Speaker 1: This is Bloomberg Business Week. I'm Karl Masser and I'm
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Speaker 1: YouTube search Bloomberg Global News. Well. This story, it is
Speaker 1: the Bloomberg Big Take. It is also one of the
Speaker 1: most read stories on the Bloomberg Today. It's a story
Speaker 1: that's been two years in the making about how free
Speaker 1: checking accounts actually haven't really lived up to their name,
Speaker 1: costing consumers ever eight billion dollars. That's real money, it
Speaker 1: really is, and it's real profits for the companies. Jenny
Speaker 1: Seraine is the reporter on the story. She's Finance reporter
Speaker 1: for Bloomberg Near She's with us right now in the
Speaker 1: Bloomberg Interactive Broker Studio. Jenny I want to repeat this
Speaker 1: because it's it's such an astounding statistic to me. Customers
Speaker 1: who pay overdraft fees again and the again are responsible
Speaker 1: for over half the profits from mass market consumer checking
Speaker 1: accounts at the biggest US lenders. I thought these companies
Speaker 1: were trying to get rid of these fees because the
Speaker 1: upstart banks are offering accounts without them. Yeah. I think
Speaker 1: that's honestly sort of what drove us uh down this
Speaker 1: line of reporting and into this story. Um, we've seen
Speaker 1: time and time again big banks making announcements. You've got City,
Speaker 1: You've got Capital One, you know, saying we're getting rid
Speaker 1: of overdrive fees. Bank of America, JP, Morgan, They've all
Speaker 1: announced something along the lines of we're distancing ourselves from
Speaker 1: this practice. But UM, it's true for the industry as
Speaker 1: a whole that really these fees are what allows them
Speaker 1: to offer free checking accounts to you know, wealthier Americans
Speaker 1: who maintain a certain balance and and um, and it's
Speaker 1: really these fees that allow them to do that. So
Speaker 1: UM really wanted to dive in and kind of put
Speaker 1: a number on a lot of this stuff that we
Speaker 1: hear so much about. And UM, it was really just
Speaker 1: an interesting practice and diving into this data. I feel
Speaker 1: like going to the story Jenny, and then it's like
Speaker 1: and the gap just gets wider and why there? Yeah,
Speaker 1: I think it's interesting because we hear so much time
Speaker 1: and time again from these banks about UM wanting to
Speaker 1: solve for inequities and finance wanting to do more for
Speaker 1: UM lower income Americans, and I think this is a
Speaker 1: really tangible way that we've seen them maybe flounder a bit,
Speaker 1: and so I think it'll be interesting. You know, Washington
Speaker 1: is paying really close attention to this issue, Regulators, lawmakers,
Speaker 1: consumer advocates alike, really making a lot of noise, and
Speaker 1: so I think we're going to see a lot of
Speaker 1: movement here, especially in the coming months and quarters. How
Speaker 1: much of this is about regulators making movement versus the
Speaker 1: upstart banks that I mentioned, these so called neo banks
Speaker 1: coming after the customers who are the ones who are overdrafting. Yeah, No,
Speaker 1: I think it's a great point. The fin techs for
Speaker 1: sure have a place here, and I think the banks
Speaker 1: actually they point more often to competition being what's driving
Speaker 1: them on this versus the you know, Senator Elizabeth Warren's
Speaker 1: and Maxine Waters of the world. And so I think, um,
Speaker 1: they definitely point a competition from these up starts, and
Speaker 1: they really were the first to kind of push the thing,
Speaker 1: push the banks on overdraft fees. UM. They also, you know,
Speaker 1: one of the really unique things that those guys do is, UM,
Speaker 1: instead of waiting, you know, if Bloomberg pays our our paychecks,
Speaker 1: for instance, if they send that money on a Tuesday,
Speaker 1: we might not get it until Friday. What a lot
Speaker 1: of these upstarts have done is said, Okay, as soon
Speaker 1: as we get the notification from your employer that they've
Speaker 1: sent you your paycheck, UM, that will be in your account.
Speaker 1: And so they're actually looking for ways to avoid the
Speaker 1: overdraft fee ever coming. So where a lot of these
Speaker 1: other banks are like, oh, if you if you overdrafted,
Speaker 1: will you know, lower the fee or we'll give you
Speaker 1: like a fifty dollar cushion, UM, these upstarts are actually saying,
Speaker 1: you know what, no, that's not enough. Let's just like
Speaker 1: get them their money faster. For folks living paycheck to paycheck,
Speaker 1: that's what matters, UM. And so wait, wait not benefit
Speaker 1: on the flow exactly exactly, um exactly. And so I
Speaker 1: think that's where these upstarts have gotten you know, their
Speaker 1: their nimble, they're fast and wall streets paying attention. Can
Speaker 1: we just break it down. It's a great chart ONMA
Speaker 1: and and just great kind of interactive I feel like, uh,
Speaker 1: in terms of the media, that's part of this story.
Speaker 1: But overdraft fees in terms of the biggest banks, we're
Speaker 1: talking about one point to bill for JP Morgan, one
Speaker 1: million for City, nine for P and C, one point
Speaker 1: one for b of A, one point four for Wells Fargo.
Speaker 1: I mean this is real money. Yeah, no, and a
Speaker 1: lot of what they've announced in recent months in terms
Speaker 1: of you know, distancing themselves for the from this practice,
Speaker 1: that's real money too. So they are giving up revenue
Speaker 1: here are they how much? Though? Like how much do
Speaker 1: they get penalized by people who forfeit? Right? Our problems
Speaker 1: are problem accounts basically. No, it's a good point. I
Speaker 1: think what the banks like to say is there's a
Speaker 1: cost of providing overdraft. This isn't you know, a free
Speaker 1: service that for them, and and people do you know
Speaker 1: overdraft and never make good on that loan essentially, and
Speaker 1: so they have to account for that when they're setting
Speaker 1: up these programs. Um. I think what consumer advocates say,
Speaker 1: is you know, does it really need to be thirty dollars?
Speaker 1: You know, does it really need to be when someone's
Speaker 1: already literally out of money, that you're charging them thirty
Speaker 1: dollars on top of the already tough situation they've clearly
Speaker 1: found themselves in. Um So, I think that's going to
Speaker 1: be a big, big piece of this. But um but,
Speaker 1: you know, no think it is real money that they're
Speaker 1: giving up. And I do think what will be interesting
Speaker 1: is a lot of banks, as they move away from overdraft,
Speaker 1: they're saying, oh, well, there's this other account we now
Speaker 1: have that instead of charging over draft fees, it comes
Speaker 1: with the five to ten dollar monthly fee, and so
Speaker 1: you could just sign up for that instead. Um So,
Speaker 1: I think we'll see a rise in those accounts. I
Speaker 1: think a lot of consumers will say, you know what,
Speaker 1: I don't want this, you know, privilege of overdrafting. I'm
Speaker 1: I'm done. I just want out, and and they'll choose
Speaker 1: to pay those monthly fees instead. Really powerful story. Lots
Speaker 1: of examples of people who have been affected by this.
Speaker 1: Check out the story by Jenny Seraine and others on
Speaker 1: our finance team. Jenny's finance reporter for Bloomberg News and
Speaker 1: Caroll another really good one to lead to read online
Speaker 1: because great interactive elements on it, showing you know, in
Speaker 1: terms of like padding profits and over draft fees is
Speaker 1: a portion of non interest income. And no joke, it
Speaker 1: took a couple of years to put this story together, yes, yeah,
Speaker 1: and just a long one coming and just to show
Speaker 1: the amount of reporting in time that was put into
Speaker 1: bringing this story to life. So it is definitely a must. Rey, Jenny,
Speaker 1: thank you. This is Bloomberg Business Week with Carol Messer
Speaker 1: and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. We've
Speaker 1: been watching shares of coin based Global because they are
Speaker 1: once again under pressure in today's session alone. We're looking
Speaker 1: at the stock down right now nineteen percent, so we're
Speaker 1: talking about I think an eighty percent or eight percent
Speaker 1: plus decline this year. Company facing a US probe into
Speaker 1: whether it improperly let Americans trade digital assets that should
Speaker 1: have been registered as securities. According to those, I think
Speaker 1: it's like about three people familiar with the matter. Yeah.
Speaker 1: Max Chafkin is a columnist for Bloomberg Business Week. He's
Speaker 1: also the author of the book that can try in
Speaker 1: Peter Tiel and Silicon Valley's Pursuit of Power. He joins
Speaker 1: us right now on the phone from Queen's. Max has
Speaker 1: got a great column. You can read it on the
Speaker 1: Bloomberg and at bloomberg dot com slash of Business Week,
Speaker 1: all about what coin based has been doing. When it
Speaker 1: comes to these you know, so called I want to
Speaker 1: call them s coins. Okay, that's what I'm gonna call them, Carol, Max,
Speaker 1: make us back to September. No, I'm not going to
Speaker 1: do that. A lot of people, I think would who
Speaker 1: don't necessarily play in the crypto space, would would recognize
Speaker 1: coin base because they got a lot of attention almost
Speaker 1: two years ago when the company's CEO came out in
Speaker 1: the wake of activism by employees and supported the Black
Speaker 1: Lives Matter movement. What happened. Yeah, So we've had two
Speaker 1: things that have happened over the last couple of years
Speaker 1: with coin based. As the kind of crypto markets had booms,
Speaker 1: this company has moved kind of closer into the kind
Speaker 1: of center of the the cultural right guys, and as they
Speaker 1: as the company approached a direct listing last year, one
Speaker 1: of which is that the company kind of embraced. Uh.
Speaker 1: This is kind of like culture war thing. It. It
Speaker 1: basically told its employees that they couldn't you know, protests
Speaker 1: in favor of Black Lives Matter, which one a lot
Speaker 1: of um praise from kind of you know, right wing
Speaker 1: types um uh you know who are sort of into
Speaker 1: that kind of thing. And at the same time, um,
Speaker 1: the company was sort of making some some pretty significant
Speaker 1: changes to its business to allow more of these kind
Speaker 1: of lightly traded they're sometimes called alt coins if you
Speaker 1: want a clean for these. These are basically, um, you know,
Speaker 1: it's like the crypto equivalent of a penny stock. So
Speaker 1: so some of them, you know, of course are are
Speaker 1: are legitimate. Some of them have sort of gone nowhere. Um.
Speaker 1: But what has happened, um over the last year or
Speaker 1: so is that coin Base went from being you know,
Speaker 1: kind of seen as a relatively sober minded, you know,
Speaker 1: one of the more um, you know conservative of the
Speaker 1: crypto and exchanges insofar as that's possible, to kind of
Speaker 1: embracing a more um edgy, you know, confrontational pose with regulators. UM.
Speaker 1: Part of that is this kind of like cultural component.
Speaker 1: Part of it is listing lots and lots more of
Speaker 1: these um alt coins UM probably most famously dozed, which
Speaker 1: is like a joke cryptocurrency that that the company added
Speaker 1: UM in May. So I do wonder, like I think
Speaker 1: about this in so many different ways as I think
Speaker 1: about going back to the tech bubble and you know,
Speaker 1: and then there are analysts out there pumping things basically
Speaker 1: that you know, they didn't really believe in those financials
Speaker 1: behind closed doors. But I also think about, you know,
Speaker 1: the crypto world, it's like this freewheeling. It feels like
Speaker 1: to some extent like let's figure this out UM. And
Speaker 1: then there's like, what's the responsibility of these companies to investors,
Speaker 1: you know, in terms of what they are offering up
Speaker 1: like you know, buy or beware? Like who's responsible at
Speaker 1: this point? Yeah? Absolutely, Colindys has done some of that. UM.
Speaker 1: The thing that happened to this company is that, you know,
Speaker 1: as I said, it followed initially Coinny says a long history.
Speaker 1: You know, it's been around I think for almost ten years,
Speaker 1: backed by some of the biggest names in tech. UM.
Speaker 1: What happened is that it sort of fell behind the
Speaker 1: ball on these kind of lesser known currencies. So you
Speaker 1: have this sort of meme stock moment happened, and and competitors,
Speaker 1: most notably Binance uh, basically distinguished themselves by allowing a
Speaker 1: lot more different securities or sorry, we're not I guess
Speaker 1: we're not allowed to call them securities because because that's
Speaker 1: kind of coin business whole position. But um uh, these
Speaker 1: different digital assets and coin base kind of in this
Speaker 1: frenzy to catch up, I think, basically allowed a lot
Speaker 1: more of these things on. And that's kind of where
Speaker 1: they find themselves today, where you have, um, you have
Speaker 1: this Department of Justice uh arrest of a former coin
Speaker 1: based employee who's you know, accused of basically insider trading um.
Speaker 1: And then you have the sec saying that some of
Speaker 1: these tokens that we're being traded are in fact unlicensed securities.
Speaker 1: The upshot of that is that you know, the sec
Speaker 1: is is you know, maybe suggesting or interested in the
Speaker 1: question of whether or not coin bases operating a you know,
Speaker 1: unlicensed security change, which would be really bad for the business,
Speaker 1: which is why you know, we've seen the stock price
Speaker 1: collapse today. And I guess the question is is it
Speaker 1: a security? I mean, is it is it insider trading? Max?
Speaker 1: Because as you know, I think back to when the
Speaker 1: Amazon announcement happened for for Queens, Uh, there was there
Speaker 1: were a lot of reports about Amazon employees having brought
Speaker 1: up real estate in Queens ahead of that, and people
Speaker 1: are saying, well, it's not really you know, insider trading
Speaker 1: because you know, we don't look at real estate in
Speaker 1: that way. And I'm wondering if if we're looking at
Speaker 1: you know, all coins in that way. Well, and that's
Speaker 1: certainly the position of coin Base, you know, they they've
Speaker 1: put out after these these UM complaints drop the d
Speaker 1: o J one in the SEC one. And it's important
Speaker 1: to say that coin Base has not itself been named
Speaker 1: in any of these complainants. You know, they're not charged,
Speaker 1: they haven't been sued UM. And although you know Bloomberg
Speaker 1: has reported on this, you know investigation, you know, the
Speaker 1: SEC hasn't taken any UM formal action UM. Their position,
Speaker 1: the company's position is that it doesn't list securities. These
Speaker 1: things are digital assets UM and and therefore you know
Speaker 1: it's it's in full compliance UM. There has been a
Speaker 1: lot of ambiguity over the last a few years where
Speaker 1: where you know, where it hasn't been clear what exactly
Speaker 1: the ethic is going to do what you know is
Speaker 1: a security, what isn't a security? And again we've seen
Speaker 1: coin bas and some of these other players adopts maybe
Speaker 1: what you might think of as um more aggressive poses.
Speaker 1: As far as that question, I guess I was wondered too, Max, like,
Speaker 1: if we find out that there's some internal conversations, you know,
Speaker 1: basically to the extent of, yeah, we don't really think
Speaker 1: this is anything, but we gotta put it on our
Speaker 1: platform because if we don't, somebody else's, like you do
Speaker 1: wonder like what's the responsibility of a company and its
Speaker 1: leaders and they maybe they don't believe in something, but
Speaker 1: at the same time they know investors are interested in it. Right,
Speaker 1: And this has kind of been something I think has
Speaker 1: been kind of whispered about in in crypto circles, but
Speaker 1: maybe not said publicly until these um you know, to
Speaker 1: build This happened last week, which is that you know,
Speaker 1: there are a lot of assets on coin base that
Speaker 1: are you know, pretty obscure, right, they're not. It's not
Speaker 1: like bitcoin and ethereum. It's it's things like pot call,
Speaker 1: which is a you know, social network for pets, right,
Speaker 1: lightly traded um and you know you can buy it somepoinment,
Speaker 1: and and there's a question about what when you when
Speaker 1: you when you invest in that token, what exactly are
Speaker 1: you doing? And I think the the kind of coin
Speaker 1: based position, right is that you're buying a you know,
Speaker 1: you're not buying a security. You're buying some kind of
Speaker 1: token that's going to be useful in this company. But
Speaker 1: I think that, you know, the reality is a lot
Speaker 1: of people who are transacting in these digital assets are
Speaker 1: are basically gambling, right and and and then so there's
Speaker 1: a question about whether or not that should be regulated.
Speaker 1: And then there's also a question of whether or not,
Speaker 1: you know, there's even a problem with that. You know,
Speaker 1: maybe you know people are going to take take take
Speaker 1: these risks and and maybe it's not a problem. Maybe
Speaker 1: there's gonna be a lot of innovation along the way.
Speaker 1: So certainly lots for the SEC and regulators to kind
Speaker 1: of work through. Max. When you were doing the reporting
Speaker 1: for this column, what was the favorite alt coin that
Speaker 1: you found? I don't want to say favorite, but you
Speaker 1: know what was prohaps the most surprising? I mean to me,
Speaker 1: you know, does is still and I know it's a
Speaker 1: satiated answer, it's still the one that I keep coming
Speaker 1: back to because it was literally founded as a joke.
Speaker 1: I mean, you know that it was not ever meant
Speaker 1: to be an asset, It was not ever meant to
Speaker 1: have any um, you know, any specific utility, and it
Speaker 1: just kind of clucked on a life of its own
Speaker 1: thanks to Elon Musk and meet stock traders. And then
Speaker 1: you're in a situation where this kind of otherwise pretty
Speaker 1: sober minded company feels like it's got to offer a
Speaker 1: mean coin to its investors. Another. Oh, Ellen, apparently haven't
Speaker 1: heard of the steno, which is really cool in certain circles.
Speaker 1: All Right, Max Chafkin over Bloomberg Business Week, a columnist.
Speaker 1: This is Bloomberg. You're listening to Bloomberg Business Week with
Speaker 1: Carol Messer and Bloomberg Quick Takes. Tim Stenovic on Bloomberg Radio.
Speaker 1: You know the FEDS interest rate hikes, they are kind
Speaker 1: of wearing at their welcome in the bond markets. We've
Speaker 1: seen a measure of the yield curve that Cher J.
Speaker 1: Palace highlighted as a recession indicator, sending out a warning message.
Speaker 1: We're talking about the difference between rates where three month
Speaker 1: bills are now where they will be in eight team
Speaker 1: months that's tumbled about nine basis points in like the
Speaker 1: biggest monthly decline in data starting in We keep watching
Speaker 1: these relationships and what's happening, so essentially flashing warning signals
Speaker 1: about a recession. Right, Yeah, we've seen some inversion. Right. Um,
Speaker 1: so we know the Fed's got a bit of a
Speaker 1: conundrum yanked down inflation with aggressive rate hikes without creating
Speaker 1: a recession. That's not easy. Let's get into it with
Speaker 1: Dr Stephen Skanky, chief economic advisor at keel Point, also
Speaker 1: a former US Treasury and White House National Security Council
Speaker 1: staff member. We love it when Steve joins us ahead
Speaker 1: of FED meanings to give us an idea of what
Speaker 1: to look for. Doctor Skanky, how are you. I'm doing well,
Speaker 1: thanks to him. Thanks for having me on. It's always
Speaker 1: great to be with you and Carol. Yeah, well it's
Speaker 1: it's always great when you join us, um, and it
Speaker 1: also means that you know we got we got the
Speaker 1: FED chair coming tomorrow when you join us. So before
Speaker 1: we get to what to watch for, I want to
Speaker 1: go to Carol's point about recession concerns, because that's something
Speaker 1: that we're certainly going to listen to from J. Powell.
Speaker 1: But what are you watching right now in terms of
Speaker 1: how you're thinking about the health of the economy. Well,
Speaker 1: the health of the economy is actually pretty pretty good. Obviously,
Speaker 1: growth is declining, but when you look at just some
Speaker 1: of the fundamentals, first quarter, second quarter industrial production up
Speaker 1: for all those five percent, a little better than six
Speaker 1: percent respectively. Unemployment is is below where we started the year.
Speaker 1: We've averaged more than four hundred thousand new jobs each
Speaker 1: month since the beginning of the year. Those are all
Speaker 1: strong indicators. You know, to be honest, if if this
Speaker 1: is a recession, uh, it's a sort of condition that
Speaker 1: we wouldn't mind having from time to time. I was
Speaker 1: just gonna say, yeah, I'll take this kind of recession
Speaker 1: going forward. I mean, but you know what exactly right? Well,
Speaker 1: but Steve, you know what's crazy? Like Tim and I
Speaker 1: scratch your head. And we do this with our TV
Speaker 1: colleagues when we talk about the markets and kind of
Speaker 1: the contrasting views about what's going on, it just feels conflicting.
Speaker 1: Whether it's Walmart talking to on their numbers, or McDonald's
Speaker 1: able to pass higher prices along or UNI leave are
Speaker 1: being able to pass higher prices along, and you know,
Speaker 1: consider sentiment and confidence numbers coming down. I'm not quite
Speaker 1: sure how to read. Is it just the reset of
Speaker 1: our world post pandemic, although the pandemic isn't over. Is
Speaker 1: that what's going on and that's why it's so weird.
Speaker 1: I think that's a good part of it, Carol, I
Speaker 1: think you've just sort of put your finger right on
Speaker 1: the nose of it. Um. Concers are you know, all
Speaker 1: of the confidence and sentiment servation that they're just glump
Speaker 1: and get their balance sheets are stronger than ever, they
Speaker 1: continue to spend their outlook for inflation six and twelve
Speaker 1: months out continues to come down. All positive indicators. But
Speaker 1: when you look at what we've had well over the
Speaker 1: last twelve and a half years, but even just over
Speaker 1: the last three years, uh eighteen percent, thirty percent And
Speaker 1: if so, if you've been looking at your four old
Speaker 1: one K over the last three years, being down twenty
Speaker 1: three and a half percent by mid July is is
Speaker 1: a real joke. Um, it just feels awful. H Many
Speaker 1: people have even compared it to being worse than the
Speaker 1: financial crisis that we had in two thousand and eight,
Speaker 1: two thousand and nine, when in unemployment with double digit
Speaker 1: just all that doesn't make sense to sing, right, I mean,
Speaker 1: think about where we were just over two years ago.
Speaker 1: I mean we had what an spirol that in one
Speaker 1: was up twenty close for the year, and we knew
Speaker 1: that that was mega performance, Yes it was, but we
Speaker 1: got it again in we got in one. We got
Speaker 1: it in twenty nineteen, right, and even in which was
Speaker 1: weird because of the shutdown from the pandemic, the sp
Speaker 1: was still up eighteen percent for the year. So we're
Speaker 1: gonna watch a couple of you know, it's an interesting
Speaker 1: week where we obviously have the FED meeting UM steve
Speaker 1: this week, and that's obviously their focus tomorrow. But then
Speaker 1: after that FED meeting, we're going to get a reading
Speaker 1: on second quarter GDP the first right, and UM, we're
Speaker 1: concerned about you know what that might tell us about
Speaker 1: recession not recession. We're going to get the PC eight
Speaker 1: PC cores, which are also key. Uh. Someone also talked
Speaker 1: about employment cost index. That's going to be really key
Speaker 1: whether we're continuing to see wage pressure. I guess what
Speaker 1: should we really be focusing on to give us a
Speaker 1: true indication of kind of where this economy is headed.
Speaker 1: The numbers coming down on Thursday would be really instructive
Speaker 1: because we'll we'll see what the components of GDP growth
Speaker 1: are for the second quarter. UH. And A and a
Speaker 1: big interest is where we ended up with net exports.
Speaker 1: That that's just the big swing here. UH. The the
Speaker 1: Atlanta GDP now is is still showing down one and
Speaker 1: a half one point six percent for the second quarter
Speaker 1: analyzed rate. But when you when you go through and
Speaker 1: you you calculate sort of from the bottom up with
Speaker 1: what consumers are doing, business investment which is negative, government
Speaker 1: which is is neutral, and then you come to net exports,
Speaker 1: and the best estimate is that net exports are are
Speaker 1: up between one and one point two percent, And if
Speaker 1: that turns out to be the case, then you're going
Speaker 1: to have positive second quarter growth. But if there's something
Speaker 1: that really is different about that, and in fact we
Speaker 1: do end up with a negative number, it will be
Speaker 1: really important to figure out why is that is that?
Speaker 1: Because that's an indicators Why is that such an important one? Well,
Speaker 1: because uh, COVID, the shutdown and supply change, the belief
Speaker 1: that my chains are improving, we'll all be reflected in
Speaker 1: what the actual numbers are a lot of this is
Speaker 1: UH information the flag that's not real time, So give
Speaker 1: end up a negative GDP growth number. The important thing
Speaker 1: is to figure out what, Okay, what happened here is
Speaker 1: the problem the economy that's that's giving us that number?
Speaker 1: What what was it? What was it? Something crazy? And
Speaker 1: inventories that's happened as a result of better supply chain
Speaker 1: deliveries from China. So it'll to be honest, it will
Speaker 1: really be in the in the weeds, UH to figure
Speaker 1: out what's going to have upen because whatever the top
Speaker 1: line number, that's that's what the markets and the policy
Speaker 1: makers and the general clobe will go with. I think
Speaker 1: it's really important to keep mind think the FED raises
Speaker 1: by quarters of the set, which I think everyone believes
Speaker 1: that they will. That puts US now at the neutral
Speaker 1: rate of interest, which is J Powell said in UH
Speaker 1: in his fresh conference after the last meeting, I want
Speaker 1: to move to the new porative interests at which the
Speaker 1: pet's policy is neither a commendative nor restrictive, because from
Speaker 1: that point forward, any increase in interest rates puts US
Speaker 1: in restrictive territory. And so what is the narrative that
Speaker 1: the FED is going to about what they're gonna do next?
Speaker 1: Is it too okay, we've arrived at a new rate
Speaker 1: of interests, now we're going to wait to see or
Speaker 1: is it you really need to do more of this
Speaker 1: to move into restrictive charactory which talking to Dr Stephen Skanky,
Speaker 1: chief economic advisor at keel Point, also former US Treasury
Speaker 1: and White House National Security Council staff member, Doctor Skinky,
Speaker 1: if you could ask the FED chair one question tomorrow,
Speaker 1: what would it be? Um, it would be how much
Speaker 1: do you think they need to raise interest rates to
Speaker 1: uh squeeze out inflation this year? And then uh that
Speaker 1: that would be the question. I'd also want to know
Speaker 1: where are they going to start? Which the markets general?
Speaker 1: Are they to? What is going to happen beginning to
Speaker 1: when did you say when they're they're gonna when are
Speaker 1: they gonna stop? What? What? What? What are the how
Speaker 1: much are they going to racist? And then where are
Speaker 1: they going to start? Right? General belief that will happen
Speaker 1: sometime in just because of the overshoot on the restrictive side, Uh,
Speaker 1: that may happen to squeeze Yeah, I'm gonna say, is
Speaker 1: the tone I feel like the negative tone. The drum beat,
Speaker 1: to me feels a lot stronger than it has in
Speaker 1: a while. Um, So, I feel like it's not too
Speaker 1: early to to think about the FED stopping or when
Speaker 1: it starts to come. We're starting to hear that a lot.
Speaker 1: I mean, Vince Cignarella talking about that for weeks. Yeah, exactly. Um, Steve,
Speaker 1: thank you so much. Dr Steven Skanky, chief economic advisor
Speaker 1: at kill Point, former U S. Treasury and White House
Speaker 1: National Security Council staff member. I'm journal now, but you
Speaker 1: let me drive, no, no, no, please, I'll do the
Speaker 1: bride gravels. I want to drive. It's a good question.
Speaker 1: Ride to the clothes on radio TikTok, everybody. Just about
Speaker 1: twelve eleven minutes left today's trading the session. We're bouncing around,
Speaker 1: but we are just off our loads of the session,
Speaker 1: really taking out the chin is uh the now Zack
Speaker 1: which is down more than two percent, Charlie talking about that,
Speaker 1: and we are getting ready for some big tech results,
Speaker 1: and we're talking about the parent of Google Alphabet as
Speaker 1: well as Microsoft, both of those names. Microsoft down about
Speaker 1: three percent. Ahead of that, Google's down about two point
Speaker 1: six percent, Carol. We also got Chipole, which is just
Speaker 1: a little bit lower. We'll see a food prices margins, like,
Speaker 1: how are they doing point right? And how are they
Speaker 1: doing in terms of demand. Let's get into it with
Speaker 1: Bill Page, senior portfolio manager at Essex Investment Management, and
Speaker 1: Bill this afternoon joining us on the phone from Boston. Bill,
Speaker 1: how are you good? Jim McCarroll, Great to be with you. Yeah,
Speaker 1: great to have you with us. Okay, So is is
Speaker 1: today's I mean, I mean, I think you know we've
Speaker 1: been having this debate over the last ten days or so.
Speaker 1: What's more important when it comes to this week? Is
Speaker 1: it companies and their earnings reports and the commentary we're
Speaker 1: getting from them, or is what we hear from FED
Speaker 1: chair J Powell tomorrow. Well, we're here at Essex, UM
Speaker 1: we're focused on really pretty focused at my portfolio. So
Speaker 1: I would say for us, it's about the companies. We're
Speaker 1: we're sort of about UM ten through our earning season.
Speaker 1: For the companies in our portfolios, we're focused on clean energy,
Speaker 1: clean tech, and so we're you know, not as as
Speaker 1: far long as we are in a well, I was
Speaker 1: looking at performance. I mean, so far year to date,
Speaker 1: you're down about but I like a longer term perspective.
Speaker 1: So if I take it back to three years, you
Speaker 1: guys have been returning on average annually more than eleven percent,
Speaker 1: putting it into the eighty first percentile in comparison to
Speaker 1: your peers, according to Bloomberg Data. So you know, we
Speaker 1: constantly and Bill you probably have heard this and been
Speaker 1: asked about it a million times about investors who are
Speaker 1: maybe looking to think about e s G. When E
Speaker 1: s G you can really measure it, you know, our
Speaker 1: clean environment, like really invest in companies that are perhaps
Speaker 1: doing good and actually there's performance as well. It doesn't
Speaker 1: seem like it's as much of a trade off as
Speaker 1: it used to be when you really have transparency on
Speaker 1: some of these names. Yeah, what's it. There's been a
Speaker 1: lot of obviously headlines around e s G. What is
Speaker 1: the E s G? How do you define it? And
Speaker 1: you know, our focus is really on solutions, so companies
Speaker 1: that are providing solutions to the world's greatest challenges, and
Speaker 1: we're focused mostly on small and MidCap companies. And when
Speaker 1: you think about clean energy, we define it more broadly
Speaker 1: across nine themes, so from water all the way through
Speaker 1: to renewable energy, offshore, wind, etcetera. So a lot of
Speaker 1: these companies are older line industrial companies that are really
Speaker 1: um moving into new end markets, leveraging their core I
Speaker 1: p SO water companies that are working on metering, electric
Speaker 1: utility companies, so services that can help electric utilities manage
Speaker 1: all the disruption for you know, electrons and what's happening
Speaker 1: with our grid and the need for resiliency, etcetera. So
Speaker 1: we're we're finding kind of nuts involved right of what's
Speaker 1: going on. Well, it's really so when you think about
Speaker 1: clean tech, it's really been around for twenty five years
Speaker 1: and listed markets, and now we're in this new realm.
Speaker 1: I think saluations were a little ahead themselves back in
Speaker 1: but we saw as you are following, too many listings
Speaker 1: of companies that should have gone should not have gone
Speaker 1: public and sort of last eighteen months. But now it's, uh,
Speaker 1: you know, valuations have come down significantly and the fundamental
Speaker 1: drivers for for clean tech are stronger than ever. Well,
Speaker 1: let's talk about some of those because I think what
Speaker 1: interests me so much about what you what you work
Speaker 1: on is the idea that you know, a lot of
Speaker 1: these companies are really reliant on governments and I wonder
Speaker 1: what you see in terms of progress here, not just
Speaker 1: in the US, but around the world for these opportunities,
Speaker 1: for these companies if if they're in a space that's
Speaker 1: somewhat slow moving. I mean, look at how long this
Speaker 1: energy transition is taking. Well, it's interesting. I mean when
Speaker 1: you think about the legacy of fossil fuel assets power
Speaker 1: global economies. You know, fossil fuels have been driving you know,
Speaker 1: our economies for almost a century. So when you think about, um,
Speaker 1: the clean technol oologies that were discovered in some cases
Speaker 1: thirty years ago, we're not really in the early days
Speaker 1: of this transition. If you think about net new energy
Speaker 1: additions to the global grid, um, you know, renewables added
Speaker 1: more than than coal last year. Was the combined energy
Speaker 1: supply of renewables last year, so much higher up year
Speaker 1: of a year. So on the so tim on the
Speaker 1: on the government incentive side, that's a bit of a misperception,
Speaker 1: I guess. I guess what I'm saying is like we're
Speaker 1: still seeing stories about you know, the grid melting down
Speaker 1: in Texas, you know, two years after that tragedy exactly,
Speaker 1: and so what we so when we look at global
Speaker 1: first of over global and then we assess government incentives.
Speaker 1: One thing we look at is what's happening on tariff structures,
Speaker 1: feed in tariffs, governments, sport um in relation of other drivers,
Speaker 1: and the most important driver, one that eclipses all is
Speaker 1: does the technology work is a commercially viable on the grid? Yes, indeed,
Speaker 1: I mean our electrical grid. We're still leveraging technology that's
Speaker 1: a century old, but I don't think it's really coming
Speaker 1: to before. But if you look at what some of
Speaker 1: the larger utilities have been doing the last several months,
Speaker 1: is they've been finally starting to invest in the grid
Speaker 1: and that helps some of the companies in our portfolio
Speaker 1: help with grid resiliency, in managing electrons. When you put
Speaker 1: in bi directional charging for electric cars, which is happening
Speaker 1: at a faster pace, solar panels on the roofs in
Speaker 1: battery storage, we you have more disruption, more electrons that
Speaker 1: need to be managed by utilities. And this is for instance,
Speaker 1: one of our companies, is I tron providing any good
Speaker 1: value proposition? Is they really is we digitize our grid
Speaker 1: um The amount of data that the utilities need to
Speaker 1: manage is much greater, and obviously they need to bring
Speaker 1: electrons to their customers at a time when it's getting
Speaker 1: harder to do so with As you said, Tim, Uh,
Speaker 1: you know severe weather and welcomes, right, And that's ticker
Speaker 1: I tron is I t r I. It's based uh
Speaker 1: in Washington. Stocks down about so far this year. But
Speaker 1: that is a name that plays into what you've just
Speaker 1: been talking about. I want to I just want to
Speaker 1: draw everyone's attention to another name that you like the
Speaker 1: tickers E R I I. It's called Energy Recovery, based
Speaker 1: in California. It's downe about five percent so far this year,
Speaker 1: but the last three full years stock is up two
Speaker 1: nineteen percent. Tell us about this because this has salinization
Speaker 1: excuse me UM in terms of seawater and filtering it
Speaker 1: out to produce fresh water. We see that a lot
Speaker 1: in the Caribbean. But you but this is a company
Speaker 1: that also plays big time in the Middle East, and
Speaker 1: that has to do with energy, right exactly. So when
Speaker 1: you think about UM Energy Recovery, it's not a well
Speaker 1: known R followed name. And so it's all about harvest
Speaker 1: being fluid slow in a plant. Right. So they've got
Speaker 1: they've got the bulk of the market share for what's
Speaker 1: known as UH S w R O so seawater verse
Speaker 1: OSMO is energy recovery. So when you think about a
Speaker 1: large deesel plant, UM, the greatest input cost is energy,
Speaker 1: and so their technology can lower the operating costs for
Speaker 1: deesel plant by over. And then when you think about
Speaker 1: what's happening in the Middle East, over the water supply
Speaker 1: is possible water I, meaning it is all deesel and
Speaker 1: over that is going to agriculture. So they can't operate
Speaker 1: the Middle East their economies without deesel and so UH
Speaker 1: e R I has got a lock on global UH
Speaker 1: energy recovery technology for decail plants. But then they're moving
Speaker 1: into industrial water treatment and so industrial water treatment regulations
Speaker 1: are increasing in the emerging markets. And there's also a
Speaker 1: need UM as we deploy obviously more on shoring of
Speaker 1: semi conductor manufacturing here in the US, for US to
Speaker 1: have really cheaper methodologies and ways to treat our water.
Speaker 1: And so that's another way. It's equally um UH lowering
Speaker 1: the input costs for commercial facilities. This is early on
Speaker 1: for them, this new end market UM. And the other
Speaker 1: one is refrigeration that we're UM we're phasing out hfc's
Speaker 1: refrigerants that are incredibly uh hurtful to to uh the
Speaker 1: climate change. It's over a hundred times more CEO two
Speaker 1: intensive than regular greenhouse gases. So refrigerants is another areay're
Speaker 1: moving to, too, right, and that's certainly where the regulatory
Speaker 1: side of things can you know, kind of require companies
Speaker 1: around the globe, uh necessary to do it. Hey, Bill,
Speaker 1: we do have to run unfortunately, but this was fascinating interesting,
Speaker 1: So come back soon. Bill Page, senior portfolio manager at
Speaker 1: Essex Investment Management, on the phone from Boston. As we mentioned,
Speaker 1: his parent tree Essex Environmental Opportunities. Fun UM has an
Speaker 1: averageannal gain over the last three years of about eleven,
Speaker 1: so putting it in the one percentile. Thanks for listening
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