WEBVTT - Canadian Consumer Debt Has Never Been This High, Beattie Says 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. 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 --> 0:00:32.120 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We 0:00:32.159 --> 0:00:34.839 are now turning our attention to Canada, in particular the 0:00:34.880 --> 0:00:39.720 Canadian housing market. This week, Moody's Investors Service downgraded Canada 0:00:39.800 --> 0:00:43.120 banks for the first time in more than four years. 0:00:43.159 --> 0:00:47.120 Why expanding levels of private sector debt could weaken asset 0:00:47.200 --> 0:00:49.600 quality in the future. That's according to David beat, senior 0:00:49.680 --> 0:00:53.320 vice president in the Financial Institutions Group at Moody's, and 0:00:53.320 --> 0:00:56.760 he is based in Toronto, and he comes to us now. David, 0:00:57.000 --> 0:00:59.120 thank you so much for joining us. Thanks for having 0:00:59.760 --> 0:01:03.440 so I wanted just to start with, how much the 0:01:03.520 --> 0:01:08.360 troubles at alternative mortgage lender Home Capital Group weighed in 0:01:09.000 --> 0:01:13.960 your decision to downgrade other Canadian banks? Uh, not at all. 0:01:14.040 --> 0:01:17.160 These Um, we do not rate Home Capital as a 0:01:17.240 --> 0:01:19.720 matter of fact, so I can't comment on the details 0:01:19.760 --> 0:01:23.960 of their situation. But I would just note that at 0:01:24.040 --> 0:01:28.600 about sixteen billion dollars in mortgages mortgage assets there you know, 0:01:28.680 --> 0:01:31.039 a very small part of the one point five trillion 0:01:31.080 --> 0:01:34.520 dollar Canadian mortgage market. Uh. The reasons for their current 0:01:34.840 --> 0:01:37.680 troubles are very idiosyncratic, and they're not anything to do 0:01:37.720 --> 0:01:39.480 with the assets they have on their books. It's more 0:01:39.520 --> 0:01:43.040 confidence around funding. UM. So we don't view it as 0:01:43.120 --> 0:01:45.480 a as a probable source of contagion for the rest 0:01:45.520 --> 0:01:48.800 of the banks. Uh. And um, it didn't factor into 0:01:48.800 --> 0:01:52.120 our decision. Okay, So home capital might not be the 0:01:52.160 --> 0:01:54.680 problem or even the catalysts. Isn't like the asset back 0:01:54.720 --> 0:01:58.120 commercial paper market uh circa two thousand seven in Canada 0:01:58.160 --> 0:02:00.920 collapsing and then you know, singling and petting doom for 0:02:00.920 --> 0:02:05.240 everybody else. But it could potentially, just on a broader level, 0:02:05.280 --> 0:02:08.720 the housing market in Canada, particularly in Toronto, has been 0:02:08.840 --> 0:02:12.359 under quite a bit of scrutiny for getting quite inflated. Um. 0:02:12.520 --> 0:02:15.840 And you think that this could be a potential concern 0:02:16.080 --> 0:02:19.440 for the banks in Canada, Well, yes, indeed, and that 0:02:20.200 --> 0:02:23.000 elevated housing prices, particularly in the g t A, the 0:02:23.040 --> 0:02:27.079 Greater Toronto Area and the Greater Vancouver area have been 0:02:27.080 --> 0:02:28.720 on our radar for a number of years and have 0:02:28.800 --> 0:02:33.200 figured UH quite prominently in the research that we've published 0:02:33.200 --> 0:02:37.079 over that time. But the first the first stage of 0:02:37.080 --> 0:02:39.360 of our credit analysis for bank starts with what we 0:02:39.400 --> 0:02:42.160 call the macro profile, which is our assessment of the 0:02:42.200 --> 0:02:46.160 operating environment in which the banks operate and UH. In 0:02:46.240 --> 0:02:51.120 our view UM, the degree of leverage in the in 0:02:51.200 --> 0:02:54.640 the system overall has is at a very high level 0:02:54.639 --> 0:02:57.320 and continues to rise, and that gives us concern about 0:02:57.960 --> 0:03:03.040 the future knock on negative effects on asset quality. When 0:03:03.080 --> 0:03:04.920 you see the amount of leverage in this system, are 0:03:04.960 --> 0:03:09.280 you're talking about the dwindling down payments that consumers are 0:03:09.360 --> 0:03:11.400 making on houses relative to the amount of debt that 0:03:11.440 --> 0:03:15.000 they're taking on. Are you talking about hedge funds and 0:03:15.120 --> 0:03:18.440 other investors borrowing short term to lend long term? What 0:03:18.520 --> 0:03:21.880 exactly where are you seeing the biggest build up of leverage? Well, 0:03:22.320 --> 0:03:24.320 our primary metric when we look at this, and this 0:03:24.440 --> 0:03:28.120 the metric we use globally for assessment of our preating 0:03:28.160 --> 0:03:31.960 environments is private debt to GDP and the rate of 0:03:31.960 --> 0:03:34.840 growth of that metric. So we get our data from 0:03:35.240 --> 0:03:38.440 Statistics Canada and we review that on a regular basis. 0:03:39.200 --> 0:03:42.680 That includes consumer debt, both mortgage and non mortgage, as 0:03:42.720 --> 0:03:46.280 well as corporate and commercial debt UM. The corporate component 0:03:46.360 --> 0:03:48.400 is largely not held on the bank's balance sheets. We 0:03:48.400 --> 0:03:51.480 have a robust debt capital markets here in Canada and 0:03:51.800 --> 0:03:54.720 it's largely institutional investors that have the corporate book. But 0:03:55.000 --> 0:04:00.880 the consumer mortgages and non real estate security the lending 0:04:01.000 --> 0:04:03.040 is where we have been more focused. And not even 0:04:03.040 --> 0:04:06.880 really the mortgages. There are obviously concerns with the inflated 0:04:06.920 --> 0:04:11.000 housing prices um and what that might do under stress um, 0:04:11.080 --> 0:04:15.320 but there would still be significant collateral back in those mortgages. 0:04:15.800 --> 0:04:18.919 It's the credit cards and the indirect auto finance and 0:04:18.960 --> 0:04:21.960 those types of less well secured exposures that would have 0:04:22.520 --> 0:04:26.000 you know, loss given default in the area of a 0:04:26.080 --> 0:04:29.479 hundred percent, which would be probably the driver of larger losses. 0:04:29.720 --> 0:04:32.440 When was the last time that you saw the levels 0:04:32.440 --> 0:04:35.240 of leverage by the metric metric that you just laid 0:04:35.240 --> 0:04:37.560 out that are as high as they are today. I 0:04:37.600 --> 0:04:39.719 don't believe they've ever been as high as they are today, 0:04:39.760 --> 0:04:43.480 and certainly the component of it which relates to household 0:04:43.520 --> 0:04:48.760 debt has never been as high. Which banks are most exposed. UM, 0:04:48.920 --> 0:04:52.720 there's relative degrees depending on how you cut the data 0:04:52.760 --> 0:04:57.160 of exposure to the Canadian consumer across the banking system. UM. 0:04:57.400 --> 0:04:59.720 UH suffice it to say that that we feel the 0:05:00.640 --> 0:05:03.080 that are baseline credit assessments, which is sort of our 0:05:03.120 --> 0:05:06.799 starting point for rating the banks. UH is the best UH, 0:05:06.839 --> 0:05:10.719 you know, indicator of of relative exposure. In that case, 0:05:11.360 --> 0:05:14.400 uh TD would be the highest rated of the Canadian 0:05:14.400 --> 0:05:16.719 banks and National Bank of Canada would be the lowest 0:05:16.720 --> 0:05:19.640 of those six. David Beattie, thank you so much for 0:05:19.680 --> 0:05:21.800 joining us. This is a really important topic and we 0:05:21.839 --> 0:05:24.560 look forward to hearing from you again. David Beatty is 0:05:24.600 --> 0:05:28.400 senior vice president in the Financial Institutions Group at Moody's 0:05:28.440 --> 0:05:32.880 Investors Service. Moody's did downgrade UH a number of Canadian 0:05:32.920 --> 0:05:35.120 banks for the first time in more than four years 0:05:35.160 --> 0:05:39.720 this week in part because of UH. Frankly, this incredible 0:05:39.720 --> 0:05:43.800 expansion of consumer debt relative to g d P that 0:05:43.880 --> 0:05:45.960 we have seen, and David just said that he has 0:05:46.080 --> 0:05:49.320 not seen a level that has been this high UH 0:05:49.360 --> 0:06:03.960 in recent memory. Right now, I want to dig a 0:06:04.040 --> 0:06:06.680 little bit further into a political development that does not 0:06:06.839 --> 0:06:10.040 have to do with James Comey, the fired FBI director 0:06:10.080 --> 0:06:13.120 that has gained so much attention in Washington, d C. 0:06:13.360 --> 0:06:16.800 But in fact, President Trump issued a commission ordered a 0:06:16.800 --> 0:06:21.720 commission on Fraudulent Voting in elections, which caught my attention 0:06:21.880 --> 0:06:26.160 because this could potentially rerange the landscape for how votes 0:06:26.240 --> 0:06:29.200 are broken up across the country and could potentially have 0:06:29.279 --> 0:06:32.839 longer term effects. To understand a little bit more about 0:06:32.920 --> 0:06:34.960 what the stakes are here, I want to bring in 0:06:35.040 --> 0:06:38.560 Ken Doyle, senior editor of Bloomberg Bona's Money and Politics 0:06:38.560 --> 0:06:43.000 Reporter report, coming to us from Arlington, Virginia. Ken, thank 0:06:43.040 --> 0:06:45.440 you so much for joining us. Can you can you 0:06:45.480 --> 0:06:48.280 first just give me a sense of what this Commission 0:06:48.560 --> 0:06:53.239 on Fraudulent Voting in Elections actually is? Well, it's it's 0:06:53.279 --> 0:06:56.640 not it's not clearer exactly yet. What they haven't met, 0:06:56.720 --> 0:06:59.200 they haven't actually started up that it was announced in 0:06:59.240 --> 0:07:03.160 an executive order at the White House yesterday exactly. It's 0:07:03.200 --> 0:07:05.760 supposed to be a fifteen member commission. They only announced 0:07:05.800 --> 0:07:10.720 about five or six members. It's headed by uh, well, 0:07:10.880 --> 0:07:13.840 it is headed by Advice President Pence, but it's the 0:07:13.920 --> 0:07:17.520 vice chairman is going to be Chris Koback. Who's the 0:07:17.560 --> 0:07:20.840 Secretary of State for Kansas, who's been a very outspoken, 0:07:21.560 --> 0:07:26.840 UH person on immigration and voter fraud issues, somebody who 0:07:26.880 --> 0:07:31.240 has really staked out a position on these issues. And UH, 0:07:31.280 --> 0:07:33.440 it seems like what they want to do with this 0:07:33.680 --> 0:07:39.080 is UM uh, you know, emphasize the claims that that 0:07:39.160 --> 0:07:41.640 Trump and other President Trump and others have made about 0:07:42.360 --> 0:07:46.280 voter fraud being a major problem. This, of course, is 0:07:46.320 --> 0:07:50.720 not a view that's shared by UM everybody and and 0:07:50.920 --> 0:07:54.600 many Democrats view this is a basically a partisan effort 0:07:54.640 --> 0:07:59.840 to UM to pass more voter I d UH legislation 0:08:00.160 --> 0:08:03.680 would basically, you know, has the potential to suppress turnout, 0:08:03.800 --> 0:08:07.560 especially among minorities and people that might support Democrats. So 0:08:07.760 --> 0:08:11.680 it's a very controversial UM topic. It was something that 0:08:11.760 --> 0:08:14.720 was emphasized by Trump after the election in which he 0:08:15.040 --> 0:08:18.239 lost the popular vote by about three million votes, and 0:08:18.240 --> 0:08:22.880 and it hasn't been talked about for the last really 0:08:22.920 --> 0:08:26.440 for a couple of months. UM. But they decided to 0:08:26.520 --> 0:08:29.680 make this announcement yesterday. And I think the suspicion from 0:08:29.680 --> 0:08:31.680 Trump's critics you said at the beginning that this is 0:08:31.720 --> 0:08:35.520 something other than the Russia comy issue, but the suspicion 0:08:35.559 --> 0:08:38.439 from Trump's critics is that, um they wanted to talk 0:08:38.480 --> 0:08:40.200 about something else, and that's why it was brought up 0:08:40.240 --> 0:08:43.199 this week. Well, okay, so let's put this in a perspective. 0:08:43.200 --> 0:08:45.319 I mean, should we care about this or is this 0:08:45.480 --> 0:08:49.880 window dressing from President Trump trying to appease his his 0:08:50.200 --> 0:08:53.720 core supporters. I think that that's the question is whether 0:08:53.760 --> 0:08:58.400 this would be a legitimate investigation. There have been similar 0:08:58.440 --> 0:09:01.760 investigations in the past of problems with the voting system. 0:09:01.840 --> 0:09:05.720 They generally have been more sort of on a bipartisan basis, 0:09:05.720 --> 0:09:08.040 where we look at all the issues. This is, you know, 0:09:08.400 --> 0:09:11.000 a commission that was out to look at just one issue, 0:09:11.040 --> 0:09:14.800 the voter fraud issue that the Republicans have emphasized and 0:09:14.800 --> 0:09:18.080 that I say has been you know, very controversial. There 0:09:18.080 --> 0:09:21.400 were a couple of Democrats that were named yesterday, um 0:09:21.640 --> 0:09:25.240 uh to who who were going to participate in the commission? 0:09:25.720 --> 0:09:28.120 Bill Gardner, the Secretary of State of New Hampshire, and 0:09:28.880 --> 0:09:31.160 I think it's Matt Dunlap, who's the Secretary of State 0:09:31.160 --> 0:09:34.720 of Maine. But both of those people have actually you know, 0:09:34.800 --> 0:09:37.559 pushed back against the Trump claims that there was widespread 0:09:37.640 --> 0:09:40.720 voter fraud, and it's you know, it's difficult to find 0:09:41.400 --> 0:09:45.760 any Democrats, and really many Republicans, you know, also feel 0:09:45.800 --> 0:09:48.280 that there was not um that this is just not 0:09:48.360 --> 0:09:50.800 a major issue. It's not an issue that affects um 0:09:51.760 --> 0:09:54.920 election results in any kind of um significant way. Well, 0:09:55.000 --> 0:09:57.080 let's let's zoom back a little bit and get a 0:09:57.200 --> 0:10:02.160 sense of how quickly official can move to change these 0:10:02.200 --> 0:10:05.440 standards by which people have to adhere in order to vote, 0:10:05.559 --> 0:10:09.480 or potentially even rearranged districts. I mean, can people move 0:10:09.559 --> 0:10:15.560 quickly without say, legislative action to rearrange the voting parameters? No, 0:10:15.960 --> 0:10:18.120 I mean that's the thing. That's The laws on this 0:10:18.240 --> 0:10:21.920 are set state by state. Um. There there have been 0:10:22.120 --> 0:10:25.520 significant changes in the laws in some states. They they 0:10:26.040 --> 0:10:29.040 the states that have taken up this issue are generally 0:10:29.040 --> 0:10:32.920 those states that have Republican majority legislatures and have have 0:10:33.040 --> 0:10:35.600 moved ahead on this. There have been some significant Supreme 0:10:35.640 --> 0:10:38.400 Court decisions that have allowed more of that activity and 0:10:38.440 --> 0:10:40.800 some of the states to move ahead. But this commission, 0:10:41.400 --> 0:10:44.400 the only thing that it's actually charged to do is 0:10:44.440 --> 0:10:47.440 to write a report to the President that says, you know, 0:10:47.480 --> 0:10:51.480 what what ought to be done, presumably about this Uh, 0:10:51.520 --> 0:10:54.040 they say that the report won't come out until some 0:10:54.120 --> 0:10:57.200 time next year. UM, and then at that point, presumably 0:10:57.200 --> 0:10:59.719 they might pass along recommendations either to the states or 0:11:00.120 --> 0:11:03.800 possibly to Congress. I mean, there's some suspicion that, um, 0:11:03.920 --> 0:11:06.800 the the Republicans might try to use this to roll 0:11:06.840 --> 0:11:10.800 back what's called the Motor Voter Act and National Voter 0:11:10.920 --> 0:11:14.319 Registration Act, which was the national law that was put 0:11:14.360 --> 0:11:18.120 in place to ease voter registration requirements that there would be, 0:11:18.160 --> 0:11:20.920 you know, basically you could fill out a postcard and 0:11:20.960 --> 0:11:24.360 send it into state officials to register more easily, and 0:11:24.400 --> 0:11:29.160 also requiring states to allow registration through you know, um, 0:11:29.440 --> 0:11:34.040 driver license and other other state facilities. So the Republicans 0:11:34.080 --> 0:11:35.560 might try to use it for something like that, but 0:11:35.640 --> 0:11:38.160 not not immediately, you know. Can I have to wonder 0:11:38.200 --> 0:11:40.559 if this is window dressing or if this is basically 0:11:41.160 --> 0:11:46.120 plead or diversion to give core supporters of President Trump 0:11:46.120 --> 0:11:50.200 something to think about other than the hurrah around James 0:11:50.280 --> 0:11:53.760 come and his uh and his is getting fired. Is 0:11:53.800 --> 0:11:58.360 it is this emblematic of Washington spinning its wheels and 0:11:58.400 --> 0:12:01.920 getting admired and stuff that is is not going to 0:12:01.960 --> 0:12:04.880 go anywhere and is a waste of time. Well, I mean, 0:12:04.960 --> 0:12:07.720 I think that there's a lot of interest in sort 0:12:07.720 --> 0:12:11.600 of controlling the narrative, right, I mean, whether and especially 0:12:11.600 --> 0:12:13.959 at the White House, that they may feel like they've 0:12:14.000 --> 0:12:16.520 lost some control of what's going on and they're trying 0:12:16.559 --> 0:12:19.439 to get it back and have Trump be more you know, 0:12:20.200 --> 0:12:22.560 on the offense rather than the defense. This was something 0:12:22.600 --> 0:12:25.080 that he was pushing, he was talking about a lot 0:12:25.120 --> 0:12:28.319 earlier in the year. And actually, I mean it's interesting 0:12:28.320 --> 0:12:30.319 because a lot of people said, you know, that he 0:12:30.320 --> 0:12:32.720 shouldn't be talking about this because there was there wasn't 0:12:32.760 --> 0:12:34.400 a lot of evidence to back it up, and it 0:12:34.480 --> 0:12:38.120 was kind of problematic. But it does I think it 0:12:38.160 --> 0:12:39.960 does show the point that we're at that they've brought 0:12:40.080 --> 0:12:45.120 this up as as you know, an alternative, um, you know, 0:12:45.240 --> 0:12:48.200 thing to talk about as opposed to the Russia coomy thing. 0:12:48.280 --> 0:12:50.959 And clearly they're they're very people in the White House 0:12:51.000 --> 0:12:53.040 are very preoccupied by this at this point. This is 0:12:53.080 --> 0:12:56.200 such a huge story this week that um, you know 0:12:56.280 --> 0:12:59.640 that it's hard for them to to talk about something else, 0:12:59.679 --> 0:13:01.839 but they like to. Obviously, is there anything else that 0:13:01.880 --> 0:13:04.319 we can expect them to try to divert the attention 0:13:04.320 --> 0:13:08.080 to I mean something even worthwhile like health care, taxes. Well, 0:13:08.120 --> 0:13:10.080 I think that that's what they would certainly, that's what 0:13:10.120 --> 0:13:11.800 the Republicans on the Hill would like to talk about. 0:13:11.840 --> 0:13:13.280 They'd like to be able to get back to that. 0:13:13.679 --> 0:13:16.360 I think that that's certainly what um, you know, what 0:13:16.480 --> 0:13:18.640 the White House would like to They want to find 0:13:18.640 --> 0:13:21.959 a way back to talking about other things, including those issues. 0:13:22.000 --> 0:13:24.400 But that's gonna be hard for everybody. It's gonna be 0:13:24.440 --> 0:13:26.800 hard for people in Congress. I think that to talk 0:13:26.800 --> 0:13:28.640 about those issues as well when they're going to be 0:13:28.679 --> 0:13:32.680 asked questions about you know, this latest controversy. Yeah. Well 0:13:32.720 --> 0:13:35.080 the other is, I guess, Ron Meat, it's probably easier 0:13:35.120 --> 0:13:37.319 for people to care about and get excited about rather 0:13:37.360 --> 0:13:41.040 than very tricky things with lots of sides, like healthcare 0:13:41.040 --> 0:13:43.720 and taxes. Ken do thank you so much for joining us. 0:13:43.760 --> 0:13:46.760 Ken Doyle is senior editor for Bloomberg Bonna's Money and 0:13:46.840 --> 0:13:51.280 Politics Report. Coming to us from Arlington, Virginia. Talking about 0:13:51.720 --> 0:13:55.600 the latest President Trump executive order ordering a commission on 0:13:55.640 --> 0:13:58.400 fraudulent voting in elections? Is it just a diversion tactic 0:13:58.480 --> 0:14:02.360 to move some IV halls away from the James comey drama. 0:14:02.520 --> 0:14:14.000 Perhaps we want to take a moment to let you 0:14:14.040 --> 0:14:16.920 know about something new from Bloomberg. Starting right now, you 0:14:16.960 --> 0:14:19.240 can use our i O s app or our new 0:14:19.280 --> 0:14:23.000 Google Chrome extension to scan any news story on any website, 0:14:23.240 --> 0:14:26.280 instantly revealing relevant news and market data from Bloomberg and 0:14:26.400 --> 0:14:29.200 other sources related to the companies and people you're reading about. 0:14:29.480 --> 0:14:31.440 So no matter where you're reading the news, you can 0:14:31.440 --> 0:14:34.040 bring the power of Bloomberg's news and data with you. 0:14:34.200 --> 0:14:37.240 It's pretty amazing. Download our io s app or search 0:14:37.320 --> 0:14:39.520 for the Bloomberg extension on the Chrome Store to try 0:14:39.520 --> 0:14:42.640 it out. Learn more at Bloomberg dot com slash lens. 0:14:52.600 --> 0:14:55.600 We got some retail sales numbers today, and we've got 0:14:55.600 --> 0:14:58.600 a whole host of results from department stores over the 0:14:58.600 --> 0:15:01.720 past twenty four hour and they kind of paint a 0:15:01.760 --> 0:15:04.600 conflicting picture. To get a better sense of what it 0:15:04.680 --> 0:15:07.200 all means, I want to bring in Sema Show, consumer 0:15:07.400 --> 0:15:11.160 discretionary analyst for Bloomberg Intelligence, as well as Bert Flickinger, 0:15:11.200 --> 0:15:14.440 Managing director at Strategic Resource Group H and seem I 0:15:14.480 --> 0:15:16.640 want to start with you to set the stage with 0:15:16.680 --> 0:15:19.320 respect to these US retail sales numbers that we got 0:15:19.360 --> 0:15:22.600 for April that seemed to be okay. They weren't terrible, 0:15:23.120 --> 0:15:26.080 thank you Lisa. They were okay compared to last month, 0:15:26.160 --> 0:15:28.880 but they still missed expectations. And I think part of 0:15:28.920 --> 0:15:32.520 the benefit was from the easter shift from March to April. 0:15:33.200 --> 0:15:35.120 Um but I think if you step back and you 0:15:35.120 --> 0:15:37.600 think about and also you look at what the components 0:15:37.640 --> 0:15:39.760 were of retail sales, the a lot of the growth 0:15:39.800 --> 0:15:43.000 was coming from categories where we've seen growth before, building materials, 0:15:43.680 --> 0:15:47.520 non store retails, so basically online um so. And you 0:15:47.560 --> 0:15:52.120 saw positive sales from autos, though they've declined since last year. 0:15:52.200 --> 0:15:54.520 So I think going forward that's going to be a 0:15:54.640 --> 0:15:59.160 risk for retail sales. And Bert certainly we saw nothing 0:15:59.240 --> 0:16:04.080 Rosie out the numbers out of most of the department stores, calls, UH, Nordstrom's, 0:16:04.160 --> 0:16:09.480 Macy's really some devastatingly disappointing numbers. What do you make 0:16:09.520 --> 0:16:12.360 of all this? It's it's part of the day to them, 0:16:12.360 --> 0:16:15.560 all of many going down. So you see Bondon in 0:16:15.920 --> 0:16:18.400 a in a tune of Trouble Sears Holdings, which still 0:16:18.400 --> 0:16:21.440 sells a lot of apparel and accessories in trouble J 0:16:21.880 --> 0:16:25.960 J Crew and trouble, Barney's in trouble. Even nice is Uh, 0:16:26.120 --> 0:16:29.920 You're the worldwide star of bonds and fixed income Lisa 0:16:30.320 --> 0:16:35.840 and Nemon Marcus market bonds are are trading way down, 0:16:35.840 --> 0:16:39.280 and there's some silver lining in Penny. Penny's gross margins 0:16:39.640 --> 0:16:42.000 if you stacked over a three year period or up 0:16:42.000 --> 0:16:45.520 about a thousand percent, gross margins are still trading up. 0:16:45.760 --> 0:16:49.160 SMP just upgraded the bonds to B plus, while Nordstrom 0:16:49.160 --> 0:16:53.400 and the others are triple C. And with Penny, you've 0:16:53.400 --> 0:16:58.480 got more margin expansion. Uh, solid or flat same store 0:16:58.480 --> 0:17:00.560 sales projected for the rest of the year. But four 0:17:00.600 --> 0:17:04.680 cornerstones are really doing well. So for them find Jewelry 0:17:05.280 --> 0:17:09.359 uh doing well, Boys and girls fashion doing well, at 0:17:09.400 --> 0:17:12.840 home doing well. So Penny shifting a lot of sales 0:17:12.880 --> 0:17:16.400 from Sears, which is you, and SIMA said reporting next 0:17:16.400 --> 0:17:19.160 week ton of trouble on shifting sales from just about 0:17:19.160 --> 0:17:21.960 everybody else in sector two. Well, Uh, Seema, I want 0:17:21.960 --> 0:17:24.600 to get to back to what one the thing that 0:17:24.600 --> 0:17:27.720 you were saying before we drill into the likely success 0:17:27.800 --> 0:17:30.280 or failure of some of these companies. I want to 0:17:30.320 --> 0:17:32.400 dig into something that you were talking about with respect 0:17:32.480 --> 0:17:35.520 to the drivers of some of the gain in retail sales. 0:17:35.560 --> 0:17:38.000 You talked about autos for example, where we have seen 0:17:38.280 --> 0:17:41.479 the sales slowing, we've seen building materials. I mean, do 0:17:41.560 --> 0:17:44.719 these numbers suggest to you that there is kind of 0:17:44.840 --> 0:17:47.360 more weakness that was going to play out in retail 0:17:47.440 --> 0:17:50.160 sales that could sort of speak to something broader. Yeah. 0:17:50.200 --> 0:17:52.000 So I think I've probably been a little bit more 0:17:52.040 --> 0:17:54.760 on the bare side versus some of my colleagues because 0:17:54.760 --> 0:17:57.760 I'm concerned about how strong autos were last year, and 0:17:57.800 --> 0:18:00.840 if you step back, twee did this with each other. 0:18:00.880 --> 0:18:04.480 I'm very concerned about the rising auto loans, the delinquencies. 0:18:04.480 --> 0:18:08.120 I'm very concerned about the synchronies and the alliance data 0:18:08.160 --> 0:18:10.760 systems of the world raising their charge off rates, which is, 0:18:10.800 --> 0:18:12.919 by the way, credit income is a huge component of 0:18:12.960 --> 0:18:16.720 many department doors and other retailers operating income, and it's 0:18:16.720 --> 0:18:19.840 a huge driver of sales. So credit. If people are 0:18:19.920 --> 0:18:22.120 using credit to buy and then they're not paying it back, 0:18:22.160 --> 0:18:24.520 I think that it paints the more negative picture of 0:18:24.560 --> 0:18:26.879 the consumer. If you step back and you think about 0:18:26.880 --> 0:18:30.000 the macro indicators. The economists talk about a lot of 0:18:30.040 --> 0:18:33.280 that wage increase, and it's on the low end, and 0:18:33.320 --> 0:18:35.880 it might be that those people are shifting the money 0:18:35.920 --> 0:18:39.360 either to their homes or just too basic necessities like healthcare, 0:18:39.359 --> 0:18:41.840 which could go up if we have the American health 0:18:41.880 --> 0:18:45.480 Care Act pass, or just housing costs, you know. So 0:18:45.720 --> 0:18:49.520 I'm more concerned about the actual state and health of 0:18:49.560 --> 0:18:52.360 the consumer, and then what it means for the retailers 0:18:52.359 --> 0:18:55.040 who are facing this potentially weaker consumer, and then the 0:18:55.080 --> 0:18:58.600 secular pressure of the Amazons and rising competition in their space, 0:18:58.800 --> 0:19:00.679 right and burn, just to sort of what you were 0:19:00.680 --> 0:19:02.399 talking about with the winners and the losers of me 0:19:02.440 --> 0:19:05.080 you talk to Sephora. This has been a longstanding trend 0:19:05.200 --> 0:19:08.240 that people spend more on makeup because you know, because 0:19:08.240 --> 0:19:10.280 of possibly Instagram, because people want to look good in 0:19:10.320 --> 0:19:13.399 their selfies. Right, They're getting more manicure. But Bert, I 0:19:13.440 --> 0:19:16.240 mean like project out over the next two years, I 0:19:16.240 --> 0:19:17.680 mean you said that Danue mo Are, We're going to 0:19:17.760 --> 0:19:21.480 actually see some of these companies, these department stores really 0:19:21.520 --> 0:19:23.600 truly closed. I mean, this has been going on for 0:19:23.640 --> 0:19:26.800 a long time. Yeah, Lisa's is your referenced so presently 0:19:26.800 --> 0:19:29.960 in some of our earlier broadcasts. When the retail bonds 0:19:30.560 --> 0:19:34.640 go to triple C minus and trade sixty five or below. Uh, 0:19:34.720 --> 0:19:37.359 they're really they're really in trouble. And that's also often 0:19:37.400 --> 0:19:39.960 a leading bankruptcy indicator. So are there ones that are 0:19:40.040 --> 0:19:44.880 ye so uh Sears Hole Holdings, km arts there, UH 0:19:45.160 --> 0:19:49.159 Jay crew hasn't gotten there, but easily easily could. The 0:19:49.200 --> 0:19:52.880 Barney's that's in a ton of trouble and mgen Neman, 0:19:52.920 --> 0:19:55.719 Marcus Group, dash Burg dorses there and then a lot 0:19:55.800 --> 0:19:58.639 of the teen retailers that have already gone over Niagara 0:19:58.720 --> 0:20:02.560 falls in a barrel with without any padding, so route 0:20:02.640 --> 0:20:11.320 route route one. There might be some bright, bright blue 0:20:11.320 --> 0:20:14.320 skies ahead. We've got a Memorial Day coming up. The 0:20:14.400 --> 0:20:17.680 last quarter reported with some of the worst weather between 0:20:17.800 --> 0:20:23.719 cold rain, UH, floods, etcetera. Now there's some lighthouse lighthouses 0:20:23.760 --> 0:20:27.760 in terms of economic activity between energy all levels from 0:20:28.160 --> 0:20:33.400 renew renewable to carbons. Agricultures back on its feet, manufacturing 0:20:33.480 --> 0:20:35.800 is back on its feet. There'll be some more UH 0:20:35.840 --> 0:20:38.520 spending and with the tax refunds because of the problems 0:20:38.520 --> 0:20:41.760 in Washington coming out late. UH second quarters should be 0:20:41.800 --> 0:20:45.879 good and it's is un Sima presently pointed out. Auto 0:20:45.960 --> 0:20:50.200 sales of UM hit the hit the wall at Darlington 0:20:50.280 --> 0:20:53.080 and bouncing off and limping to the finish line what 0:20:53.200 --> 0:20:56.960 that usually means. And with Apple in between product cycles, 0:20:56.960 --> 0:21:00.720 as people will go out to department stores, Spend or Disney, 0:21:00.720 --> 0:21:04.280 the other theaters have a strong studio release schedule, So 0:21:04.680 --> 0:21:08.280 there are potentially more people going to the malls this summer. 0:21:08.520 --> 0:21:11.479 And when I talked to surviving retailers, they're seeing a 0:21:11.480 --> 0:21:14.600 lot of shoppers shift over in the same malls from 0:21:14.640 --> 0:21:18.399 the declining retailers are going going down swinging, trying to 0:21:18.480 --> 0:21:22.439 liquidate their inventory for their vendors and unsecured creditors. You know, 0:21:22.720 --> 0:21:25.119 as you talk, I mean when you talk about some 0:21:25.200 --> 0:21:27.400 of the bonds that are trading down and sort of 0:21:27.680 --> 0:21:30.359 uh indicating that there could be an imminent bankruptcy of 0:21:30.480 --> 0:21:33.480 companies like Sears and Kmart and potentially Jay Crew in 0:21:33.520 --> 0:21:35.840 a little bit, I have to wonder. I mean, they've 0:21:35.880 --> 0:21:38.919 been signaling this for a long time, and you know, 0:21:39.080 --> 0:21:41.840 Eddie Lampert, for example, with Sears, has really kept that 0:21:41.880 --> 0:21:44.679 company afloat. But yeah, I was just go ahead, yeah, no, 0:21:44.720 --> 0:21:46.600 please go. But I was just gonna say that retail 0:21:46.840 --> 0:21:49.240 tends to die a slow death. Can look at radio shock, 0:21:49.320 --> 0:21:51.880 right because a lot of the individual stores are profitable, 0:21:52.320 --> 0:21:57.119 so they just basically milk them for cash. And like, 0:21:57.200 --> 0:21:59.639 he's that's basically what he's done, right, He's not spending 0:21:59.680 --> 0:22:03.960 any and so, yeah, Sears should have died ten years ago, 0:22:04.240 --> 0:22:06.560 but he's able to keep it alive. And you see 0:22:06.560 --> 0:22:08.840 that with many of the retailers. It's only that just 0:22:08.920 --> 0:22:10.920 kind of limp along and then. But is this part 0:22:10.960 --> 0:22:12.560 of the problem, right, Is this part of the reason 0:22:12.640 --> 0:22:14.919 why the retail sector has been unable to sort of 0:22:14.920 --> 0:22:18.360 revive itself, apart from Amazon coming in and just completely 0:22:18.440 --> 0:22:20.719 changing the landscape. Is it partly that you know, they 0:22:20.720 --> 0:22:23.800 won't let a bad thing die. There's there's an insidious, 0:22:23.880 --> 0:22:29.160 unreported story too, is that the greedy bankruptcy firms are 0:22:29.240 --> 0:22:33.520 gouging these poor retailers, whether it's FTC M and a 0:22:33.760 --> 0:22:35.879 UH in the case of a few firms, or some 0:22:35.920 --> 0:22:39.280 of the notable bankruptcy firms gouging these poor firms and 0:22:39.320 --> 0:22:42.439 the securits and the under secureds UH for over a 0:22:42.480 --> 0:22:44.760 hundred million in professional feast. They don't know what the 0:22:44.840 --> 0:22:47.159 devil they're doing. They haven't done any work in retail. 0:22:47.200 --> 0:22:50.199 They bring in financial advisors, I don't know what the 0:22:50.240 --> 0:22:52.880