WEBVTT - Avoid Banks, More Downside Coming: Charles Peabody (Podcast) 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:30.880 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. We're 0:00:30.880 --> 0:00:33.720 focused on banks. We've got a slew of earnings out 0:00:33.760 --> 0:00:36.560 from the likes of Balls, Fargo City Group and JP Morgan. 0:00:36.640 --> 0:00:39.920 JP Morgan in particular started out with a bang, but 0:00:40.000 --> 0:00:42.760 shares have since gone negative. Joining us now as somebody 0:00:42.800 --> 0:00:46.279 who perhaps isn't entirely surprised by this, Charles Peabody as 0:00:46.280 --> 0:00:49.599 president of Portala's Partners and Charles, I'm so glad you're 0:00:49.640 --> 0:00:53.559 joining us today because just Wednesday you actually downgraded your 0:00:53.640 --> 0:00:56.040 rating on JP Morgan too, a neutral from a bio 0:00:56.120 --> 0:01:00.760 believed today's results edify your decision in your view or 0:01:01.320 --> 0:01:05.959 did it make you rethink anything? Um, just a quick clarification, 0:01:06.120 --> 0:01:11.440 I went from a neutral to a sell on Yeah. Um, Listen, 0:01:13.160 --> 0:01:15.800 when you when you think of the themes that are 0:01:15.840 --> 0:01:19.520 out there that that the analysts are espousing to try 0:01:19.560 --> 0:01:22.720 and get people to buy these banks. There are three 0:01:22.720 --> 0:01:27.000 major themes. One is um by those banks that have 0:01:27.080 --> 0:01:30.520 big capital returns. The second is by those banks they're 0:01:30.520 --> 0:01:33.920 showing positive operating leverage and and the third is by 0:01:33.959 --> 0:01:38.319 those banks that have low loan to deposit ratios because 0:01:38.360 --> 0:01:40.680 they're not going to be as effected by an increasing 0:01:40.720 --> 0:01:45.640 deposit data. And if there's a uh theme that I 0:01:45.640 --> 0:01:48.720 think is running through the weakness in the stocks today, 0:01:49.360 --> 0:01:54.320 it has to do with the lack of positive operating leverage, 0:01:54.600 --> 0:01:56.960 which you didn't see at JP Morgan, you didn't see 0:01:56.960 --> 0:02:00.240 at p n C. And that gets back to the 0:02:00.280 --> 0:02:04.160 fact that revenue growth is starting to slow um at 0:02:04.200 --> 0:02:08.400 the margin and particularly in n I I it's it's 0:02:08.400 --> 0:02:11.080 still positive, but if you go back to the first quarter, 0:02:11.160 --> 0:02:14.160 revenue growth was high single digits. Now it's mid to 0:02:14.240 --> 0:02:19.120 low single digits. Charles, maybe you could explain to people 0:02:19.840 --> 0:02:24.079 your perspective when it comes to the cycle of bank 0:02:24.919 --> 0:02:29.160 operating earnings and how they go through cycles at times 0:02:29.280 --> 0:02:34.799 of rising interest rates. Absolutely, you know, the theme I've 0:02:34.840 --> 0:02:38.799 had all year is that we are now investing for 0:02:39.240 --> 0:02:43.320 end of cycle dynamics, and when you enter that end 0:02:43.360 --> 0:02:46.640 of cycle period. What you want to look at is 0:02:46.680 --> 0:02:49.520 what is happening to the change in the rate of 0:02:49.560 --> 0:02:52.720 growth and and there are three key line items that 0:02:52.720 --> 0:02:56.120 you're gonna want to pay attention to UM. One is revenues, 0:02:56.880 --> 0:02:59.919 the other is credit costs, and the third is capital return. 0:03:00.760 --> 0:03:04.120 And this year, what we're seeing is the revenue growth 0:03:04.320 --> 0:03:08.200 is decelerating. So we started high mid single digits in 0:03:08.200 --> 0:03:11.240 the first quarter, we're entering sort of mid single digits 0:03:11.360 --> 0:03:13.560 this quarter. We'll probably down to low single digits by 0:03:13.560 --> 0:03:15.880 the fourth quarter. And I think that's what we're going 0:03:15.919 --> 0:03:19.000 to see in in nineteen is low single digit revenue growth. 0:03:19.880 --> 0:03:23.160 On the other hand, you're seeing credit costs, which are 0:03:23.280 --> 0:03:27.400 right now are very benign UM are likely to accelerate 0:03:27.480 --> 0:03:32.040 higher in nineteen UM. And then I think beyond that 0:03:32.400 --> 0:03:36.920 the capital return is going to slow dramatically. So the 0:03:36.960 --> 0:03:42.040 three variables are working against improving profitability. So I think 0:03:42.040 --> 0:03:45.080 we've seen peak profitability and that's what these stocks are 0:03:45.120 --> 0:03:48.000 starting to reflect. So one thing that I'm struck by 0:03:48.320 --> 0:03:52.880 is that JP Morgan posted its biggest loan growth in 0:03:52.920 --> 0:03:57.040 a back to back period ever. Uh and this really 0:03:57.160 --> 0:04:00.640 edified initially anyway, people's feeling of strength at basically, even 0:04:00.640 --> 0:04:03.880 as interest rates rise, they're able to expand their loan 0:04:03.920 --> 0:04:06.040 book and they're able to capitalize the fact that interest 0:04:06.120 --> 0:04:08.640 rates are raising fast, rising faster than how much they 0:04:08.640 --> 0:04:12.200 have to pay depositors. Why does not not what does 0:04:12.240 --> 0:04:18.279 that not give you confidence? Well, again, JP Morgan is 0:04:18.279 --> 0:04:20.960 one of the better in terms of execution, and they've 0:04:20.960 --> 0:04:23.159 been investing in their businesses and then showing some of 0:04:23.160 --> 0:04:26.880 the better, um you know, revenue growth. This I mean 0:04:26.920 --> 0:04:29.640 for this quarter, total revenues were up five percent year 0:04:29.680 --> 0:04:31.800 over a year, which is one of the better quarters 0:04:31.839 --> 0:04:34.279 that you're going to see. Um So, I have no 0:04:34.360 --> 0:04:37.880 problem with what JP Morgan reported. What I'm what I'm 0:04:37.880 --> 0:04:40.960 focused on is is that rate of change and growth. 0:04:41.440 --> 0:04:44.720 And going back to your question about loans, they grew 0:04:44.839 --> 0:04:47.840 core loans around six this quarter, but they have been 0:04:47.839 --> 0:04:50.920 growing core loans at the upper single digit range earlier 0:04:50.920 --> 0:04:53.839 in the year. So it's that rate of change that's 0:04:53.880 --> 0:04:58.480 starting to show us flowing over what period of time, Charles, 0:04:58.520 --> 0:05:02.240 do you believe that the banks can turn their operations 0:05:02.680 --> 0:05:05.680 to be more nimble based on where they are in 0:05:05.680 --> 0:05:10.599 the cycle right now, because that would reflect decisions that 0:05:10.640 --> 0:05:14.400 are made now that only bear fruit six twelve months, 0:05:14.440 --> 0:05:18.240 even twenty four months into the future, if not longer. Yeah, 0:05:18.680 --> 0:05:22.360 that's an excellent question, tim because because for example, PNC 0:05:22.640 --> 0:05:26.120 is getting punished today if the stock is down six dollars, 0:05:26.160 --> 0:05:29.119 and the reason is because they had sluggish loan growth 0:05:29.160 --> 0:05:32.200 in are only projecting low single digit revenue growth in 0:05:32.240 --> 0:05:36.640 the fourth quarter, and and they're falling behind the competition 0:05:36.680 --> 0:05:40.840 and some of their momentum indicators. And they're claiming it's 0:05:40.839 --> 0:05:43.360 because they're trying to be prudent in this end of 0:05:43.440 --> 0:05:46.960 cycle where a lot of mistakes are made, but they're 0:05:46.960 --> 0:05:49.760 being punished for that because they're not showing the positive 0:05:49.800 --> 0:05:52.720 operating leverage that somebody else is to maybe taking more risk. 0:05:52.839 --> 0:05:56.440 Is I think at the end of the day, the 0:05:56.520 --> 0:06:00.640 banks will come out of this next down cycle whenever 0:06:00.680 --> 0:06:02.600 it happens. I think it's going to happen in nineteen 0:06:03.160 --> 0:06:07.040 um the recession um with their balance sheets intact, with 0:06:07.160 --> 0:06:09.600 their capital intact, and they're going to be able to 0:06:10.040 --> 0:06:12.520 grow day one when we come out of that recession, 0:06:12.839 --> 0:06:15.840 and there's going to be a much bigger positive revaluation 0:06:15.839 --> 0:06:18.760 of these bank stalks out of that next cycle. But 0:06:18.880 --> 0:06:22.200 going into it, there's going to be skepticism that they 0:06:22.279 --> 0:06:26.680 haven't changed their historical practices, which is always to reach 0:06:26.760 --> 0:06:29.400 for growth at the wrong time of the cycle. And 0:06:29.440 --> 0:06:31.320 that's going on, but it's going on more in the 0:06:31.360 --> 0:06:34.120 non bank system or the shadow market banking system than 0:06:34.160 --> 0:06:36.800 it is the banking system. Charles, is there any bank 0:06:36.920 --> 0:06:38.160 right now in the US that you think is a 0:06:38.240 --> 0:06:44.400 buy well? You know, I think we started a bear 0:06:44.480 --> 0:06:47.160 market and that the bank stocks will be down some 0:06:47.279 --> 0:06:51.400 thirty from their September I mean from their first quarter 0:06:51.920 --> 0:06:54.360 UM highs of eighteen, which I think is the peak. 0:06:54.760 --> 0:06:57.200 Is the top is now in place, and they'll be 0:06:57.240 --> 0:07:02.119 down thirty by the depth of the recession. So within 0:07:02.160 --> 0:07:05.840 that cycle, call no, you don't want to buy banks. 0:07:06.279 --> 0:07:12.080 Can they outperform relatively? They could, but I'm not convinced 0:07:12.600 --> 0:07:15.360 that you get that change of secular leadership until you 0:07:15.400 --> 0:07:20.640 have that down in turn. On a trading basis, I've 0:07:20.680 --> 0:07:23.280 been advising my clients it's probably not no more than 0:07:23.280 --> 0:07:27.040 another five percent downside from where we are today, and 0:07:27.120 --> 0:07:29.640 so on a trading basis, maybe you want to pick 0:07:29.720 --> 0:07:33.960 up a Wells Fargo or a city group. But you know, 0:07:34.320 --> 0:07:37.200 I'm talking about as a trader, because I still think 0:07:37.240 --> 0:07:41.120 that the cycle is for much bigger losses. Thank you 0:07:41.240 --> 0:07:44.080 very much for spending time with us as always interesting 0:07:44.240 --> 0:07:49.160 and insightful. Charles Peabody is the president of Portalis Partners. 0:07:49.200 --> 0:08:03.880 Speaking about bank earnings. We are broadcasting from the Bloomberg 0:08:04.000 --> 0:08:07.800 Interactive Broker's studios. I'm pim Fox along with my co 0:08:07.920 --> 0:08:11.640 host and colleague, A Lisa Abramwitz. Just for an moment, 0:08:11.760 --> 0:08:15.040 imagine that you are in charge of a one hundred 0:08:15.040 --> 0:08:19.160 and fifty three year old company that started life in 0:08:19.200 --> 0:08:24.080 the pulp business, a paper mill in Finland, and after 0:08:24.160 --> 0:08:27.520 a series of reorganizations, it turns out that you have 0:08:27.680 --> 0:08:32.680 remade yourself in just twelve months. Here's what happened at Nokia. 0:08:33.040 --> 0:08:36.360 In April of the company completed the sale of its 0:08:36.400 --> 0:08:40.439 mobile phone handset business to Microsoft that accounted for more 0:08:40.480 --> 0:08:45.600 than half of the company's sales. In April of Alcatel 0:08:45.679 --> 0:08:53.040 Lucent agreed to Nokia's sixteen point six billion dollar buyout offer. 0:08:53.160 --> 0:08:57.120 The deal closed in January. It has created the world's 0:08:57.120 --> 0:09:02.120 second biggest telecom equipment company. Hind Ericsson here to tell 0:09:02.200 --> 0:09:07.120 us about transformation is the chairman of Nokia. Resto Salisma 0:09:07.320 --> 0:09:11.480 He is the author of a new book entitled Transforming 0:09:11.520 --> 0:09:17.600 Nokia The Power of Paranoid Optimism to Lead through Colossal Change, 0:09:17.600 --> 0:09:19.439 and he joints us here in our studios. Thank you 0:09:19.520 --> 0:09:21.760 very much, sir for being here. It's great to be here. 0:09:22.080 --> 0:09:26.400 Tell us why you decided to write this book. Well, 0:09:26.480 --> 0:09:29.880 I believe in learning. I'm an entrepreneur by background, and 0:09:31.240 --> 0:09:34.720 if you want to develop your company, every time you 0:09:34.800 --> 0:09:37.520 do something, you need to look back what worked out, 0:09:37.600 --> 0:09:40.560 what didn't work out, to create a culture of learning, 0:09:40.600 --> 0:09:43.000 so that people always sort of do a post mortem 0:09:43.640 --> 0:09:47.680 after they finished a project. And this is about learning. 0:09:47.800 --> 0:09:52.440 It's about sharing the story of how to create a 0:09:52.559 --> 0:09:56.960 trusting environment, how to promote teamwork, how to promote openness, 0:09:57.760 --> 0:10:00.959 how to make bad news flow to the top quickly 0:10:01.400 --> 0:10:03.920 so that people can react to what is actually happening. 0:10:04.880 --> 0:10:08.040 We were sort of poisoned by the success of Nakia 0:10:08.040 --> 0:10:11.880 as a handset vendor, and that toxic side effect of 0:10:11.960 --> 0:10:17.080 success faces every single company that is hugely successful. And 0:10:17.120 --> 0:10:20.480 I think our lessons are worth sharing with other companies. 0:10:21.120 --> 0:10:24.120 So what's the toxic side effect? Because at its peak, 0:10:24.160 --> 0:10:27.360 Nokia is the world's largest mobile handsup maker and cadet 0:10:27.440 --> 0:10:32.040 for about four of Finland's entire economic output. How is 0:10:32.080 --> 0:10:35.960 that a poisoning factor? Because when you're at the top 0:10:36.000 --> 0:10:38.120 of the world and everybody is telling you that you 0:10:38.160 --> 0:10:41.560 are the best thing ever, you start to believe that. 0:10:42.640 --> 0:10:46.679 And when you start to believe that, you become complacent. 0:10:47.240 --> 0:10:50.959 You start paying more attention to external factors such as 0:10:50.960 --> 0:10:53.720 share price and what the analysts are writing, what the 0:10:53.800 --> 0:11:00.120 media says, rather than customers, got technology, employees, competition, and 0:11:00.800 --> 0:11:07.480 those small things accumulate and suddenly your competitiveness starts to disappear, 0:11:07.880 --> 0:11:10.160 but you may not notice because you're not paying attention 0:11:10.200 --> 0:11:15.320 to those crucial details anymore. You've been described as someone 0:11:15.520 --> 0:11:22.400 who has been motivated as much by maximum returns as 0:11:22.480 --> 0:11:28.640 by soft values. Can you explain that a little bit? Well, 0:11:28.679 --> 0:11:33.560 Like many entrepreneurs, I believe that the long term is 0:11:33.600 --> 0:11:38.480 the the only real horizon. I don't follow daily share 0:11:38.520 --> 0:11:42.120 price movements at all. It may be two weeks between 0:11:42.720 --> 0:11:45.960 I pay attention to what the share price is. I 0:11:46.040 --> 0:11:50.360 want to build companies where employees really want to be 0:11:50.400 --> 0:11:53.800 proud of not only what the company achieves, but how 0:11:53.880 --> 0:11:58.040 they achieve That that how thing is so important, and 0:11:58.120 --> 0:12:01.240 that's all about the long term. So perhaps you don't 0:12:01.280 --> 0:12:03.520 pay attention to the share price, but the shares have 0:12:03.640 --> 0:12:07.840 risen more than since you took over in two thousand 0:12:07.920 --> 0:12:10.640 and twelve the company, so I will say that it 0:12:10.679 --> 0:12:14.600 has done well. How do you foster that feeling though, 0:12:14.960 --> 0:12:18.560 of pride and belief in the company and its purpose, 0:12:18.679 --> 0:12:23.800 especially as its purpose changes. And there are certain core 0:12:23.840 --> 0:12:29.480 elements that that remain and survive all changes. And for example, 0:12:30.080 --> 0:12:33.360 in Nokia, as we started rebuilding and transforming the company, 0:12:33.400 --> 0:12:37.360 we went back to our values from the nineties, which 0:12:37.640 --> 0:12:40.760 sort of resonated with people whose they they remember how 0:12:40.800 --> 0:12:44.840 in the nineties Nokia grew from being completely unknown to 0:12:44.960 --> 0:12:49.520 the top of the world. And it's it's that sentimental 0:12:49.640 --> 0:12:53.720 feeling that we are all humans aren't driven by feelings 0:12:53.720 --> 0:12:57.480 and emotions. It's not about fact only. Although I have 0:12:57.559 --> 0:13:00.199 to wonder. I mean a big conglomerate, right, I mean 0:13:00.240 --> 0:13:02.360 a lot of conglomerates are facing a lot of issues 0:13:02.400 --> 0:13:04.360 because they have to kind of figure out what are 0:13:04.400 --> 0:13:06.319 they right and when we're seeing this with General Electric 0:13:06.360 --> 0:13:09.319 for example, So you know, belief and in faith, in 0:13:09.559 --> 0:13:11.840 a sense of pride or go so far, But what 0:13:11.880 --> 0:13:14.439 about the skills that you need to overhaul, etcetera. When 0:13:14.440 --> 0:13:16.959 you when you make a big shift, that's a that's 0:13:16.960 --> 0:13:21.360 a good point. If you have a strong foundation of trust, 0:13:22.720 --> 0:13:26.760 which means openness, which needs means being ready for both 0:13:26.800 --> 0:13:30.640 bad news and good news, then you can experiment. People 0:13:31.040 --> 0:13:33.400 have the courage to try out new things even if 0:13:33.440 --> 0:13:35.280 they know they might fail, because they know that if 0:13:35.320 --> 0:13:38.840 I fail, nothing bad will happen. And when you experiment, 0:13:39.120 --> 0:13:41.880 you'll learn, and if you can do that at a 0:13:42.000 --> 0:13:48.760 rapid cycle, then you'll survive the unpredictable changes in the environment. Now, 0:13:48.800 --> 0:13:51.600 you just went back to school in order to fulfill 0:13:51.679 --> 0:13:54.520 exactly some of these things. Explain what you're learning at 0:13:54.559 --> 0:13:57.520 school and why you decided to do this. Yeah, like 0:13:57.559 --> 0:14:01.280 many other leaders, I was challenging ins by machine learning 0:14:01.679 --> 0:14:05.080 and what it can do. And like many others, I 0:14:05.120 --> 0:14:08.560 was told by my teams sort of what it means, 0:14:09.200 --> 0:14:13.280 and I learned those bullet points by heart, and like 0:14:13.360 --> 0:14:16.760 a paratte I went out and gave presentations on the 0:14:16.840 --> 0:14:20.840 power of machine learning without understanding the whole thing at all. 0:14:21.560 --> 0:14:23.520 And then I sort of woke up that this cannot be. 0:14:23.600 --> 0:14:26.640 I can't tell the world that machine learning will be 0:14:26.680 --> 0:14:29.600 the key component of our future competitiveness if I don't 0:14:29.720 --> 0:14:33.560 understand how it works. And then I went back to 0:14:33.600 --> 0:14:36.440 school and I have studied programming again. I have taken 0:14:36.840 --> 0:14:39.600 six courses in machine learning programming and done so all 0:14:39.720 --> 0:14:43.200 sorts of architectures. And then I created a training program 0:14:43.320 --> 0:14:46.960 based on what I now understood and tried to create 0:14:47.040 --> 0:14:50.000 content that I would have wanted somebody to tell me 0:14:50.880 --> 0:14:53.080 when I was trying to figure out what does machine 0:14:53.160 --> 0:14:56.560 learning mean for us? And this has been something of 0:14:56.600 --> 0:15:00.040 an inspiration to our R and D people, who I 0:15:00.120 --> 0:15:02.320 felt and come to me and said that I'm being 0:15:02.360 --> 0:15:04.360 a bit of shame that our chairman knows more about 0:15:04.400 --> 0:15:07.440 machine learning than I do. I'm not taking night courses 0:15:07.520 --> 0:15:10.000 on machine learning, and that's of course music to my ears. 0:15:10.080 --> 0:15:12.480 Let's let's sign up for this well, the power of shame, 0:15:12.600 --> 0:15:15.560 right if if if your fosters more about your job 0:15:15.600 --> 0:15:17.520 than you do, you start to feel like you gotta 0:15:17.560 --> 0:15:20.160 catch up. Risto Celisma, thank you so much for being 0:15:20.160 --> 0:15:23.080 with us, and thank you congratulations on your book, Transforming 0:15:23.080 --> 0:15:28.200 Nokia The power of Paranoid Optimism to lead through colossal change. 0:15:28.200 --> 0:15:32.000 Resto Celis's chairman of Nokia also chairman and founder and 0:15:32.080 --> 0:15:35.720 former chief executive of f Secure Corporation. Here in our 0:15:35.720 --> 0:15:50.440 eleven three oh studios. Washington Post columnist and known critic 0:15:50.560 --> 0:15:56.120 of Saudi Arabia disappeared mysteriously. Turkey is accusing uh Saudi 0:15:56.160 --> 0:16:01.000 Arabia of murdering the journalist in an alleged attack that 0:16:01.240 --> 0:16:04.440 was planned. Joining us now as Bobby got Ghosh. Bobby 0:16:04.440 --> 0:16:07.280 Ghosh is editor of Bloomberg Opinion based in London. Bobby, 0:16:07.320 --> 0:16:09.480 thank you so much for being with us. First, can 0:16:09.520 --> 0:16:12.440 you explain what we know at this point about this 0:16:12.560 --> 0:16:17.120 situation and why it's so important. But we know that 0:16:17.200 --> 0:16:21.000 Jamal Kashogi about a week ago went into the Saudia 0:16:21.120 --> 0:16:25.840 consulate in Istanbul to collect some papers, um, and that 0:16:25.960 --> 0:16:29.360 was the last anybody saw or heard from him. Um. 0:16:29.400 --> 0:16:32.640 We know that the Turkish authorities have been leaking to 0:16:32.840 --> 0:16:36.560 the media, both local as well as international media, that 0:16:36.680 --> 0:16:40.560 they believed that they had evidence that Jamal Kashogi was 0:16:40.800 --> 0:16:43.720 first tortured and then murdered and then that his body 0:16:43.800 --> 0:16:47.120 was removed from the Saudi consul. That they also have 0:16:47.280 --> 0:16:52.440 tracked the movements of a private aircraft with fifteen passengers 0:16:52.440 --> 0:16:55.320 that arrived that very day. They believe that these passengers 0:16:55.680 --> 0:16:58.440 included people who were responsible for the torture and murder. 0:16:59.080 --> 0:17:02.720 This is the extent off These are the facts that 0:17:02.760 --> 0:17:07.720 we know. UM. This is important because it is it 0:17:07.880 --> 0:17:12.359 comes while Saudi Arabia is trying to change its image 0:17:12.400 --> 0:17:15.359 in the world. The crown Prince, the relatively new Crown 0:17:15.400 --> 0:17:19.760 Prince um moment Bin Salman, he's better known as MBS. 0:17:20.240 --> 0:17:25.000 He has been trying to change the way the country behaves. 0:17:25.000 --> 0:17:27.520 He has been trying to reform economy, trying to change 0:17:28.400 --> 0:17:31.840 many of the social regulations in the country, and trying 0:17:31.840 --> 0:17:33.840 to improve its image in the world. So this comes 0:17:33.840 --> 0:17:36.320 at a time this is this couldn't have been worse 0:17:36.440 --> 0:17:40.639 type UM. This incident. If it is true that Jamal 0:17:40.800 --> 0:17:43.960 was killed in the Saudi consulate buy Saudi officials on 0:17:44.080 --> 0:17:48.480 the orders of senior Saudi figures in government, then this 0:17:48.560 --> 0:17:50.520 is not a new and improved Saudi Areia. This is 0:17:50.600 --> 0:17:52.720 very much an old one. In fact, in some ways 0:17:52.760 --> 0:17:56.920 it is worse than the old Saudi Arabia Bobby Ghost. 0:17:57.200 --> 0:18:00.639 This also has implications for the relations and ship between 0:18:00.680 --> 0:18:04.840 the United States and Saudi Arabia. Correct yes, name it 0:18:04.920 --> 0:18:09.160 does because Jamal was a resident of the United States 0:18:09.160 --> 0:18:13.760 of Washington. UM. He was a columnist of Washington Post, 0:18:14.119 --> 0:18:17.399 well known in Washington political and diplomatic circles, were liked 0:18:17.760 --> 0:18:21.240 in those circles. UM. This is important because Saudi Arabia 0:18:21.320 --> 0:18:25.119 is very important to the Trump administration. Donald Trump's President Trump, 0:18:25.320 --> 0:18:29.080 his first international trip was to Saudi Arabia. UM. His 0:18:29.520 --> 0:18:33.119 son in law, Jared Kushner, has a close personal relationship 0:18:33.160 --> 0:18:36.480 with the Cown Prince. UM. The Trump administration has made 0:18:36.480 --> 0:18:38.200 a big deal of the fact that they're very close 0:18:38.240 --> 0:18:42.120 to South Arabia. So anything that reflects poorly on South Arabia, 0:18:42.520 --> 0:18:46.800 especially since it involves an American resident, UM, he is 0:18:46.800 --> 0:18:48.840 going to there's going to be a splashback on the 0:18:48.840 --> 0:18:52.280 Trump administration. Bobby, It's really interesting in light of the 0:18:52.320 --> 0:18:55.280 news that we have this morning with Turkey freeing in 0:18:55.320 --> 0:18:58.480 the detained pastor that President Trump and his administration have 0:18:59.400 --> 0:19:04.240 argued war, and it's interesting district contrast the rhetoric out 0:19:04.240 --> 0:19:07.760 of the Trump administration around that versus the rhetoric around 0:19:08.160 --> 0:19:12.119 this particular incident, and that basically President Trump seems to 0:19:12.160 --> 0:19:15.560 be taking a pretty hands off approach to this, saying yeah, 0:19:15.600 --> 0:19:20.320 well you know who knows why. Argument This argument is 0:19:20.320 --> 0:19:23.240 that jama Kahoki is not an American citizen, whereas the pastor, 0:19:23.320 --> 0:19:27.000 of course he's an American citizen. Unfortunately, that argument won't 0:19:27.040 --> 0:19:31.560 wash because you know, States does have a responsibility for 0:19:31.640 --> 0:19:34.840 somebody who was legally resident in Washington. It has a 0:19:34.880 --> 0:19:38.199 responsibility because Saudi Arabia is a major ally, and it 0:19:38.240 --> 0:19:40.360 has a responsibility as the leader of the free world, 0:19:40.400 --> 0:19:44.400 as a beacon for for free speech and a free expression. 0:19:44.520 --> 0:19:50.639 And Jamaica Shokei was essentially exercising his free speech. He 0:19:50.800 --> 0:19:53.640 was not I would I think we should point out 0:19:53.680 --> 0:19:57.119 he was not a strident opponent of the Soudi regime. 0:19:57.160 --> 0:20:00.520 He was very much a part of the South, the elite. 0:20:00.760 --> 0:20:05.360 His criticism had been quite mild. He supported the conference 0:20:05.359 --> 0:20:08.639 when the conference was appointed, he disagreed with some of 0:20:08.680 --> 0:20:12.159 the policies at the conference, then implemented and wrote about it. 0:20:12.240 --> 0:20:16.440 That's the extent. This is not some left wing radical 0:20:17.320 --> 0:20:20.160 who's hiding out in the United States and taking pot 0:20:20.160 --> 0:20:24.480 shots at a regime. Is it possible that the United 0:20:24.520 --> 0:20:28.200 States will conduct an investigation and if it does and 0:20:28.400 --> 0:20:33.760 find something untoward, that there will be sanctions. Well, a 0:20:33.840 --> 0:20:39.040 number of senior senators in the US have pressed the 0:20:39.080 --> 0:20:44.199 presidents to do exactly that. Um Ran Paul the the 0:20:44.359 --> 0:20:47.720 Senator from Kentucky, is threatening to call a vote in 0:20:47.760 --> 0:20:52.480 the Senates to block all American arms sales to sell 0:20:52.520 --> 0:20:55.720 the Arabia. He's run into tens hundreds of billions of dollars. 0:20:56.480 --> 0:21:00.159 Very senior American political figures are taking this seriously. Um 0:21:00.320 --> 0:21:03.199 The Trump administration might try to wriggle out of it, 0:21:03.680 --> 0:21:07.720 but if the if the Senators keep pressing and keep 0:21:07.760 --> 0:21:11.879 demanding answers, uh, then I think it'd be hard for 0:21:12.200 --> 0:21:16.200 the White House to keep avoiding it. Bobby, just real 0:21:16.280 --> 0:21:19.120 quick here, there are a number of company leaders who 0:21:19.119 --> 0:21:20.919 have already said that they're not going to attend the 0:21:21.000 --> 0:21:25.320 so called Davos in the Desert event that is upcoming 0:21:25.640 --> 0:21:28.600 because of this incident. How significantly will that gain the 0:21:28.600 --> 0:21:33.000 attention of Saudi Arabian leadership. But this is a very 0:21:33.080 --> 0:21:37.760 very important, in fact, arguably even more than than NGOs 0:21:37.840 --> 0:21:42.080 or human rights organizations complaining about what happened to to Jamal. 0:21:42.520 --> 0:21:45.600 This is going to make a much greater impact because 0:21:45.600 --> 0:21:49.560 a big part of the Crown Prince's reform agenda is 0:21:49.600 --> 0:21:53.600 to bring more foreign and private investment investment into the country. 0:21:54.000 --> 0:21:57.360 If major business leaders are backing out and don't want 0:21:57.359 --> 0:22:00.360 to be associated with this event, which is a sort 0:22:00.359 --> 0:22:04.520 of crown jewel of the of the program, that's a 0:22:04.560 --> 0:22:07.159 big deal. I want to thank you very much for 0:22:07.240 --> 0:22:10.760 joining us. Bobby Ghosh is a Bloomberg opinion editor speaking 0:22:10.800 --> 0:22:15.120 about a Saudi Arabia Turkey and the disappearance of the journalist. 0:22:15.160 --> 0:22:19.240 Jamal also just mentioned that Bloomberg is a sponsor of 0:22:19.280 --> 0:22:22.879 the devas and we are monitoring this situation. This is 0:22:22.880 --> 0:22:36.280 Bloomberg here to tell us more about municipal markets as 0:22:36.320 --> 0:22:40.760 Amanda Alright, municipal bond reporter for Bloomberg. She joins us 0:22:40.760 --> 0:22:45.119 here in our Bloomberg Interactive Broker's studios. Amanda, thank you 0:22:45.240 --> 0:22:48.359 very much for being with us. Before we get into 0:22:48.359 --> 0:22:50.359 sort a big picture, you know, trends and so on, 0:22:50.800 --> 0:22:52.880 I want to ask you about this really. I thought 0:22:52.920 --> 0:22:54.760 it was a very interesting story having to do with 0:22:54.840 --> 0:22:58.480 Los Angeles and what the city, what Los Angeles does 0:22:59.080 --> 0:23:02.840 with the revenue that it receives from parking finds from 0:23:02.960 --> 0:23:07.160 sales taxes. Explain what they do now and what might 0:23:07.280 --> 0:23:09.720 happen in the future. Sure. So. We had a really 0:23:09.720 --> 0:23:12.280 good story this week by reporter rom e Var Gazy 0:23:12.480 --> 0:23:15.919 um So. She wrote about Los Angeles considering UM creating 0:23:15.920 --> 0:23:17.959 a public bank. UM. It would be the first U. 0:23:18.000 --> 0:23:20.200 S city to do so. Um So what that means 0:23:20.240 --> 0:23:23.760 is that it would move it's eleven billion portfolio UM 0:23:23.800 --> 0:23:25.800 from some of the biggest banks in the country to 0:23:26.119 --> 0:23:29.040 you know, self managed UM. It would invest in you know, 0:23:29.119 --> 0:23:31.479 local projects and kind of you know, seek to have 0:23:31.560 --> 0:23:34.200 more of like an E. S. G UM mindset rather 0:23:34.240 --> 0:23:38.000 than working with UM. Some banks that can come under controversy. 0:23:38.200 --> 0:23:40.840 That's interesting. Why would they be doing this? Is it 0:23:41.080 --> 0:23:45.720 because of that environmental, social and governance issue or would 0:23:45.720 --> 0:23:49.000 there also be in a financial incentive. So the story 0:23:49.040 --> 0:23:50.920 talks a little bit about kind of how this effort 0:23:51.119 --> 0:23:53.480 UM you know, first started and so a lot of 0:23:53.520 --> 0:23:56.640 it was prompted by UM concerns about the Dakota Access 0:23:56.680 --> 0:24:00.359 pipeline UM and work with Wells Fargo a few years ago. 0:24:00.560 --> 0:24:04.119 Um So. Actually there was a big movement around public 0:24:04.160 --> 0:24:07.480 banks UM during the Occupy Wall Street time. Um So 0:24:07.560 --> 0:24:09.359 it does sort of come from this E. S. G 0:24:09.520 --> 0:24:11.879 mind frame, and we do see Los Angeles being one 0:24:11.920 --> 0:24:14.080 of those cities that's you know, very much a leader 0:24:14.080 --> 0:24:17.080 when it comes to e s g UM issues, Amanda, 0:24:17.119 --> 0:24:18.600 I want to shift gears a little bit to what 0:24:18.680 --> 0:24:20.760 happened in the past week. There were some pretty big 0:24:20.880 --> 0:24:23.520 outflows I believe the biggest and more than a year 0:24:23.560 --> 0:24:27.080 from municipal bond funds in the United States. Why is 0:24:27.119 --> 0:24:30.080 this just a rising rates kind of story. Yes, So 0:24:30.280 --> 0:24:32.480 the investors that I've spoken with, um, you know, one 0:24:32.480 --> 0:24:35.600 of them described it as simple bond math um. Basically, 0:24:35.680 --> 0:24:39.640 retail investors they start seeing the losses that munis have posted. UM, 0:24:39.680 --> 0:24:42.320 they see you know, the FED telegraphing more rates, and 0:24:42.359 --> 0:24:44.840 they get a little bit nervous about their holdings, and 0:24:44.880 --> 0:24:47.320 so they start pulling out of these funds. UM. It 0:24:47.440 --> 0:24:50.080 is something that investors keep a close eye on because 0:24:50.080 --> 0:24:53.080 retail is so important to this market. UM. And you know, 0:24:53.119 --> 0:24:55.240 banks and insurance companies have kind of been on the 0:24:55.280 --> 0:24:58.360 sidelines after their taxes were cut earlier this year. UM. 0:24:58.400 --> 0:25:00.560