Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim
Speaker 1: Fox along with my co host Lisa A. Bramowitz. Each
Speaker 1: day we bring you the most important, noteworthy, and useful
Speaker 1: interviews for you and your money, whether you're at the
Speaker 1: grocery store or the trading floor. Find the Bloomberg P
Speaker 1: and L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com.
Speaker 1: Well as we've been reporting Commerce Secretary Wilbur Ross saying
Speaker 1: that the Trump administration will impose new duties on steel
Speaker 1: and aluminum imports from three key trading partners, the European Union, Canada,
Speaker 1: and Mexico. And here to tell us more about this
Speaker 1: is Joe Doe. He is our metals and mining reporter
Speaker 1: for Bloomberg News and you can follow him on Twitter
Speaker 1: at Joe Dough And that's d E a u X
Speaker 1: for dough. All right, Joe Doe? Why are we doing
Speaker 1: this to three entities that are ostensibly our allies? You know,
Speaker 1: I had a source yesterday on the phone tell me
Speaker 1: when we were gathering that this would likely happen. Say,
Speaker 1: it looks like the administration is finally having their welcome
Speaker 1: to Queen's moment. The only problem is a welcome to
Speaker 1: Queen's moment only works in real estate and not in
Speaker 1: global trade? What is a welcome to Queen's moment? Essentially
Speaker 1: saying this is New York, this is our territory, and
Speaker 1: you're gonna play by our rules. And um. The Trump administration,
Speaker 1: as we know, brought this up back in April of
Speaker 1: last year. I mean, he's been talking about something like
Speaker 1: this since the beginning of his presidency. But a year later,
Speaker 1: one of the things that we kept hearing was, you know,
Speaker 1: we think he might actually just pass the tariff on everybody.
Speaker 1: And the thought behind that is nobody gets away from it,
Speaker 1: and it doesn't matter who you are or what you are.
Speaker 1: We're going to protect this industry. Uh. They have now
Speaker 1: done it, and yeah, okay, so so let's just take
Speaker 1: stock of where we are. So Wilbur Ross today Commerce
Speaker 1: Secretary announced these tariffs, said that there was not going
Speaker 1: to be an exemption for some of our main trading allies.
Speaker 1: Mexico already has come back and said that they are
Speaker 1: going to reciprocate with either tariffs or other measures. You
Speaker 1: have discussions now that the reason why the tariffs are
Speaker 1: going ahead is because now after talks were insufficient from
Speaker 1: the White House is perspective, where do we move forward
Speaker 1: with this? I mean, if this was a negotiating tool,
Speaker 1: it's over. So what does that mean going forward? So
Speaker 1: I think there's two ways of moving forward. There's the
Speaker 1: there's the markets. Right, so the markets just play by
Speaker 1: the rules. They say, listen, we've got to accept that
Speaker 1: there are these tariffs on aluminum imports and on steel imports,
Speaker 1: and you just have to deal with it. So any
Speaker 1: customers that want steel or aluminium that's outside of the country,
Speaker 1: they gotta pay that premium, they gotta pay that duty.
Speaker 1: And that's that's that right. And so you just go
Speaker 1: back to normal and you act like whatever is now
Speaker 1: in place is just how you play by the game. Politically,
Speaker 1: it's a mid term season. Uh, there's a question as
Speaker 1: to whether or not this protection ism will play up
Speaker 1: well in battleground states, battleground districts, and that part is
Speaker 1: yet to be seen. Uh. We know that companies don't
Speaker 1: necessarily benefit from this. American companies, ALCA, the biggest aluminium
Speaker 1: maker in the United States, probably the best known aluminium
Speaker 1: maker in the world, will not necessarily benefit from these
Speaker 1: because they actually produce more of their aluminum in Canada
Speaker 1: than they do in the United States. Uh. These steelmakers
Speaker 1: generally look like they'll benefit from this, but steals a
Speaker 1: much more domestic industry. I mean, six of our consumption
Speaker 1: of steel is made in the US. Only fift of
Speaker 1: what we consume from aluminium is made in the U S.
Speaker 1: Canada makes nearly fifty of aluminium that we use. That's
Speaker 1: what makes this a big deal. The EU, on the
Speaker 1: grand scheme of things, not that big of a producer
Speaker 1: for aluminium the steel used in the US. The EU
Speaker 1: is big because of the larger trade implications that this has.
Speaker 1: The you is moving because now they have to react
Speaker 1: to our tariffs because of the worries that dumping will
Speaker 1: no longer be in the United States, it will instead
Speaker 1: go to the EU. So politically, the EU says we're
Speaker 1: raising trade barriers and retaliation to the United States, but
Speaker 1: in actuality, they're raising trade barriers because they need to
Speaker 1: protect their own industry as well, because other countries will
Speaker 1: start trying to dump there because they don't have to
Speaker 1: pay the tariffs. So there's so much going on here
Speaker 1: and now that this has come into place, we're gonna
Speaker 1: see it play out. I don't know if this was
Speaker 1: something that I expected. I don't know if this is
Speaker 1: something that the market expected. But it has happened, and
Speaker 1: now this is the new reality, and we're going to
Speaker 1: see whether or not Trump actually making good on a
Speaker 1: truly Trumpian policy is going to benefit or hurt him
Speaker 1: in the long run. Is this going to hurt US consumers?
Speaker 1: U S consumers have already adjusted to these higher prices,
Speaker 1: they expected some sort of higher prices would come. The
Speaker 1: people who end up probably getting hurt of the makers,
Speaker 1: the manufacturers of the stuff that we use. So if
Speaker 1: you're ariconic, you make airplane wings, you make pieces used
Speaker 1: an automotive. Actually the same with any steel producer outside
Speaker 1: of the United States sending to Detroit. These are the
Speaker 1: ones that are really worried. That's why Caterpillar would even
Speaker 1: say whoa, whoa, whoa. Let's hold on a second here.
Speaker 1: So I was just looking at Ian Bremer he just
Speaker 1: put out on Twitter. Trans Atlantic relations just hit a
Speaker 1: new post war low. But we're not at bottom yet.
Speaker 1: Can you give us a sense of the last time
Speaker 1: that the US imposed tariffs like this and what happened
Speaker 1: we imposed terrorists? It was a two oh one petition
Speaker 1: by President Bush back in two thousand two, and it
Speaker 1: was to protect the industry that was getting hurt. What
Speaker 1: eventually happened was they passed the two oh one and
Speaker 1: there was so much outcry by industry across the board
Speaker 1: that they started giving exemptions and rolling things back, rolling
Speaker 1: things back, and ultimately saying, forget about. We're just we're
Speaker 1: getting rid of this entire policy, and they scrapped it.
Speaker 1: That's no pun intended, but they got rid of it
Speaker 1: because it was just so unpopular and for businesses, very detrimental.
Speaker 1: Just to your point, Caterpillar shares down nearly two right now,
Speaker 1: there you go too, doo. Thank you so much for
Speaker 1: being with us. We will be hearing more from you
Speaker 1: as this does play out. Really important inside. Joe Doe
Speaker 1: covers the medals and mining industries for us here at
Speaker 1: Bloomberg News, and we've just been talking about how Commerce
Speaker 1: Secretary wolver Ross did say that the European Union, Canada
Speaker 1: and Mexico would all not be exempt from these steel
Speaker 1: and aluminium tariffs. What keeps money managers up at night, Well,
Speaker 1: that's why we've got a John Moniger. He is a
Speaker 1: managing director of Eaton Vans, helping to manage over four
Speaker 1: hundred and twenty billion dollars. He's based in Boston, but
Speaker 1: he joins us here in our eleven three oh studios. John,
Speaker 1: it's a pleasure to have you here. And eating Vance
Speaker 1: Advisors has something called the Top of Mind Index. Tell
Speaker 1: us what is this index? What is it supposed to do? Yeah, Pim,
Speaker 1: thank you for having us today. So the Advisor Top
Speaker 1: of Mind Index is a survey we do every quarter.
Speaker 1: We survey about a thousand advisors and it's really trying
Speaker 1: to get in the mind of what's on their mind
Speaker 1: and what's on the mind of their investors that they're
Speaker 1: working with. And so through that survey you try to
Speaker 1: get some insights into what's driving their decision making. Uh.
Speaker 1: In particular, if you think about what's going on now,
Speaker 1: I'll just give you the highlight of of this particular survey. Um,
Speaker 1: we had volatility continue to be one of the top
Speaker 1: marks in top concerns of advisors and maybe not surprising
Speaker 1: by any means, income being number two and a bit
Speaker 1: of a distant number two. We've seen that kind of
Speaker 1: move around a little bit from quarter to quarter, but
Speaker 1: certainly volatility kind of really driving a lot of what's
Speaker 1: on their mind. And I would say the number one
Speaker 1: cause of that has really been centered around geo political risk.
Speaker 1: So although we see a lot of market movement, it's
Speaker 1: a lot of things like even what we saw this
Speaker 1: morning with you know, tariffs being put in place, which
Speaker 1: is you can question, both has a downstream effect but
Speaker 1: also just has a headline or effect as well, makes
Speaker 1: people really nervous. So can you connect the top of
Speaker 1: mind index to actions? I mean, if they're worried about volatility,
Speaker 1: that means what for how they manage their money? Yeah,
Speaker 1: that's a really great question. So so what we're seeing
Speaker 1: is a few things. You've seen this in just fun flows,
Speaker 1: and we'll see this in the survey as well. Start
Speaker 1: with the survey, I'll connect it to fund flows. In
Speaker 1: the survey, you'd see number one issue, what are they
Speaker 1: doing about it? Short duration strategies on the fixingcome side
Speaker 1: is where they've been going in a pretty big way.
Speaker 1: So we've seen a pretty big pull down and flows
Speaker 1: in equities, we've seen a pretty good resurgence of fixing
Speaker 1: come flows. But really on the short duration side, let
Speaker 1: me drive into that for a minute. So what we're
Speaker 1: seeing specifically is floating rate strategies picking up makes a
Speaker 1: lot of sense rising rates. What can I do to
Speaker 1: participate in rising rates is certainly floating rate strategies, But
Speaker 1: also you're seeing just traditional your duration strategies moving in
Speaker 1: in a very big way. In fact, if you look
Speaker 1: at the fund flows just in the last six months alone,
Speaker 1: but a hundred fifty three billion dollars have come into
Speaker 1: taxable fix income. But about that was short duration strategies. Again,
Speaker 1: you'll see a pretty good move going on. There are
Speaker 1: people not sure where to go. What do I do?
Speaker 1: I put into more of a conservative play, I'll add.
Speaker 1: The one that we're seeing as quite interesting is on
Speaker 1: the municipal bond side. We've seen a lot of pressure
Speaker 1: muni bonds certainly performances negative year today and pretty much
Speaker 1: cross the board, we've seen some movement in the floating
Speaker 1: rate muni bond area. We don't hear a lot about
Speaker 1: that in the marketplace. We actually offer one of the
Speaker 1: few strategies that do this, but other firms do it.
Speaker 1: There's firms that are out there that play in the
Speaker 1: space in floating rate municipal bonds. Actually have higher quality
Speaker 1: and are certainly great place to participate in today's markets. John,
Speaker 1: I want to get your thoughts on what the customer
Speaker 1: is really interested in, because I thought this was a
Speaker 1: very telling point. And you know, you can debate and
Speaker 1: and you know, if you're kind of drawn just investor,
Speaker 1: you can say, well, you know, responsible investing. It sounds nice.
Speaker 1: It's got a chief feely thing to it. Whether whatever
Speaker 1: you're feeling or thinking about it. The reality is the
Speaker 1: customer is really interested in this. There is no question.
Speaker 1: Thank you for bringing this up. I'll tell you the
Speaker 1: in the survey will tell you two thirds of investors
Speaker 1: care about responsible investing at some level. It might be
Speaker 1: at a minor level, might be I want to restrict
Speaker 1: something in a portfolio, or it might be at a
Speaker 1: very deep environmental, social and governance type level, and we're
Speaker 1: seeing the full spectrum of that. The flip side of
Speaker 1: that as advisors aren't as educated, so they're a little
Speaker 1: more nervous to bring this forth to their investors. I'll
Speaker 1: tell you two quick stories. One, um, that's the number
Speaker 1: one asked. We put in place a very strong educational
Speaker 1: effort to educate the financial advisor on how to actually
Speaker 1: have this conversation with a client. Importantly, though, if you
Speaker 1: look at the elite advisors the top in the space today,
Speaker 1: I would say we've seen a shift, and I would
Speaker 1: say in the shift has only occurred in the past
Speaker 1: twelve months, where they've went from being prepared to have
Speaker 1: the conversation to now leaning in and saying, Wow, this
Speaker 1: is now a conversation I have to have every client
Speaker 1: so they know I'm prepared and can actually have this
Speaker 1: ability capability to deliver responsible investing to their investors. So
Speaker 1: that's a big shift that will transcend, no question, as
Speaker 1: we know, down into the other advisors. So the educational
Speaker 1: ask is becoming I would say, greater and greater every
Speaker 1: single day. And this comes after yesterday to Sporting Goods
Speaker 1: reported better than expected earnings even though they had stopped
Speaker 1: selling guns in response to what happened. Their shares gained
Speaker 1: almost twenty six percent. That's flying in the face of
Speaker 1: a lot of people who said, you know what, if
Speaker 1: you stop selling guns you make this big stance, You're
Speaker 1: gonna suffer. They didn't. So with returns and sort of
Speaker 1: you know, doing good and getting returns, I mean the
Speaker 1: focus is still on getting returns right, So how do
Speaker 1: you how are you instructing people have that conversation. Yeah,
Speaker 1: it's a great question because because there are return matters
Speaker 1: most right, at the end of the day, responsible investing
Speaker 1: is only as good as the fact that you can
Speaker 1: put up returns out are in line with the market.
Speaker 1: We have through our Cavert affiliate as an example or
Speaker 1: parametric we've been able to demonstrate a long term track
Speaker 1: record of that just using basic indexes. Frankly, so putting
Speaker 1: an E s G structure on top of an index
Speaker 1: like the Russell one thousand, we can demonstrate ten years
Speaker 1: of performance at show we can match the market. Many
Speaker 1: other organizations do the same thing, so we're not alone
Speaker 1: in that. I think the markets starting to realize you
Speaker 1: can actually get better performance, or at least market level
Speaker 1: performance by actually doing the right thing. And it starts
Speaker 1: to make sense when you start breaking down take foreign countries,
Speaker 1: take emerging markets, for example. If you have really solid
Speaker 1: social governance and environmental considerations built in your portfolio and
Speaker 1: you're acting against that, they tend to do better. And
Speaker 1: we've got again a history of showing that in our portfolios,
Speaker 1: or we're able to uh to outperform over periods of time,
Speaker 1: and again we're not the only ones in that space
Speaker 1: doing it. John Moninger, thank you so much for being
Speaker 1: with us and for illiminating the results from the top
Speaker 1: of Mind Index or a tomics. John Moninger is managing
Speaker 1: director at Eton Vans, overseeing about four billion dollars. Normally
Speaker 1: it is based in Boston, but joins us here in
Speaker 1: our eleven three oh studios. Is Italy an emerging market?
Speaker 1: Is it like Argentina? Is it like Turkey? Well, let's
Speaker 1: find out. We have Damian sasaur fixed income strategist for
Speaker 1: Bloomberg Intelligence in the studio here to tell us more. Damian,
Speaker 1: so is Italy on par with an emerging market? I
Speaker 1: wouldn't say that, especially Argentina and Turkey. Um, what we're
Speaker 1: seeing here, I think is a good old fashioned run
Speaker 1: on the on Italian bonds, right. I mean, it's how
Speaker 1: Italy is basically one of the largest issuers of debt
Speaker 1: globally um, far larger than Turkey or Argentina. But the
Speaker 1: important thing for remembers that all that debt is denominated
Speaker 1: in Europe, right, so in order for it to trade
Speaker 1: even close to Argentina and Turkey, which which I mean
Speaker 1: if you're investing in those bonds are carrying in Lira
Speaker 1: and UH and pacer respectively. I mean, it's just it's
Speaker 1: just far riskier when you do that cross border currency calculation.
Speaker 1: And so for me, I just don't see how your
Speaker 1: denominated Italian bonds are trading on par with them or
Speaker 1: how you can even compare them at this stage. But
Speaker 1: they are, but they are kind of I mean, if
Speaker 1: you look at credit to fault swaps, for example, Italy
Speaker 1: is looking more like an emerging market. See so I
Speaker 1: set you up for that, and then you dissed me.
Speaker 1: You would, just would It's just a quote you said. Now,
Speaker 1: I mean five year cd explain, explain what that all means.
Speaker 1: So so in order to protect against the default, one
Speaker 1: might buy a credit the fault swap, and so five
Speaker 1: year CDs for Italy is now on par with that
Speaker 1: of Turkey in fact that you traded through Turkey, meaning
Speaker 1: to protect against default in Italy is more expensive than
Speaker 1: it is to protect against default in Turkey. So in
Speaker 1: order for first of all Italy to default, it's got
Speaker 1: a first break from the EU and then it's got
Speaker 1: a default on its dead opplications, right, so it's a
Speaker 1: huge Sorry, no, no, no, I mean to me though,
Speaker 1: I want to just push back because it makes sense
Speaker 1: what you're saying. The risk of Italy defaulting at this
Speaker 1: point does not seem, when you take a step back,
Speaker 1: like it is greater than Turkey, which can't get its
Speaker 1: currency under control. That said, perhaps what this shows is
Speaker 1: that central banks are losing some control and that everything
Speaker 1: is mispriced, and Italy is being priced a little bit
Speaker 1: more on fundamentals with the fear of the ECB stepping back,
Speaker 1: And maybe the question should be asking, does this mean
Speaker 1: that the emerging markets should be priced at completely different
Speaker 1: levels with risk much higher than it is right now? Yeah,
Speaker 1: I mean, that's exactly what we're talking about. Think about
Speaker 1: where we are. Rates globally are still near historical lows,
Speaker 1: so any little move is a very is an exaggerated
Speaker 1: move in developed and emerging market right now, and that's
Speaker 1: exactly what we just saw in Italy. And in fact,
Speaker 1: a lot of the move in in in Italian yields
Speaker 1: and Italian bonds BTPs were was driven by the relative
Speaker 1: lack of liquidity in those bonds, right, So they just
Speaker 1: got marked up pretty quickly, and now people are kind
Speaker 1: of saying, well, maybe things aren't so bad, you know,
Speaker 1: maybe you know, the five star movements, so on and
Speaker 1: so forth. So I think you're absolutely right. I think
Speaker 1: it has something to do with liquidity and and the
Speaker 1: structural makeup of the market itself that's kind of driving things.
Speaker 1: But but you know, as these markets sort of normalized,
Speaker 1: as the U s he Old curve pushes higher, as
Speaker 1: rates globally push higher, you're gonna see these dislocations be
Speaker 1: that much more magnified. Right, rate ball is going up.
Speaker 1: I mean, I think we've pretty much hit the psycho
Speaker 1: volatility those right, Sorry, rate volatility is definitely going up globally,
Speaker 1: and so as that happens, what you see are these
Speaker 1: you know, kind of exaggerated moves and and and I
Speaker 1: think that's quite frankly what's been happening in Italy this
Speaker 1: week and Spain tomorrow. I mean, I guess you're right. So,
Speaker 1: I mean that's the other thing, right, I mean, it's
Speaker 1: kind of amazing. There is a little bit of a
Speaker 1: fundamental take to this, because Italy's fundamentals, you know, are
Speaker 1: not nearly as good as Spain, right, and so Spain
Speaker 1: hasn't really moved the way Italy has, even though I
Speaker 1: think the Basques just announced that they're gonna back you know, Sancha.
Speaker 1: So I think I think Spain is at risk of
Speaker 1: a no confidence vote, right, so, so that's a pretty
Speaker 1: big deal. And yet Spanish CDs is not really moving
Speaker 1: the same way Italian CDs is and and Spanish bonds
Speaker 1: haven't really reacted as much as you would have thought. So,
Speaker 1: um so for me, I guess you know, the the
Speaker 1: you know what I'm looking at in terms of emerging
Speaker 1: markets is Argentina and Turkey are on an island all
Speaker 1: to themselves. Um, you know, their currencies are a mass,
Speaker 1: their economies are are are are a mess really and
Speaker 1: you know they're gonna need to really kind of clean
Speaker 1: things up. It leaves in a different situation. It'll least
Speaker 1: still part of the EU until further notice. And in
Speaker 1: order for anything to kind of, you know, move the
Speaker 1: needle in Italy, you're gonna have to see you I'm
Speaker 1: gonna have to see them break from the EU. Has
Speaker 1: that working in Brazil that truckers strike, So so what's
Speaker 1: what I took out of the trucker strike? And I'm
Speaker 1: not as close to it as I should be. Is
Speaker 1: the fact that petrol Brass, I mean, you know, basically,
Speaker 1: petrol Brass makes their money by selling fuel and last
Speaker 1: week what happened was they made the decision to a
Speaker 1: lower petrol prices and they did it and partly in
Speaker 1: response to the fact that you have this trucker strike,
Speaker 1: and you know that the government may be applied a
Speaker 1: little bit of pressure to petrol Brass, to petrol Brass
Speaker 1: despite the fact that sixty some odd percent owned by
Speaker 1: the Brazilian government, it's not part of the government. And
Speaker 1: people who are invested in Petro Brass bonds, when they're
Speaker 1: quite a few of them, um like to think that
Speaker 1: the company is making decisions that are in the creditors
Speaker 1: best interest, meaning we're going to charge you more for
Speaker 1: your gas or your oil. And that's not what happened here.
Speaker 1: So now people are kind of saying, well, we'll wait
Speaker 1: a second. Maybe Petrol Brass really is being pushed by
Speaker 1: the government, Maybe they don't have our best interest at heart.
Speaker 1: And I think that's why what we're seeing, at least
Speaker 1: in petrol Brass, which is one of the largest constituents
Speaker 1: in emerging market hard country that is, you're seeing you know,
Speaker 1: spreads blow out on the back of that, and people
Speaker 1: you know, kind of calling into their calling into question
Speaker 1: their integrity and the efficacy of management. Okay, I want
Speaker 1: to I want to go back to a point here,
Speaker 1: just on a broader level, with emerging markets. If we're
Speaker 1: talking about how all risk has been muted by central banks,
Speaker 1: and then a flare up causes people to suddenly uh
Speaker 1: price fundamental risk, you know, and then it goes back
Speaker 1: to this sort of complacency. I'm just wondering how much
Speaker 1: would emerging markets have to read price if people started
Speaker 1: to feel like central banks weren't back stopping the market. Well,
Speaker 1: I think sentiment is a function of returns, and e
Speaker 1: M has is off to the worst start on record
Speaker 1: this year, right, And as those losses build, or let's
Speaker 1: not say they build, but let's say they persist, sentiments
Speaker 1: starts to sour for the asset class at large. And
Speaker 1: I think that's the real risk because Okay, fine, you
Speaker 1: know things are still good, the economies are still healthy. Yeah, okay,
Speaker 1: yields are climbing, and we're pushing the currencies uh down,
Speaker 1: you know, relative to the dollar. But but by and
Speaker 1: large things are better today than they were, you know,
Speaker 1: only five years ago, and emerging markets. But the longer
Speaker 1: these losses persist, that drives investors who are invested in
Speaker 1: emerging markets to redeem, to basically withdraw their investments. And
Speaker 1: that's gonna basically make it that much more difficult for
Speaker 1: these local economies to to to to borrow and too
Speaker 1: and to lever up, and and and and to run
Speaker 1: their economies. And and that's when it hits the real
Speaker 1: economy or the real economies within emerging markets, right and
Speaker 1: that's when you know, you really can start to feel
Speaker 1: the pain, and that transmission mechanism doesn't happen overnight. Certain
Speaker 1: countries are different than others. Turkey, which has a lot
Speaker 1: of external debt, you're seeing them get smacked right on,
Speaker 1: you know, because it's a liquidity issue right now. In
Speaker 1: Turkey they can't refinance their debt. But at a place
Speaker 1: like Brazil, it's not a liquidity issue, it's a solvency issue, right.
Speaker 1: They have long term structural problems pimped to your point,
Speaker 1: you know, with trucker strikes and all the things that
Speaker 1: are going on there with you know, social security, you know,
Speaker 1: and what have you, but but that's a long term
Speaker 1: issue in Brazil and and and that's why Brazil is
Speaker 1: not getting hit as badly. Just real quick, are we
Speaker 1: starting to see those withdrawals in any real volume. We've
Speaker 1: been seeing them and they're not. I mean, look, they've
Speaker 1: started to peter off a bit um. In fact, what
Speaker 1: you saw was a kind of a transfer. It was
Speaker 1: it was e M debt that was driving the outflows
Speaker 1: for the better probably the last few few months, and
Speaker 1: that shifted over to the equity side, which to me
Speaker 1: is maybe an indication that we're getting to the ninth
Speaker 1: inning there and that things might get a little better.
Speaker 1: Damian Sassaur, we love having you on. Thank you so
Speaker 1: much for being with us. Damien Sassaur, fixed incomes strategist
Speaker 1: for a Bloomberg Intelligence and expert in developing mark gets.
Speaker 1: Really an interesting story. It's amazing to see Italian credit
Speaker 1: default swaps trade in tandem with those of Turkey. It
Speaker 1: has come to light that your personal data is worth
Speaker 1: a lot, and the more people realize this, the more
Speaker 1: questions that are about who profits from this data. Joining
Speaker 1: us now Brian O'Kelly, chief executive officer and co founder
Speaker 1: of app Nexus. It is an exchange the second largest
Speaker 1: only to Google, behind only Google's Double Click exchange for
Speaker 1: real time bidding on the Open Internet. UM. And basically,
Speaker 1: if I understand this correctly, when advertisers want to figure
Speaker 1: out what to pay for you personally to view a
Speaker 1: certain ad of theirs on say whatever, pick your news site,
Speaker 1: you your platform helps them auction off at particular place
Speaker 1: in real time, correct exactly, So you're assessing how much
Speaker 1: people are worth. So do you feel like there has
Speaker 1: been a market pushback recently, especially as the European Union
Speaker 1: enforces the General Data Protection Regulation? Has there been more
Speaker 1: kind of obstacles for you in this process? It's interesting
Speaker 1: as long as you're as a consumer aware that you're
Speaker 1: going to be advertised to, UH, in concept, you should
Speaker 1: be okay with it. The idea here is that privacy
Speaker 1: is a fundamental human right. But if you decide that
Speaker 1: you want your information used by advertisers in return for
Speaker 1: free content, so that new site you're going to, that
Speaker 1: content is free for you because of the advertising. As
Speaker 1: long as you're comfortable with that trade, you should be
Speaker 1: comfortable with advertising. And so, because we've always operated within
Speaker 1: those constraints, UH, this is probably a good thing for
Speaker 1: our business overall, but it certainly is causing a lot
Speaker 1: of chaos and confusion across the market. Who's best at
Speaker 1: figuring this out? I mean, is that the Is it Google?
Speaker 1: Is it Facebook? I mean, who's actually really good at it?
Speaker 1: And who's terrible? Well, it's funny if you think of
Speaker 1: who really deeply understands privacy. Uh, I don't think anybody does.
Speaker 1: I don't think we as humans have figured out what
Speaker 1: it's going to mean to have all of our data
Speaker 1: floating around in the cloud for the rest of our lives. Um.
Speaker 1: So I think it's the regulators in Europe trying to
Speaker 1: take a first step. I think there's some small companies
Speaker 1: like app Nexus that are starting to think about what
Speaker 1: does advertising mean and a privacy first a privacy first world. Um,
Speaker 1: but we're just learning what this is going to mean. So, Brian,
Speaker 1: there's been some discussion about how the GDPR Europe and
Speaker 1: other privacy rules are going to make people realize, Wow,
Speaker 1: my data is valuable. I should be making money from it.
Speaker 1: Do you see that happening where people directly get income
Speaker 1: from advertisers. There are programs where they do so. Amazon
Speaker 1: has an affiliate program where if you put an Amazon
Speaker 1: ad on your site, you know, they'll pay you for
Speaker 1: all the products that are sold through that links. An example. Um,
Speaker 1: I think the challenges that we're already getting value from
Speaker 1: our data through the content. So if I'm you know,
Speaker 1: on on Facebook and I'm seeing my friends baby pictures
Speaker 1: for free, I guess, um, that's being subsidized. All the
Speaker 1: servers and engineers at Facebook are getting paid by ads. Pam.
Speaker 1: I get the sense that he doesn't necessarily view his
Speaker 1: friends baby pictures as a benefit, but I would pay
Speaker 1: a lot of money for that. Okay, Yeah, But I
Speaker 1: think you raised an interesting point because there's on the
Speaker 1: one hand, there's this big conversation about privacy, right, you know,
Speaker 1: there's a debate about it. Oh, everyone wants to secure
Speaker 1: everything and so on. But when it comes to saying, oh, um,
Speaker 1: we'll give you frequent flyer miles or we'll give you
Speaker 1: some kind of bonus if you type in your age
Speaker 1: and your address and your zip code, oh we want that, right,
Speaker 1: So they want the plus side, but they don't want
Speaker 1: the negative. I guess you're right. I mean, at the
Speaker 1: end of the day, it's all about out you know.
Speaker 1: Value transfer. So I'm willing to tell you my age
Speaker 1: and my my gender because it doesn't cost me much.
Speaker 1: You can just look at me right now and I
Speaker 1: can probably infer it. Um. I'm not giving up much information. Now.
Speaker 1: If I told you that I, you know, I am
Speaker 1: an active road gain user, you might be like, ah ha,
Speaker 1: I can market to this man, and I might not
Speaker 1: want that being broadcast. We're not live, right, so you
Speaker 1: know that's the thing I might want to Okay, good, good,
Speaker 1: all right, So let me follow that up. Then, are
Speaker 1: publishers getting a fair shake when it comes to the
Speaker 1: information that they think they're receiving from the intermediary between
Speaker 1: them and their supposed online customers. Now that's the hundred
Speaker 1: billion dollar question. Google has built a hundred billion dollar
Speaker 1: revenue business basically being that intermediary between publishers and the consumer.
Speaker 1: Facebook has built a massive business where all they do
Speaker 1: is take those baby pictures, layer on ads and sell
Speaker 1: them back effectively to other consumers. So I don't think
Speaker 1: that journalists and other real producers of content of high
Speaker 1: quality editorial journalism are getting full fair value for that.
Speaker 1: And I do think that's the thing that we as
Speaker 1: a society are going to be really confronting over the
Speaker 1: next few years. Perhabit the advertisers, are they getting real
Speaker 1: information when it comes to who they think they're reaching?
Speaker 1: I would argue no. Um, you know Google has used
Speaker 1: this European privacy law to restrict the data that advertisers
Speaker 1: can get. So as a publisher, you can give your
Speaker 1: data to Google. As a consumer, you can give it
Speaker 1: to Google. As an advertiser, you can give it to Google,
Speaker 1: but nobody gets it back. So I want to talk
Speaker 1: a little bit about app nexus because I think it's
Speaker 1: a fascinating idea that in real time you can auction
Speaker 1: off space on a website to advertisers and see who
Speaker 1: bids the most for a specific viewers data and their
Speaker 1: eyeballs for that moment. I just want to figure out
Speaker 1: how much the costs of arry, how many advertisers bid
Speaker 1: on each spot. I mean, how how active is this?
Speaker 1: It's incredibly active. So on a given impression, so a
Speaker 1: video or a website, as you say, um, there can
Speaker 1: be hundreds or thousands of advertisers bidding and for a
Speaker 1: really high value user. Um, let's say someone who just
Speaker 1: searched for a vacation on a travel site, you can
Speaker 1: see bids up to a thousand dollars per thousand impressions,
Speaker 1: so a dollar per ad which is amazing at the
Speaker 1: skill of the Internet. And then for other users you
Speaker 1: might see it in the pennies. So huge range of
Speaker 1: interest in different users in different contexts. So just to
Speaker 1: be clear, the way that advertisers know who is looking
Speaker 1: at them is that they use the cookies, uh and
Speaker 1: sort of the information that they can glean from the website.
Speaker 1: UH that is sort of asking them to be present
Speaker 1: on and they also use the context. So someone who's
Speaker 1: listening to this show right now is probably a very
Speaker 1: high value user just because of you know, how great
Speaker 1: this content is. And so of course, so an advertiser
Speaker 1: might say, I'll pay more for that show than I
Speaker 1: would for you know, some random stream on on Spotify
Speaker 1: no one's ever heard. Um. So it's both who you
Speaker 1: are and what you're listening to or what you're watching
Speaker 1: or what you're doing. Interesting. Many thanks to you for
Speaker 1: coming on and sharing this with us. I guess it
Speaker 1: just reminds everybody that there's a lot that we don't
Speaker 1: know about what goes on online. I love the idea
Speaker 1: that somebody who just booked. A vacation is red meat.
Speaker 1: It's like, Oh, we gotta sell them stuff. You're gonna
Speaker 1: be buying lots of stuff, so travel insurance, you'll get those.
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
Speaker 1: or whatever podcast platform you prefer. I'm Pim Fox. I'm
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
Speaker 1: It's one before the podcast. You can always catch us
Speaker 1: worldwide on Bloomberg radioh