WEBVTT - P&L: How Donald Trump May Save Banks Billions 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.560 you and your money, whether you at the grocery store 0:00:16.800 --> 0:00:19.960 or the trading floor. Find the Bloomberg p L Podcast 0:00:20.000 --> 0:00:28.800 on iTunes, SoundCloud and at Bloomberg dot com. There's been 0:00:28.840 --> 0:00:33.360 a big question Pim ever since Donald Trump's election about 0:00:33.560 --> 0:00:37.680 bank regulation and just how much it would get rolled back. 0:00:37.720 --> 0:00:39.839 Well to answer some of those questions or possibly give 0:00:39.920 --> 0:00:43.080 us some insight, uh Silla Brush, a Bloomberg News reporter 0:00:43.120 --> 0:00:46.639 covering regulation, wrote a story with the headline Trump may 0:00:46.680 --> 0:00:50.600 save banks billions by disrupting global rules. We want to 0:00:50.600 --> 0:00:53.760 bring in Silla Brush himself to explain which rules are 0:00:53.800 --> 0:00:56.800 at greatest risk of getting rulled back. Silla, thanks for 0:00:56.840 --> 0:00:58.880 joining us. Great to be with you. So what do 0:00:58.960 --> 0:01:02.920 you think is most at rich? Which provisions are most 0:01:02.920 --> 0:01:05.639 at risky? It rolled back to give banks more leeway 0:01:05.680 --> 0:01:08.399 at this point. So one of the interesting things it's 0:01:08.720 --> 0:01:10.800 in the focus of this story is about a whole 0:01:10.920 --> 0:01:13.880 range of rules at the global level that aren't yet 0:01:13.920 --> 0:01:17.200 actually on the books. So It's an interesting situation where 0:01:17.800 --> 0:01:20.800 regulators at the global level are trying to finalize these 0:01:20.840 --> 0:01:24.200 new standards, and yet this election has just occurred and 0:01:24.440 --> 0:01:28.400 Donald Trump, president elect, wants to in his own words, 0:01:28.600 --> 0:01:33.679 dismantle financial regulations. So for rules, uh that are aren't 0:01:33.720 --> 0:01:36.240 even on the books, it just makes it at least 0:01:36.959 --> 0:01:39.679 perhaps much less likely that they'll ever get on the books. 0:01:39.800 --> 0:01:42.199 So it's a different question than rolling him back, which 0:01:42.319 --> 0:01:44.560 he very well may do. For plenty of rules that 0:01:44.560 --> 0:01:46.560 are already you know, on the books in the US, 0:01:46.760 --> 0:01:49.720 can you describe some of the controversial rules and what 0:01:49.800 --> 0:01:53.120 they might do to the bank stocks and to their 0:01:53.120 --> 0:01:56.600 ability to generate profits. So some of these rules that 0:01:56.680 --> 0:01:58.800 regulators have been spending the better part of the year 0:01:58.840 --> 0:02:01.880 at the global level trying to to finish off, are 0:02:02.320 --> 0:02:06.280 you restrictions on banks ability to use their own internal 0:02:06.320 --> 0:02:10.320 models to basically decide how risky various types of loans, 0:02:10.480 --> 0:02:15.480 corporate corporate securities, bonds, and other assets on their books are. 0:02:15.560 --> 0:02:18.920 And these are very complicated models, but they they're basically 0:02:19.040 --> 0:02:24.400 used to determine how much capital banks have. So you know, 0:02:24.480 --> 0:02:27.959 if these don't if these new restrictions don't come on 0:02:28.800 --> 0:02:32.160 for banks, in the US or around the world. Then 0:02:32.760 --> 0:02:36.360 you know the warnings from the industry where that these 0:02:36.480 --> 0:02:38.760 these rules could cost billions of dollars, in some cases 0:02:38.880 --> 0:02:41.840 hundreds of billions of dollars, and they were generally going 0:02:41.880 --> 0:02:44.840 to be softened over the They were getting softened over 0:02:44.840 --> 0:02:47.000 the course of the year. But now there's this big 0:02:47.080 --> 0:02:50.400 question about whether these rules actually make it on the books. 0:02:50.600 --> 0:02:53.079 Well and talk a little bit. I mean Donald Trump 0:02:53.160 --> 0:02:55.520 is is going to be the president of the United States, 0:02:55.919 --> 0:02:59.799 uh and potentially could soften rules in the United States. 0:03:00.040 --> 0:03:04.280 Why would this have such a big effect on global regulation? 0:03:05.000 --> 0:03:07.600 So the US, UH, you know, there are these you know, 0:03:07.680 --> 0:03:10.000 several different bodies at the global level that try to 0:03:10.080 --> 0:03:14.320 set standards UM that work across around the world, that 0:03:14.440 --> 0:03:18.400 basically set minimum standards that every nation jurisdiction has to 0:03:18.400 --> 0:03:21.400 comply with. The idea general ideas that they want to 0:03:21.400 --> 0:03:25.680 prevent regulatory arbitrage banks moving from one jurisdiction to the 0:03:25.760 --> 0:03:30.080 next because the rules are softer and easier. UM. The 0:03:30.200 --> 0:03:35.040 US has several seats on these tables, at these international tables, 0:03:35.200 --> 0:03:38.040 and they help set the rules of the road. So 0:03:38.720 --> 0:03:40.920 you know, if these rules don't get put on the 0:03:40.960 --> 0:03:43.960 books and they aren't sort of enforced and implemented. Then 0:03:44.040 --> 0:03:48.160 you start to get serious questions about you know what 0:03:48.160 --> 0:03:50.400 what the sort of power of these international bodies is. 0:03:50.480 --> 0:03:53.680 It's too early to answer those questions really, but it 0:03:53.760 --> 0:03:58.680 certainly raises the question as far as domestic banking goes, 0:03:58.800 --> 0:04:01.360 can you give us any side into what are the 0:04:01.480 --> 0:04:05.560 hot button issues for domestic banks? For domestic I mean 0:04:05.560 --> 0:04:08.040 the US banks, so that we've already seen sort of 0:04:08.440 --> 0:04:12.240 big concerns about you know, what will happen about the 0:04:12.280 --> 0:04:15.920 Consumer Financial Production Bureau UM, and that affects you know, 0:04:15.920 --> 0:04:19.640 a whole range of domestic banks and mortgages and credit cards. 0:04:20.120 --> 0:04:24.800 And you know whether Congress at at Trump's sort of 0:04:24.839 --> 0:04:29.880 direction or encouragement UM starts to change sort of the 0:04:30.480 --> 0:04:33.720 CFPP is ability to make make rules and and crack 0:04:33.800 --> 0:04:37.919 down on the industry. UM. That's a major area. UH, 0:04:38.120 --> 0:04:51.680 that's already popped up since the election. It is a 0:04:51.839 --> 0:04:56.200 bond blood bath out there. Will this continue or is 0:04:56.279 --> 0:05:00.880 this time when we finally see yields peak and then stabilized. 0:05:00.920 --> 0:05:03.039 To answer that question, I want to bring Eric Stein, 0:05:03.200 --> 0:05:07.680 co director of Global fixed Income at Eaton Vance. Uh. Eric, 0:05:07.720 --> 0:05:11.360 thank you so much for joining us. What do you 0:05:11.400 --> 0:05:14.000 think is this? Is this the start of a larger trend, 0:05:14.160 --> 0:05:16.240 a larger bond sell off, or are we going to 0:05:16.360 --> 0:05:19.400 hit some kind of equilibrium here where yields stabilize. You know, 0:05:19.440 --> 0:05:21.880 I think it certainly could be the start of a 0:05:21.960 --> 0:05:23.920 larger sell off. You know, do I expect to see 0:05:24.400 --> 0:05:26.920 the sell off like we've had basically, you know, every day? 0:05:26.960 --> 0:05:29.480 You know, we had the bond market effectively closed on 0:05:29.600 --> 0:05:32.800 Friday for the Veterans Day holidays. We've really really had 0:05:32.839 --> 0:05:35.800 three trading days post the election. We've seen a significant 0:05:35.800 --> 0:05:38.800 sell off all of those days, really significant sell off 0:05:38.839 --> 0:05:41.919 in the bond market since just about the time that 0:05:42.200 --> 0:05:44.920 the President elect now Trump gave his speech about three 0:05:44.960 --> 0:05:48.320 am Tuesday evening going into Wednesday morning. So I think 0:05:48.360 --> 0:05:50.880 most of the sell off, though, has been an increase 0:05:50.920 --> 0:05:53.880 in inflation expectations. If you take nominal treasuries and break 0:05:53.920 --> 0:05:56.800 them between inflation expectations at real rates, there's been some 0:05:56.880 --> 0:05:59.120 increased on the real rate. A lot of it's also 0:05:59.200 --> 0:06:03.640 been an increase of inflation expectations. What are you advising 0:06:03.720 --> 0:06:06.440 clients to do, just sit tight and wait and see 0:06:06.480 --> 0:06:08.440 what happens, or is this the time. If you have 0:06:08.520 --> 0:06:11.480 got if you have gains in the bond market, take 0:06:11.560 --> 0:06:13.599 the gain and wait for a better time. You know, 0:06:13.800 --> 0:06:16.200 I'm somewhat biased, but you know here at the advance 0:06:16.240 --> 0:06:18.599 we do run a number of flexible portfolios or global 0:06:18.640 --> 0:06:21.479 macro strategy are short teration strategy can come fund funds 0:06:21.520 --> 0:06:24.599 that can short funds that can profit from higher rates 0:06:24.720 --> 0:06:28.000 or a stronger US dollar, higher inflation expectations. I think, 0:06:28.040 --> 0:06:30.520 you know, if you think broadly in markets, you know 0:06:30.560 --> 0:06:33.320 we've had declining interest rates. Um, you know, we had 0:06:33.360 --> 0:06:36.160 inflation expectations that got the very low levels. Now those 0:06:36.200 --> 0:06:38.680 were picking up even ahead of the election. But I 0:06:38.680 --> 0:06:40.240 think it's you know, we may be in for a 0:06:40.360 --> 0:06:43.000 very different bond market given that we're certainly going to 0:06:43.080 --> 0:06:46.160 have a larger fisc CO response that should lead to 0:06:46.240 --> 0:06:48.680 higher inflation. Whether or not leads to higher growth I 0:06:48.720 --> 0:06:51.159 think is still to be determined. Um, but I think 0:06:51.200 --> 0:06:54.479 you know, potentially there is higher growth if we get 0:06:54.520 --> 0:06:57.479 some stuff on the tax and regulatory side along with 0:06:57.520 --> 0:07:00.600 some targeted um infrastructure spending, and if we're a new 0:07:00.640 --> 0:07:03.040 growth and inflation paradigm, we should be in a new 0:07:03.080 --> 0:07:06.479 interest rate and inflation expectations paradigm as well. Okay, so Eric, 0:07:06.520 --> 0:07:09.200 since you have a flexible mandate, you can go in 0:07:09.279 --> 0:07:11.520 and buy at this point. At what point do you 0:07:11.560 --> 0:07:16.040 buy a thirty year bond at three yield? I want 0:07:16.040 --> 0:07:17.880 to I want to see it keep backing up from here, 0:07:17.920 --> 0:07:20.800 to be honest, or see you know, a change in 0:07:21.000 --> 0:07:24.360 what people are expecting in terms of the fiscal stimulus 0:07:24.520 --> 0:07:26.880 um that we're that we you know, may be getting 0:07:26.920 --> 0:07:29.400 next year. How do you even plan though? How do 0:07:29.440 --> 0:07:31.600 you how do we even we have no facts? Right 0:07:31.680 --> 0:07:34.920 well exactly so to me, you know, when this election occurred, 0:07:34.960 --> 0:07:37.920 that was certainly surprising. The way I thought about it was, Look, 0:07:37.960 --> 0:07:41.200 the distribution of outcomes has widened. So if you said, 0:07:41.640 --> 0:07:43.880 if we if if Hillary Clinton had been elected, and 0:07:43.920 --> 0:07:46.760 we kind of have a continent continuation, I should say, 0:07:46.760 --> 0:07:49.480 of the same policies, then we'd probably be in this 0:07:49.560 --> 0:07:51.720 kind of muddle through one and a half two percent 0:07:51.840 --> 0:07:55.080 not terrible but not certainly not great growth environment. Now 0:07:55.120 --> 0:07:58.880 with President elect Trump now being ready to take over 0:07:58.960 --> 0:08:02.600 beginning and Jane or of seventeen to be a distributions wider, 0:08:02.640 --> 0:08:05.960 if we get two massive amounts of protectionism, that's that's 0:08:05.960 --> 0:08:08.240 probably a higher probability of recession that we would have 0:08:08.280 --> 0:08:12.240 had frankly under Hillary Clinton administration. However, if we get 0:08:12.280 --> 0:08:15.920 tax and regulatory reform and some target infrastructure spending, that's 0:08:15.920 --> 0:08:20.040 significantly higher probability of two and a half three type growth. 0:08:20.080 --> 0:08:21.760 And I think the way the markets looking at and 0:08:21.800 --> 0:08:24.119 I think this is correct, is we're going to get 0:08:24.200 --> 0:08:28.920 more of the tax, regulatory and fiscal side. The protectionism side, 0:08:28.920 --> 0:08:31.000 it's still to be determined. So I certainly agree with 0:08:31.000 --> 0:08:33.440 the tony of your question. No one really knows, but 0:08:33.480 --> 0:08:36.320 I'd say right now the distribution of outcomes is certainly 0:08:36.360 --> 0:08:38.520 a lot wider than then, let's say, what it was 0:08:39.080 --> 0:08:41.880 a week ago pre election. Eric, you think that the 0:08:41.960 --> 0:08:45.560 increase in yields will have any effect on bond issuance 0:08:45.600 --> 0:08:49.000 by corporate borrowers, Uh, you know, certainly. I think bar 0:08:49.200 --> 0:08:51.440 you know, Barros to some extent have been, you know, 0:08:51.679 --> 0:08:55.600 of all types of instruments, you know, emerging market countries, 0:08:55.679 --> 0:08:59.079 corporates have been, you know, to some extent expecting higher rates. 0:08:59.120 --> 0:09:02.000 I don't think anyone is expecting, you know, higher rates 0:09:02.160 --> 0:09:05.280 in the exact manner, uh, and kind of speed that 0:09:05.280 --> 0:09:07.520 we're getting them now. But you know, to the extent 0:09:07.559 --> 0:09:10.480 that they think we're going into a lot higher rate regime, 0:09:10.480 --> 0:09:12.840 which I don't think people really think. But um, you know, 0:09:12.880 --> 0:09:16.240 maybe they want to issue quicker um and and kind 0:09:16.280 --> 0:09:18.120 of get that out the way. With the extent that 0:09:18.200 --> 0:09:19.640 you know, they want to be a little more tactical 0:09:19.679 --> 0:09:22.400 and wait till markets will will settle down. Um you know, 0:09:22.559 --> 0:09:25.840 maybe maybe then they would wait. But certainly, at some level, uh, 0:09:25.840 --> 0:09:28.360 it gets it gets to be significantly more costly. That 0:09:28.440 --> 0:09:31.520 being said, rates from a historical perspective, uh, and even 0:09:31.520 --> 0:09:33.960 from where we were a couple of years ago, are 0:09:33.960 --> 0:09:36.720 still at very low levels. It's just that they've they've rallied, 0:09:36.880 --> 0:09:39.920 you know, really since the July time period, they've they've 0:09:39.960 --> 0:09:43.880 sold off pretty significantly, obviously accelerated that sell off since 0:09:43.880 --> 0:09:46.440 the election outcome. Eric, We've seen a lot of bonds 0:09:46.480 --> 0:09:49.679 sell off. We've seen investment grade corporate bonds, we've seen 0:09:49.720 --> 0:09:53.480 emerging markets debt, and of course treasuries, which asset class 0:09:53.520 --> 0:09:56.080 with in fixed income. Do you think is the most 0:09:56.360 --> 0:10:01.320 dangerous right now? Most most dangerous it's to me probably 0:10:01.800 --> 0:10:05.520 it's probably still to some extent treasuries, um, just because 0:10:05.559 --> 0:10:08.960 the nominal treasuries I should say I like tips. I 0:10:09.000 --> 0:10:11.120 think tips are good places to be if you do 0:10:11.200 --> 0:10:13.560 them on if you buy them on a treasury hedge basis. 0:10:14.080 --> 0:10:16.679 I think you know US treasuries to the extent you know, 0:10:16.840 --> 0:10:18.800 as I said earlier, we're gonna we likely are gonna 0:10:18.800 --> 0:10:22.400 have higher inflation. We're going to have more fiscal easing, 0:10:22.440 --> 0:10:25.120 which is, you know, whether it comes from taxes or spending, 0:10:25.160 --> 0:10:28.040 were likely some combination of both. That means more issuance 0:10:28.360 --> 0:10:30.720 and some more issues should we hand the treasury market? 0:10:31.040 --> 0:10:33.120 And if we get more economic growth, which I think 0:10:33.160 --> 0:10:35.400 is certainly not a given, but the potential for being 0:10:35.400 --> 0:10:39.560 in a higher growth regime, uh certainly exists. Um, you know, 0:10:39.600 --> 0:10:42.320 then those are three bad things. More growth, more issuance, 0:10:42.360 --> 0:10:45.240 and more inflation are all bad for nominal holders of 0:10:45.240 --> 0:10:48.080 of U S treasuries. What if you could speak to 0:10:48.120 --> 0:10:51.280 the issue of high yield debt. There's been a big 0:10:51.280 --> 0:10:54.360 sell off just looking at the eye shares iebox high 0:10:54.440 --> 0:10:57.840 yield et F. He's taken a looking down about four 0:10:57.880 --> 0:11:00.960 and a quarter percent since the beginning November. What about 0:11:01.000 --> 0:11:03.720 high yield? Yes, so, I mean certainly the you know 0:11:03.800 --> 0:11:05.719 you've seen across you know what I'll call kind of 0:11:05.760 --> 0:11:08.120 the riskier credit asset classes. So whether it's high yield 0:11:08.200 --> 0:11:11.040 or emerging markets, you know, what interest rates. If interest 0:11:11.120 --> 0:11:13.120 rates are just going up from kind of a real 0:11:13.200 --> 0:11:17.040 rate perspective, just the economies growing a little bit faster, 0:11:17.160 --> 0:11:19.480 that that doesn't hurt those asset classes that much. But 0:11:19.559 --> 0:11:22.120 I think given the kind of shock of the interest 0:11:22.240 --> 0:11:24.320 rate move, which to me is again a combination of 0:11:24.360 --> 0:11:28.880 potential for more issuance, uh definitely more inflation as well 0:11:28.920 --> 0:11:31.440 as potentially higher real growth, I think you're you're you know, 0:11:31.480 --> 0:11:34.200 you're gonna see some dislocation and credit markets you're seeing 0:11:34.240 --> 0:11:37.079 it right now, and high yield you're seeing is seeing 0:11:37.200 --> 0:11:39.199 in emerging markets as well. So I think you know, 0:11:39.240 --> 0:11:42.160 at some point they're certainly gonna be opportunities in those 0:11:42.200 --> 0:11:45.520 asset classes, whether on an absolute, uh you know, kind 0:11:45.559 --> 0:11:48.559 of standpoint, or kind of relative to to U S. Treasuries. 0:11:48.640 --> 0:11:50.520 So real quick, what do you think is the best 0:11:50.520 --> 0:11:53.600 bet right now? Best bet? So, as I said before, 0:11:53.679 --> 0:11:55.960 I like tips versus um, you know, I like tips 0:11:56.040 --> 0:11:58.319 versus U S treasuries. I also h you know, I 0:11:58.360 --> 0:12:01.320 also like so floating rate asset supporting right bank loans 0:12:01.840 --> 0:12:05.160 clos those are attractive. Also, certain types of mortgage backed 0:12:05.200 --> 0:12:08.600 securities IO interest only mortgage backs that actually have a 0:12:08.679 --> 0:12:11.400 negative duration. We have some of those bonds in our 0:12:11.400 --> 0:12:14.240 short duration Strategic Income fund. Um. You know, those have 0:12:14.280 --> 0:12:17.400 been performing well over the past couple of days. Thank 0:12:17.440 --> 0:12:19.600 you very much for spending time with us. Sarah Stein, 0:12:19.679 --> 0:12:23.040 as a portfolio manager and co director of Global Fixed 0:12:23.080 --> 0:12:27.000 Income for EAT Invents, helps to manage over three hundred 0:12:27.080 --> 0:12:31.600 billion dollars of customer assets. He is based in Boston. 0:12:43.760 --> 0:12:47.160 Samson Electronics, it wants to get into your car, and 0:12:47.200 --> 0:12:50.240 it's spending eight billion dollars to do so. It has 0:12:50.280 --> 0:12:54.120 agreed to buy Harmon International Industries. And here to tell 0:12:54.200 --> 0:12:57.640 us more is Alex Sherman, Bloomberg's Mergers and Acquisitions and 0:12:57.720 --> 0:13:01.160 Deals reporter Alex Sherman. Always a pleasure tell us about this, 0:13:01.320 --> 0:13:05.760 uh recently announced deal to buy Harmon International. I mean, 0:13:05.840 --> 0:13:07.920 I know we keep talking about the car, but is 0:13:07.960 --> 0:13:12.520 Harmon just uh, you know, about automobiles or it is? 0:13:12.520 --> 0:13:15.439 Is it also about audio? Yeah? So I mean if 0:13:15.480 --> 0:13:18.320 you think back, you know a few years now, maybe 0:13:18.320 --> 0:13:21.840 even decades ago, Harmon was all about audio. The BBL 0:13:22.320 --> 0:13:26.800 for sure, audio home system, home audio system card exactly. 0:13:27.280 --> 0:13:29.960 It has gotten recently, it has moved much more into 0:13:29.960 --> 0:13:34.199 the connected car area. And that's for sure why Samsung 0:13:34.280 --> 0:13:37.840 made this deal. Uh. You know, obviously everybody knows Samsung 0:13:37.920 --> 0:13:41.199 for mobile phones. People might be surprised that, uh, they 0:13:41.200 --> 0:13:44.760 own about half of memory chips and cars, so they're 0:13:44.800 --> 0:13:47.400 already there to some degree. Uh. And I feel like 0:13:47.480 --> 0:13:50.160 Samsung must have made the decision that if they really 0:13:50.200 --> 0:13:53.160 want to get into uh you know, audio and and 0:13:53.160 --> 0:13:56.679 and sort of full unconnected car, acquiring Harmon was the 0:13:56.720 --> 0:13:58.760 way to do it. Because this game is all about scale. 0:13:58.920 --> 0:14:01.400 They realized they probably gonna have to compete against Apple 0:14:01.440 --> 0:14:03.719 in the next decade or so. Apple has sort of 0:14:03.760 --> 0:14:05.480 gone back and forth with about how they want to 0:14:05.480 --> 0:14:07.480 get into the car. It seems like they're going to 0:14:07.520 --> 0:14:10.280 do something. Whether that means an acquisition or go it 0:14:10.320 --> 0:14:13.480 alone still to be determined. Um, but this is a 0:14:13.520 --> 0:14:16.680 way for Samsung to sort of be a first mover here. Uh. 0:14:16.760 --> 0:14:18.719 So you know, it's a fairly big price tag eight 0:14:18.720 --> 0:14:22.640 billion dollars. From my understanding and reporting on this, Uh, 0:14:22.680 --> 0:14:26.280 there were some other potential buyers out there. Um, we 0:14:26.320 --> 0:14:28.360 don't know who they are yet, so I will try 0:14:28.360 --> 0:14:30.160 to keep doing reporting and if we can get a 0:14:30.160 --> 0:14:32.400 little bit more clarity on who they might be, they 0:14:32.440 --> 0:14:35.840 are likely to be other large tech companies because more 0:14:35.880 --> 0:14:39.600 of the auto guys eight billion dollars is a bit rich. Well, okay, 0:14:39.600 --> 0:14:42.920 so Samsung is a South Korean company and Harmon is 0:14:43.000 --> 0:14:46.760 a US company based in Sanford, Connecticut, which raises the 0:14:47.000 --> 0:14:50.840 question that you addressed in another story, uh, that you 0:14:50.920 --> 0:14:55.080 co authored with Jonathan Browning, uh, looking at how some 0:14:55.320 --> 0:14:59.640 Chinese companies are getting advice to pump the brakes on 0:15:00.000 --> 0:15:04.040 cential deals in the US. In other words, wait, take 0:15:04.080 --> 0:15:09.240 your time see what President elect Donald Trump's policies are 0:15:09.400 --> 0:15:11.240 before making a move. Can you tell us a little 0:15:11.240 --> 0:15:16.080 more about that? Yeah, So I've spent the last the 0:15:16.160 --> 0:15:18.720 latter part of last week talking to dealmakers and simply 0:15:18.760 --> 0:15:21.080 asking them a straight up question, you know, what does 0:15:21.080 --> 0:15:27.280 the Donald Trump election mean for this inbound Chinese to us? Specifically? Uh, 0:15:27.480 --> 0:15:29.440 you know, over the next four years or so, which 0:15:29.480 --> 0:15:31.640 we should say has been going gangbusters. So that's sort 0:15:31.680 --> 0:15:34.160 of why I asked. It's a volume for Chinese m 0:15:34.200 --> 0:15:36.280 and a inbound to the United States is up like 0:15:37.120 --> 0:15:40.320 over last year. It really was getting off to sort 0:15:40.360 --> 0:15:43.640 of a rocking start at the beginning of the year UM, 0:15:43.720 --> 0:15:45.920 and obviously they're like, it doesn't It doesn't take a 0:15:46.000 --> 0:15:48.840 rocket scientist to think that maybe this may slow down, 0:15:48.920 --> 0:15:54.920 considering how outspoken Trump has been about basically curbing UH 0:15:55.280 --> 0:15:57.760 businesses leaving the United States and going to China. And 0:15:57.760 --> 0:16:00.320 that's exactly what would happen in many of these cases China. 0:16:00.400 --> 0:16:03.080 If China was to come in and buy US target, 0:16:03.080 --> 0:16:04.760 at least some of that business, you'd have to think 0:16:05.160 --> 0:16:08.320 would be rerouted to China. So my answer was sort 0:16:08.320 --> 0:16:13.400 of split. I had at least three advisors um to 0:16:13.560 --> 0:16:16.440 deals meeting bankers or lawyers tell me that they are 0:16:16.480 --> 0:16:20.000 advising their clients to pump the brakes and say, well, 0:16:20.080 --> 0:16:22.120 we don't really know what this means yet, but you'd 0:16:22.120 --> 0:16:24.720 be wise to at least figure out what it means 0:16:25.160 --> 0:16:28.800 before moving ahead with some large US acquisitions. I had 0:16:28.840 --> 0:16:31.040 several other deal makers tell me that no, you know, 0:16:31.120 --> 0:16:34.000 it's sort of industry specific, maybe, but we are not 0:16:34.120 --> 0:16:37.880 seeing a slowdown yet. Chinese buyers still want to get 0:16:37.920 --> 0:16:39.840 into the US. They have a lot of money to 0:16:39.920 --> 0:16:43.960 spend UH, and because of the uncertainty, maybe they're not 0:16:44.040 --> 0:16:48.560 convinced that a Trump presidency will necessarily mean that they 0:16:48.600 --> 0:16:53.040 can stop making large US purchases. Alex Sherman, just to 0:16:53.160 --> 0:16:56.280 focus on deals that we already know about in addition 0:16:56.280 --> 0:17:01.080 to the Harmon International deal by Samsung previously, I know 0:17:01.120 --> 0:17:03.840 that you have reported on the Qualcom deal to acquire 0:17:04.000 --> 0:17:07.879 an XP Semiconductors that was a thirty eight billion dollar deal. 0:17:08.560 --> 0:17:13.959 During the summer, Soft Bank of Japan purchased arm holdings 0:17:14.240 --> 0:17:16.720 for thirty two billion dollars. Are there any more chip 0:17:16.800 --> 0:17:21.240 companies or those kinds of companies left to buy? Well, 0:17:21.400 --> 0:17:23.359 the world is getting smaller, but I would say the 0:17:23.359 --> 0:17:26.560 short answer is yes. I still continue to hear that 0:17:27.200 --> 0:17:29.600 sort of everyone is talking to everyone in chip land. 0:17:29.640 --> 0:17:33.160 This is something that was enormous and it has continued 0:17:33.160 --> 0:17:36.639 on to some people really push the envelope with me 0:17:36.680 --> 0:17:40.920 and say, you know, anything's possible here. So Uh. Some 0:17:40.960 --> 0:17:44.840 companies that we haven't really seen move yet, our Texas Instruments, Uh, 0:17:44.880 --> 0:17:47.639 they haven't made a big acquisition at this point, intel 0:17:47.680 --> 0:17:52.240 Bot Altera in early they that integration process is probably 0:17:52.280 --> 0:17:54.480 to the point now where they could buy something else 0:17:54.480 --> 0:17:57.240 as well. So yes, I would say we should probably 0:17:57.280 --> 0:18:00.400 expect a few more mega chip deals of the next 0:18:00.480 --> 0:18:03.600 year or so. Alex Srban, thank you so much for 0:18:03.680 --> 0:18:06.520 being with us. Alex Sherman of Bloomberg News on the 0:18:06.600 --> 0:18:10.000 latest mergers as well as the conundrum of what Chinese 0:18:10.040 --> 0:18:26.719 companies should do in light of the Trump presidency. Taking 0:18:26.720 --> 0:18:28.679 a look at what's going on in the world of 0:18:28.760 --> 0:18:32.520 dividend paying stocks. Eric Irvine is the chief executive of 0:18:32.600 --> 0:18:35.240 Reality Shares, and Eric, thank you very much for being 0:18:35.400 --> 0:18:39.359 with us. Dividend paying stocks have been very popular with 0:18:39.440 --> 0:18:43.879 investors because bond yields have been so historically low. What 0:18:44.040 --> 0:18:47.320 is their outlook now? Yeah, well, I think it's important 0:18:47.359 --> 0:18:51.280 to distinguish between, first of all, dividend paying stocks that 0:18:51.359 --> 0:18:53.879 are focused on yield and dividend paying stacks that are 0:18:53.920 --> 0:18:57.399 focused on growth, because that's been a tailor of two markets. Indeed, 0:18:57.440 --> 0:19:02.680 the high yielding stocks have been single best performing sectors 0:19:02.760 --> 0:19:05.760 or segments of the U S stock market since since 0:19:05.800 --> 0:19:07.520 the first part of the year, all the way through 0:19:07.800 --> 0:19:10.600 the end of the third quarter, and now they're almost 0:19:10.600 --> 0:19:14.320 the single worst performing segment of the of the XMP five. Wait, 0:19:14.359 --> 0:19:16.840 we just just back up. Can you explain the difference? 0:19:16.880 --> 0:19:21.400 I mean, basically, you're talking about the dividend paying stocks 0:19:21.440 --> 0:19:24.119 like utilities or things that are just steady as you go, 0:19:24.760 --> 0:19:28.680 versus the dividend paying stocks that are dependent on um. 0:19:28.720 --> 0:19:31.399 The more you sort of the more the economy grows, 0:19:31.400 --> 0:19:32.879 the bigger the dividend will be that you'll pay. I 0:19:32.880 --> 0:19:36.520 mean you're basically putting those into two different categories, correct, Yeah, exactly, 0:19:36.560 --> 0:19:39.080 like think of you. I think it's perfect to point 0:19:39.119 --> 0:19:42.320 out utility. So take a utility who's not really growing 0:19:42.320 --> 0:19:44.920 their earnings. They've they've got their user base, they've got 0:19:44.960 --> 0:19:48.159 their their customers, they're not really raising prices. They're just 0:19:48.240 --> 0:19:51.959 focused on continuing to maintain the business and maintain the income. 0:19:52.000 --> 0:19:53.760 So that business is going to pay out a high 0:19:53.800 --> 0:19:56.400 portion of its income in the form of a dividend, 0:19:56.920 --> 0:19:59.240 and it's going to be fairly stable. Maybe the yield 0:19:59.320 --> 0:20:01.840 is as high as three and a half fo in 0:20:01.840 --> 0:20:05.920 that category. Now, contrast that would say a Starbucks who 0:20:06.040 --> 0:20:09.359 is growing its earnings, growing its business, and not quite 0:20:09.359 --> 0:20:11.360 paying out as much of those earnings in the form 0:20:11.400 --> 0:20:13.919 of a dividend, but still paying a nice dividend maybe 0:20:13.920 --> 0:20:16.679 one one and a half to two. Starbucks is going 0:20:16.720 --> 0:20:20.240 to be growing its dividend over time versus that utility 0:20:20.240 --> 0:20:23.000 company which is just going to maintain a stable dividend. Yeah. 0:20:23.040 --> 0:20:26.600 But having said that that, the idea that Starbucks and 0:20:26.640 --> 0:20:30.879 other companies will grow the dividend, that's as much a 0:20:31.040 --> 0:20:35.080 hope and a prayer as it is a contract enforceable 0:20:35.359 --> 0:20:39.720 payment on a bond. Correct. Yeah, exactly, and and so 0:20:39.840 --> 0:20:43.480 welcome to the investment universe. Right. Every everything is really 0:20:43.520 --> 0:20:46.439 comes down to do you believe this company is going 0:20:46.480 --> 0:20:49.520 to continue to do better in the future based on 0:20:50.080 --> 0:20:53.399 really what what we value most, which is earnings growth? 0:20:53.480 --> 0:20:56.520 So can they grow their earnings in the future. If 0:20:56.560 --> 0:21:00.320 they can, likely that dividend will follow. And that's the 0:21:00.320 --> 0:21:03.879 same equation or question everyone asks, even if they're investing 0:21:03.920 --> 0:21:07.440 in the SMP five index fund, is can companies in 0:21:07.480 --> 0:21:11.760 the SMPF grow their earnings? Otherwise I'll go home and 0:21:12.280 --> 0:21:14.880 take my ball in play somewhere else. Really, so, Eric, 0:21:15.000 --> 0:21:18.200 you're you're the CEO of this company, Reality Shares. Uh, 0:21:18.320 --> 0:21:21.879 You're based in San Diego. Before that, you're at Morgan 0:21:21.960 --> 0:21:24.280 Stanley for for fourteen years, and you built a group 0:21:24.960 --> 0:21:28.280 to help people manage their money. Um, are you talking 0:21:28.280 --> 0:21:29.720 with clients right now? I mean, do you get a 0:21:29.760 --> 0:21:33.040 sense of just how skittish people feel and uncertain about 0:21:33.040 --> 0:21:36.280 the future. Yeah, I think so. And it's it's kind 0:21:36.320 --> 0:21:38.760 of ironic too, because you get a lot of complacency. 0:21:38.800 --> 0:21:41.720 We've had, you know, seven now going on eight years 0:21:41.760 --> 0:21:45.719 of positive SMP five type returns, and I think a 0:21:45.720 --> 0:21:48.919 lot of people have in a way forgotten about market 0:21:48.920 --> 0:21:53.239 corrections and how severe they can become. It's um, you know, 0:21:53.400 --> 0:21:55.520 we all have short term memories when it comes to that. 0:21:55.560 --> 0:21:58.160 But well, just to that point, I mean, it's sort 0:21:58.200 --> 0:22:00.440 of I've got to say, I've been very confu used 0:22:00.760 --> 0:22:04.119 as bond sell off and stocks rally, at what point 0:22:04.160 --> 0:22:06.600 are people who are investing in to your point, the 0:22:06.640 --> 0:22:09.800