WEBVTT - Leveraged-Loan Tourists Are Waking Up To Big Risks 0:00:05.800 --> 0:00:08.719 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 --> 0:00:32.840 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Joining 0:00:32.920 --> 0:00:35.080 us now is Tom Kennedy, head of fixed income strategy 0:00:35.080 --> 0:00:37.760 at JP Morgan Private Bank, who did work for the 0:00:37.760 --> 0:00:40.920 Fed for many years so has an inside look from 0:00:40.920 --> 0:00:43.800 that perspective. Tom, can we just start with what happened 0:00:43.800 --> 0:00:47.360 on Friday that this funds such a huge decline? Absolutely, 0:00:47.360 --> 0:00:50.239 good morning. I think you're battling against a couple of 0:00:50.240 --> 0:00:53.559 issues here. People coming around to the realization that recession 0:00:53.560 --> 0:00:58.080 probabilities are rising, growth concerns are are emanating and finding 0:00:58.120 --> 0:01:02.000 themselves in a credit credit risky product in the leverage 0:01:02.040 --> 0:01:04.959 loan market. And then also you have over the life 0:01:04.959 --> 0:01:08.759 of this expansion very very long expansion, tourists or people 0:01:08.800 --> 0:01:11.240 that are not commonly used to the leverage loan market 0:01:11.480 --> 0:01:13.600 finding themselves in a place where they may or may 0:01:13.640 --> 0:01:15.280 not be so comfortable with the credit risk that they 0:01:15.280 --> 0:01:20.920 are exposed to. Now. In the Federal Reserves Financial Stability Report, 0:01:21.400 --> 0:01:27.040 the quote is business sector debt relative to gross domestic 0:01:27.120 --> 0:01:32.400 product is historically high, and there are signs of deteriorating 0:01:32.560 --> 0:01:37.840 credit standards. Leverage loans, junk bonds now in excess of 0:01:38.000 --> 0:01:42.319 two trillion dollars. Is this as good as it gets? 0:01:42.760 --> 0:01:44.600 I think the best of these markets, pimp to your point, 0:01:44.600 --> 0:01:47.000 are behind us. I really do. If we try to 0:01:47.040 --> 0:01:48.480 just drill in a little bit on what the FED 0:01:48.680 --> 0:01:50.840 is looking at, what are they really trying to showcase 0:01:50.880 --> 0:01:53.440 to us? The leverage loan market is now bigger than 0:01:53.440 --> 0:01:57.720 the high yield market. That market historically has been left 0:01:57.760 --> 0:02:01.880 for private credit. Now we're in place where the demand 0:02:01.920 --> 0:02:04.640 for floating rate product over the last ten years has 0:02:04.720 --> 0:02:07.720 driven people to this asset class. And I think a 0:02:07.760 --> 0:02:10.840 good amount of education is necessary. What is a leverage loan. 0:02:11.240 --> 0:02:13.799 It's a loan to a business that already either has 0:02:13.800 --> 0:02:17.040 a lot of debt or of poor credit quality. That's 0:02:17.040 --> 0:02:20.079 a default risk type of product. I'm not saying default 0:02:20.120 --> 0:02:23.520 risks are high. I'm saying these are the credit quality 0:02:23.600 --> 0:02:27.680 natures of these these companies. And then looking at the quality, 0:02:27.800 --> 0:02:29.440 what do I think the FED is really looking at 0:02:29.520 --> 0:02:32.280 underneath the hood of the leverage loan market. Covenant light 0:02:32.760 --> 0:02:36.120 ubiquitous at this point eight percent of leverage loan debt. 0:02:36.680 --> 0:02:40.399 Is just tell people what is covenant life really mean? Good? Good? 0:02:40.440 --> 0:02:44.080 Point him? So uh. A covenant light issuer says, they 0:02:44.080 --> 0:02:47.720 are leaving the parameters for the lending of this money 0:02:47.760 --> 0:02:50.720 to a company strictly in the hands of the company. 0:02:50.800 --> 0:02:53.000 The company can do what they like with with that debt. 0:02:53.120 --> 0:02:55.280 There are no restrictions on what they can do with 0:02:55.320 --> 0:02:59.560 the debt, so they can basically pay off private equity owners. 0:02:59.639 --> 0:03:02.480 They and level up further. They can borrow more money, 0:03:02.520 --> 0:03:04.520 and there isn't necessarily any kind of sign off that 0:03:04.600 --> 0:03:07.359 the bar that the lenders have to do. You know, 0:03:07.400 --> 0:03:09.200 I want to go back to something you are saying, 0:03:09.200 --> 0:03:11.560 which is there are all these tourists who got in 0:03:11.760 --> 0:03:13.840 through things like e t f s which are liquid 0:03:13.880 --> 0:03:17.560 even though the underlying isn't as liquid by any means um. 0:03:17.720 --> 0:03:20.000 Why are they being triggered now? Because the FET has 0:03:20.000 --> 0:03:22.400 been issuing warnings in this area for a while. It's 0:03:22.400 --> 0:03:24.360 hard to say that it's just this, but there hasn't 0:03:24.400 --> 0:03:27.560 been a major credit quality issue, So why are they 0:03:27.600 --> 0:03:30.280 fleeing right now? I think the main reason they're fleeing 0:03:30.280 --> 0:03:32.600 now is that you are finally seeing cracks in the 0:03:32.600 --> 0:03:36.160 credit market. The volatility we've been seeing in the equity 0:03:36.200 --> 0:03:39.920 market over the year hasn't really corresponded to much concern 0:03:40.000 --> 0:03:43.320 and credit markets. However, since the turn of this quarter, 0:03:43.360 --> 0:03:46.160 the fourth quarter of we're starting to see credit spreads 0:03:46.160 --> 0:03:50.160 widening now, and and when UH investors are opening up 0:03:50.160 --> 0:03:52.480 their statements in the leverage loan space, they are seeing 0:03:53.040 --> 0:03:56.440 not that steady increase in valuation, they're actually learning that 0:03:56.480 --> 0:03:58.720 those products can go down in value. So I think 0:03:58.760 --> 0:04:01.560 you're seeing an outflow US in response to a mark 0:04:01.640 --> 0:04:04.920 to market type of of environment where credit spreads are are, 0:04:05.440 --> 0:04:07.840 they're widening. We have to acknowledge that just to help 0:04:07.880 --> 0:04:10.360 me understand something, because I was those under the impression 0:04:10.360 --> 0:04:13.080 that junk bonds or leverage loans would be issued by 0:04:13.200 --> 0:04:16.760 companies that were in dire straits that needed the money, 0:04:16.800 --> 0:04:21.680 that couldn't access the triple A or you know, the 0:04:21.720 --> 0:04:26.160 corporate credit worthiness space. But that's really not who's been 0:04:26.160 --> 0:04:28.880 doing all the issuing, right, You're right, I think the 0:04:28.960 --> 0:04:32.119 comparable market to leverage loans is the high yield market. 0:04:32.600 --> 0:04:34.840 Let's assume you're a company and you have an option 0:04:35.080 --> 0:04:37.320 you can go to the high yeld market. You might 0:04:37.760 --> 0:04:41.520 see some covenants or restrictions on what you can do 0:04:41.560 --> 0:04:44.039 with those funds, and your funding status might be higher 0:04:44.040 --> 0:04:46.080 than what you see in the leverage loan market, and 0:04:46.160 --> 0:04:48.880 so naturally a company is going to migrate to the 0:04:48.920 --> 0:04:53.200 market where they get the most favorable UM lending or 0:04:53.240 --> 0:04:55.839 borrowing terms that they see. And that's I really do 0:04:55.880 --> 0:04:57.440 think what we've seen over the last five to ten 0:04:57.520 --> 0:05:00.839 years a flocking of companies to this market. It's the 0:05:00.839 --> 0:05:03.400 best terms of trade for them. So let's play this out. 0:05:03.760 --> 0:05:06.760 How do you think the leveraged loan market performs over 0:05:06.800 --> 0:05:09.599 the next six to twelve months. We've seen some UH 0:05:09.680 --> 0:05:14.240 firms recommending loans over bonds because they've actually been underperforming UM. 0:05:14.279 --> 0:05:17.479 But what you're saying sounds pretty dire. So I don't 0:05:17.520 --> 0:05:20.160 mean to sound dire. I think what you just did 0:05:20.279 --> 0:05:22.479 LEA says how you need to think about this asset class. 0:05:22.600 --> 0:05:27.000 Do I prefer high yield fixed rate bonds or the 0:05:27.120 --> 0:05:29.400 leverage loan market, which has a floating rate component to it. 0:05:29.880 --> 0:05:32.680 That's the trade I don't think leverage loans are going 0:05:32.720 --> 0:05:35.960 to outperform high yield over the next twelve months. Actually, 0:05:36.120 --> 0:05:38.680 we this trade we're talking about dates back to US 0:05:38.720 --> 0:05:42.960 to June. We removed leverage loan overweights relative to high 0:05:43.000 --> 0:05:45.080 yield in June. So when do you when do you 0:05:45.240 --> 0:05:47.320 put it back on? What are you looking for? I'm 0:05:47.360 --> 0:05:49.440 I'm gonna I need to see the credit cycle actually 0:05:49.480 --> 0:05:52.080 play through. I actually favored duration at this point. I 0:05:52.120 --> 0:05:54.960 don't think when I'm when I'm an fixed income investor 0:05:55.000 --> 0:05:58.800 deciding do I want to have interest rate exposure the 0:05:58.880 --> 0:06:00.920 likelihood that rates will come down, I want to own 0:06:01.000 --> 0:06:04.000 that option at this point. So the leverage loan for 0:06:04.040 --> 0:06:06.479 me is all you're playing is that credit spreads will 0:06:06.520 --> 0:06:10.000 remain very tight. My bias is credit spreads widen and 0:06:10.040 --> 0:06:12.039 that risk free rates come down. In that world, I 0:06:12.080 --> 0:06:15.120 prefer a longer duration investment. How bad if the loss 0:06:15.160 --> 0:06:18.560 is going to get loans, the loan, the loan sell off, 0:06:18.640 --> 0:06:22.000 and trying to identify what a bogey is for defaults, 0:06:22.080 --> 0:06:25.320 I I don't even pretend to be the perfect expert 0:06:25.320 --> 0:06:27.560 in doing that. I think when you're an investor, you 0:06:27.600 --> 0:06:30.200 have to recognize the deterioration in quality is happening in 0:06:30.200 --> 0:06:32.880 the leverage loan market. It's been happening for years. If 0:06:32.880 --> 0:06:34.760 you don't think rates are going to rise very much, 0:06:34.839 --> 0:06:36.800 this is not the asset class that you should expect 0:06:36.800 --> 0:06:40.560 to outperform relative to high yield. Calling a default cycle, 0:06:40.560 --> 0:06:42.080 which I know you're looking at me and you want 0:06:42.080 --> 0:06:45.640 me to do, yes, please God, I really I can't. 0:06:45.680 --> 0:06:47.120 I don't think anyone's gonna be able to do that 0:06:47.160 --> 0:06:49.760 our time. That well, Lisa, thanks very much for being 0:06:49.760 --> 0:06:51.960 with us. As always Tom Kennedy, he is the head 0:06:52.000 --> 0:07:07.800 of fixed income strategy for JP Morgan Private Bank. And 0:07:07.800 --> 0:07:10.480 I want to bring in Teresa Raphael Bloomberg opinion editor 0:07:10.520 --> 0:07:14.520 covering European politics and economics for Bloomberg, and of course 0:07:14.640 --> 0:07:18.640 still with us is John Author's senior Marcus correspondent, columnist 0:07:18.760 --> 0:07:22.080 editor everything under the Sun here at Bloomberg Trace. I'd 0:07:22.120 --> 0:07:24.800 love to start with you. What was your sense What 0:07:24.920 --> 0:07:28.200 was the most sort of newsworthy thing that Prime Minister 0:07:28.440 --> 0:07:31.040 May said? Well, I mean I think the first thing 0:07:31.080 --> 0:07:33.920 to note was the atmospherics in the house today. We 0:07:34.240 --> 0:07:38.360 made him get out two sentences before um there were 0:07:38.440 --> 0:07:41.800 jeers and she was being laughed at and derided, and 0:07:41.880 --> 0:07:44.680 that really speaks to, you know, a prime minister whose 0:07:44.720 --> 0:07:48.680 power has just waned dramatically. Um the most newsworthy thing. 0:07:49.080 --> 0:07:53.040 She's not promising that there will be any substantial renegotiation. 0:07:53.080 --> 0:07:55.320 The European Union has been very clear that they're not 0:07:55.360 --> 0:07:58.280 going to open the legally binding part of this agreement 0:07:58.280 --> 0:08:01.880 around the Irish backstop. What she is sort of suggesting 0:08:02.080 --> 0:08:05.679 as that there might be some additional reassurances that could 0:08:06.080 --> 0:08:09.360 I'm now extrapolating that could sort of take the part 0:08:09.400 --> 0:08:13.360 of UM additions to the political declaration. There may be 0:08:13.480 --> 0:08:17.240 some sort of side assurances. She's also um said that 0:08:17.240 --> 0:08:20.760 she would find ways to empower the Commons to increase 0:08:20.800 --> 0:08:24.160 the democratic legitimacy and and allow the comments to place 0:08:24.240 --> 0:08:27.240 obligations on government. All of that has to do with 0:08:27.680 --> 0:08:31.400 Um reassuring skeptics that Britain will be able to find 0:08:31.400 --> 0:08:33.800 a way out of this backstop. But you know, really 0:08:33.800 --> 0:08:36.559 she's saying, this is the deal. Look at the alternatives. 0:08:36.679 --> 0:08:38.640 You're not going to like any of them. Give it 0:08:38.679 --> 0:08:40.319 a chance, But I know that I don't have the 0:08:40.400 --> 0:08:44.720 votes to do this tomorrow, John, Just to reiterate the 0:08:44.800 --> 0:08:48.920 Irish backstop that we've been learning about is basically an 0:08:48.960 --> 0:08:55.000 insurance policy that the border between Northern Ireland and the 0:08:55.080 --> 0:09:01.920 Irish Republic would remain open as open as its currently is. Yes, 0:09:01.960 --> 0:09:03.360 that's what I mean. In other words, there will be 0:09:03.400 --> 0:09:07.040 no change yes to the it's an it's an insurance 0:09:07.080 --> 0:09:09.600 policy for the Republic of Ireland, for the South of 0:09:09.720 --> 0:09:13.560 Ireland for those who passionately believe in the process that 0:09:13.679 --> 0:09:17.840 was started under Senator Mitchell, Tony Blair and the various 0:09:17.880 --> 0:09:23.040 Irish players twenty years ago, that the that the board 0:09:23.160 --> 0:09:26.360 that the trade within the Island of Ireland will continue 0:09:26.360 --> 0:09:29.280 as it currently is. I saw a very interesting comment 0:09:29.320 --> 0:09:33.920 from Glafstadt saying a few minutes ago before I came 0:09:33.960 --> 0:09:37.200 to the studio, saying that whatever happens, the EU will 0:09:37.240 --> 0:09:42.160 not let Ireland down. And that is the am past 0:09:42.280 --> 0:09:46.000 that we have that in the event that we don't 0:09:46.080 --> 0:09:50.840 have some kind of wonderful new technology involving laser beams 0:09:50.960 --> 0:09:56.480 and and chips in embedded in people's foreheads or whatever 0:09:56.920 --> 0:10:01.559 to enable um A border to remain as soft as 0:10:01.600 --> 0:10:05.800 it currently is while still having Britain outside the Customs Union, 0:10:05.840 --> 0:10:09.080 you will have this this arrangement that will will carry 0:10:09.120 --> 0:10:13.720 on given that most people assume that the the high 0:10:13.760 --> 0:10:18.080 tech ability to to run a border where most people 0:10:18.120 --> 0:10:20.520 can just drive straight through like an easy pass on 0:10:20.520 --> 0:10:23.880 the George Washington Bridge. While most people assume that that's 0:10:23.920 --> 0:10:28.600 not going to be possible, this backstop remains. And while 0:10:28.600 --> 0:10:32.640 the backstop remains, Britain remains within the Customs Union without 0:10:32.720 --> 0:10:36.160 having a vote over it, and that is unappealing to 0:10:36.280 --> 0:10:38.640 democratic at a political level, I just want to give 0:10:38.679 --> 0:10:41.400 some market response, because we are seeing a market reaction. 0:10:41.440 --> 0:10:45.840 The pound continuing to decline versus the dollar session lows 0:10:46.040 --> 0:10:50.360 and at the lowest levels since two thousand seventeen April 0:10:50.400 --> 0:10:53.439 two seventeen, So you have to think people are taking 0:10:53.480 --> 0:10:56.640 this as the likelihood of a no deal brexit, a 0:10:56.720 --> 0:10:59.440 hard brexit that will have material impact on the economy 0:10:59.520 --> 0:11:03.600 is increased. Saying you're also seeing your UK bond yields decline, 0:11:03.840 --> 0:11:07.920 a sort of suggestion that growth expectations going forward are declining. 0:11:08.040 --> 0:11:11.040 Ters come on in here. I mean, is today sort 0:11:11.080 --> 0:11:15.320 of a landmark moment in terms of basically increasing the 0:11:15.400 --> 0:11:17.880 chances of a no deal brexit and showing there really 0:11:17.960 --> 0:11:20.280 isn't a political leader who can carry this through on 0:11:20.320 --> 0:11:22.720 the UK side. I mean, there's no question we're at 0:11:22.720 --> 0:11:25.640 a watershed moment. I think, you know, if if Donald 0:11:25.640 --> 0:11:28.640 Trump's modus operandi has been you know, denied, denied, denied, 0:11:28.679 --> 0:11:31.200 Theresa May has been delayed, delay, delay, and today she's 0:11:31.200 --> 0:11:34.840 delayed further. But there's only you know, so much road 0:11:34.960 --> 0:11:40.040 left for her um in terms of the um you know, economy. 0:11:40.120 --> 0:11:43.560 She said very clearly in her comments address today. Look, 0:11:43.600 --> 0:11:45.920 those of you that are advocating leaving without a deal, 0:11:46.160 --> 0:11:49.000 be upfront with people. That is going to have costs. 0:11:49.000 --> 0:11:52.400 And she's quite right that the you know, hard line 0:11:52.400 --> 0:11:55.120 brexitters who say, look we we can trade on World 0:11:55.160 --> 0:11:58.680 Trade Organization terms will be fine. And uh, you know, 0:11:58.720 --> 0:12:02.120 the question is fine and what time period? Because every 0:12:02.160 --> 0:12:05.240 you know, economic study on this and including the Bank 0:12:05.240 --> 0:12:08.120 of England and the government and the various economic thing 0:12:08.200 --> 0:12:09.720 takes have come and said that is going to be 0:12:09.840 --> 0:12:13.480 painful in the short term, ten fifteen years. Well, it's 0:12:13.520 --> 0:12:15.600 also a report and John you can come in on 0:12:15.640 --> 0:12:17.520 this as well, and Terres maybe you can give us 0:12:17.520 --> 0:12:19.559 a sort of bird's eye view of what it's like 0:12:19.760 --> 0:12:23.680 in the UK because the government, the UK government has 0:12:23.760 --> 0:12:30.199 already told supermarkets such as Asda, Tesco, Sainsbury Morrison. They've 0:12:30.240 --> 0:12:35.680 actually spoken to those supermarket groups asking them to stock 0:12:35.880 --> 0:12:40.360 as much as possible in their warehouses in case the 0:12:40.520 --> 0:12:45.480 UK crashes out of the European Union without a deal. Well, 0:12:45.559 --> 0:12:51.760 this go ahead, John, John, I used to it for 0:12:51.760 --> 0:12:56.840 the Financial Times. She's famously manically pro Remain. I voted 0:12:56.920 --> 0:13:04.320 Remain myself. That kind of story bothers me as a 0:13:04.440 --> 0:13:07.240 very strong pro Remainer in it it has It has 0:13:07.280 --> 0:13:10.240 a whiff of the pro pre y two k argument. 0:13:10.280 --> 0:13:12.960 It also has a whiff of what the Leaf campaign 0:13:13.679 --> 0:13:17.200 accused the Remain campaign of doing during the campaign, which 0:13:17.240 --> 0:13:21.840 is project fear. I'm prepared to believe that a no 0:13:21.960 --> 0:13:24.559 deal Well, I do believe that a no deal Brexit 0:13:24.640 --> 0:13:27.200 would be a very very bad idea for the UK, 0:13:28.080 --> 0:13:30.560 and to the extent that the UK matters to everybody else, 0:13:30.840 --> 0:13:34.320 it would be a bad deal for everybody else. Um, 0:13:34.640 --> 0:13:37.920 it doesn't play well. I suspect in the provinces. In 0:13:37.960 --> 0:13:42.679 the smacks of the elite trying to get everybody scared, 0:13:42.800 --> 0:13:45.920 of trying to play two fears that may not be 0:13:46.000 --> 0:13:50.000 totally justified. Yeah, I think John just put his finger, 0:13:50.000 --> 0:13:53.080 And there's there's the optics of those kinds of messages, 0:13:53.120 --> 0:13:55.880 and then there's a reality, you know, should we really 0:13:55.960 --> 0:13:58.520 be stalking up? Should supermarkets be stalking up? And the 0:13:58.520 --> 0:14:00.680 reality is that a lot of it is in the 0:14:00.720 --> 0:14:05.079 gift of the EU. Europe could actually um impose, you know, 0:14:05.800 --> 0:14:08.600 impose the letter of the law such that there are 0:14:08.679 --> 0:14:11.400 such backups of Lori's that you know, there may be 0:14:11.600 --> 0:14:16.360 certain supplies that would be UM short, you know, in 0:14:16.400 --> 0:14:19.240 short supply for a while while new supply chains are 0:14:19.280 --> 0:14:22.160 being sourced and things are being worked out. The reality 0:14:22.240 --> 0:14:25.360 is probably that there will be some last minute UM 0:14:25.400 --> 0:14:29.200 agreements to ensure that the worst of the emergencies and 0:14:29.200 --> 0:14:32.360 we're talking sort of medicines more than um kit cat 0:14:32.400 --> 0:14:35.840 bars uh is averted. But you know, somebody did a 0:14:35.840 --> 0:14:38.280 study is that a two minute delay at the Dover 0:14:38.360 --> 0:14:41.600 Calais border would lead to sort of seventeen miles of 0:14:41.680 --> 0:14:44.840 backed up Lorrie. So there is some truth to all 0:14:44.880 --> 0:14:47.520 of this. Just to let you know, just to let 0:14:47.520 --> 0:14:50.280 everyone know that the pound has broken one and now 0:14:50.320 --> 0:14:54.440 trades one five eight nine. When I first came to 0:14:54.480 --> 0:14:58.120 the States as an exchange students, it was one one 0:14:58.120 --> 0:15:03.560 oh five yes, So back to you, but I want 0:15:03.560 --> 0:15:05.400 to I want to go back to something you're talking about. 0:15:05.440 --> 0:15:07.640 When you're saying that you know more than more than 0:15:07.720 --> 0:15:11.280 kickcap bars, we're talking about medicine. How bad could this get? 0:15:11.360 --> 0:15:13.440 I mean, when when were we here, uh Prime Minister 0:15:13.560 --> 0:15:16.400 May talking about making provisions for a no deal brexit? 0:15:16.640 --> 0:15:20.120 Are we talking about stockpiling medicine and having you know, 0:15:20.320 --> 0:15:23.560 enough corn to just sort of uh feed out to people, 0:15:24.000 --> 0:15:26.360 you know, in a sort of warlike situation. Is that 0:15:26.360 --> 0:15:28.880 what we're talking about? Well, I think medicine, yes, to 0:15:28.960 --> 0:15:32.480 some extent, because some medicines have to be refrigerated. Refrigerated 0:15:32.760 --> 0:15:36.280 trucks can you know, only have a certain amount of 0:15:36.320 --> 0:15:39.920 time they can um, you know, they can keep things refrigerated. 0:15:39.920 --> 0:15:42.720 So there in the NHS, the National Health Service, estate 0:15:42.840 --> 0:15:47.920 run health service here has been told to keep certain 0:15:47.960 --> 0:15:51.080 supplies uh in reserve. So I think yes that I 0:15:51.080 --> 0:15:53.880 mean terms of corn and people sort of starving, I 0:15:53.880 --> 0:15:57.200 mean that would seem wildly overblown. Um And as I said, 0:15:57.200 --> 0:16:00.720 I would imagine that the EU would say, psibly put 0:16:00.760 --> 0:16:05.880 in to play certain emergency measures, certain temporary uh kind 0:16:05.880 --> 0:16:10.160 of equivalency recognition of EU of UK rules and regulations 0:16:10.160 --> 0:16:11.400 so that we're not going to see a sort of 0:16:11.480 --> 0:16:16.920 cataclysmic scenario. But you know, that's not to say that 0:16:17.040 --> 0:16:19.640 a no deal exit isn't a very scary place to be. 0:16:20.040 --> 0:16:22.960 And there's only a sort of small minority in the 0:16:23.000 --> 0:16:25.320 House of Commons, but they're very vocal, and they're within 0:16:25.360 --> 0:16:28.840 Theresa May's own party that are advocating that. Trying to 0:16:29.080 --> 0:16:31.600 just come in on the sort of pick up on 0:16:31.640 --> 0:16:36.280 what Terrez was talking about and the domestic political change. 0:16:36.320 --> 0:16:38.320 Do you think that that we should be ready for 0:16:38.320 --> 0:16:40.640 a new prime minister in the United Kingdom. Well, that's 0:16:40.800 --> 0:16:47.120 a further problem, and this is actually perversely Theresa's strongest 0:16:47.440 --> 0:16:54.040 cards at this moment um. You've heard various people within 0:16:54.080 --> 0:16:59.480 the Conservative ranks are trying to position for a leadership campaign. 0:16:59.520 --> 0:17:03.320 But it's not as though um either the party in 0:17:03.360 --> 0:17:07.400 the country or certainly the Parliamentary Party would be wild 0:17:07.480 --> 0:17:12.920 about coalescing behind Boris Johnson. Dominic rob who recently stood 0:17:12.960 --> 0:17:15.640 down as Brexit Minister, as I gather, is also interested 0:17:15.680 --> 0:17:19.440 in a leadership bid. He made this disastrous sounds bite 0:17:19.440 --> 0:17:22.120 where he admitted that he hadn't realized until the last 0:17:22.200 --> 0:17:26.720 few weeks how important the Dover Calais link was the 0:17:26.800 --> 0:17:31.800 British trade, bringing sarcastic comments that he's only just realized 0:17:31.800 --> 0:17:38.040 we're an island. Yes, thank you. The geography lessons continue. 0:17:38.680 --> 0:17:42.040 John Author's thank you, senior editor for Bloomberg Market saws 0:17:42.160 --> 0:17:56.960 our thanks to Terres Raphael Bloomberg opinion columnist, and I 0:17:57.000 --> 0:18:00.520 want to turn our attention to bitcoin and crypto currencies, 0:18:00.560 --> 0:18:04.560 which have basically been demolished. Basically a tractor has run 0:18:04.600 --> 0:18:06.880 over them, and then a giant has come and stomped 0:18:06.920 --> 0:18:09.160 on them, and then everybody turned and looked and said 0:18:09.200 --> 0:18:11.679 we told you so because they lost more than their 0:18:11.760 --> 0:18:14.520 value or more. Joining us now is somebody who actually 0:18:14.920 --> 0:18:20.199 uh supportive of the technology behind bitcoin and the others, 0:18:20.560 --> 0:18:22.879 and that is a blockchain Ron Quaranta, as founder and 0:18:22.960 --> 0:18:25.679 chairman of the Wall Street Blockchain Alliance, joining us here 0:18:25.720 --> 0:18:27.600 in our eleven three our studios. So run, what do 0:18:27.640 --> 0:18:31.280 you make of the recent cryptocurrency route? Good morning? So 0:18:31.400 --> 0:18:32.840 thanks for having me. Yeah, there are a couple of 0:18:32.840 --> 0:18:34.800 things going on that we talked about on a regular basis. 0:18:34.880 --> 0:18:37.320 I think we're clearly seeing some of the sell off 0:18:37.320 --> 0:18:41.560 that's pulling some of the froth out of an overvalued marketplace, 0:18:41.600 --> 0:18:44.440 and I think part of that is institutional money that's 0:18:44.640 --> 0:18:46.440 kind of been taking a bit off the table. It's 0:18:46.440 --> 0:18:48.679 important to realize that a lot of o TC trading 0:18:48.720 --> 0:18:50.919 that isn't reported directly, so I think a lot of 0:18:50.960 --> 0:18:54.399 that is precipitating some of that price decline, and in 0:18:54.440 --> 0:18:57.840 particular the past month and change, given some regulatory action 0:18:57.880 --> 0:19:03.760 the sec UH sanctioning a unregistered exchange to specific token 0:19:03.800 --> 0:19:06.560 offerings for example, that had settled with the SEC because 0:19:06.560 --> 0:19:10.119 they sold unregistered securities, that kind of regulatory overhang has 0:19:10.200 --> 0:19:13.360 kind of clouded the marketplace. People have kind of fled 0:19:13.440 --> 0:19:17.280 for the doors. Eight A bitcoin downs something like others 0:19:17.320 --> 0:19:20.800 down well over ninety percent um. That doesn't diminish the 0:19:20.880 --> 0:19:24.159 overarching value proposition that we believe for the technology and 0:19:24.240 --> 0:19:26.680 quite honestly crypto assets. In our mind, this is part 0:19:26.680 --> 0:19:29.320 of that evolution that needs to happen to be part 0:19:29.359 --> 0:19:32.560 of the world that we know. Ron just explain to 0:19:32.600 --> 0:19:37.400 people what is the Wall Street block chain alliance and 0:19:37.480 --> 0:19:41.359 given example, if you can of a project or something 0:19:41.440 --> 0:19:44.920 specific that is being worked on to take advantage of 0:19:44.920 --> 0:19:48.040 this technology. Sure, so the worst street blockchain alliance is 0:19:48.080 --> 0:19:50.399 a nonprofit trade association based here in New York with 0:19:50.440 --> 0:19:53.560 a mission to god and promote comprehensive adoption of blockchain 0:19:53.600 --> 0:19:56.400 technology across our member base. And our members are banks 0:19:56.400 --> 0:19:59.880 and brokers and hedge funds and institutional investors, law firm 0:20:00.080 --> 0:20:03.000 accounting practices, really trying to understand the ecosystem of both 0:20:03.000 --> 0:20:06.760 blockchain and and crypto assets. One of the biggest models 0:20:06.760 --> 0:20:09.800 that we've seen that's really going into production leveraging blockchain 0:20:09.800 --> 0:20:12.919 technology is supply chain. When you look at shipping companies 0:20:13.000 --> 0:20:16.160 like Marriage working with IBM, when you look at banking 0:20:16.200 --> 0:20:20.159 and trade finance institutions, leveraging blockchain to audit and manage 0:20:20.200 --> 0:20:23.520 the shipment of goods overseas and the cost effective, more 0:20:23.520 --> 0:20:27.080 efficient way that's fundamentally evolving how supply chain and trade 0:20:27.119 --> 0:20:30.119 management works. Okay, well, I gotta I gotta just be 0:20:30.200 --> 0:20:33.679 really honest here. When you start talking about cryptocurrencies and 0:20:33.720 --> 0:20:36.399 taking the currency away from a nation, that's pretty sexy. 0:20:36.440 --> 0:20:39.880 That's like, you know, vote rogue kind of actors kind 0:20:39.880 --> 0:20:43.040 of creating their whole own ecosystem in the web, and 0:20:43.400 --> 0:20:46.280 you know, and when you talk about supply chain management, 0:20:46.359 --> 0:20:50.280 it's not And uh, I have to wonder whether blockchain 0:20:50.359 --> 0:20:54.520 has moved from a catchphrase that got everybody's attention and 0:20:54.600 --> 0:20:57.440 people just threw money at it to something that's more 0:20:57.440 --> 0:20:59.760 of a show me, show me the money proposition, and 0:20:59.760 --> 0:21:02.800 there's actually less interest in just throwing money at the 0:21:02.840 --> 0:21:05.920 development of new applications here. Yeah, I mean we've seen 0:21:05.920 --> 0:21:07.200 out over the past two or three years, we have 0:21:07.200 --> 0:21:10.239 had lots of money thrown at radical new solutions that 0:21:10.320 --> 0:21:12.480 were leveraging blockchain technology. If you and I put together 0:21:12.480 --> 0:21:14.120 at power Point, we probably would have gotten ten million 0:21:14.119 --> 0:21:16.639 dollars to create a new startup. But why didn't you 0:21:16.680 --> 0:21:21.600 call me? But it's become show us why it makes sense. 0:21:21.720 --> 0:21:24.760 It's become show us why this should go to market. 0:21:25.080 --> 0:21:26.720 And I think the interesting part of this is the 0:21:26.760 --> 0:21:28.399 stuff that you don't hear about in the news. We 0:21:28.440 --> 0:21:31.359 all hear the mania about bitcoin and price declines. The 0:21:31.400 --> 0:21:33.800 work that's happening behind the scenes. Our members are part 0:21:33.800 --> 0:21:37.560 of some of that. Some of the largest technology providers IBM, Microsoft, 0:21:37.640 --> 0:21:42.000 Amazon Web Services leveraging blockchain technology to bring to slowly 0:21:42.040 --> 0:21:44.679 bring solutions that make how we do what we do 0:21:44.720 --> 0:21:49.719 more efficient, more effective, more um more cost effective. Broadly 0:21:49.760 --> 0:21:53.879 across the entirety of the ecosystem. Our banks interested in 0:21:53.960 --> 0:21:58.160 blockchain technology because they see it as the next version 0:21:58.400 --> 0:22:02.679 of Swift, which is the national payment system that is 0:22:02.720 --> 0:22:05.359 currently being used. Yeah, we don't. I don't know a 0:22:05.400 --> 0:22:08.080 bank that's not a large bank that's not looking at 0:22:08.080 --> 0:22:10.439 blockchain technology in some way, shape or for him for 0:22:10.520 --> 0:22:13.560 a couple of reasons. One is the function of banks 0:22:13.600 --> 0:22:16.000 needs to evolve. It's a very friction filled world. You 0:22:16.040 --> 0:22:18.040 and I were discussing that a bit earlier, from everything 0:22:18.040 --> 0:22:21.480 from payments to clearing and settlement is really expensive. Really, 0:22:21.760 --> 0:22:23.879 you know, friction filled is what we call it. So 0:22:23.960 --> 0:22:26.960 most major banks are looking at leveraging blockchain technology to 0:22:27.080 --> 0:22:29.840 evolve how they do what they do, how they transfer funds, 0:22:29.840 --> 0:22:32.359 how they manage client accounts. Even things like k y 0:22:32.440 --> 0:22:34.600 C a m L. They're going to be leveraging blockchain 0:22:34.600 --> 0:22:38.720 technology to manage identity for their clients. And when you 0:22:38.760 --> 0:22:41.359 look at the costs of ky C a m L, 0:22:41.760 --> 0:22:45.000 that makes sense to to leverage a cost efficient technology 0:22:45.000 --> 0:22:48.800 and cost effective technology to make that better. Have the 0:22:49.000 --> 0:22:53.760