WEBVTT - Bridgewater Exits Dalio Era With Revamp 0:00:01.280 --> 0:00:05.640 This is Bloomberg business Week Inside from the reporters and 0:00:05.840 --> 0:00:09.400 editors who bring you America's most trusted business magazine, plus 0:00:09.480 --> 0:00:13.640 global business, finance and tech news. The Bloomberg Business Week 0:00:13.680 --> 0:00:20.880 Podcast with Carol Masser and Tim Stenebec from Bloomberg Radio. Well, 0:00:20.920 --> 0:00:23.280 we know the financial world continues to evolve. In one 0:00:23.320 --> 0:00:25.479 thing we have seen over the last couple of years 0:00:25.560 --> 0:00:27.880 is a string of iconic firms run by their iconic 0:00:27.960 --> 0:00:31.640 founders figuring out succession plans and the way forward. Among 0:00:31.680 --> 0:00:35.120 those firms, Bridgewater, whose billionaire founder Ray Dalio handed off 0:00:35.159 --> 0:00:38.080 control five months ago in a Bloomberg exclusive and the 0:00:38.120 --> 0:00:41.040 most read story on the Bloomberg Today. Bloomberg News Editor 0:00:41.080 --> 0:00:44.840 at Large and New Economy Editorial Director Eric Shatzker joining 0:00:44.880 --> 0:00:47.400 us on the major revamp of the world's largest hedge fund. 0:00:47.440 --> 0:00:50.440 He joins us in our Bloomberg Interactive Broker Studio. First 0:00:50.479 --> 0:00:53.800 of all, great story, great reporting. This is someone you know, Well, 0:00:54.800 --> 0:00:58.880 just remind you you've had many conversations kind of put 0:00:58.960 --> 0:01:02.040 Ray Dalio in in kind of his place when it 0:01:02.080 --> 0:01:08.279 comes to the financial community and something. Ray is a 0:01:08.319 --> 0:01:13.960 hedge fund investing legend, an call master of the universe, 0:01:14.400 --> 0:01:17.800 in Wall Street terms. He built the world's largest hedge 0:01:17.800 --> 0:01:23.400 funded Bridgewater Associates and amassed more money in hedge fund 0:01:23.480 --> 0:01:27.920 strategies than anybody ever had and anybody ever has to date. 0:01:28.440 --> 0:01:30.760 At its peak, Bridgewater had more than one hundred and 0:01:30.760 --> 0:01:34.080 fifty billion dollars under management. And one of the important 0:01:34.080 --> 0:01:38.760 things undercurrents to the story is that in the course 0:01:39.400 --> 0:01:43.600 of amassing all those assets, Bridgewater under Ray's leadership, kind 0:01:43.600 --> 0:01:48.760 of defied gravity because the conventional wisdom in hedge funds 0:01:48.920 --> 0:01:55.320 is that each strategy has a natural size cap to it. 0:01:55.680 --> 0:01:58.320 There are only so many opportunities that any one firm 0:01:58.440 --> 0:02:01.880 can harvest, so if you try to run too much money, 0:02:01.880 --> 0:02:06.120 you're going to erode your returns. Now, this didn't this 0:02:06.200 --> 0:02:08.959 law didn't seem to apply to Bridgewater for a long time, 0:02:09.000 --> 0:02:11.800 and then in the twenty tens they had a prolonged 0:02:11.840 --> 0:02:15.239 period of underperformance and really had to take a hard 0:02:15.280 --> 0:02:19.400 look at themselves in the mirror and ask what was wrong? 0:02:19.440 --> 0:02:23.200 What's what are we not doing right? They started to 0:02:23.200 --> 0:02:26.320 take some steps to reconcile or resolve those issues while 0:02:26.360 --> 0:02:28.960 Ray was still there a couple of years ago. But 0:02:29.040 --> 0:02:32.040 now that he's gone, the new generation of leadership has 0:02:32.080 --> 0:02:35.160 the freedom to go much further and they are and 0:02:35.280 --> 0:02:38.000 how is that going for them? Well, it's early days 0:02:38.080 --> 0:02:40.560 yet this was just announced today. In fact, some people 0:02:40.560 --> 0:02:46.320 at Bridgewater would say, thank goodness, were actually starting. There 0:02:46.760 --> 0:02:49.080 was a sense inside the firm that while Ray was 0:02:49.160 --> 0:02:54.480 still the boss and the controlling shareholder, some of these 0:02:54.560 --> 0:02:58.040 changes were difficult to implement. I'm not sure I would 0:02:58.200 --> 0:03:00.560 quite go so far as to say he was resistant 0:03:00.560 --> 0:03:04.160 to them. But now you have younger people running the 0:03:04.200 --> 0:03:06.520 firm who have ideas of their own and who want 0:03:06.560 --> 0:03:09.440 to implement them. So it will take some time to 0:03:09.440 --> 0:03:14.480 see if this idea of capping their flagship hedge fund 0:03:14.520 --> 0:03:18.800 strategy pure Alpha will help to deliver better returns in 0:03:18.840 --> 0:03:22.200 that strategy. What it will mean practically is the clients 0:03:22.240 --> 0:03:25.400 who want more Pure Alpha or who aren't in that 0:03:25.480 --> 0:03:28.560 strategy and want access to it may not get it, 0:03:29.160 --> 0:03:32.160 And institutional clients are going to have to be competing 0:03:32.200 --> 0:03:34.560 for that more so than they have been. That's right, 0:03:34.560 --> 0:03:37.840 There's always been a ceiling, but now the ceiling is 0:03:37.920 --> 0:03:40.880 much lower on how much they're willing to manage. The 0:03:40.920 --> 0:03:43.880 maximum at one point was about one hundred billion dollars 0:03:44.240 --> 0:03:46.200 and it's going to be twenty to thirty percent less 0:03:46.200 --> 0:03:51.720 than that going forward, So more money into talent in AI, 0:03:52.000 --> 0:03:54.680 machine learning, expanding an age. Yeah, this is the flip 0:03:54.720 --> 0:03:56.160 side of the coin. Talk to us a little bit 0:03:56.200 --> 0:03:58.400 about these strategies and what strikes you the most in 0:03:58.480 --> 0:04:01.280 terms of what this means for going forward. And it's 0:04:01.320 --> 0:04:06.279 new CEO. As they cap the opportunity set in pure Alpha, 0:04:06.400 --> 0:04:08.800 they're cutting some jobs. They no longer need as many 0:04:08.800 --> 0:04:12.839 people to support that strategy, and they're reallocating those resources 0:04:12.920 --> 0:04:17.640 to these new initiatives. One of those initiatives is growing 0:04:17.640 --> 0:04:22.880 the firm's international footprint in Asia in particular. Another is 0:04:23.720 --> 0:04:27.680 building out their equities business. A third is sustainability, and 0:04:27.720 --> 0:04:31.560 a fourth, as you mentioned, is AI and machine learning. Bridgewater, 0:04:31.640 --> 0:04:34.880 like many firms in the hedge fund industry, has been 0:04:35.279 --> 0:04:39.039 experimenting with AI and machine learning for quite some time. 0:04:40.680 --> 0:04:44.039 To date, nobody has really figured out a way to 0:04:44.279 --> 0:04:48.640 master those technologies in a way in a manner let's 0:04:48.640 --> 0:04:54.560 say that truly supersedes human decision making. That's the dream 0:04:54.600 --> 0:04:56.440 that you'll be able to program a machine and the 0:04:56.440 --> 0:04:58.600 machine will be able to do will be able to 0:04:58.640 --> 0:05:02.200 invest better than the human right. It hasn't happened yet. 0:05:02.680 --> 0:05:06.600 And what this tells you is that Bridgewater, by putting 0:05:06.600 --> 0:05:10.080 this effort underneath one of the co chief investment officers, 0:05:10.279 --> 0:05:14.320 Greg Jensen, is really getting serious about trying to reach 0:05:14.960 --> 0:05:18.880 that holy grail, let's call it. We'll find that holy grail. 0:05:19.080 --> 0:05:22.160 It feels like they're kind of investing in the ideas 0:05:22.200 --> 0:05:25.320 of that younger cohort of investors. Is that how you 0:05:25.320 --> 0:05:28.640 would describe it. I think the younger people who are 0:05:28.680 --> 0:05:30.839 now running the firm in their thirties and forties, for 0:05:30.880 --> 0:05:34.480 the most part, recognize that this is the future and 0:05:34.560 --> 0:05:36.520 that they need to chase the future as hard as 0:05:36.560 --> 0:05:38.800 possible if they want to get there first. One of 0:05:38.839 --> 0:05:43.400 the things to keep in mind about technologies like generative 0:05:43.440 --> 0:05:46.799 AI right, or quantum computing, which is around the corner 0:05:46.839 --> 0:05:51.279 but not quite here yet, is that it might be 0:05:51.360 --> 0:05:54.080 winner take all. If you get there first, you open 0:05:54.200 --> 0:05:57.040 up such a lead over your competition that they may 0:05:57.080 --> 0:06:00.960 never catch up. Yeah, it's kind of fascinating about, you know, 0:06:01.040 --> 0:06:04.920 Ray Dalio Bridgewater for the It's interesting Bridgewater has written 0:06:04.920 --> 0:06:07.279 about this to its clients and they call those types 0:06:07.279 --> 0:06:11.120 of technologies force multiplier technologies. We'll think about it right 0:06:11.160 --> 0:06:12.600 if they get it right, and you can think about 0:06:12.600 --> 0:06:15.040 the returns that could be potentially off of that. Hey, listen, 0:06:15.080 --> 0:06:17.200 got about a minute left. I think about Ray Dalio, 0:06:17.320 --> 0:06:20.000 and I do think about for many years his outperformance 0:06:20.000 --> 0:06:23.240 and how well he did under with Bridgewater. But he 0:06:23.279 --> 0:06:26.440 also talked about society at large. Is that still a 0:06:26.480 --> 0:06:32.279 part of the fabric at Bridgewater. Ray cared about society. 0:06:31.839 --> 0:06:36.320 His concern for society and his concern that we are 0:06:36.360 --> 0:06:38.320 able to get along with one another and we don't 0:06:38.440 --> 0:06:44.839 devolve into you know, partisan bickering and the potentially terrible 0:06:44.880 --> 0:06:49.240 consequences that could come out of it were unique to 0:06:49.320 --> 0:06:52.080 Ray himself his point of view, But the people who 0:06:52.160 --> 0:06:55.840 run Bridgewater now have their own ethos. What they did 0:06:55.880 --> 0:06:58.200 say what near Bardo, the new CEO said to me 0:06:58.320 --> 0:07:01.600 is for us, it's not ideologue goal. We are where 0:07:01.600 --> 0:07:04.159 we need to be. For example, we're in China because 0:07:04.200 --> 0:07:06.599 we our clients want us to be there, and we'll 0:07:06.640 --> 0:07:09.159 be there so long as we can. But it's not 0:07:09.200 --> 0:07:12.400 about ideology. I love to and we're running out of time. 0:07:12.440 --> 0:07:15.560 But this whole idea of his contribution, what he calls 0:07:15.560 --> 0:07:17.840 a flywheel and that's an all idea of like chasing 0:07:17.840 --> 0:07:19.880 new talent, right new ideas. That's right, and it will 0:07:19.880 --> 0:07:23.120 become this virtuous circle. So don't kill me. But it 0:07:23.160 --> 0:07:27.680 almost sounds a little Kathy woodlike, Oh, I don't think 0:07:27.680 --> 0:07:32.240 they craved that comparison warmly and a little bit okay, okay, good, Yeah. 0:07:32.800 --> 0:07:34.840 I just feel like maybe the young people are getting there. 0:07:34.840 --> 0:07:37.640 I don't know. Um. Great story again, thank you, Carol, 0:07:37.680 --> 0:07:39.240 and it is most read on the Bloomberg in the 0:07:39.280 --> 0:07:42.040 past eight hours. Eric Shatzker Editor at Large. He's editorial 0:07:42.080 --> 0:07:44.840 director for Bloomberg New Economy, joining us in studio. Check 0:07:44.840 --> 0:07:46.760 it out at Bloomberg dot com and of course on 0:07:46.800 --> 0:07:49.760 the Bloomberg terminal. You are listening and watching Bloomberg Radio. 0:07:50.560 --> 0:07:53.960 You're listening to the Bloomberg Business Week podcast Cat just 0:07:54.160 --> 0:07:56.800 Live week days from two to five pm Easter on 0:07:56.920 --> 0:08:00.640 Bloomberg Radio, the Bloomberg Business a band you. You can 0:08:00.680 --> 0:08:03.960 also listen live to our flagship New York station, Just 0:08:04.080 --> 0:08:09.800 Say Alexa, play Bloomberg Eleve and Dirty. You know, we've 0:08:09.800 --> 0:08:12.160 talked a lot about the one year anniversary of that 0:08:12.240 --> 0:08:14.920 Russian invasion of Ukraine, and Carol, I did not know 0:08:15.000 --> 0:08:18.600 about this until reading this story. But President Vladimir Putin 0:08:18.600 --> 0:08:21.760 he begins the war. A network used throughout Europe, including 0:08:21.800 --> 0:08:25.960 by the Ukrainian military, then faced an unprecedented cyber attack, 0:08:26.000 --> 0:08:28.240 and it's one that everyone is finally talking about. Yeah. 0:08:28.240 --> 0:08:29.920 I feel like it went from no one to everyone, 0:08:29.960 --> 0:08:31.800 and they should be. The story is coming up in 0:08:31.840 --> 0:08:35.000 the new issue of Bloomberg BusinessWeek on newsstands tomorrow, already 0:08:35.000 --> 0:08:37.720 online at Bloomberg dot com, slash business Week, and of 0:08:37.760 --> 0:08:40.040 course on the Bloomberg Let's get to it with Bloomberg 0:08:40.120 --> 0:08:43.120 News Cyber and Emerging tech reporter Katrina Manson. She joins 0:08:43.160 --> 0:08:45.520 us via zoom in New York City, and of course 0:08:45.520 --> 0:08:47.559 you've got the editor of Bloomberg Business Week, Del Webber 0:08:47.760 --> 0:08:51.120 right here in our Bloomberg Interactive broker's studio. So tell 0:08:51.200 --> 0:08:57.920 us about this hack in my ongoing propaganda for rto messaging. 0:08:59.000 --> 0:09:03.280 Katrina and I found ourselves in the Washington DC bureau 0:09:03.480 --> 0:09:05.720 and Katrina was like, have you heard of this company Vias? 0:09:05.880 --> 0:09:07.080 And I was like, what are you talking about? She 0:09:07.120 --> 0:09:09.040 was like a satellite company. I was like, I don't 0:09:09.120 --> 0:09:11.640 know anything you're talking about. And it turns out that 0:09:11.679 --> 0:09:15.040 there was a hack at the beginning of the Russian invasion, 0:09:15.600 --> 0:09:20.720 and no one initially attributed that to Russia, but as 0:09:20.840 --> 0:09:25.400 the weeks passed and Western governments, you know, finally got 0:09:25.400 --> 0:09:28.800 around to pointing a finger, they pointed that figure a 0:09:28.800 --> 0:09:32.000 finger out Russia, which obviously Russia says that we're innocent. 0:09:33.360 --> 0:09:36.600 But what it really revealed was something that I thought 0:09:36.720 --> 0:09:39.160 was worthy of further exploration. And Katrina did a great 0:09:39.200 --> 0:09:41.880 job on this, and it turns out satellites are really 0:09:42.440 --> 0:09:45.440 unsecure and that is a little frightening when you think 0:09:45.480 --> 0:09:49.200 about the amount of data that is sent there um 0:09:49.400 --> 0:09:52.400 and and so this via st hack that you read 0:09:52.400 --> 0:09:55.640 about Katrina tell us why it ended up being a 0:09:55.800 --> 0:10:00.240 much overdue wake up call for the satellite industry. When 0:10:00.280 --> 0:10:03.920 I think trapping it down was so fascinating. Reports came 0:10:03.920 --> 0:10:05.960 out in drifts and drabs. There were other journalists who 0:10:06.040 --> 0:10:08.679 are very obsessed with this issue, who were of course 0:10:08.720 --> 0:10:10.960 covering it, but it was very hard to put together 0:10:11.000 --> 0:10:16.240 the overall picture, and some cybersecurity researchers did incredible work 0:10:16.440 --> 0:10:19.360 really trying to encourage the company to talk about this 0:10:19.440 --> 0:10:23.920 in public. When I say cybersecurity researchers, I mean hackers 0:10:24.080 --> 0:10:27.520 they have been trying to hack space for a decade 0:10:27.840 --> 0:10:31.640 plus for white hat reasons. That's classically known as for 0:10:31.760 --> 0:10:34.760 good to share their information so other people improve. But 0:10:34.800 --> 0:10:36.599 it's a really sensitive area. And so one of the 0:10:36.720 --> 0:10:39.719 main people I spoke to for the story, Ruben Santa Marta, 0:10:39.800 --> 0:10:43.239 he's been warning since twenty fourteen that space is insecure. 0:10:43.360 --> 0:10:46.240 And he said to me that page ten and eleven 0:10:46.280 --> 0:10:48.680 of one of these very esenteric papers that he'd written 0:10:49.000 --> 0:10:52.680 actually essentially predicted exactly what happened to the Ukrainian military, 0:10:53.160 --> 0:10:57.040 which relies on commercial satellite in remote places to get 0:10:57.040 --> 0:10:59.640 their Internet connections. That's essentially how they want to link 0:11:00.040 --> 0:11:05.440 frontline troops, to command control, to control drones, all the 0:11:05.480 --> 0:11:07.360 things that you would need to respond to a very 0:11:07.480 --> 0:11:10.520 swift or what was intended to be a very swift 0:11:10.960 --> 0:11:14.880 lightning invasion by the Russians. So the stakes were incredibly high, 0:11:14.920 --> 0:11:17.240 and it came down to a lot of researchers who've 0:11:17.520 --> 0:11:20.240 been climbing the bell for this for so many years. 0:11:20.320 --> 0:11:23.240 Another one I spoke to, called James Parville for the story. 0:11:23.679 --> 0:11:29.000 He intercepted satellite data transmissions that's from the satellite down 0:11:29.000 --> 0:11:32.440 to in this case ships that were relying on satellite connections, 0:11:32.600 --> 0:11:35.720 and he got hold of the crew manifests passport details, 0:11:36.040 --> 0:11:39.600 credit card details. It is extraordinary how much out there 0:11:39.600 --> 0:11:42.079 in space is not encrypted and how easy it is 0:11:42.120 --> 0:11:43.520 to get hold of it. I see, And I was 0:11:43.559 --> 0:11:45.320 so hoping she was going to talk about Captain Midnight. 0:11:45.320 --> 0:11:47.640 But we'll get to that later. I mean, we have to, 0:11:48.040 --> 0:11:50.240 we have to. I mean, I wonder if you can 0:11:50.240 --> 0:11:52.920 talk a little bit about the US intelligence on this. 0:11:53.080 --> 0:11:55.480 The US looks into it gleans that the Russians were 0:11:55.480 --> 0:11:59.160 prepared to take significant diplomatic and strategic risks, which feels 0:11:59.160 --> 0:12:01.600 like something that you could have told us before the 0:12:01.679 --> 0:12:04.800 US intelligence looked into that, Katrina. But I wonder if 0:12:04.840 --> 0:12:07.800 you can talk about how much the US knows as 0:12:07.840 --> 0:12:11.040 we stand today, and maybe the extent to which we 0:12:11.080 --> 0:12:13.840 don't know. Well, I can tell you what I know, 0:12:14.440 --> 0:12:16.920 which is definitely not everything. But I think the US 0:12:17.400 --> 0:12:20.120 worked very quickly within about four weeks to work out 0:12:20.160 --> 0:12:22.760 that they thought it was the gru that's responsible. That's 0:12:23.040 --> 0:12:27.480 Russian military intelligence. They have alleged we done lots of hacking, 0:12:27.520 --> 0:12:30.000 according to the US in the past. And what was 0:12:30.040 --> 0:12:34.360 interesting about that was that it was coordinated with the invasion. Now, 0:12:34.880 --> 0:12:38.280 once they established that, they then spent six weeks trying 0:12:38.320 --> 0:12:40.480 to convince the Europeans that they were right. And I 0:12:40.480 --> 0:12:42.959 think it has interesting echoes for the rest of how 0:12:43.000 --> 0:12:45.800 the US approached the Ukraine invasion, which was to flag 0:12:45.880 --> 0:12:48.120 early on to the Europeans, look, this is going to happen. 0:12:48.240 --> 0:12:50.760 We have the intel, and the Europeans, namely the French 0:12:50.800 --> 0:12:54.280 and German, said no, we don't think so. And in 0:12:54.320 --> 0:12:56.640 the case of the satellite hacked, the US actually went 0:12:56.679 --> 0:13:00.800 above and beyond and shared additional intel. I'm told European 0:13:00.800 --> 0:13:03.679 official with the French and the Germans to try and 0:13:03.679 --> 0:13:07.240 convince them not only that this had happened, but that 0:13:07.400 --> 0:13:11.240 it was really important to blame Russia in public, and 0:13:11.280 --> 0:13:15.080 that's something countries simply don't usually do well. As you say, 0:13:15.120 --> 0:13:17.120 at the end of the story, you have a quote 0:13:17.160 --> 0:13:20.000 from a source who says it is super super repeatable. 0:13:21.160 --> 0:13:23.240 So that's that's distressing. I was going to say, the 0:13:23.240 --> 0:13:27.480 good news is that this will never happen again. I 0:13:27.600 --> 0:13:30.559 may well be invited back, I'm sorry to say so. 0:13:30.840 --> 0:13:33.480 So walk us through what has to happen in order 0:13:33.520 --> 0:13:37.559 for this to not happen again, I think at the 0:13:37.600 --> 0:13:40.160 most extreme, and some groups in the US are calling 0:13:40.200 --> 0:13:44.800 to make space systems um a critical infrastructure sector. I mean, 0:13:44.800 --> 0:13:47.160 that is terrible job and I'm sorry to even introduce it, 0:13:47.280 --> 0:13:50.720 but it's essentially to say, give this sector way more 0:13:51.400 --> 0:13:57.360 UM prominence, government support, and essentially potentially regulation. That's something 0:13:57.360 --> 0:14:00.360 sallite companies mostly don't want, and I think the US 0:14:00.400 --> 0:14:02.920 government isn't going to do that. We've got quite Congress 0:14:02.920 --> 0:14:04.720 to step in. It's part of a five year review. 0:14:04.760 --> 0:14:06.319 I mean, it's just going to get sucked into all 0:14:06.320 --> 0:14:10.600 sorts of bog down into stuff. But the easiest thing 0:14:10.640 --> 0:14:12.800 to do is to set standards. And that's actually what 0:14:12.840 --> 0:14:15.920 the source who said this is super super repeatable it's doing. 0:14:16.200 --> 0:14:19.200 He wants international countries to agree, well, how do we 0:14:19.320 --> 0:14:21.640 run our satellite systems? What do we do with the 0:14:21.680 --> 0:14:24.480 satellite up in space? How do we control the link, 0:14:24.840 --> 0:14:27.120 what goes into the ground network. And as you have 0:14:27.320 --> 0:14:30.000 more and more satellites going up into space, I mean, 0:14:30.040 --> 0:14:33.960 the numbers are can I think, what do these numbers 0:14:33.960 --> 0:14:37.040 look like? Yeah, I mean it's from about five thousand 0:14:37.160 --> 0:14:40.840 active satellites in orbit at the moment to within the 0:14:40.880 --> 0:14:43.760 next seven years, but my end predictions are one hundred thousand. 0:14:44.120 --> 0:14:47.160 That's because satellites are getting smaller, launch is getting easier. 0:14:47.280 --> 0:14:51.560 Everyone's into this new low or low Earth orbit, which 0:14:51.600 --> 0:14:54.160 is much closer, so easier to get to. The satellite 0:14:54.160 --> 0:14:57.240 that got hacked was a geostationary satellite way higher, so 0:14:57.240 --> 0:14:59.440 you're going to see way more satellites in which means 0:14:59.440 --> 0:15:01.560 that if one gets hacked, there are others you can 0:15:01.600 --> 0:15:04.400 rely on. But I think what's key is establishing standards 0:15:04.400 --> 0:15:07.360 and working out what goes into that gloom and protecting 0:15:07.400 --> 0:15:10.800 ground networks. I mean, that's actually what the entry was 0:15:10.960 --> 0:15:15.560 in this hack. And there are really convoluted chains between 0:15:16.040 --> 0:15:19.240 the different operators of a satellite network, and it seems 0:15:19.240 --> 0:15:21.320 that the ball got dropped in that case there was 0:15:21.360 --> 0:15:24.640 a third party operator, right, that's whose speech then it 0:15:24.680 --> 0:15:26.280 went all the way to buy some It's our new 0:15:26.360 --> 0:15:28.560 kind of warfare, right, cyber warfare, And like you think 0:15:28.560 --> 0:15:31.200 about nuclear deterrance, like how we create that kind of 0:15:31.240 --> 0:15:35.480 deterrence when it comes to global satellites. Incredible story. Katrina Manson, 0:15:35.560 --> 0:15:38.400 cyber and Emerging tech reporter at Bloomberg News via zoom 0:15:38.440 --> 0:15:41.120 Joe Weber editor of Bloomberg BusinessWeek. This story in the 0:15:41.160 --> 0:15:47.720 new issue at Bloomberg BusinessWeek magazine. This is Bloomberg business 0:15:47.760 --> 0:15:50.960 Week Inside, from the reporters and editors who bring you 0:15:51.000 --> 0:15:55.400 America's most trusted business magazine, plus global business finance and 0:15:55.400 --> 0:15:59.720 tech news. The Bloomberg Business Week Podcast with Carol mesre 0:16:00.080 --> 0:16:07.360 and Tim Stenebec from Bloomberg Radio. Nowdy, we're going to 0:16:07.400 --> 0:16:09.040 get to another story that is among the most read 0:16:09.080 --> 0:16:11.960 on the Bloomberg and it's certainly something we've touched on before, 0:16:12.080 --> 0:16:16.320 and that is worrisome when it comes to looking at 0:16:16.360 --> 0:16:19.600 the consumer debt picture here in the United States. Yeah, Carol, 0:16:19.640 --> 0:16:22.240 we're talking about car debt and it is a huge 0:16:22.280 --> 0:16:25.800 problem piling up for a lot of consumers across the country. 0:16:25.960 --> 0:16:27.680 So here to tell us more about it and her 0:16:27.720 --> 0:16:30.840 reporting on this issue is Bloomberg News Consumer finance reporter 0:16:30.920 --> 0:16:33.720 Paige Smith from our Bloomberg ninety nine one studio in 0:16:33.880 --> 0:16:36.320 DC page. Thank you so much for being back with us. 0:16:36.840 --> 0:16:40.360 What's going on here with this just exponential car debt. 0:16:41.800 --> 0:16:44.480 Thanks for having me, folks. Nice to be back. So 0:16:45.040 --> 0:16:47.200 it is sort of a number of factors, I mean, 0:16:47.240 --> 0:16:50.280 when you consider there were sort of a lull during 0:16:50.280 --> 0:16:52.320 the pandemic. I mean, I don't know about you, but 0:16:52.400 --> 0:16:55.480 I heard of friends turning in their subarus and getting 0:16:55.520 --> 0:16:58.880 more back than they'd paid for them. But yes, that 0:17:00.000 --> 0:17:03.720 I'm not is gone now. And basically, you know, negative 0:17:03.760 --> 0:17:08.520 equity or essentially owing you know, the debt exceeding the 0:17:08.640 --> 0:17:12.280 value of your vehicle is not an uncommon occurrence. It's 0:17:12.400 --> 0:17:15.560 quite common in fact. But you know, we spoke with 0:17:15.640 --> 0:17:19.120 dealers who are seeing consumers come onto their lots with 0:17:19.720 --> 0:17:22.960 ten thousand dollars in negative equity or even more for 0:17:23.040 --> 0:17:25.480 that matter, So gone or the days when you could 0:17:25.480 --> 0:17:28.200 get more for your vehicle than you paid for it, 0:17:28.840 --> 0:17:31.960 and you know, factor in it. There are a number 0:17:32.000 --> 0:17:35.040 of other factors like high interest rates to consider now. 0:17:35.160 --> 0:17:38.000 So this is just it's a tough time for consumers, 0:17:38.000 --> 0:17:40.880 and for folks who have auto loans in particular, it's 0:17:40.880 --> 0:17:43.760 a really tough time, partially because of those high interest rates, 0:17:43.840 --> 0:17:46.360 but also in the story you mentioned that the initial 0:17:46.400 --> 0:17:48.840 cost of the car is already too high for a 0:17:48.880 --> 0:17:52.600 lot of people exactly, and when you think about it, 0:17:52.640 --> 0:17:54.879 so you have, you know, a car that might be 0:17:54.920 --> 0:17:57.960 fifty thousand or sixty thousand dollars and then you have 0:17:58.760 --> 0:18:02.240 in January, for example, the new car interest rate was 0:18:02.359 --> 0:18:05.520 six point nine percent and you have a loan for 0:18:05.720 --> 0:18:09.199 maybe seven years. That's a lot that you're paying. At 0:18:09.240 --> 0:18:12.600 the end of the day, we have you know, a 0:18:12.680 --> 0:18:16.200 number of consumers are paying more than a thousand dollars 0:18:16.280 --> 0:18:18.200 a month for their car. If you think about it, 0:18:18.760 --> 0:18:22.000 that's more than some people pay for rent every month. 0:18:22.080 --> 0:18:25.520 So it's just it's really expensive about their folks, you 0:18:25.520 --> 0:18:30.480 know what's really it's like heartbreaking. But you talk about 0:18:30.640 --> 0:18:35.280 negative equity, it's never good. But it's somewhat unusual or 0:18:35.320 --> 0:18:39.399 not among car owners. Right we see this. What's different 0:18:39.480 --> 0:18:41.159 right now page right is it just kind of a 0:18:41.240 --> 0:18:45.520 size and scope that we're seeing exactly. I mean, you 0:18:45.800 --> 0:18:49.000 have folks who were kind of you know, maybe wanting 0:18:49.040 --> 0:18:51.560 to buy a car. And if you have a car 0:18:51.640 --> 0:18:54.760 that lasted you through the pandemic, but now you're going 0:18:54.800 --> 0:18:58.600 to look for a new car. It's it's extremely expensive. 0:18:58.720 --> 0:19:03.040 And yes, the terms or longer interest rates are higher. 0:19:03.080 --> 0:19:06.919 Now you're seeing, you know, severely the rate of severely 0:19:07.040 --> 0:19:11.200 delinquent loans hit the highest level since two thousand and six. 0:19:11.440 --> 0:19:13.840 I mean, it's just a lot to think about as 0:19:13.840 --> 0:19:17.560 a consumer, and it's it's overall really expensive, and they're 0:19:17.600 --> 0:19:23.520 also struggling to get any type of refinancing right exactly exactly, 0:19:24.000 --> 0:19:27.760 I would say that, you know, folks, we've already seen 0:19:27.960 --> 0:19:31.040 lenders kind of tighten their standards. So you know, if 0:19:31.080 --> 0:19:33.240 you want to go out and get any sort of 0:19:33.240 --> 0:19:35.199 an auto loan, it might be harder for you to 0:19:35.240 --> 0:19:39.080 do so these days, you know. I wonder, you know 0:19:39.160 --> 0:19:42.400 makes me think about different things that have come before 0:19:42.640 --> 0:19:46.280 regulators in the past, whether it's student loans and the 0:19:46.280 --> 0:19:49.600 amount of death there and how that has become problematic 0:19:49.600 --> 0:19:52.120 for so many to manage, especially as we look right 0:19:52.160 --> 0:19:56.800 now right Supreme Court considering up the President Biden's plans 0:19:56.800 --> 0:19:59.480 to forgive a lot of debt. So I do wonder 0:20:00.080 --> 0:20:02.399 can you can you tell us something more about how 0:20:02.440 --> 0:20:06.360 many of Americans are potentially in trouble or underwater at 0:20:06.359 --> 0:20:09.240 this point? Are we talking about forty percent of car loans? 0:20:09.240 --> 0:20:11.560 Do we? I'm just curiously we have any idea a 0:20:11.600 --> 0:20:13.920 little bit more into terms of how big a problem 0:20:14.000 --> 0:20:17.000 is could potentially be. I don't have that data right 0:20:17.080 --> 0:20:18.760 off the top of my head, but I know that 0:20:19.280 --> 0:20:24.879 almost sixteen percent of of some of almost sixteen percent 0:20:24.920 --> 0:20:29.960 of consumers surveyed in a recent poll, we're paying more 0:20:30.000 --> 0:20:32.680 than a thousand dollars a month on their on their 0:20:32.680 --> 0:20:37.879 car payments. And I think that for the average for 0:20:37.960 --> 0:20:42.320 the number of trade ins that had negative equity associated 0:20:42.359 --> 0:20:45.119 with them, it was reaching like an average of fifty 0:20:45.160 --> 0:20:48.600 five hundred dollars. So you know, it's like rolling that 0:20:48.800 --> 0:20:51.760 some from one vehicle over into the next. And then 0:20:51.760 --> 0:20:54.760 we're hearing about folks who might even roll that dead 0:20:54.800 --> 0:20:58.800 into a third vehicle. So to speak to regulators too, 0:20:58.840 --> 0:21:01.359 you hinted at that sin is definitely on the radar 0:21:01.520 --> 0:21:05.520 of the Consumer Fight Financial Protection Bureau. They're collecting data 0:21:05.560 --> 0:21:09.320 on this and they're going to be watching closely, and 0:21:09.400 --> 0:21:13.440 so are we page that piece for the CFPB is 0:21:13.520 --> 0:21:15.520 kind of what I was thinking about because earlier today, 0:21:15.560 --> 0:21:17.919 I know you're on the clothes with Scarlett, and I 0:21:18.000 --> 0:21:20.719 was telling her that I see these hot takes on 0:21:20.760 --> 0:21:23.040 social media all the time of people saying that the 0:21:23.240 --> 0:21:25.640 car delinquencies are going to be the new housing crisis, 0:21:25.880 --> 0:21:28.200 and she was saying to me, well, usually you can 0:21:28.680 --> 0:21:31.920 kind of bet on people repaying their car payment more 0:21:33.640 --> 0:21:36.560 consistently than their house payment, because you need the car 0:21:36.560 --> 0:21:38.199 to get to work. And I know that some of 0:21:38.240 --> 0:21:40.760 your sources said that as well, that you know, if 0:21:40.800 --> 0:21:43.160 even if your car is more expensive than a house, 0:21:43.520 --> 0:21:45.920 to keep your job, which is your source of income, 0:21:45.960 --> 0:21:50.840 you've got to keep that car at play, definitely. And 0:21:51.160 --> 0:21:53.240 you know, I'm based in DC, you folks her in 0:21:53.240 --> 0:21:55.960 New York. It's it's easier for us to get on 0:21:56.200 --> 0:21:58.560 jump on a train, or jump on a bus. The 0:21:58.680 --> 0:22:01.840 vast majority of a marror kids don't have that opportunity. 0:22:01.880 --> 0:22:04.879 A car is extremely important to get from point A 0:22:04.960 --> 0:22:07.840 to point B, to buy groceries, to pick up your kids. 0:22:08.040 --> 0:22:11.960 And on top of that, this is you know, was 0:22:12.000 --> 0:22:16.359 a really awful saying. But during the you know, during 0:22:16.400 --> 0:22:19.320 the the financial crisis in two thousand and eight, there 0:22:19.320 --> 0:22:21.199 were even some folks saying that they could live in 0:22:21.240 --> 0:22:25.159 their car. And it's it's just these are sort of 0:22:25.200 --> 0:22:29.080 the struggles the consumers are facing and considering when these 0:22:29.119 --> 0:22:32.240