatingly disappointing numbers. What do you make 277 00:16:09,520 --> 00:16:12,360 Speaker 1: of all this? It's it's part of the day to them, 278 00:16:12,360 --> 00:16:15,560 Speaker 1: all of many going down. So you see Bondon in 279 00:16:15,920 --> 00:16:18,400 Speaker 1: a in a tune of Trouble Sears Holdings, which still 280 00:16:18,400 --> 00:16:21,440 Speaker 1: sells a lot of apparel and accessories in trouble J 281 00:16:21,880 --> 00:16:25,960 Speaker 1: J Crew and trouble, Barney's in trouble. Even nice is Uh, 282 00:16:26,120 --> 00:16:29,920 Speaker 1: You're the worldwide star of bonds and fixed income Lisa 283 00:16:30,320 --> 00:16:35,840 Speaker 1: and Nemon Marcus market bonds are are trading way down, 284 00:16:35,840 --> 00:16:39,280 Speaker 1: and there's some silver lining in Penny. Penny's gross margins 285 00:16:39,640 --> 00:16:42,000 Speaker 1: if you stacked over a three year period or up 286 00:16:42,000 --> 00:16:45,520 Speaker 1: about a thousand percent, gross margins are still trading up. 287 00:16:45,760 --> 00:16:49,160 Speaker 1: SMP just upgraded the bonds to B plus, while Nordstrom 288 00:16:49,160 --> 00:16:53,400 Speaker 1: and the others are triple C. And with Penny, you've 289 00:16:53,400 --> 00:16:58,480 Speaker 1: got more margin expansion. Uh, solid or flat same store 290 00:16:58,480 --> 00:17:00,560 Speaker 1: sales projected for the rest of the year. But four 291 00:17:00,600 --> 00:17:04,680 Speaker 1: cornerstones are really doing well. So for them find Jewelry 292 00:17:05,280 --> 00:17:09,359 Speaker 1: uh doing well, Boys and girls fashion doing well, at 293 00:17:09,400 --> 00:17:12,840 Speaker 1: home doing well. So Penny shifting a lot of sales 294 00:17:12,880 --> 00:17:16,400 Speaker 1: from Sears, which is you, and SIMA said reporting next 295 00:17:16,400 --> 00:17:19,160 Speaker 1: week ton of trouble on shifting sales from just about 296 00:17:19,160 --> 00:17:21,960 Speaker 1: everybody else in sector two. Well, Uh, Seema, I want 297 00:17:21,960 --> 00:17:24,600 Speaker 1: to get to back to what one the thing that 298 00:17:24,600 --> 00:17:27,720 Speaker 1: you were saying before we drill into the likely success 299 00:17:27,800 --> 00:17:30,280 Speaker 1: or failure of some of these companies. I want to 300 00:17:30,320 --> 00:17:32,400 Speaker 1: dig into something that you were talking about with respect 301 00:17:32,480 --> 00:17:35,520 Speaker 1: to the drivers of some of the gain in retail sales. 302 00:17:35,560 --> 00:17:38,000 Speaker 1: You talked about autos for example, where we have seen 303 00:17:38,280 --> 00:17:41,479 Speaker 1: the sales slowing, we've seen building materials. I mean, do 304 00:17:41,560 --> 00:17:44,719 Speaker 1: these numbers suggest to you that there is kind of 305 00:17:44,840 --> 00:17:47,360 Speaker 1: more weakness that was going to play out in retail 306 00:17:47,440 --> 00:17:50,160 Speaker 1: sales that could sort of speak to something broader. Yeah. 307 00:17:50,200 --> 00:17:52,000 Speaker 1: So I think I've probably been a little bit more 308 00:17:52,040 --> 00:17:54,760 Speaker 1: on the bare side versus some of my colleagues because 309 00:17:54,760 --> 00:17:57,760 Speaker 1: I'm concerned about how strong autos were last year, and 310 00:17:57,800 --> 00:18:00,840 Speaker 1: if you step back, twee did this with each other. 311 00:18:00,880 --> 00:18:04,480 Speaker 1: I'm very concerned about the rising auto loans, the delinquencies. 312 00:18:04,480 --> 00:18:08,120 Speaker 1: I'm very concerned about the synchronies and the alliance data 313 00:18:08,160 --> 00:18:10,760 Speaker 1: systems of the world raising their charge off rates, which is, 314 00:18:10,800 --> 00:18:12,919 Speaker 1: by the way, credit income is a huge component of 315 00:18:12,960 --> 00:18:16,720 Speaker 1: many department doors and other retailers operating income, and it's 316 00:18:16,720 --> 00:18:19,840 Speaker 1: a huge driver of sales. So credit. If people are 317 00:18:19,920 --> 00:18:22,120 Speaker 1: using credit to buy and then they're not paying it back, 318 00:18:22,160 --> 00:18:24,520 Speaker 1: I think that it paints the more negative picture of 319 00:18:24,560 --> 00:18:26,879 Speaker 1: the consumer. If you step back and you think about 320 00:18:26,880 --> 00:18:30,000 Speaker 1: the macro indicators. The economists talk about a lot of 321 00:18:30,040 --> 00:18:33,280 Speaker 1: that wage increase, and it's on the low end, and 322 00:18:33,320 --> 00:18:35,880 Speaker 1: it might be that those people are shifting the money 323 00:18:35,920 --> 00:18:39,360 Speaker 1: either to their homes or just too basic necessities like healthcare, 324 00:18:39,359 --> 00:18:41,840 Speaker 1: which could go up if we have the American health 325 00:18:41,880 --> 00:18:45,480 Speaker 1: Care Act pass, or just housing costs, you know. So 326 00:18:45,720 --> 00:18:49,520 Speaker 1: I'm more concerned about the actual state and health of 327 00:18:49,560 --> 00:18:52,360 Speaker 1: the consumer, and then what it means for the retailers 328 00:18:52,359 --> 00:18:55,040 Speaker 1: who are facing this potentially weaker consumer, and then the 329 00:18:55,080 --> 00:18:58,600 Speaker 1: secular pressure of the Amazons and rising competition in their space, 330 00:18:58,800 --> 00:19:00,679 Speaker 1: right and burn, just to sort of what you were 331 00:19:00,680 --> 00:19:02,399 Speaker 1: talking about with the winners and the losers of me 332 00:19:02,440 --> 00:19:05,080 Speaker 1: you talk to Sephora. This has been a longstanding trend 333 00:19:05,200 --> 00:19:08,240 Speaker 1: that people spend more on makeup because you know, because 334 00:19:08,240 --> 00:19:10,280 Speaker 1: of possibly Instagram, because people want to look good in 335 00:19:10,320 --> 00:19:13,399 Speaker 1: their selfies. Right, They're getting more manicure. But Bert, I 336 00:19:13,440 --> 00:19:16,240 Speaker 1: mean like project out over the next two years, I 337 00:19:16,240 --> 00:19:17,680 Speaker 1: mean you said that Danue mo Are, We're going to 338 00:19:17,760 --> 00:19:21,480 Speaker 1: actually see some of these companies, these department stores really 339 00:19:21,520 --> 00:19:23,600 Speaker 1: truly closed. I mean, this has been going on for 340 00:19:23,640 --> 00:19:26,800 Speaker 1: a long time. Yeah, Lisa's is your referenced so presently 341 00:19:26,800 --> 00:19:29,960 Speaker 1: in some of our earlier broadcasts. When the retail bonds 342 00:19:30,560 --> 00:19:34,640 Speaker 1: go to triple C minus and trade sixty five or below. Uh, 343 00:19:34,720 --> 00:19:37,359 Speaker 1: they're really they're really in trouble. And that's also often 344 00:19:37,400 --> 00:19:39,960 Speaker 1: a leading bankruptcy indicator. So are there ones that are 345 00:19:40,040 --> 00:19:44,880 Speaker 1: ye so uh Sears Hole Holdings, km arts there, UH 346 00:19:45,160 --> 00:19:49,159 Speaker 1: Jay crew hasn't gotten there, but easily easily could. The 347 00:19:49,200 --> 00:19:52,880 Speaker 1: Barney's that's in a ton of trouble and mgen Neman, 348 00:19:52,920 --> 00:19:55,719 Speaker 1: Marcus Group, dash Burg dorses there and then a lot 349 00:19:55,800 --> 00:19:58,639 Speaker 1: of the teen retailers that have already gone over Niagara 350 00:19:58,720 --> 00:20:02,560 Speaker 1: falls in a barrel with without any padding, so route 351 00:20:02,640 --> 00:20:11,320 Speaker 1: route route one. There might be some bright, bright blue 352 00:20:11,320 --> 00:20:14,320 Speaker 1: skies ahead. We've got a Memorial Day coming up. The 353 00:20:14,400 --> 00:20:17,680 Speaker 1: last quarter reported with some of the worst weather between 354 00:20:17,800 --> 00:20:23,719 Speaker 1: cold rain, UH, floods, etcetera. Now there's some lighthouse lighthouses 355 00:20:23,760 --> 00:20:27,760 Speaker 1: in terms of economic activity between energy all levels from 356 00:20:28,160 --> 00:20:33,400 Speaker 1: renew renewable to carbons. Agricultures back on its feet, manufacturing 357 00:20:33,480 --> 00:20:35,800 Speaker 1: is back on its feet. There'll be some more UH 358 00:20:35,840 --> 00:20:38,520 Speaker 1: spending and with the tax refunds because of the problems 359 00:20:38,520 --> 00:20:41,760 Speaker 1: in Washington coming out late. UH second quarters should be 360 00:20:41,800 --> 00:20:45,879 Speaker 1: good and it's is un Sima presently pointed out. Auto 361 00:20:45,960 --> 00:20:50,200 Speaker 1: sales of UM hit the hit the wall at Darlington 362 00:20:50,280 --> 00:20:53,080 Speaker 1: and bouncing off and limping to the finish line what 363 00:20:53,200 --> 00:20:56,960 Speaker 1: that usually means. And with Apple in between product cycles, 364 00:20:56,960 --> 00:21:00,720 Speaker 1: as people will go out to department stores, Spend or Disney, 365 00:21:00,720 --> 00:21:04,280 Speaker 1: the other theaters have a strong studio release schedule, So 366 00:21:04,680 --> 00:21:08,280 Speaker 1: there are potentially more people going to the malls this summer. 367 00:21:08,520 --> 00:21:11,479 Speaker 1: And when I talked to surviving retailers, they're seeing a 368 00:21:11,480 --> 00:21:14,600 Speaker 1: lot of shoppers shift over in the same malls from 369 00:21:14,640 --> 00:21:18,399 Speaker 1: the declining retailers are going going down swinging, trying to 370 00:21:18,480 --> 00:21:22,439 Speaker 1: liquidate their inventory for their vendors and unsecured creditors. You know, 371 00:21:22,720 --> 00:21:25,119 Speaker 1: as you talk, I mean when you talk about some 372 00:21:25,200 --> 00:21:27,400 Speaker 1: of the bonds that are trading down and sort of 373 00:21:27,680 --> 00:21:30,359 Speaker 1: uh indicating that there could be an imminent bankruptcy of 374 00:21:30,480 --> 00:21:33,480 Speaker 1: companies like Sears and Kmart and potentially Jay Crew in 375 00:21:33,520 --> 00:21:35,840 Speaker 1: a little bit, I have to wonder. I mean, they've 376 00:21:35,880 --> 00:21:38,919 Speaker 1: been signaling this for a long time, and you know, 377 00:21:39,080 --> 00:21:41,840 Speaker 1: Eddie Lampert, for example, with Sears, has really kept that 378 00:21:41,880 --> 00:21:44,679 Speaker 1: company afloat. But yeah, I was just go ahead, yeah, no, 379 00:21:44,720 --> 00:21:46,600 Speaker 1: please go. But I was just gonna say that retail 380 00:21:46,840 --> 00:21:49,240 Speaker 1: tends to die a slow death. Can look at radio shock, 381 00:21:49,320 --> 00:21:51,880 Speaker 1: right because a lot of the individual stores are profitable, 382 00:21:52,320 --> 00:21:57,119 Speaker 1: so they just basically milk them for cash. And like, 383 00:21:57,200 --> 00:21:59,639 Speaker 1: he's that's basically what he's done, right, He's not spending 384 00:21:59,680 --> 00:22:03,960 Speaker 1: any and so, yeah, Sears should have died ten years ago, 385 00:22:04,240 --> 00:22:06,560 Speaker 1: but he's able to keep it alive. And you see 386 00:22:06,560 --> 00:22:08,840 Speaker 1: that with many of the retailers. It's only that just 387 00:22:08,920 --> 00:22:10,920 Speaker 1: kind of limp along and then. But is this part 388 00:22:10,960 --> 00:22:12,560 Speaker 1: of the problem, right, Is this part of the reason 389 00:22:12,640 --> 00:22:14,919 Speaker 1: why the retail sector has been unable to sort of 390 00:22:14,920 --> 00:22:18,360 Speaker 1: revive itself, apart from Amazon coming in and just completely 391 00:22:18,440 --> 00:22:20,719 Speaker 1: changing the landscape. Is it partly that you know, they 392 00:22:20,720 --> 00:22:23,800 Speaker 1: won't let a bad thing die. There's there's an insidious, 393 00:22:23,880 --> 00:22:29,160 Speaker 1: unreported story too, is that the greedy bankruptcy firms are 394 00:22:29,240 --> 00:22:33,520 Speaker 1: gouging these poor retailers, whether it's FTC M and a 395 00:22:33,760 --> 00:22:35,879 Speaker 1: UH in the case of a few firms, or some 396 00:22:35,920 --> 00:22:39,280 Speaker 1: of the notable bankruptcy firms gouging these poor firms and 397 00:22:39,320 --> 00:22:42,439 Speaker 1: the securits and the under secureds UH for over a 398 00:22:42,480 --> 00:22:44,760 Speaker 1: hundred million in professional feast. They don't know what the 399 00:22:44,840 --> 00:22:47,159 Speaker 1: devil they're doing. They haven't done any work in retail. 400 00:22:47,200 --> 00:22:50,199 Speaker 1: They bring in financial advisors, I don't know what the 401 00:22:50,240 --> 00:22:52,880 Speaker 1: devil they're doing, and it almost seems that their goal 402 00:22:53,040 --> 00:22:57,200 Speaker 1: is boomerang bankruptcy, is to do a Chapter eleven bankruptcy 403 00:22:57,280 --> 00:22:59,480 Speaker 1: followed by a Chapter seven so they could do a 404 00:22:59,520 --> 00:23:03,479 Speaker 1: hundred and professional fees twice while pairing the company. And 405 00:23:03,520 --> 00:23:08,200 Speaker 1: that's the scandal that the bond holders and the secured creditors, 406 00:23:08,240 --> 00:23:12,119 Speaker 1: the unsecured largely the vendors and the landlords really have 407 00:23:12,240 --> 00:23:16,280 Speaker 1: to get get after these bankruptcy firms that really have 408 00:23:16,760 --> 00:23:20,320 Speaker 1: load and no retail experience in the space and have 409 00:23:20,400 --> 00:23:23,040 Speaker 1: often failed in in in prior ones as U and 410 00:23:23,119 --> 00:23:27,120 Speaker 1: Seim are so describing so well. Having these companies link 411 00:23:27,560 --> 00:23:30,040 Speaker 1: limp along and the only ones who are getting rich 412 00:23:30,440 --> 00:23:33,680 Speaker 1: are the bankruptcy lawyers their firms and the professionals they 413 00:23:33,720 --> 00:23:37,480 Speaker 1: bring in again with with close close to no relevant 414 00:23:37,520 --> 00:23:39,840 Speaker 1: retail experience. I mean, then I guess this makes sense. 415 00:23:39,920 --> 00:23:41,879 Speaker 1: Right then you still have these people selling things that 416 00:23:42,480 --> 00:23:44,560 Speaker 1: chieper prices and it hurts the whole industry. You're not 417 00:23:44,600 --> 00:23:48,000 Speaker 1: getting that shake out that you need. So see what happens. 418 00:23:48,160 --> 00:23:52,560 Speaker 1: In my perspective, legacy retailers all need to rethink the 419 00:23:52,600 --> 00:23:55,240 Speaker 1: whole competitive landscape and how big they are. They grew 420 00:23:55,440 --> 00:23:57,720 Speaker 1: all too much and too fast, and the two thousands 421 00:23:57,760 --> 00:24:00,959 Speaker 1: and the ones that exist probably have to be significantly 422 00:24:01,000 --> 00:24:06,080 Speaker 1: smaller to be profitable and to have upside, right because 423 00:24:06,119 --> 00:24:08,000 Speaker 1: online now is a growing part of their business. So 424 00:24:08,080 --> 00:24:10,359 Speaker 1: I think they're just it's it's a huge They have 425 00:24:10,440 --> 00:24:13,520 Speaker 1: to really step back and say what kind of business 426 00:24:13,560 --> 00:24:15,840 Speaker 1: should I be now? It's not the business it used to. 427 00:24:16,119 --> 00:24:19,000 Speaker 1: And underpinning that question goes to something that you were 428 00:24:19,040 --> 00:24:22,000 Speaker 1: saying before, Sema, which is the idea that healthcare is 429 00:24:22,040 --> 00:24:25,080 Speaker 1: getting more expensive and housing costs are getting more expensive, 430 00:24:25,080 --> 00:24:28,720 Speaker 1: and a greater proportion of people's income is going to 431 00:24:28,920 --> 00:24:31,920 Speaker 1: those expenses. In other words, the amount that could potentially 432 00:24:31,920 --> 00:24:35,359 Speaker 1: go to discretionary spending to these retailers is going down. 433 00:24:35,480 --> 00:24:39,520 Speaker 1: I mean, aside from the Amazon albatross, you know, are 434 00:24:39,600 --> 00:24:43,720 Speaker 1: we seeing some kind of reduction in spending that we 435 00:24:43,760 --> 00:24:46,280 Speaker 1: can even see in the us A retail sales numbers. 436 00:24:46,480 --> 00:24:48,439 Speaker 1: I think that you are. Some of it is probably 437 00:24:48,480 --> 00:24:52,440 Speaker 1: due to spending shifting to other areas necessities, but it's 438 00:24:52,480 --> 00:24:54,920 Speaker 1: also I think people have to step back and think 439 00:24:54,920 --> 00:24:58,040 Speaker 1: about human behavior. Since oh eight, everybody has been used 440 00:24:58,080 --> 00:24:59,840 Speaker 1: to deals. I don't care how much money you are, 441 00:24:59,880 --> 00:25:02,080 Speaker 1: how wealthy. If you do not have a sale, you're 442 00:25:02,080 --> 00:25:03,720 Speaker 1: not going to buy. It's so true. I used to 443 00:25:03,760 --> 00:25:05,520 Speaker 1: come home doesn't matter. I used to come home from 444 00:25:05,520 --> 00:25:07,040 Speaker 1: the store and I would say to my husband. I'd 445 00:25:07,040 --> 00:25:08,879 Speaker 1: be like, I got this on sale, and he's like, 446 00:25:08,920 --> 00:25:11,600 Speaker 1: how it's off? He said, how much did you spend? 447 00:25:11,600 --> 00:25:15,479 Speaker 1: That's a fifty dollars you would roll as absolute amount. 448 00:25:15,600 --> 00:25:19,200 Speaker 1: So I think that that mindset is killing retail across 449 00:25:19,240 --> 00:25:22,800 Speaker 1: the board because people want a deal. How can you 450 00:25:22,920 --> 00:25:25,400 Speaker 1: pull back from promotions to boost your gross margin where 451 00:25:25,440 --> 00:25:27,919 Speaker 1: you're going to kill your sales. So on top of 452 00:25:27,960 --> 00:25:30,680 Speaker 1: all of this, it's really so the fact that these 453 00:25:30,680 --> 00:25:34,320 Speaker 1: retailers limp along that just sort of exacerbates. I think 454 00:25:34,520 --> 00:25:36,680 Speaker 1: the problem that hey, you know, I'm not going to 455 00:25:36,720 --> 00:25:38,600 Speaker 1: buy that black shirt because I'm gonna get it next 456 00:25:38,680 --> 00:25:41,159 Speaker 1: week from Macy's with the twelve coupons they send me 457 00:25:41,240 --> 00:25:44,080 Speaker 1: every day in the mail. And the fresh vendors are 458 00:25:45,000 --> 00:25:48,160 Speaker 1: causing some of the problem too unwittingly. So in our 459 00:25:48,240 --> 00:25:52,320 Speaker 1: field work, we're seeing them under resourcing UH prestige and 460 00:25:52,400 --> 00:25:57,080 Speaker 1: luxury fashion shoes. Two retailers like Nordstrom because they think 461 00:25:57,119 --> 00:25:59,440 Speaker 1: they can sell full price to their own stores, whether 462 00:25:59,480 --> 00:26:03,639 Speaker 1: it's Gooch or or others. And then what they ultimately 463 00:26:03,680 --> 00:26:06,760 Speaker 1: do is they don't they don't give enough luxury goods 464 00:26:06,920 --> 00:26:10,000 Speaker 1: leading department stores who made them, and then then they 465 00:26:10,040 --> 00:26:12,159 Speaker 1: wind up closing off on the internet or give it 466 00:26:12,200 --> 00:26:14,679 Speaker 1: to Carol Myerwitz and Ernie Herman to close out at 467 00:26:15,080 --> 00:26:17,160 Speaker 1: t j X and the rest of the off price 468 00:26:17,240 --> 00:26:22,080 Speaker 1: places across American and worldwide. Vendor community share shares in 469 00:26:22,119 --> 00:26:25,320 Speaker 1: the blame and pain. But there's going to be a 470 00:26:25,320 --> 00:26:28,320 Speaker 1: retail renaissance coming after this retail ice age, but it's 471 00:26:28,320 --> 00:26:30,399 Speaker 1: going to take about a thousand days for us to 472 00:26:30,440 --> 00:26:33,120 Speaker 1: go through the deep freeze and bounce back. Well, thank 473 00:26:33,160 --> 00:26:36,679 Speaker 1: you so much for joining me. Really a fascinating conversation. 474 00:26:36,720 --> 00:26:39,240 Speaker 1: I am sure it will be ongoing. SEMA shows consumers 475 00:26:39,320 --> 00:26:43,840 Speaker 1: espressional analysts for Bloomberg Intelligence and Bert Flickinger, Managing director 476 00:26:43,880 --> 00:26:59,720 Speaker 1: at Strategic Resource Group. Right now, I want to look 477 00:26:59,760 --> 00:27:02,800 Speaker 1: in to a new type of lending. Oh, it's not 478 00:27:02,840 --> 00:27:04,919 Speaker 1: that new. I guess this business is more than a 479 00:27:04,920 --> 00:27:07,160 Speaker 1: decade old, but it's certainly been ramping up. Jim Richard 480 00:27:07,160 --> 00:27:11,640 Speaker 1: Talia is co chief executive officer of Unison home Ownership Investors, 481 00:27:11,640 --> 00:27:14,239 Speaker 1: which is based in San Francisco, and Jim, we were 482 00:27:14,280 --> 00:27:16,879 Speaker 1: just talking a little bit offline about sort of the 483 00:27:16,920 --> 00:27:20,120 Speaker 1: objective of getting money to consumers who want to buy 484 00:27:20,119 --> 00:27:23,680 Speaker 1: houses to help pay for their down payments. Can you 485 00:27:23,720 --> 00:27:26,080 Speaker 1: explain a little bit about what this is? Sure, thanks 486 00:27:26,080 --> 00:27:28,919 Speaker 1: for having me on. Uh. Unison has introduced a new 487 00:27:28,960 --> 00:27:31,440 Speaker 1: financial product category to the world. Is what we call 488 00:27:31,480 --> 00:27:36,160 Speaker 1: it home ownership investment. It's long term funding. Uh, it's 489 00:27:36,160 --> 00:27:40,760 Speaker 1: not alone. Unison invests in the home alongside you. There 490 00:27:40,760 --> 00:27:44,399 Speaker 1: are no interest payments, no interest charges when you sell 491 00:27:44,440 --> 00:27:48,320 Speaker 1: the home. As partners, we share the outcome. We share 492 00:27:48,359 --> 00:27:50,760 Speaker 1: the change in value of the home. So if the 493 00:27:50,760 --> 00:27:53,879 Speaker 1: home value rises, we will share the appreciation. If the 494 00:27:53,880 --> 00:27:57,160 Speaker 1: home value falls, will also share in the loss. One 495 00:27:57,200 --> 00:27:59,919 Speaker 1: of the purposes of the funding that we provide is 496 00:28:00,040 --> 00:28:01,600 Speaker 1: to use it as part of the down payment on 497 00:28:01,640 --> 00:28:05,320 Speaker 1: a home purchase. So, uh, this this seems like it 498 00:28:05,440 --> 00:28:09,919 Speaker 1: has somewhat of a pretty big risk attached to it, 499 00:28:09,960 --> 00:28:12,840 Speaker 1: just because you don't get paid out until you know, 500 00:28:12,880 --> 00:28:15,640 Speaker 1: thirty years down the line when somebody sells the house, 501 00:28:15,760 --> 00:28:20,320 Speaker 1: or unless it's gets prepaid earlier, and you know who's 502 00:28:20,359 --> 00:28:24,120 Speaker 1: investing and uh, what's what's the value proposition for them? 503 00:28:24,160 --> 00:28:27,920 Speaker 1: So we raise money from institutional investors like pension funds 504 00:28:27,920 --> 00:28:31,159 Speaker 1: and endowments. Residential real estate is a very attractive asset 505 00:28:31,200 --> 00:28:34,480 Speaker 1: class for these investors because it closely tracks inflation and 506 00:28:34,520 --> 00:28:37,280 Speaker 1: it's a very large component of the economy. They've never 507 00:28:37,359 --> 00:28:39,840 Speaker 1: had any way to get exposure to it until now. 508 00:28:39,880 --> 00:28:42,600 Speaker 1: And one of the things that's very extraordinary about what 509 00:28:42,640 --> 00:28:45,800 Speaker 1: we do is that, for the first time ever, Unison 510 00:28:45,920 --> 00:28:49,160 Speaker 1: is making residential real estate, which is the world's largest 511 00:28:49,200 --> 00:28:54,480 Speaker 1: asset class, an investable asset class for institutional investors. So 512 00:28:54,800 --> 00:28:58,520 Speaker 1: you opened the business in two thousand and five, what 513 00:28:58,640 --> 00:29:01,640 Speaker 1: has the one of the turn has been like, Uh, 514 00:29:01,680 --> 00:29:03,440 Speaker 1: they've actually been very good. We have some of the 515 00:29:03,440 --> 00:29:06,640 Speaker 1: investors that invested with us way back have invested again. 516 00:29:07,120 --> 00:29:10,040 Speaker 1: We've managed a pool of these assets that were generated 517 00:29:10,080 --> 00:29:13,640 Speaker 1: before the crisis through the crisis. They perform well. Um, 518 00:29:13,720 --> 00:29:16,080 Speaker 1: you know, it's a it's a it's a good program. 519 00:29:16,120 --> 00:29:18,360 Speaker 1: It's a it's a it's a good deal. We strike 520 00:29:18,440 --> 00:29:20,960 Speaker 1: between the investor and the consumer. The consumer gets the 521 00:29:21,000 --> 00:29:24,760 Speaker 1: benefit of long term finance without payments, and the investor 522 00:29:24,840 --> 00:29:27,800 Speaker 1: gets the benefit of the new asset class. These investors 523 00:29:27,880 --> 00:29:31,440 Speaker 1: don't need payments. They're long term investors. They need exposure 524 00:29:31,480 --> 00:29:34,440 Speaker 1: to the asset class. And the consumer likes the idea 525 00:29:34,520 --> 00:29:37,400 Speaker 1: of not having to make payments on long term finance. 526 00:29:37,440 --> 00:29:40,080 Speaker 1: So it's a there's a natural alignment between the two 527 00:29:40,280 --> 00:29:43,000 Speaker 1: and that's the genesis for the business. How how what 528 00:29:43,160 --> 00:29:45,800 Speaker 1: sort of the total volume of loans that have been 529 00:29:45,800 --> 00:29:48,320 Speaker 1: originated like this or not loans? They're not loans, they're 530 00:29:48,360 --> 00:29:52,040 Speaker 1: not to take that back financing excuse me. We are 531 00:29:52,160 --> 00:29:55,040 Speaker 1: growing very very quickly right now. We started the business, 532 00:29:55,280 --> 00:29:58,600 Speaker 1: as you mentioned, back before the crisis, we had about 533 00:29:58,600 --> 00:30:01,600 Speaker 1: fourteen thousand consumers on our pipeline when we were forced 534 00:30:01,600 --> 00:30:04,160 Speaker 1: to basically you know, hunkered down for the crisis for 535 00:30:04,200 --> 00:30:06,760 Speaker 1: a while, so we had done you know, our first 536 00:30:06,840 --> 00:30:10,239 Speaker 1: several hundred transactions at that point. After the crisis, we 537 00:30:10,280 --> 00:30:13,160 Speaker 1: relaunched our original program, the home buyer I'm sorry, the 538 00:30:13,160 --> 00:30:16,440 Speaker 1: homeowner program, and added the home buyer program, and now 539 00:30:16,480 --> 00:30:19,320 Speaker 1: that program is ramping up very very quickly. We've got 540 00:30:19,640 --> 00:30:23,360 Speaker 1: very large amounts of capital committed, and as I said, 541 00:30:23,360 --> 00:30:26,080 Speaker 1: we're growing like ercent a month over month in terms 542 00:30:26,120 --> 00:30:29,000 Speaker 1: of our our origination pipeline, Do you have certain parameters 543 00:30:29,040 --> 00:30:32,040 Speaker 1: as far as how much money the homeowners have to 544 00:30:32,080 --> 00:30:35,840 Speaker 1: put down or sort of any of the loan to 545 00:30:36,040 --> 00:30:39,440 Speaker 1: value ratio or anything like that. In most cases, the 546 00:30:39,440 --> 00:30:41,840 Speaker 1: homeowner puts down half of the down payment and we 547 00:30:41,920 --> 00:30:45,200 Speaker 1: put down half that you know, by most cases they're 548 00:30:45,200 --> 00:30:48,240 Speaker 1: getting a loan on the property, so we share the 549 00:30:48,240 --> 00:30:52,120 Speaker 1: down payment fifty. Right, But as far as the parameters 550 00:30:52,240 --> 00:30:56,840 Speaker 1: for the consumer and what you know, kinds of leverage are, 551 00:30:56,920 --> 00:30:58,520 Speaker 1: you know, just to make sure that people aren't being 552 00:30:58,520 --> 00:31:02,680 Speaker 1: irresponsible or unable paypafter loaner, you know, because possibly they're 553 00:31:02,680 --> 00:31:04,160 Speaker 1: gonna have to get a mortgage in addition to the 554 00:31:04,200 --> 00:31:05,920 Speaker 1: down payments, to make sure that it's not going to 555 00:31:06,000 --> 00:31:08,360 Speaker 1: be uh, something that's gonna end up in foreclosure, which 556 00:31:08,360 --> 00:31:11,200 Speaker 1: could potentially become a problem. Right Sure, in general, the 557 00:31:11,360 --> 00:31:14,680 Speaker 1: LTV on the property is eighty percent or less. Remember 558 00:31:14,720 --> 00:31:16,480 Speaker 1: this is a way for you to get to a 559 00:31:16,560 --> 00:31:18,360 Speaker 1: d l TV because you can buy a home with 560 00:31:18,440 --> 00:31:21,440 Speaker 1: ten percent down in the with an agency loan. You 561 00:31:21,480 --> 00:31:23,520 Speaker 1: can do that today, but you're going to wind up 562 00:31:23,520 --> 00:31:27,280 Speaker 1: borrowing and paying mortgage insurance. So you have that high leverage. 563 00:31:27,600 --> 00:31:31,400 Speaker 1: The monthly payment on that loan with mortgage insurance is 564 00:31:31,440 --> 00:31:34,680 Speaker 1: going to be about fifteen to pent higher than the 565 00:31:34,720 --> 00:31:37,480 Speaker 1: monthly payment would be if you got an eighty percent 566 00:31:37,520 --> 00:31:40,080 Speaker 1: loan and didn't pay mortgage insurance. So what we do 567 00:31:40,200 --> 00:31:43,120 Speaker 1: is we enable the consumer to get the benefit of 568 00:31:43,200 --> 00:31:46,240 Speaker 1: making a full twenty percent down payment with only putting 569 00:31:46,240 --> 00:31:49,040 Speaker 1: ten percent of their cash in. And that benefit is huge. 570 00:31:49,040 --> 00:31:52,680 Speaker 1: It's additional purchasing power, it's a lower monthly payment, things 571 00:31:52,760 --> 00:31:55,000 Speaker 1: like that. What regions of the country are you targeting. 572 00:31:55,480 --> 00:31:58,800 Speaker 1: We're currently in thirteen states, uh the entire West coast 573 00:31:59,040 --> 00:32:03,040 Speaker 1: and the northeast order from Virginia up through Massachusetts. We're 574 00:32:03,080 --> 00:32:06,000 Speaker 1: also in Illinois and Arizona. The states that were in 575 00:32:06,080 --> 00:32:08,720 Speaker 1: as you, I'm sure you'll recognize a comprise a lot 576 00:32:08,760 --> 00:32:11,400 Speaker 1: of the largest metro areas in the country. So we're 577 00:32:11,440 --> 00:32:16,560 Speaker 1: already in areas that that account for of the US 578 00:32:16,640 --> 00:32:19,080 Speaker 1: real estate. Do you think that the target demographic is 579 00:32:19,120 --> 00:32:22,000 Speaker 1: really build millennial? That's certainly one of the people that 580 00:32:22,040 --> 00:32:24,680 Speaker 1: we help, but our programs actually help people across the 581 00:32:24,840 --> 00:32:27,400 Speaker 1: entire their entire life. As a homeowner. We can help 582 00:32:27,400 --> 00:32:29,840 Speaker 1: you buy your first home, and that definitely helps a millennial, 583 00:32:30,440 --> 00:32:32,280 Speaker 1: but we can help you with your last home, and 584 00:32:32,280 --> 00:32:34,680 Speaker 1: we can help you finance your life needs in between 585 00:32:35,000 --> 00:32:38,120 Speaker 1: with our homeowner program that allows you to tap into 586 00:32:38,120 --> 00:32:41,600 Speaker 1: your existing home equity without borrowing. Jim RICHTELI thank you 587 00:32:41,640 --> 00:32:44,560 Speaker 1: so much for joining us. Really an interesting new type 588 00:32:44,560 --> 00:32:47,320 Speaker 1: of financing. Jim Richitelli as co chief executive officer of 589 00:32:47,400 --> 00:32:51,160 Speaker 1: Unison home Ownership Investors, which is based in San Francisco, 590 00:32:51,320 --> 00:32:53,640 Speaker 1: and he joins us here in a bloombrook eleven three 591 00:32:53,640 --> 00:32:59,280 Speaker 1: oh studios in New York. Thanks for listening to the 592 00:32:59,280 --> 00:33:02,440 Speaker 1: Bloomberg p n L podcast. You can subscribe and listen 593 00:33:02,440 --> 00:33:06,600 Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform 594 00:33:06,680 --> 00:33:10,560 Speaker 1: you prefer. I'm pim Fox. I'm on Twitter at pim Fox. 595 00:33:10,880 --> 00:33:14,400 Speaker 1: I'm on Twitter at Lisa abramoids one. Before the podcast, 596 00:33:14,440 --> 00:33:17,040 Speaker 1: you can always catch us worldwide on Bloomberg Radio