WEBVTT - Bitcoin Boom Looks Increasingly Perilous to Cumberland's Kotok 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa 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 --> 0:00:32.480 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Adventures 0:00:32.520 --> 0:00:35.360 in Muni Land. That's the author of the book that 0:00:35.479 --> 0:00:38.080 David co Talk, the chairman and Chief investment officer of 0:00:38.120 --> 0:00:42.199 Cumberland Advisors, co authored. He's based in Sarah Soda. He 0:00:42.400 --> 0:00:46.080 is uh in California today and David, always a pleasure 0:00:46.120 --> 0:00:48.240 to hear your voice, Um, and wonder if you could 0:00:48.680 --> 0:00:53.599 maybe just explain how Adventures in Muni Land might actually 0:00:53.640 --> 0:00:56.760 apply to Adventures in Bitcoin? Could that be a serial? 0:00:56.880 --> 0:00:59.200 Do you think maybe? Is that your second volume coming up? 0:00:59.640 --> 0:01:03.600 I'm thinking Tim, Thank you very much, Happy holidays to you. 0:01:03.920 --> 0:01:06.760 I'm thinking about writing that one, but we don't have 0:01:06.880 --> 0:01:11.199 enough experience yet in bitcoin we will, I suspect before 0:01:11.280 --> 0:01:13.640 this is over. So what do you mean by that 0:01:13.760 --> 0:01:17.959 before this is over? You're implying something here. Well, I'm 0:01:18.000 --> 0:01:21.160 in the camp that says something that can be created 0:01:21.319 --> 0:01:27.440 infinitely with mathematical formulas and that is subject to hacking, 0:01:27.920 --> 0:01:33.119 and the experiences we're seeing is not a value. And 0:01:33.200 --> 0:01:38.440 so cryptocurrency that isn't backed by anything other than hope 0:01:39.160 --> 0:01:42.440 or an algorithm which can be repeated a hundred times 0:01:42.440 --> 0:01:45.840 and already is is not something I would invest in. 0:01:45.920 --> 0:01:48.960 Now there's another group. I just saw a forecast today 0:01:49.040 --> 0:01:53.520 that said next year Bitcoin I'll hit eighteen thousand. Well, 0:01:53.720 --> 0:01:57.080 price fantasy ratios have been around for a while, maybe 0:01:57.080 --> 0:01:59.640 this is a new one. Well, David, you know you 0:02:00.080 --> 0:02:05.080 did in a story published yesterday by Bloomberg News. Clients 0:02:05.120 --> 0:02:08.320 bring up bitcoin all the time. You said, they think 0:02:08.400 --> 0:02:11.080 it's cool. It has the newness, which is attractive to 0:02:11.120 --> 0:02:13.960 some people, though others would say newness is a risk 0:02:14.160 --> 0:02:18.200 they don't want to take. When clients bring up bitcoin 0:02:18.320 --> 0:02:21.280 with you, what do you say? I say, if you 0:02:21.320 --> 0:02:26.240 want to speculate in this remarkable evolution that has a 0:02:26.280 --> 0:02:30.000 couple of years of history, and that's all do so, 0:02:30.200 --> 0:02:33.000 knowing you might make a lot of money in a 0:02:33.160 --> 0:02:37.240 gamble and you might lose it all in managed accounts. 0:02:37.600 --> 0:02:40.120 We don't touch it. We don't touch any of the 0:02:40.160 --> 0:02:45.120 ets funds or other organization old structures which are coming 0:02:46.200 --> 0:02:50.120 quickly to the market trying to reach them. I would 0:02:50.200 --> 0:02:56.760 distinguish between lisa mathematically backed cryptocurrency, which by the way, 0:02:57.120 --> 0:02:59.880 can work as a transaction medium, but it has no 0:03:00.080 --> 0:03:04.440 store of value that we're used to, and dollar back 0:03:04.600 --> 0:03:10.160 cryptocurrency or gold back cryptocurrency, which is catching on and 0:03:10.480 --> 0:03:16.280 is growing rapidly. It's actually growing more rapidly than the 0:03:16.360 --> 0:03:20.799 mathematical backed cryptocurrency. And there's a reason. There's a lot 0:03:20.840 --> 0:03:23.240 of players in the world who would like to use 0:03:23.880 --> 0:03:27.880 a transactional medium and not have a record and not 0:03:28.040 --> 0:03:32.480 have it go through a banking system. Unfortunately, they're the 0:03:32.600 --> 0:03:36.680 kinds of folks that threaten the United States and others 0:03:36.800 --> 0:03:41.880 who are engaged in more transparent commercial activity. Alright, so, David, 0:03:41.920 --> 0:03:44.600 I'm glad you you held back there on your opinion 0:03:44.640 --> 0:03:51.680 about the cryptocurrencies. Is there is there something underneath this 0:03:51.760 --> 0:03:55.680 though that says why they are popular? What is it 0:03:55.720 --> 0:04:00.000 that has lent this air of sort of almost inevitable 0:04:00.000 --> 0:04:03.760 ability about the emergence of these kinds of currencies. Why 0:04:03.760 --> 0:04:06.680 do you think people are so attracted to them? Now, Well, 0:04:06.760 --> 0:04:09.240 you've got human behavior, We've seen it before. There's this 0:04:09.280 --> 0:04:12.280 wonderful new movie out. I don't know how popular it is, 0:04:12.600 --> 0:04:17.040 toolip Fever with Judy Dench, and it attempts to replicate 0:04:17.120 --> 0:04:21.000 the tool of Bubble of centuries ago, and it shows 0:04:21.080 --> 0:04:26.080 how momentum drives up prices and it shows what happens 0:04:26.120 --> 0:04:29.320 after the fact when they collapse. Are we having one 0:04:29.320 --> 0:04:32.640 of those? Maybe? Are we having? And am I wrong? 0:04:33.320 --> 0:04:39.440 And that could be a legitimate change in reserve currencies, 0:04:39.520 --> 0:04:42.960 where we're going to use algorithms to drive value instead 0:04:43.000 --> 0:04:47.080 of gold or silver fiat currencies that we know, I 0:04:47.080 --> 0:04:49.240 would say, in due time will find out. I'm on 0:04:49.279 --> 0:04:52.840 the side that five thousand years of history with gold 0:04:53.480 --> 0:04:56.080 is a little stronger than five years of history with 0:04:56.160 --> 0:04:59.960 a bit Clinton. I think you know, underlying a certain 0:05:00.000 --> 0:05:04.840 only some of the enthusiasm is the fact that investors 0:05:05.080 --> 0:05:08.440 want returns that are getting harder to get uh in 0:05:08.560 --> 0:05:12.599 traditional asset classes, and so bitcoin kind of represents something 0:05:13.120 --> 0:05:16.440 that seems more limitless than say, bonds that are constrained 0:05:16.480 --> 0:05:19.120 by very low yields or stocks that are constrained by 0:05:19.200 --> 0:05:23.120 very high valuations. Do you present ever alternatives to these 0:05:23.160 --> 0:05:26.359 investors that might be interested in bitcoin? That might be 0:05:26.440 --> 0:05:29.800 higher yielding, and if so, what are they Well, sure 0:05:29.800 --> 0:05:33.960 we do, Lisa, but you know you've you have reported 0:05:34.040 --> 0:05:37.320 on interest rates and bonds for years. I've watched you 0:05:38.000 --> 0:05:41.760 and you are in a period of time, and you know, 0:05:42.200 --> 0:05:44.240 because I've heard your report on it. We are in 0:05:44.240 --> 0:05:49.840 a decade long period of interest rates which are extraordinarily low, 0:05:50.279 --> 0:05:53.640 driven by central bank policies with both you and Tim 0:05:53.680 --> 0:05:58.599 have reported on many times which are exceptional and that 0:05:58.839 --> 0:06:02.200 distorts behave year over time. Do you think about it? 0:06:02.440 --> 0:06:07.000 Any professional in the financial services industry who's under forty 0:06:08.680 --> 0:06:14.120 has never experienced a climate other than interest rates which 0:06:14.120 --> 0:06:18.360 are rooted in the zero interest rate policy. They've read 0:06:18.360 --> 0:06:21.479 about it in books, but they've never experienced it. So 0:06:21.600 --> 0:06:25.760 behaviors are entirely different, and that will not last forever. 0:06:25.880 --> 0:06:28.039 In my opinion, what do I know? I'm an old goat, 0:06:28.120 --> 0:06:31.400 So how do you know? Well, we're not going to 0:06:31.839 --> 0:06:34.760 go come on, happy nays to yourself. We love speaking 0:06:34.800 --> 0:06:39.360 with you. That's that's your new marketing slogan, right, David Kotak, 0:06:39.440 --> 0:06:43.279 the old goat? Well, David, can you tell us? Uh? 0:06:43.800 --> 0:06:45.800 Having said all this, what do you think is gonna 0:06:45.800 --> 0:06:47.320 happen with interest rates. Do you think we're going to 0:06:47.400 --> 0:06:50.680 get four increases next year, as Goldman Sachs has put 0:06:50.680 --> 0:06:54.520 out to their investors, I do not. I'm watching things 0:06:54.640 --> 0:06:59.520 in the credit markets, credit card delinquency slightly rising, real 0:06:59.640 --> 0:07:05.760 estate mortgage structures in growing trouble, twice as many vacancies 0:07:05.800 --> 0:07:10.960 in the commercial space area as new construction. Questions about mortgages. 0:07:11.000 --> 0:07:15.040 I mean, we're seeing elements warning signs, yellow lights that 0:07:15.200 --> 0:07:19.360 things aren't just so perfect, and we also see a 0:07:19.400 --> 0:07:22.200 flat yielder. We don't know how to how to interpret 0:07:22.240 --> 0:07:25.040 it because of the distortion of the European Central Bank 0:07:25.080 --> 0:07:29.640 negative interest rate policy, so we don't have the usual metrics. 0:07:30.360 --> 0:07:33.880 I think we are in slow growth. You heard yelling 0:07:34.120 --> 0:07:37.880 on her sort of exit remarks say, I'm not so 0:07:37.920 --> 0:07:40.560 sure we're gonna have a big inflation. Maybe we got 0:07:40.560 --> 0:07:43.120 to go more slowly here. And now we have a 0:07:43.120 --> 0:07:46.200 whole new fit. We're gonna have an entirely new federal 0:07:46.240 --> 0:07:51.200 reserve within a year that has no experience with ten 0:07:51.280 --> 0:07:54.360 years ago, a credit crisis and all that sort of thing. 0:07:54.720 --> 0:07:57.840 So we're in huge unchartered waters. Is great to go 0:07:57.920 --> 0:07:59.680 to work every day. I feel like I spent the 0:07:59.720 --> 0:08:02.080 last fifty years my life getting ready to be in 0:08:02.120 --> 0:08:04.920 business at a time like this. David Kotak, thank you 0:08:04.960 --> 0:08:07.880 so much for joining us, and have a wonderful, wonderful 0:08:07.920 --> 0:08:12.520 Thanksgiving thinking about bitcoin and the era of low rates. 0:08:12.560 --> 0:08:17.240 David Kotak, Chairman and Chief executive officer of Cumberland Advisors, 0:08:17.320 --> 0:08:21.880 also the co author of the book Adventures in Muniland. 0:08:33.280 --> 0:08:38.120 When Mark Dunklely arrived at Hawaiian Airlines, the airline depended 0:08:38.120 --> 0:08:41.400 almost entirely on traffic from the United States mainland and 0:08:41.520 --> 0:08:45.920 among Hawaii's islands. Well as chief executive, he has managed 0:08:45.960 --> 0:08:49.280 to grab a large share of the international business. International 0:08:49.320 --> 0:08:52.199 travel now accounts for about a fourth of the airline's revenue, 0:08:52.200 --> 0:08:56.200 flights to such destinations as Japan, China, South Korea, Australia 0:08:56.520 --> 0:08:59.800 and New Zealand. But Mark Dunckly has his own destination 0:08:59.840 --> 0:09:03.440 and he is departing from Hawaiian Holdings, the parent company 0:09:03.480 --> 0:09:06.200 of Hawaian Airlines. He joins us now, Mark Duncley, thanks 0:09:06.240 --> 0:09:08.160 for being with us. Maybe you could tell us a 0:09:08.240 --> 0:09:12.280 little bit about why are you moving on and what 0:09:12.320 --> 0:09:16.199 do you believe your legacy will be at the airline. Well, then, 0:09:16.280 --> 0:09:18.120 first all, it's great to talk to you again, as 0:09:18.480 --> 0:09:21.280 it always is. Um. Yeah, you know, I've had the 0:09:21.320 --> 0:09:24.080 great good fortune to run this business for fifteen years, 0:09:24.160 --> 0:09:27.320 and at the same time, you know, I've been a 0:09:27.360 --> 0:09:30.240 long way away from from family. You can probably tell 0:09:30.280 --> 0:09:33.400 them that being in Hawaiian, being British and having family 0:09:33.400 --> 0:09:36.560 on the East Coast makes some of you know, keeping 0:09:36.600 --> 0:09:39.400 touch with family a little bit difficult. So it seemed 0:09:39.440 --> 0:09:42.840 like the right time to to make that move. In 0:09:42.960 --> 0:09:45.920 terms of the legacy of our business. I think it 0:09:45.920 --> 0:09:50.240 really just sort of demonstrates that a small carrier with 0:09:50.320 --> 0:09:53.520 a real focus on the customer can compete and win 0:09:54.280 --> 0:09:57.680 UH in a in a market of very big airlines. 0:09:59.000 --> 0:10:02.240 In the story that we had on Bloomberg News in 0:10:02.280 --> 0:10:05.240 the past few weeks, it noted how a number of 0:10:05.280 --> 0:10:10.120 the big airlines United Continental, UH and Southwest Airlines have 0:10:10.480 --> 0:10:13.439 expanded service or said that they were going to from 0:10:13.480 --> 0:10:16.920 the mainland to Hawaii. You have said at the time, 0:10:17.040 --> 0:10:19.760 had I known about this additional competition at the time 0:10:20.120 --> 0:10:22.840 I started discussing my plans with the board of directors, 0:10:22.880 --> 0:10:27.960 I would have stayed on. Can you explain that? Yeah? Absolutely, 0:10:28.000 --> 0:10:31.080 I mean, you know, one of the reasons why you 0:10:31.120 --> 0:10:34.240 get into the airline business and management capacities because you 0:10:34.320 --> 0:10:37.360 like to fight. And uh, you know, we've had a 0:10:37.360 --> 0:10:40.200 lot of competitive entry in our market during the period 0:10:40.200 --> 0:10:43.880 of time when we've grown and developed ourselves. We've always 0:10:43.880 --> 0:10:47.680 been able to beat back the competition, um in And so, 0:10:48.240 --> 0:10:51.960 uh you know, I see no reason why this next 0:10:52.000 --> 0:10:55.559 episode is going to be any different. And I would 0:10:56.240 --> 0:10:59.560 very much liked to have been in the saddle to 0:10:59.360 --> 0:11:02.640 to take the fight to the to the additional capacity. 0:11:02.920 --> 0:11:05.320 So Mark, let's say you were staying on, how would 0:11:05.320 --> 0:11:08.760 you wage this fight? Well, I think we've got the 0:11:08.760 --> 0:11:13.400 winning combination. To begin with, Hawaiian Airlines understands the Hawaii 0:11:13.480 --> 0:11:18.800 traveler better than any other airline does. Um We've during 0:11:18.880 --> 0:11:22.439 the period, you know, with each successive year, our rate 0:11:22.679 --> 0:11:25.880 of you know, that margin by which we understand our 0:11:26.240 --> 0:11:31.360 customer better has actually increased. Were in better competitive relative 0:11:31.400 --> 0:11:34.600 competitive shape today than we were, uh you know, four 0:11:34.679 --> 0:11:37.120 or five years ago when we had another bout of 0:11:37.120 --> 0:11:40.880 competitive entry. Um. So I think it's it's more about 0:11:42.120 --> 0:11:45.080 you know, leaving all of the the advantages that we 0:11:45.120 --> 0:11:48.280 currently have. I don't think it's about finding a new 0:11:48.320 --> 0:11:51.920 formula I think our formula wins today. Mark just a 0:11:51.920 --> 0:11:56.160 little bit on the competition because a little more rather 0:11:56.400 --> 0:12:00.600 because we know, so okay, Southwest United there Lisa said 0:12:00.600 --> 0:12:05.080 they're upping their their schedules, but not from the West Coast, 0:12:05.679 --> 0:12:07.640 and I think that might be Can you just give 0:12:07.640 --> 0:12:10.120 a little bit of color there, because the West Coast 0:12:10.480 --> 0:12:13.400 also has to do with your ability to maintain margins 0:12:13.440 --> 0:12:17.160 and I'm wondering if you could speak to that issue. Yeah, 0:12:17.200 --> 0:12:19.920 you know, with the exception of flying as far east 0:12:19.920 --> 0:12:23.920 as New York, which we which we fly, as you 0:12:23.960 --> 0:12:28.640 well know, most of our services come off the West Coast. Um. 0:12:28.720 --> 0:12:31.120 Again that's that that's a market we know very well. 0:12:31.200 --> 0:12:34.079 Most of the people UM coming off the West Coast 0:12:34.160 --> 0:12:38.439 are flying on NonStop flights, are not making connections. Uh. 0:12:38.480 --> 0:12:41.840 And they're the they're the uh. They're the sort of 0:12:41.840 --> 0:12:47.239 customers who are most easily uh sort of directly marketed 0:12:47.400 --> 0:12:51.800 to UM when you compare it to people in the 0:12:51.800 --> 0:12:54.880 middle of the country who have to make connections. So UM, 0:12:54.920 --> 0:12:57.760 when we go head to head off the West Coast, 0:12:58.640 --> 0:13:01.000 as I say, we win an indeed, uh, if you 0:13:01.080 --> 0:13:03.920 look at where we are now, we we have a 0:13:04.000 --> 0:13:08.480 double digit revenue advantage over our competitors off the West coast. 0:13:08.880 --> 0:13:10.880 All right, that's all right, So we got the West 0:13:10.880 --> 0:13:15.319 coast challenge and strength. Tell us about the aircraft. Because 0:13:15.320 --> 0:13:19.000 you're taking the new A three one Neo from air 0:13:19.120 --> 0:13:21.960 Bus that's got twenty five fewer seats than the smallest 0:13:22.000 --> 0:13:25.080 planes that you fly today on that West coast route, 0:13:25.360 --> 0:13:27.720 and then you're also doing a reconfiguration of the A 0:13:27.880 --> 0:13:30.960 three thirty, you're gonna have sixteen fewer seats which might 0:13:31.360 --> 0:13:34.400 be able to offer that premium seating, and then it 0:13:34.440 --> 0:13:37.360 offsets the other carrier's growth because it pulls a capacity 0:13:37.400 --> 0:13:40.520 out of the market. Yeah. Well, we took the first 0:13:40.559 --> 0:13:44.520 of our eighteen eight three one Neo aircraft into our 0:13:44.520 --> 0:13:46.520 fleet just a couple of weeks ago. We're getting it 0:13:46.559 --> 0:13:49.719 ready for service early in the new year. We're very 0:13:49.720 --> 0:13:53.880 excited about this aircraft type. Um, you know, all airplanes are, 0:13:55.160 --> 0:13:58.199 I mean, both manufacturers built terrific airplanes and they're all 0:13:58.600 --> 0:14:02.440 optimized for certain kind of distances and certain market sizes. 0:14:02.960 --> 0:14:09.320 It so happens aucle mile flight and the size nine 0:14:09.400 --> 0:14:14.880 seats of the Neo makes it absolutely the best airplane 0:14:14.920 --> 0:14:17.839 for the mission. And we think that is UH an 0:14:17.880 --> 0:14:23.120 absolute competitive advantage of Visa the competitors flying other narrow bodies. 0:14:23.720 --> 0:14:26.360 With respect to our wide body fleet, we're just completing 0:14:26.920 --> 0:14:29.520 UH the introduction of life flat seats on all of 0:14:29.520 --> 0:14:33.720 our wide body aircraft and we're seeing a phenomenal uptake 0:14:34.960 --> 0:14:39.600 of of demand for those. It's and you know, we 0:14:39.600 --> 0:14:42.640 always understood that would be important in the international marketplace. 0:14:42.720 --> 0:14:47.160 I think what's been surprising and encouraging is to see 0:14:47.840 --> 0:14:51.840 just how important it's become to the domestic marketplace as well. 0:14:52.320 --> 0:14:54.440 Mark Duckerley, thank you so much for joining us, and 0:14:54.520 --> 0:14:58.080 best of luck in the next chapter. Mark Dunkerley was 0:14:58.200 --> 0:15:03.160 among the longest tenure chief executive officers in the airline industry. 0:15:03.680 --> 0:15:06.920 He is current president chief executive officer of Hawaiian Holdings, 0:15:07.280 --> 0:15:10.040 which is based in Honolulu, but he has said that 0:15:10.080 --> 0:15:12.840 he will retire in March and be replaced by the 0:15:12.880 --> 0:15:18.200 airline's chief commercial officer, Pete Ingram. This is after quite 0:15:18.200 --> 0:15:22.120 a long tenure at the airline company. It seems like 0:15:22.760 --> 0:15:25.760 I don't know him. Would you leave Honolulu? I guess 0:15:25.880 --> 0:15:28.200 I wouldn't know. I've never lived there, but it seems 0:15:28.200 --> 0:15:43.960 like a beautiful place to be Goldman Sachs has made 0:15:44.000 --> 0:15:49.320 a big push into consumer lending via its Marcus online 0:15:49.480 --> 0:15:54.480 lending system after starting it up in recent years, we 0:15:54.520 --> 0:15:57.760 are now getting some data about what their lone loss 0:15:57.800 --> 0:16:01.400 expectations are, as well as who they are lending to 0:16:02.000 --> 0:16:04.480 and with us. Is Dacan Campbell, a financial reporter for 0:16:04.560 --> 0:16:08.440 Bloomberg News, to talk a little bit about what we're seeing. Dacon, 0:16:08.600 --> 0:16:12.800 you wrote this fantastic story looking at how Goldman says 0:16:13.040 --> 0:16:16.440 that they're expecting loan losses that are lower than what 0:16:16.560 --> 0:16:18.800 others in the industry would expect. Can you just sort 0:16:18.840 --> 0:16:22.160 of lay out what you're talking about here? Yes, And 0:16:22.200 --> 0:16:25.200 it's important to note that they actually didn't go as 0:16:25.280 --> 0:16:28.680 far as you suggest they went. They didn't tell us 0:16:28.760 --> 0:16:31.600 that the four percent losses that they disclosed in this 0:16:31.680 --> 0:16:33.720 recent slide. They didn't say, those are going to be 0:16:33.880 --> 0:16:38.520 losses for our portfolio. They said, hey, analysts and investors, 0:16:38.520 --> 0:16:43.000 these are losses for a hypothetical industry portfolio, for a 0:16:43.040 --> 0:16:47.600 business built at scale. Now, many analysts looked at that 0:16:47.880 --> 0:16:51.280 and said, Okay, these are the losses that Goldman is 0:16:51.320 --> 0:16:55.080 assuming for their own business. But it's it's important to 0:16:55.120 --> 0:16:58.440 note that they didn't actually come out and be all right. So, 0:16:58.440 --> 0:17:01.040 so you got some pushback they basically from the story 0:17:01.120 --> 0:17:03.440 saying that Goldman wasn't saying that this was their projections, 0:17:04.000 --> 0:17:05.439 but that you know, they put this out as a 0:17:05.480 --> 0:17:09.280 hypothetical and people are saying they're hypothetical is too low. Nevertheless, 0:17:09.320 --> 0:17:11.679 it's a benchmark. It's a benchmark, and it's a fascinating 0:17:11.720 --> 0:17:14.560 benchmark at a time when Goldman Sachs is trying to 0:17:14.600 --> 0:17:18.560 recreate its identity and is trying to plow more into 0:17:18.680 --> 0:17:21.120 an industry that has been dominated by both credit card 0:17:21.200 --> 0:17:23.959 lenders and peer to peer online lenders. Uh, can you 0:17:24.000 --> 0:17:27.520 talk a little bit just about how ambitious Goldman Sacks 0:17:27.560 --> 0:17:31.000 has been and why this is such a lucrative area 0:17:32.720 --> 0:17:36.879 for banks. Sure, so, Uh, Goldman would like to A 0:17:36.920 --> 0:17:38.800 couple of months ago, they told us they'd like to 0:17:38.880 --> 0:17:43.040 originate thirteen billion in loans over the next three years 0:17:43.119 --> 0:17:46.160 off of this platform. They started at thirteen months ago, 0:17:46.440 --> 0:17:50.240 So they're ramping up very quickly. They've done two billion already, 0:17:50.320 --> 0:17:53.320 so uh, they they'll need to do another eleven or 0:17:53.359 --> 0:17:58.080 twelve billion. Uh. These are largely debt consolidation loans, so 0:17:58.440 --> 0:18:00.840 they're going out to people who've got credit card debt 0:18:00.960 --> 0:18:04.800 and offering them this money at a slightly lower interest 0:18:04.920 --> 0:18:08.679 rate to retire that debt. As we all know, because 0:18:08.720 --> 0:18:10.760 of the credit card debt that we may or may 0:18:10.760 --> 0:18:13.840 not have ourselves, those have high interest rates, and so 0:18:14.240 --> 0:18:17.360 Goldman thinks that that they can get in UH at 0:18:17.359 --> 0:18:21.359 a slightly lower interest rate but still high UH. This 0:18:21.400 --> 0:18:24.440 would be very lucrative for them. I mean they they 0:18:24.440 --> 0:18:26.919 told us that the net interest margin. I don't want 0:18:26.920 --> 0:18:29.840 to get too jargon e, but it's UH. Banks now 0:18:29.960 --> 0:18:32.560 have net interest margins of two or three percent for 0:18:32.600 --> 0:18:34.920 their entire business. Goldman thinks they can get in net 0:18:34.920 --> 0:18:39.120 interest margin of ten per cent on this business. Okay, 0:18:39.160 --> 0:18:41.080 just let me get a couple of details in here. 0:18:41.560 --> 0:18:44.359 The maximum amount you can actually borrow on the markets 0:18:44.440 --> 0:18:47.560 platform is thirty thou dollars. Correct. They make a big 0:18:47.600 --> 0:18:50.680 deal of saying that there is no fee associated with it, 0:18:50.920 --> 0:18:54.480 also that there is no pre payment penalty. First question. 0:18:54.560 --> 0:18:57.840 Pre payment penalties are usually designed to make sure that 0:18:57.880 --> 0:19:00.840 those who lend the money are given the feeling that 0:19:00.880 --> 0:19:04.800 they will get this stream of interest payments continuously for 0:19:04.840 --> 0:19:08.200 the life of the loan. What happens to those investors 0:19:08.320 --> 0:19:11.439 or in the back of the situation, what happens to 0:19:11.480 --> 0:19:16.120 those loans when they get prepaid? Good question. So one 0:19:16.520 --> 0:19:19.879 competitive advantage that Goldman thinks they have is they're putting 0:19:19.880 --> 0:19:22.040 all of these loans on their balance sheet, so they're 0:19:22.080 --> 0:19:25.760 not selling any two investors. So in a pre payment, 0:19:26.040 --> 0:19:28.359 if anyone takes the hit, they take the hit. Yes, 0:19:28.480 --> 0:19:31.200 and they will take the money that's prepaid early, turn 0:19:31.320 --> 0:19:34.720 right around and lend it out again. Okay, the second thing, 0:19:34.840 --> 0:19:38.119 it says that you cannot use these loans for any 0:19:38.240 --> 0:19:44.760 kind of remideration of student loan debt. Is that correct? 0:19:45.320 --> 0:19:48.800 I believe so, and I believe that's a regulation. I'm 0:19:48.840 --> 0:19:52.000 not exactly sure, but uh, they don't want you to 0:19:52.040 --> 0:19:53.840 be doing that, all right. So this is really as 0:19:53.840 --> 0:19:56.400 you just said, this is to try to consolidate your 0:19:56.440 --> 0:19:59.439 loans and it's unsecured. This is this is this is 0:19:59.440 --> 0:20:03.480 a large what a lot of the online lending marketplaces 0:20:03.520 --> 0:20:06.400 have done, right, and this is lending club prosper It's 0:20:06.520 --> 0:20:10.720 largely the same product. It's it's directly in competition with 0:20:10.840 --> 0:20:14.439 credit cards basically to try to get them a a 0:20:14.480 --> 0:20:18.480 lower rate, although still at we're not talking low rate here, 0:20:18.880 --> 0:20:20.520 but It is fascinating to me. The first of all, 0:20:20.560 --> 0:20:23.880 that Marcus is also plowing into non prime borrowers, which 0:20:23.880 --> 0:20:27.680 is kind of interesting, uh in and of itself. Also, 0:20:27.720 --> 0:20:31.359 how did Goldman Sachs do this, Because if they're lending it, 0:20:31.400 --> 0:20:33.160 and they're putting the loans in their books, this comes 0:20:33.160 --> 0:20:35.840 at a time when all the other banks are actually 0:20:36.040 --> 0:20:40.640 reducing their consumer loans. Yes, and that's that was one 0:20:41.400 --> 0:20:43.880 large part of our story, is that they're getting into 0:20:43.920 --> 0:20:47.719 this business at a point when credit losses are lower 0:20:47.760 --> 0:20:50.800 than they've almost ever been. So you're getting into a 0:20:50.800 --> 0:20:53.960 business when credit losses are expected to go up. We've 0:20:53.960 --> 0:20:56.719 had an eight year economic expansion. You've got to expect 0:20:56.760 --> 0:20:59.320 that to come to an end at some point. If 0:20:59.320 --> 0:21:02.280 you are doing the yourselves, you would not want to 0:21:02.280 --> 0:21:04.359 get into a business at this point in the cycle. 0:21:04.480 --> 0:21:08.280 It's almost the worst point to get into the business. Now. 0:21:08.280 --> 0:21:10.520 What Goldman will tell you, and they've said this publicly, 0:21:11.040 --> 0:21:13.720 is hey, we're getting this. We're building this for the 0:21:13.800 --> 0:21:16.919 long haul, and doesn't really matter when we get into it, 0:21:16.960 --> 0:21:20.000 because we'll take early losses and then a few years 0:21:20.000 --> 0:21:23.040 down the line it'll be fine. This is you know, 0:21:23.200 --> 0:21:26.480 multi year so take that for what you will, all right, 0:21:26.520 --> 0:21:28.760 and thank you very much. They Can Campbell is our 0:21:28.800 --> 0:21:31.320 financial reporter for Bloomberg News. You can follow him on 0:21:31.359 --> 0:21:34.000 Twitter at Daycan Campbell, and I urge you to read 0:21:34.040 --> 0:21:37.359 his story about Goldman Sachs and Marcus by Goldman Sax. 0:21:37.440 --> 0:21:53.320 The online lending platforms Uber has disclosed that it paid 0:21:53.320 --> 0:21:56.080 hackers a hundred thousand dollars in an effort to conceal 0:21:56.280 --> 0:22:01.280 a data breach that affects fifty seven million accounts. But 0:22:01.359 --> 0:22:04.040 this happened one year ago, So why are we only 0:22:04.119 --> 0:22:06.920 learning about it now? Here to help us understand the 0:22:07.000 --> 0:22:10.959 issue and its consequences, is Shira Ovid are Bloomberg Gadfly 0:22:11.200 --> 0:22:15.040 columnist when it comes to everything technological? Sure, So maybe 0:22:15.040 --> 0:22:17.560 just lay out some of the details as we know 0:22:17.720 --> 0:22:20.960 them and what you believe the fallout will be right. So, 0:22:21.000 --> 0:22:26.640 our colleague Eric Newcomer reported yesterday that Uber's board did 0:22:26.680 --> 0:22:30.080 an investigation and discovered that there had been this data 0:22:30.119 --> 0:22:32.880 breach in October of last year. So, as you said, 0:22:32.880 --> 0:22:37.159 more than a year ago that affected personal information on 0:22:37.320 --> 0:22:42.639 fifty seven million Uber writers and also hundreds of thousands 0:22:42.680 --> 0:22:47.160 of US Uber drivers, and the company didn't disclose it 0:22:47.640 --> 0:22:51.159 UM and instead paid hackers a hundred thousand dollars to 0:22:51.400 --> 0:22:55.280 basically delete or say they would delete the personal information. 0:22:55.320 --> 0:22:56.600 And that was kind of the end of it. It was, 0:22:56.680 --> 0:22:58.960 you know, basically a cover up before we get to 0:22:59.040 --> 0:23:01.760 the sort of ethic of not disclosing it. And the 0:23:01.800 --> 0:23:04.119 fact that the New York Attorney General is now looking 0:23:04.160 --> 0:23:06.840 into this and this could potentially add to the Uber's 0:23:07.400 --> 0:23:11.119 legal woes. A hundred thousand dollars is nothing for what 0:23:11.240 --> 0:23:14.640 these hackers charge, and it makes me wander, first of all, 0:23:14.680 --> 0:23:16.760 whether this was sufficient. Second of all, what kind of 0:23:16.800 --> 0:23:20.000 hack was this? Uh? And and third, you know, is 0:23:20.040 --> 0:23:22.600 this uh? Is there more to this than perhaps they're 0:23:22.640 --> 0:23:24.840 letting on? Yeah? These are all good questions. So I 0:23:24.880 --> 0:23:28.720 will say that generally Uber has been regarded as having 0:23:28.840 --> 0:23:32.040 a kind of robust security team. This is not a 0:23:32.040 --> 0:23:37.439 company like Equifax, are previous giant cyber hack victim that 0:23:37.600 --> 0:23:41.359 seemed fairly incompetent about keeping user data secure. Although the 0:23:41.400 --> 0:23:43.919 irony of this Uber hack was that it happened at 0:23:43.960 --> 0:23:47.920 the same time that Uber was trying to repair relations 0:23:48.440 --> 0:23:54.880 with the Federal Trade Commission over previous misrepresentations of the 0:23:55.000 --> 0:23:59.679 um security of Uber driver and writer information. So it's 0:23:59.720 --> 0:24:02.480 sort of ironic that it was kind of being hacked 0:24:02.520 --> 0:24:05.600 at the same time it was trying to repair relations 0:24:05.680 --> 0:24:09.480 over previous breaches. Can you say this is a hack 0:24:09.560 --> 0:24:13.080 and be hacked? Because isn't Uber the company that was 0:24:13.400 --> 0:24:18.119 cited as being uh sort of the poster child for 0:24:18.480 --> 0:24:23.800 using nefarious methodology in order to not only gain insight 0:24:23.880 --> 0:24:27.399 into their competitors, to game the system of their competitors, 0:24:27.440 --> 0:24:32.880 to flood the competitors system with bogus requests, and also, 0:24:33.040 --> 0:24:37.800 as I recall, to manipulate the data that was accessible 0:24:38.320 --> 0:24:44.399 to regulators in different municipalities. Yes, among the kind of 0:24:44.600 --> 0:24:48.639 very long list of Uber's troubles over the years is 0:24:48.680 --> 0:24:54.520 all of those things. In spied on writers um using 0:24:54.840 --> 0:24:58.000 kind of an internal view of where people were going. 0:24:58.400 --> 0:25:01.640 It used its data, manipulated its data to kind of 0:25:02.160 --> 0:25:05.000 make sure that regulators who were trying to correct down 0:25:05.000 --> 0:25:08.720 an Uber couldn't get rides and investigate your further. Yes, 0:25:08.760 --> 0:25:10.720 all of those Okay, So if all right now, if 0:25:10.800 --> 0:25:13.760