Speaker 1: This is Bloomberg business Week Inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Masser and Tim Stenebec from Bloomberg Radio. Well,
Speaker 1: we know the financial world continues to evolve. In one
Speaker 1: thing we have seen over the last couple of years
Speaker 1: is a string of iconic firms run by their iconic
Speaker 1: founders figuring out succession plans and the way forward. Among
Speaker 1: those firms, Bridgewater, whose billionaire founder Ray Dalio handed off
Speaker 1: control five months ago in a Bloomberg exclusive and the
Speaker 1: most read story on the Bloomberg Today. Bloomberg News Editor
Speaker 1: at Large and New Economy Editorial Director Eric Shatzker joining
Speaker 1: us on the major revamp of the world's largest hedge fund.
Speaker 1: He joins us in our Bloomberg Interactive Broker Studio. First
Speaker 1: of all, great story, great reporting. This is someone you know, Well,
Speaker 1: just remind you you've had many conversations kind of put
Speaker 1: Ray Dalio in in kind of his place when it
Speaker 1: comes to the financial community and something. Ray is a
Speaker 1: hedge fund investing legend, an call master of the universe,
Speaker 1: in Wall Street terms. He built the world's largest hedge
Speaker 1: funded Bridgewater Associates and amassed more money in hedge fund
Speaker 1: strategies than anybody ever had and anybody ever has to date.
Speaker 1: At its peak, Bridgewater had more than one hundred and
Speaker 1: fifty billion dollars under management. And one of the important
Speaker 1: things undercurrents to the story is that in the course
Speaker 1: of amassing all those assets, Bridgewater under Ray's leadership, kind
Speaker 1: of defied gravity because the conventional wisdom in hedge funds
Speaker 1: is that each strategy has a natural size cap to it.
Speaker 1: There are only so many opportunities that any one firm
Speaker 1: can harvest, so if you try to run too much money,
Speaker 1: you're going to erode your returns. Now, this didn't this
Speaker 1: law didn't seem to apply to Bridgewater for a long time,
Speaker 1: and then in the twenty tens they had a prolonged
Speaker 1: period of underperformance and really had to take a hard
Speaker 1: look at themselves in the mirror and ask what was wrong?
Speaker 1: What's what are we not doing right? They started to
Speaker 1: take some steps to reconcile or resolve those issues while
Speaker 1: Ray was still there a couple of years ago. But
Speaker 1: now that he's gone, the new generation of leadership has
Speaker 1: the freedom to go much further and they are and
Speaker 1: how is that going for them? Well, it's early days
Speaker 1: yet this was just announced today. In fact, some people
Speaker 1: at Bridgewater would say, thank goodness, were actually starting. There
Speaker 1: was a sense inside the firm that while Ray was
Speaker 1: still the boss and the controlling shareholder, some of these
Speaker 1: changes were difficult to implement. I'm not sure I would
Speaker 1: quite go so far as to say he was resistant
Speaker 1: to them. But now you have younger people running the
Speaker 1: firm who have ideas of their own and who want
Speaker 1: to implement them. So it will take some time to
Speaker 1: see if this idea of capping their flagship hedge fund
Speaker 1: strategy pure Alpha will help to deliver better returns in
Speaker 1: that strategy. What it will mean practically is the clients
Speaker 1: who want more Pure Alpha or who aren't in that
Speaker 1: strategy and want access to it may not get it,
Speaker 1: And institutional clients are going to have to be competing
Speaker 1: for that more so than they have been. That's right,
Speaker 1: There's always been a ceiling, but now the ceiling is
Speaker 1: much lower on how much they're willing to manage. The
Speaker 1: maximum at one point was about one hundred billion dollars
Speaker 1: and it's going to be twenty to thirty percent less
Speaker 1: than that going forward, So more money into talent in AI,
Speaker 1: machine learning, expanding an age. Yeah, this is the flip
Speaker 1: side of the coin. Talk to us a little bit
Speaker 1: about these strategies and what strikes you the most in
Speaker 1: terms of what this means for going forward. And it's
Speaker 1: new CEO. As they cap the opportunity set in pure Alpha,
Speaker 1: they're cutting some jobs. They no longer need as many
Speaker 1: people to support that strategy, and they're reallocating those resources
Speaker 1: to these new initiatives. One of those initiatives is growing
Speaker 1: the firm's international footprint in Asia in particular. Another is
Speaker 1: building out their equities business. A third is sustainability, and
Speaker 1: a fourth, as you mentioned, is AI and machine learning. Bridgewater,
Speaker 1: like many firms in the hedge fund industry, has been
Speaker 1: experimenting with AI and machine learning for quite some time.
Speaker 1: To date, nobody has really figured out a way to
Speaker 1: master those technologies in a way in a manner let's
Speaker 1: say that truly supersedes human decision making. That's the dream
Speaker 1: that you'll be able to program a machine and the
Speaker 1: machine will be able to do will be able to
Speaker 1: invest better than the human right. It hasn't happened yet.
Speaker 1: And what this tells you is that Bridgewater, by putting
Speaker 1: this effort underneath one of the co chief investment officers,
Speaker 1: Greg Jensen, is really getting serious about trying to reach
Speaker 1: that holy grail, let's call it. We'll find that holy grail.
Speaker 1: It feels like they're kind of investing in the ideas
Speaker 1: of that younger cohort of investors. Is that how you
Speaker 1: would describe it. I think the younger people who are
Speaker 1: now running the firm in their thirties and forties, for
Speaker 1: the most part, recognize that this is the future and
Speaker 1: that they need to chase the future as hard as
Speaker 1: possible if they want to get there first. One of
Speaker 1: the things to keep in mind about technologies like generative
Speaker 1: AI right, or quantum computing, which is around the corner
Speaker 1: but not quite here yet, is that it might be
Speaker 1: winner take all. If you get there first, you open
Speaker 1: up such a lead over your competition that they may
Speaker 1: never catch up. Yeah, it's kind of fascinating about, you know,
Speaker 1: Ray Dalio Bridgewater for the It's interesting Bridgewater has written
Speaker 1: about this to its clients and they call those types
Speaker 1: of technologies force multiplier technologies. We'll think about it right
Speaker 1: if they get it right, and you can think about
Speaker 1: the returns that could be potentially off of that. Hey, listen,
Speaker 1: got about a minute left. I think about Ray Dalio,
Speaker 1: and I do think about for many years his outperformance
Speaker 1: and how well he did under with Bridgewater. But he
Speaker 1: also talked about society at large. Is that still a
Speaker 1: part of the fabric at Bridgewater. Ray cared about society.
Speaker 1: His concern for society and his concern that we are
Speaker 1: able to get along with one another and we don't
Speaker 1: devolve into you know, partisan bickering and the potentially terrible
Speaker 1: consequences that could come out of it were unique to
Speaker 1: Ray himself his point of view, But the people who
Speaker 1: run Bridgewater now have their own ethos. What they did
Speaker 1: say what near Bardo, the new CEO said to me
Speaker 1: is for us, it's not ideologue goal. We are where
Speaker 1: we need to be. For example, we're in China because
Speaker 1: we our clients want us to be there, and we'll
Speaker 1: be there so long as we can. But it's not
Speaker 1: about ideology. I love to and we're running out of time.
Speaker 1: But this whole idea of his contribution, what he calls
Speaker 1: a flywheel and that's an all idea of like chasing
Speaker 1: new talent, right new ideas. That's right, and it will
Speaker 1: become this virtuous circle. So don't kill me. But it
Speaker 1: almost sounds a little Kathy woodlike, Oh, I don't think
Speaker 1: they craved that comparison warmly and a little bit okay, okay, good, Yeah.
Speaker 1: I just feel like maybe the young people are getting there.
Speaker 1: I don't know. Um. Great story again, thank you, Carol,
Speaker 1: and it is most read on the Bloomberg in the
Speaker 1: past eight hours. Eric Shatzker Editor at Large. He's editorial
Speaker 1: director for Bloomberg New Economy, joining us in studio. Check
Speaker 1: it out at Bloomberg dot com and of course on
Speaker 1: the Bloomberg terminal. You are listening and watching Bloomberg Radio.
Speaker 1: You're listening to the Bloomberg Business Week podcast Cat just
Speaker 1: Live week days from two to five pm Easter on
Speaker 1: Bloomberg Radio, the Bloomberg Business a band you. You can
Speaker 1: also listen live to our flagship New York station, Just
Speaker 1: Say Alexa, play Bloomberg Eleve and Dirty. You know, we've
Speaker 1: talked a lot about the one year anniversary of that
Speaker 1: Russian invasion of Ukraine, and Carol, I did not know
Speaker 1: about this until reading this story. But President Vladimir Putin
Speaker 1: he begins the war. A network used throughout Europe, including
Speaker 1: by the Ukrainian military, then faced an unprecedented cyber attack,
Speaker 1: and it's one that everyone is finally talking about. Yeah.
Speaker 1: I feel like it went from no one to everyone,
Speaker 1: and they should be. The story is coming up in
Speaker 1: the new issue of Bloomberg BusinessWeek on newsstands tomorrow, already
Speaker 1: online at Bloomberg dot com, slash business Week, and of
Speaker 1: course on the Bloomberg Let's get to it with Bloomberg
Speaker 1: News Cyber and Emerging tech reporter Katrina Manson. She joins
Speaker 1: us via zoom in New York City, and of course
Speaker 1: you've got the editor of Bloomberg Business Week, Del Webber
Speaker 1: right here in our Bloomberg Interactive broker's studio. So tell
Speaker 1: us about this hack in my ongoing propaganda for rto messaging.
Speaker 1: Katrina and I found ourselves in the Washington DC bureau
Speaker 1: and Katrina was like, have you heard of this company Vias?
Speaker 1: And I was like, what are you talking about? She
Speaker 1: was like a satellite company. I was like, I don't
Speaker 1: know anything you're talking about. And it turns out that
Speaker 1: there was a hack at the beginning of the Russian invasion,
Speaker 1: and no one initially attributed that to Russia, but as
Speaker 1: the weeks passed and Western governments, you know, finally got
Speaker 1: around to pointing a finger, they pointed that figure a
Speaker 1: finger out Russia, which obviously Russia says that we're innocent.
Speaker 1: But what it really revealed was something that I thought
Speaker 1: was worthy of further exploration. And Katrina did a great
Speaker 1: job on this, and it turns out satellites are really
Speaker 1: unsecure and that is a little frightening when you think
Speaker 1: about the amount of data that is sent there um
Speaker 1: and and so this via st hack that you read
Speaker 1: about Katrina tell us why it ended up being a
Speaker 1: much overdue wake up call for the satellite industry. When
Speaker 1: I think trapping it down was so fascinating. Reports came
Speaker 1: out in drifts and drabs. There were other journalists who
Speaker 1: are very obsessed with this issue, who were of course
Speaker 1: covering it, but it was very hard to put together
Speaker 1: the overall picture, and some cybersecurity researchers did incredible work
Speaker 1: really trying to encourage the company to talk about this
Speaker 1: in public. When I say cybersecurity researchers, I mean hackers
Speaker 1: they have been trying to hack space for a decade
Speaker 1: plus for white hat reasons. That's classically known as for
Speaker 1: good to share their information so other people improve. But
Speaker 1: it's a really sensitive area. And so one of the
Speaker 1: main people I spoke to for the story, Ruben Santa Marta,
Speaker 1: he's been warning since twenty fourteen that space is insecure.
Speaker 1: And he said to me that page ten and eleven
Speaker 1: of one of these very esenteric papers that he'd written
Speaker 1: actually essentially predicted exactly what happened to the Ukrainian military,
Speaker 1: which relies on commercial satellite in remote places to get
Speaker 1: their Internet connections. That's essentially how they want to link
Speaker 1: frontline troops, to command control, to control drones, all the
Speaker 1: things that you would need to respond to a very
Speaker 1: swift or what was intended to be a very swift
Speaker 1: lightning invasion by the Russians. So the stakes were incredibly high,
Speaker 1: and it came down to a lot of researchers who've
Speaker 1: been climbing the bell for this for so many years.
Speaker 1: Another one I spoke to, called James Parville for the story.
Speaker 1: He intercepted satellite data transmissions that's from the satellite down
Speaker 1: to in this case ships that were relying on satellite connections,
Speaker 1: and he got hold of the crew manifests passport details,
Speaker 1: credit card details. It is extraordinary how much out there
Speaker 1: in space is not encrypted and how easy it is
Speaker 1: to get hold of it. I see, And I was
Speaker 1: so hoping she was going to talk about Captain Midnight.
Speaker 1: But we'll get to that later. I mean, we have to,
Speaker 1: we have to. I mean, I wonder if you can
Speaker 1: talk a little bit about the US intelligence on this.
Speaker 1: The US looks into it gleans that the Russians were
Speaker 1: prepared to take significant diplomatic and strategic risks, which feels
Speaker 1: like something that you could have told us before the
Speaker 1: US intelligence looked into that, Katrina. But I wonder if
Speaker 1: you can talk about how much the US knows as
Speaker 1: we stand today, and maybe the extent to which we
Speaker 1: don't know. Well, I can tell you what I know,
Speaker 1: which is definitely not everything. But I think the US
Speaker 1: worked very quickly within about four weeks to work out
Speaker 1: that they thought it was the gru that's responsible. That's
Speaker 1: Russian military intelligence. They have alleged we done lots of hacking,
Speaker 1: according to the US in the past. And what was
Speaker 1: interesting about that was that it was coordinated with the invasion. Now,
Speaker 1: once they established that, they then spent six weeks trying
Speaker 1: to convince the Europeans that they were right. And I
Speaker 1: think it has interesting echoes for the rest of how
Speaker 1: the US approached the Ukraine invasion, which was to flag
Speaker 1: early on to the Europeans, look, this is going to happen.
Speaker 1: We have the intel, and the Europeans, namely the French
Speaker 1: and German, said no, we don't think so. And in
Speaker 1: the case of the satellite hacked, the US actually went
Speaker 1: above and beyond and shared additional intel. I'm told European
Speaker 1: official with the French and the Germans to try and
Speaker 1: convince them not only that this had happened, but that
Speaker 1: it was really important to blame Russia in public, and
Speaker 1: that's something countries simply don't usually do well. As you say,
Speaker 1: at the end of the story, you have a quote
Speaker 1: from a source who says it is super super repeatable.
Speaker 1: So that's that's distressing. I was going to say, the
Speaker 1: good news is that this will never happen again. I
Speaker 1: may well be invited back, I'm sorry to say so.
Speaker 1: So walk us through what has to happen in order
Speaker 1: for this to not happen again, I think at the
Speaker 1: most extreme, and some groups in the US are calling
Speaker 1: to make space systems um a critical infrastructure sector. I mean,
Speaker 1: that is terrible job and I'm sorry to even introduce it,
Speaker 1: but it's essentially to say, give this sector way more
Speaker 1: UM prominence, government support, and essentially potentially regulation. That's something
Speaker 1: sallite companies mostly don't want, and I think the US
Speaker 1: government isn't going to do that. We've got quite Congress
Speaker 1: to step in. It's part of a five year review.
Speaker 1: I mean, it's just going to get sucked into all
Speaker 1: sorts of bog down into stuff. But the easiest thing
Speaker 1: to do is to set standards. And that's actually what
Speaker 1: the source who said this is super super repeatable it's doing.
Speaker 1: He wants international countries to agree, well, how do we
Speaker 1: run our satellite systems? What do we do with the
Speaker 1: satellite up in space? How do we control the link,
Speaker 1: what goes into the ground network. And as you have
Speaker 1: more and more satellites going up into space, I mean,
Speaker 1: the numbers are can I think, what do these numbers
Speaker 1: look like? Yeah, I mean it's from about five thousand
Speaker 1: active satellites in orbit at the moment to within the
Speaker 1: next seven years, but my end predictions are one hundred thousand.
Speaker 1: That's because satellites are getting smaller, launch is getting easier.
Speaker 1: Everyone's into this new low or low Earth orbit, which
Speaker 1: is much closer, so easier to get to. The satellite
Speaker 1: that got hacked was a geostationary satellite way higher, so
Speaker 1: you're going to see way more satellites in which means
Speaker 1: that if one gets hacked, there are others you can
Speaker 1: rely on. But I think what's key is establishing standards
Speaker 1: and working out what goes into that gloom and protecting
Speaker 1: ground networks. I mean, that's actually what the entry was
Speaker 1: in this hack. And there are really convoluted chains between
Speaker 1: the different operators of a satellite network, and it seems
Speaker 1: that the ball got dropped in that case there was
Speaker 1: a third party operator, right, that's whose speech then it
Speaker 1: went all the way to buy some It's our new
Speaker 1: kind of warfare, right, cyber warfare, And like you think
Speaker 1: about nuclear deterrance, like how we create that kind of
Speaker 1: deterrence when it comes to global satellites. Incredible story. Katrina Manson,
Speaker 1: cyber and Emerging tech reporter at Bloomberg News via zoom
Speaker 1: Joe Weber editor of Bloomberg BusinessWeek. This story in the
Speaker 1: new issue at Bloomberg BusinessWeek magazine. This is Bloomberg business
Speaker 1: Week Inside, from the reporters and editors who bring you
Speaker 1: America's most trusted business magazine, plus global business finance and
Speaker 1: tech news. The Bloomberg Business Week Podcast with Carol mesre
Speaker 1: and Tim Stenebec from Bloomberg Radio. Nowdy, we're going to
Speaker 1: get to another story that is among the most read
Speaker 1: on the Bloomberg and it's certainly something we've touched on before,
Speaker 1: and that is worrisome when it comes to looking at
Speaker 1: the consumer debt picture here in the United States. Yeah, Carol,
Speaker 1: we're talking about car debt and it is a huge
Speaker 1: problem piling up for a lot of consumers across the country.
Speaker 1: So here to tell us more about it and her
Speaker 1: reporting on this issue is Bloomberg News Consumer finance reporter
Speaker 1: Paige Smith from our Bloomberg ninety nine one studio in
Speaker 1: DC page. Thank you so much for being back with us.
Speaker 1: What's going on here with this just exponential car debt.
Speaker 1: Thanks for having me, folks. Nice to be back. So
Speaker 1: it is sort of a number of factors, I mean,
Speaker 1: when you consider there were sort of a lull during
Speaker 1: the pandemic. I mean, I don't know about you, but
Speaker 1: I heard of friends turning in their subarus and getting
Speaker 1: more back than they'd paid for them. But yes, that
Speaker 1: I'm not is gone now. And basically, you know, negative
Speaker 1: equity or essentially owing you know, the debt exceeding the
Speaker 1: value of your vehicle is not an uncommon occurrence. It's
Speaker 1: quite common in fact. But you know, we spoke with
Speaker 1: dealers who are seeing consumers come onto their lots with
Speaker 1: ten thousand dollars in negative equity or even more for
Speaker 1: that matter, So gone or the days when you could
Speaker 1: get more for your vehicle than you paid for it,
Speaker 1: and you know, factor in it. There are a number
Speaker 1: of other factors like high interest rates to consider now.
Speaker 1: So this is just it's a tough time for consumers,
Speaker 1: and for folks who have auto loans in particular, it's
Speaker 1: a really tough time, partially because of those high interest rates,
Speaker 1: but also in the story you mentioned that the initial
Speaker 1: cost of the car is already too high for a
Speaker 1: lot of people exactly, and when you think about it,
Speaker 1: so you have, you know, a car that might be
Speaker 1: fifty thousand or sixty thousand dollars and then you have
Speaker 1: in January, for example, the new car interest rate was
Speaker 1: six point nine percent and you have a loan for
Speaker 1: maybe seven years. That's a lot that you're paying. At
Speaker 1: the end of the day, we have you know, a
Speaker 1: number of consumers are paying more than a thousand dollars
Speaker 1: a month for their car. If you think about it,
Speaker 1: that's more than some people pay for rent every month.
Speaker 1: So it's just it's really expensive about their folks, you
Speaker 1: know what's really it's like heartbreaking. But you talk about
Speaker 1: negative equity, it's never good. But it's somewhat unusual or
Speaker 1: not among car owners. Right we see this. What's different
Speaker 1: right now page right is it just kind of a
Speaker 1: size and scope that we're seeing exactly. I mean, you
Speaker 1: have folks who were kind of you know, maybe wanting
Speaker 1: to buy a car. And if you have a car
Speaker 1: that lasted you through the pandemic, but now you're going
Speaker 1: to look for a new car. It's it's extremely expensive.
Speaker 1: And yes, the terms or longer interest rates are higher.
Speaker 1: Now you're seeing, you know, severely the rate of severely
Speaker 1: delinquent loans hit the highest level since two thousand and six.
Speaker 1: I mean, it's just a lot to think about as
Speaker 1: a consumer, and it's it's overall really expensive, and they're
Speaker 1: also struggling to get any type of refinancing right exactly exactly,
Speaker 1: I would say that, you know, folks, we've already seen
Speaker 1: lenders kind of tighten their standards. So you know, if
Speaker 1: you want to go out and get any sort of
Speaker 1: an auto loan, it might be harder for you to
Speaker 1: do so these days, you know. I wonder, you know
Speaker 1: makes me think about different things that have come before
Speaker 1: regulators in the past, whether it's student loans and the
Speaker 1: amount of death there and how that has become problematic
Speaker 1: for so many to manage, especially as we look right
Speaker 1: now right Supreme Court considering up the President Biden's plans
Speaker 1: to forgive a lot of debt. So I do wonder
Speaker 1: can you can you tell us something more about how
Speaker 1: many of Americans are potentially in trouble or underwater at
Speaker 1: this point? Are we talking about forty percent of car loans?
Speaker 1: Do we? I'm just curiously we have any idea a
Speaker 1: little bit more into terms of how big a problem
Speaker 1: is could potentially be. I don't have that data right
Speaker 1: off the top of my head, but I know that
Speaker 1: almost sixteen percent of of some of almost sixteen percent
Speaker 1: of consumers surveyed in a recent poll, we're paying more
Speaker 1: than a thousand dollars a month on their on their
Speaker 1: car payments. And I think that for the average for
Speaker 1: the number of trade ins that had negative equity associated
Speaker 1: with them, it was reaching like an average of fifty
Speaker 1: five hundred dollars. So you know, it's like rolling that
Speaker 1: some from one vehicle over into the next. And then
Speaker 1: we're hearing about folks who might even roll that dead
Speaker 1: into a third vehicle. So to speak to regulators too,
Speaker 1: you hinted at that sin is definitely on the radar
Speaker 1: of the Consumer Fight Financial Protection Bureau. They're collecting data
Speaker 1: on this and they're going to be watching closely, and
Speaker 1: so are we page that piece for the CFPB is
Speaker 1: kind of what I was thinking about because earlier today,
Speaker 1: I know you're on the clothes with Scarlett, and I
Speaker 1: was telling her that I see these hot takes on
Speaker 1: social media all the time of people saying that the
Speaker 1: car delinquencies are going to be the new housing crisis,
Speaker 1: and she was saying to me, well, usually you can
Speaker 1: kind of bet on people repaying their car payment more
Speaker 1: consistently than their house payment, because you need the car
Speaker 1: to get to work. And I know that some of
Speaker 1: your sources said that as well, that you know, if
Speaker 1: even if your car is more expensive than a house,
Speaker 1: to keep your job, which is your source of income,
Speaker 1: you've got to keep that car at play, definitely. And
Speaker 1: you know, I'm based in DC, you folks her in
Speaker 1: New York. It's it's easier for us to get on
Speaker 1: jump on a train, or jump on a bus. The
Speaker 1: vast majority of a marror kids don't have that opportunity.
Speaker 1: A car is extremely important to get from point A
Speaker 1: to point B, to buy groceries, to pick up your kids.
Speaker 1: And on top of that, this is you know, was
Speaker 1: a really awful saying. But during the you know, during
Speaker 1: the the financial crisis in two thousand and eight, there
Speaker 1: were even some folks saying that they could live in
Speaker 1: their car. And it's it's just these are sort of
Speaker 1: the struggles the consumers are facing and considering when these
Speaker 1: payments are getting so high. There's also like this whole
Speaker 1: idea like if the debt comes undone, you know, who's
Speaker 1: who's responsible for it? Right on the financial side of things.
Speaker 1: Having said that, the lenders of auto loans, those companies
Speaker 1: that actually do the lending, what are they doing to
Speaker 1: help consumers? Because I think you guys include in the story,
Speaker 1: you include about how they're extending some of the life
Speaker 1: of auto loans. So just talk to us little bit
Speaker 1: about that and what they're doing. Yeah, So it's sort
Speaker 1: of a double edged sword, I would say, because certainly
Speaker 1: the auto loans are being extended, which means that as
Speaker 1: a consumer, your monthly payment might not be as expensive,
Speaker 1: but at the end of the day, you know, when
Speaker 1: you pay off that car, you will have paid much
Speaker 1: more than if you had, you know, showed up at
Speaker 1: that dealership with a check in your hand, or had
Speaker 1: paid just straight cash. So that's why I say it's
Speaker 1: sort of a double edged sword. Your monthly payment might
Speaker 1: be less, but in the end you are still inevitably
Speaker 1: paying more. I know, the longer duration right when they
Speaker 1: that's tough, that's tough. It just it reminds me so
Speaker 1: much of the student loan conversation. Right now, Paige, your
Speaker 1: headline is car debt piling up, with more buyers ten
Speaker 1: thousand dollars underwater on loans. I know it's hard to
Speaker 1: put a number on it. But six months from now,
Speaker 1: a year from now, how big do we know that
Speaker 1: number could get? And how big is the shoe going
Speaker 1: to be that drops on this? Gosh, I am scared
Speaker 1: to put a sort of number on that right now,
Speaker 1: but I will just reiterate that this is definitely on
Speaker 1: the radar of auto industry folks. Dealers are watching this
Speaker 1: really closely. The CFPB is watching this really closely. You know,
Speaker 1: like I said, the average trade in for trade ins
Speaker 1: with negative equity, that average is around fifty five hundred
Speaker 1: right now. But as I said, the dealers we're seeing,
Speaker 1: you know, folks come onto their lots with as much
Speaker 1: as ten thousand dollars negative equity, So we could see
Speaker 1: it expand hopefully it maybe doesn't or maybe not hopefully,
Speaker 1: but yeah, we are. It's sort of a wait and
Speaker 1: see game, I would. I would say at this point, yeah,
Speaker 1: and you do wonder like if you need a car,
Speaker 1: you need a car, or can you put it or
Speaker 1: can you put it off and say I'm just going
Speaker 1: to live with the older car or whatever and just
Speaker 1: deal with it and just kind of hopefully write it out.
Speaker 1: I'm blown away by the average new car interest rate
Speaker 1: six point nine percent in January four point three percent
Speaker 1: year earlier. I think the cars that I've bought over
Speaker 1: the last ten twenty years, it was like no no
Speaker 1: interest rate. Yeah, kind of giving you the car away.
Speaker 1: It felt like, Paige, thank you so much, really appreciate it.
Speaker 1: Page Smith, consumer finance reporter at Bloomberg News. There in
Speaker 1: our nine to nine one studio in Washington to see.
Speaker 1: But it's just another reminder, Mattie that that low rate
Speaker 1: environment that was the unusual era, that's not normal. And
Speaker 1: so this is that reset we're seeing as we come
Speaker 1: off of that, you know, very inexpensive, cheap, no cost
Speaker 1: money that was with us for so long. Yeah, it
Speaker 1: feels like people really got used to that idea of
Speaker 1: every two years, I can get a new car, and
Speaker 1: now that is just absolutely not the case anymore for
Speaker 1: a lot of folks. Right, you're getting hit on both ends. Right,
Speaker 1: the cost of cars have gone up and then rates
Speaker 1: and the rates are higher as well. You're listening to
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Speaker 1: Well Brier j down on Bloomberg Radio. All right, folks,
Speaker 1: just about seventeen minutes left in today's trading session, first
Speaker 1: trading session in the month of March. Stocks bouncing around here.
Speaker 1: But we've been talking about it, Mattie all day. Really key.
Speaker 1: We got it early this morning. We had that ten
Speaker 1: year hitting four percent. So watching that treasury trade, it's
Speaker 1: really critical to watch that, and we are going to
Speaker 1: get to that and all of the macro headwinds facing
Speaker 1: us with Leo Kelly, founder and CEO at Verden's Capital Advisors,
Speaker 1: back with us in our Bloomberg Interactive Broker's studio. Leo,
Speaker 1: great to meet you for the first time and great
Speaker 1: to have you here with us. What's what's the vibe
Speaker 1: right now? Are you on a vibe session thought? Are
Speaker 1: you on a soft landing thought? What are you thinking?
Speaker 1: Not on a soft landing thought? I think the market
Speaker 1: has I'm on an unrealistic expectations vibe. I think what
Speaker 1: we're seeing in the marketplace is there's a lot of
Speaker 1: wishful thinking. There's there's folks that just wanted to go
Speaker 1: back to the way it was right, And that's natural
Speaker 1: with investors. They just wanted to be good again, and
Speaker 1: they close their eyes and they hope and pray. Do
Speaker 1: you tell them that markets don't always go up, they
Speaker 1: don't always make money in the market, and you have
Speaker 1: to define the market right. Everybody wants the growth market
Speaker 1: to return, and they want low interest rates. I think
Speaker 1: people have to get their head around the fact that
Speaker 1: we're in the midst of a secular change, a multidecade
Speaker 1: change that is going to change the markets, and so
Speaker 1: I think inflation is higher for longer than people expect
Speaker 1: interest rates will be going up. By the way, the
Speaker 1: last secular interest rate move was forty years. The one
Speaker 1: before that forty years. These are not short in nature.
Speaker 1: So I think we have to start rethinking how we
Speaker 1: look at markets. What's the reason for this thought for
Speaker 1: you in terms of what happens with inflation staying higher
Speaker 1: for longer? Yeah, that one's easy. So in the last
Speaker 1: ten fifteen years, probably since I've been coming on the show,
Speaker 1: the federal reserves bounce. She It's gone from four hundred
Speaker 1: billion eight trillion. We spent two trillion in fiscal spending
Speaker 1: in the financial crisis. We spent five trillion in COVID.
Speaker 1: We grew M two money supply forty percent in two years.
Speaker 1: There's just so much money. And by the way, that's
Speaker 1: just the US. Every other country in the world did
Speaker 1: it alongside of us. So there's just so much capital
Speaker 1: in the system that fundamentally, I just don't see how
Speaker 1: people think inflations are going to go back to two.
Speaker 1: It's gonna be a low interest rate environment. We start
Speaker 1: to reduce money supply, and everybody's excited that m to
Speaker 1: flatten this year, right, We're not. We're not even going
Speaker 1: back down yet. One thing I want to ask you
Speaker 1: is is also the reasons inflation will stay higher for
Speaker 1: longer or maybe it's just a new higher level forever
Speaker 1: because things are changing in terms of demographics, aging populations.
Speaker 1: We're talking about the regulatory environment as we moved towards
Speaker 1: a greener world, you know, the pushback on globalization. We
Speaker 1: had a guests and we've had several guests over the
Speaker 1: last few weeks, you know, just talking about Yeah, things
Speaker 1: are changing. We talked about with their Mark German about Apple,
Speaker 1: you know, suppliers they're moving out of China. There are
Speaker 1: some really dramatic shifts also going out beyond the amount
Speaker 1: of money that's been slashing around in the global economy
Speaker 1: one percent, so thematically one of the things that we're
Speaker 1: talking about, and it's good news for the recovery of economy.
Speaker 1: On the back side of all of this is not
Speaker 1: just not just rebuilding the supply chain, but reimagining the
Speaker 1: supply chain. Right, There's going to be a lot of
Speaker 1: economic activity around that. But again, the deglobalization is deflationary.
Speaker 1: I think the question should be asking yourself, is the
Speaker 1: anomaly that inflation is going to be higher going forward?
Speaker 1: Or did we just have the anomaly really right? I
Speaker 1: think the anomaly was below average inflation, below average volatility.
Speaker 1: A FED who had a third mandate of protecting asset
Speaker 1: prices at all costs. That's not how it's been historically.
Speaker 1: I think we are leaving a moment, not going into
Speaker 1: a moment. Agreed. Agreed that the low rate environment, the
Speaker 1: zero the negative rates that folks was abnormal. We had
Speaker 1: not historically what we've seen. We had eighteen trillion dollars
Speaker 1: of negative yielding debt at its peak. Yeah, today we
Speaker 1: have zero. I guess I wonder about unbelievable. Unbelievable, it's crazy. Yeah,
Speaker 1: it's crazy. But I wonder about the stimulus piece. You
Speaker 1: were talking about the amount of money spent during COVID,
Speaker 1: But that was two years ago when Biden had this
Speaker 1: stimulus package and people got that extra cash in the bank.
Speaker 1: Why aren't we feeling the consumer or pain a little
Speaker 1: bit more right now and seeing spending drop a little
Speaker 1: bit more. Yeah, it's there's a couple of reasons. One,
Speaker 1: some of this fiscal is still in the system. So,
Speaker 1: for example, the student debt relief is just now getting
Speaker 1: to the Supreme Court, and the deferral payments are gonna
Speaker 1: hit now, and so that pain won't be felt until
Speaker 1: probably this summer or this fall. So there's a lot
Speaker 1: of deferral of a lot of these programs. We also
Speaker 1: have to look at the job market. The job market's
Speaker 1: very tight. There's a mismatch of skill versus job opening.
Speaker 1: There's more openings than there are people looking for work.
Speaker 1: And so I think if there is a good side,
Speaker 1: there is a good side. And one of the positives
Speaker 1: of what's happening right now is corporate America for the
Speaker 1: first time as long as I can remember, came out
Speaker 1: of this and they were smart about it. Their balance
Speaker 1: sheets are in better position, banks aren't overleveraged. The consumer
Speaker 1: is still reasonably strong. Although credit card debts rising right
Speaker 1: delinquencies are starting rises is a normal stuff in economic
Speaker 1: tough times, but they're stronger than they've ever been at
Speaker 1: this moment. Okay, So, so there's some underlying strength. However,
Speaker 1: the FED has more work to do, and the FED
Speaker 1: will get what it wants. It always does. Well, what's
Speaker 1: interesting and having to that point, you know, we had
Speaker 1: a crypto collapse, we have had some other things kind
Speaker 1: of pick away if you will, And yet here we
Speaker 1: are and the system is working, and the markets are working,
Speaker 1: and we've seen liquidity. Having said that, though, just to
Speaker 1: put it to end, because we only have about thirty seconds,
Speaker 1: you are in a large cash position right now. Yes,
Speaker 1: how large? Can you give us a little skyes well,
Speaker 1: so for every client is different, but think about it
Speaker 1: this way. We're about three to four times are normal
Speaker 1: cash holding. It's nice that cash is no longer a
Speaker 1: cement blockchain to our ankle. You know, in the water,
Speaker 1: we're actually getting a yield, so it's helping us. But
Speaker 1: I think people have to be aware volatility is back.
Speaker 1: It's going to be part of the game, and so
Speaker 1: having cash around on a regular basis is a good
Speaker 1: thing so that you can take advantage when these Vottle moments, pa,
Speaker 1: because you will put it to work at some point.
Speaker 1: We will put it to work when the valuations are attractive.
Speaker 1: All right, gotta run, so good to have you in studio.
Speaker 1: Great to be here. Thanks for having me. Appreciate it,
Speaker 1: Love it. Leo Kelly, founder and CEO Vernon's Capital Advisers.
Speaker 1: Here on our Bloomberg Interact and Broker studio. This is
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