WEBVTT - Market Surprise Will Be A Blowup From Europe: Ezrati 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl podcast on Paul Swing You. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Waits, each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.960 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:22.480 at Bloomberg dot com. The u S shares have reversed 0:00:22.480 --> 0:00:25.560 earlier gains. They are going sharply lower. One speculation is, 0:00:25.600 --> 0:00:27.440 and of course everyone always tries to give a narrative 0:00:27.520 --> 0:00:30.440 and then everybody else puts it down. But one narrative 0:00:30.560 --> 0:00:33.080 is that we aren't getting any details on this possible 0:00:33.159 --> 0:00:37.639 agreement between President Trump and Chinese jusion paying over reducing 0:00:37.640 --> 0:00:40.080 tariffs or living them all together. Joining us now to 0:00:40.120 --> 0:00:42.519 talk about this and what else is going on in 0:00:42.520 --> 0:00:45.640 a global scale that could affect your investments. Milton as Ratti. 0:00:45.840 --> 0:00:48.800 He has independent economics and investment strategy consultant and chief 0:00:48.800 --> 0:00:52.320 economists for Vested. So Milton, thank you so much for 0:00:52.360 --> 0:00:55.480 being here. Do you agree that the market has mostly 0:00:55.520 --> 0:00:58.160 priced in some sort of trade deal and that the 0:00:58.200 --> 0:01:00.920 details actually very much at or in terms of whether 0:01:00.960 --> 0:01:03.440 the market will rally or not on the heels of it. Yeah. 0:01:03.480 --> 0:01:05.920 I agree. The fact of a trade deal is there. 0:01:06.000 --> 0:01:10.200 The market uh weeks ago decided we weren't going to 0:01:10.240 --> 0:01:13.320 have a trade war, and now they're looking for details. 0:01:13.360 --> 0:01:19.160 And I suspect that the details are because the Chinese 0:01:19.160 --> 0:01:22.320 are interested in trade and the United States is interested 0:01:22.360 --> 0:01:26.360 in protecting the integrity of its corporate structures and its 0:01:26.400 --> 0:01:30.520 technology and um. But Mr Trump of course has harped 0:01:30.520 --> 0:01:33.120 on trade, so he has to come out with some 0:01:33.160 --> 0:01:35.520 face saving and the Chinese have to come out with 0:01:35.560 --> 0:01:37.920 some face saving as well. All right, Well, it seems 0:01:37.920 --> 0:01:40.800 like we're moving along the path to some degree for 0:01:41.440 --> 0:01:44.440 you know, some trade negotiations in a trade pack with China. 0:01:44.600 --> 0:01:46.119 Let's go to the other side of the world where 0:01:46.200 --> 0:01:49.280 it's less clear, much less clear, which is Brexit. Uh. 0:01:49.360 --> 0:01:51.800 It appears that these the two sides, the EU and UK, 0:01:51.920 --> 0:01:55.080 continue to stumble towards some type of resolution. What do 0:01:55.120 --> 0:01:58.560 you think is going to happen there? Uh? Well, I 0:01:58.600 --> 0:02:01.000 think the significant thing that happen and it's not happening 0:02:01.040 --> 0:02:04.200 between Brussels and London, and it's the Labor Party has 0:02:04.320 --> 0:02:08.440 endorsed another referendum. Uh, you'll forgive my cynicism, but it 0:02:08.480 --> 0:02:11.680 looks like Britain is following the European model of you 0:02:11.720 --> 0:02:15.080 will vote and you will vote until you get it right. 0:02:15.440 --> 0:02:18.160 So you think there's gonna be another referendum. I think 0:02:18.160 --> 0:02:20.520 there will probably be another referendum. I don't know when 0:02:20.520 --> 0:02:23.919 it will be scheduled, but they get it right. Um 0:02:24.040 --> 0:02:26.360 right now. I think the British public, at least, if 0:02:26.360 --> 0:02:29.080 the polls are to be believed, would vote to remain, 0:02:30.000 --> 0:02:33.440 but not under these same terms that they existed prior 0:02:33.639 --> 0:02:37.040 to the vote. So may if she's still in an 0:02:37.040 --> 0:02:39.080 office at that time, we'll be able to go to 0:02:39.160 --> 0:02:43.480 Europe after this referendum to sort of qualified referendum to 0:02:43.560 --> 0:02:48.200 remain and say let's renegotiate the arrangements. And I think 0:02:48.240 --> 0:02:51.200 that that might be enough of a bone, uh for 0:02:51.240 --> 0:02:54.280 her to quiet the Brexit side of her party. So 0:02:54.400 --> 0:02:57.480 we've all talked herself blue in the face about Brexit 0:02:57.639 --> 0:03:00.120 with little resolution because things seem to get mess your 0:03:00.200 --> 0:03:04.040 mess here. But there's been increasing focus on the slowdown 0:03:04.080 --> 0:03:08.040 that we're seeing in the euroregion, in particular stemming from Germany, UH, 0:03:08.160 --> 0:03:11.960 the area's biggest economy. How worried should we be about that? 0:03:12.639 --> 0:03:15.320 I think that is the great worry. I'm not suggesting 0:03:15.400 --> 0:03:18.840 that that the probability suggests a blow up in Europe, 0:03:18.880 --> 0:03:20.799 but I am seeing this is where the surprise will 0:03:20.840 --> 0:03:24.680 come for US markets and for global markets. The Brexit 0:03:24.720 --> 0:03:28.440 deal is a mess. Even if they promise another referendum 0:03:28.560 --> 0:03:32.079 in the future, uh, it will remain a weight boat 0:03:32.240 --> 0:03:35.280 on the British economy and the European economy. It's significant 0:03:35.280 --> 0:03:38.960 Britain is a fifth of the combined EU economy. So 0:03:39.600 --> 0:03:43.080 this hiatus, if even if it's not an exit, is 0:03:43.840 --> 0:03:46.920 a wait for their position, and they're slowing down a 0:03:46.920 --> 0:03:49.600 great deal. In the meantime, you have the Italians, who 0:03:49.680 --> 0:03:53.720 are both both parts of the Car coalition, despise the 0:03:53.800 --> 0:03:57.320 EU and would like to follow Britain's example. Yeah, but 0:03:57.320 --> 0:03:59.400 what would you say that that there is the likelihood 0:03:59.440 --> 0:04:01.560 of a surprise is how much of a surprise could 0:04:01.600 --> 0:04:03.480 there be? We already have talked a lot about how 0:04:03.600 --> 0:04:06.000 much the economy is slowing down, in the populous trends 0:04:06.000 --> 0:04:08.440 in Italy and even Spain. Well, I think the problem 0:04:08.480 --> 0:04:12.080 here is that the Italians are the Italians are defying 0:04:12.360 --> 0:04:16.960 Brussels read Berlin. They're defying Berlin on on their budget 0:04:17.440 --> 0:04:20.279 and they have threatened to leave and they have run 0:04:20.400 --> 0:04:23.120 on a leaf platform. That doesn't mean Italy is going 0:04:23.160 --> 0:04:26.880 to leave, but it does suggest to me that, uh, 0:04:26.920 --> 0:04:31.600 there could be another round in this ongoing European financial crisis, 0:04:31.600 --> 0:04:35.960 this slow motion crisis where every few years there's a 0:04:36.000 --> 0:04:39.599 problem and that rocks global markets. It's uh, and that's 0:04:39.600 --> 0:04:42.040 where I think the surprise would be, not that Europe 0:04:42.080 --> 0:04:44.159 is going to grow fast or go into recession. I 0:04:44.160 --> 0:04:47.760 don't think either will happen um. And the problem on 0:04:48.040 --> 0:04:51.960 more fundamental level, Uh, Europe has to address the Euro. 0:04:52.080 --> 0:04:55.720 The Euro is Europe's problem, and even the Germans, who 0:04:55.720 --> 0:04:58.839 have benefited tremendously from the Euro, have have alluded to 0:04:58.880 --> 0:05:01.279 the fact that they need to make some adjustments. But 0:05:01.440 --> 0:05:05.480 with the slowdown, the Germans cannot make any concessions. What 0:05:05.520 --> 0:05:07.200 type of adjustments you think needs to be made to 0:05:07.200 --> 0:05:09.400 the Euro? Well, I think there's a realization in Europe 0:05:09.440 --> 0:05:13.760 that when the Euro was formed, currencies were out of 0:05:13.839 --> 0:05:16.279 whack with each other, That the deutsch Mark when the 0:05:16.320 --> 0:05:21.600 Germans entered, was cheap, the Lira, the pasada, all the currencies, 0:05:21.640 --> 0:05:24.240 particularly in the periphery with deer. That's set up a 0:05:24.320 --> 0:05:27.240 situation where the Germans exported to the periphery and the 0:05:27.279 --> 0:05:31.040 periphery consume which was unsustainable. So I think even the Germans, 0:05:31.040 --> 0:05:33.440 and certainly the Dutch and the Fins and people who 0:05:33.440 --> 0:05:37.440 are involved who have strong economies have suggested that the 0:05:37.480 --> 0:05:40.800 Germans have to make concessions. The Germans have alluded to 0:05:40.839 --> 0:05:43.400 the fact that they would, but the time is not right. 0:05:43.440 --> 0:05:46.360 They have political problems and their economy is slowing down. 0:05:46.360 --> 0:05:48.719 They're not going to make concessions now. That means that 0:05:48.760 --> 0:05:52.440 the pressure remains. All the reasons the Italians want out 0:05:52.600 --> 0:05:55.800 or a new deal remains. The British, who are not 0:05:55.920 --> 0:05:58.479 part of the euro it's not it's not their problem, 0:05:58.560 --> 0:06:04.360 but that comp ounds the situation for the Franco German alliance. 0:06:05.080 --> 0:06:07.680 Uh I think we could have I'm not. I don't 0:06:07.680 --> 0:06:10.320 think it's probable necessarily, but I think that would be 0:06:10.360 --> 0:06:13.640 the surprise another financial blow up in Europe, and with 0:06:13.680 --> 0:06:16.479 Italy it's a lot more significant than Greece. But you 0:06:16.520 --> 0:06:19.200 don't think necessarily that there's going to be a recession 0:06:19.200 --> 0:06:21.719 in the near term in the Eurozone. It sounds like 0:06:21.760 --> 0:06:25.160 you're fairly sanguine on China at least given the stimulus. 0:06:25.560 --> 0:06:28.280 What about the US? Do you foresee a near term 0:06:28.360 --> 0:06:31.960 recession here? Uh No, not near term. I think the 0:06:31.960 --> 0:06:36.000 economy has no excesses. I know that recently, no excess 0:06:36.240 --> 0:06:41.960 No except in Washington, and that's perennial. UM. But UM, 0:06:42.080 --> 0:06:44.960 I don't the business community has strong balance sheets. I 0:06:44.960 --> 0:06:46.960 know people have talked about debt. A lot of that 0:06:47.000 --> 0:06:49.360 debt was getting in while the yields were low, and 0:06:49.400 --> 0:06:53.880 they paid off of the debt. Uh. So statistic I 0:06:53.880 --> 0:06:56.320 I stick on there is that the debt growth has 0:06:56.320 --> 0:06:58.960 been about six point one percent a year. Their liabilities 0:06:59.000 --> 0:07:01.520 growth has been about two percent a year. Clearly, they're 0:07:01.640 --> 0:07:06.760 using the debt to pay down high expensive borrowing from 0:07:06.760 --> 0:07:09.360 the past, UM, and they have used it to buy 0:07:09.360 --> 0:07:12.600 back stock. It's true, UM, the consumer has a strong 0:07:12.640 --> 0:07:15.559 balance sheet to slowdown. That we're seeing now is part 0:07:15.600 --> 0:07:18.720 of a pattern where they have shown remarkable prudence for 0:07:18.760 --> 0:07:22.800 American consumers UM, where they if they're savings rate falls 0:07:22.840 --> 0:07:24.720 a little low, they pull in their horn and re 0:07:24.960 --> 0:07:27.840 establish a stronger savings right. And that's what they're doing. 0:07:28.120 --> 0:07:30.320 So I think later this year they will actually begin 0:07:30.360 --> 0:07:32.880 to pick up. I know that there's some constraints in 0:07:32.920 --> 0:07:36.840 the labor market, but um uh that that can be resolved. 0:07:38.400 --> 0:07:42.600 The consumers are powering this economy still, so they're as 0:07:43.280 --> 0:07:45.200 Milton has Roddy, thank you very much. Milton is the 0:07:45.200 --> 0:07:49.360 independent economics and Investment Strategy consultant, a Chief Economists or 0:07:49.480 --> 0:08:06.239 vested Joining us here, Paul, there is a big question 0:08:06.320 --> 0:08:08.840 in the era of big data and companies getting a 0:08:08.880 --> 0:08:12.200 lot of it, the digitization of everything, what are the 0:08:12.280 --> 0:08:16.480 potential implications from a regulatory standpoint for individual investors who 0:08:16.480 --> 0:08:19.360 log onto their app or connect to some kind of 0:08:19.400 --> 0:08:22.280 advisory firm that uses an app or uses some machine 0:08:22.360 --> 0:08:25.480 learning behind it to understand their client. What are the 0:08:25.480 --> 0:08:27.920 potential risks here? And joining us now, I'm very pleased 0:08:27.920 --> 0:08:29.520 to say. Somebody who's given a lot of thought to 0:08:29.520 --> 0:08:31.920 this Gregory LeBlanc. He has a lectured at Host School 0:08:31.960 --> 0:08:34.959 of Business at Berkeley Law School. He is uh here 0:08:35.080 --> 0:08:38.000 with us in Scottsdale, but University of California Berkeley is 0:08:38.000 --> 0:08:40.960 also I'm sure beautiful right now, So uh, as a professor, 0:08:41.000 --> 0:08:42.319 what's your sense of this? I mean, what is the 0:08:42.320 --> 0:08:44.720 potential risk here? Well, if you think about a financial 0:08:44.720 --> 0:08:46.920 advisor is someone that you know. Usually you want, you 0:08:46.920 --> 0:08:49.200 want to trust, right, They're not somebody that you want 0:08:49.240 --> 0:08:51.199 have an arm's length relationship. If you want them to 0:08:51.280 --> 0:08:55.200 provide you with high quality service, high quality advice, then they, 0:08:55.240 --> 0:08:58.440 like your doctor, like your lawyer, right, have to get 0:08:58.480 --> 0:09:01.040 your trust, and that means you're gonna give them a 0:09:01.040 --> 0:09:03.960 ton of information. I mean, right now, robo advisors ask 0:09:04.040 --> 0:09:07.680 you things like your age and uh, maybe your planned 0:09:07.720 --> 0:09:10.719 retirement date. Uh, and um, you know your tolerance for 0:09:10.880 --> 0:09:14.480 risk and sort of survey based Um, that's gonna change. Right, 0:09:14.480 --> 0:09:18.079 We're gonna have robo advisors that know you better than 0:09:18.080 --> 0:09:20.560 your mother, right, just like Facebook and Google now know 0:09:20.679 --> 0:09:22.640 you better than your mother based on information that they 0:09:22.760 --> 0:09:24.680 lean from other sources. Well, part of it's gonna be 0:09:24.679 --> 0:09:27.240 information that you provide. You're gonna probably opt into giving 0:09:27.240 --> 0:09:29.840 them lots of information. So for instance, UM, if we 0:09:29.880 --> 0:09:32.360 really want to know your appetite for risk, rather than 0:09:32.360 --> 0:09:34.960 asking you questions, we should observe your behavior. Do you 0:09:35.000 --> 0:09:37.439 go to casinos? Right? Do you bungee jump? Right? That 0:09:37.559 --> 0:09:40.520 sort of thing. That's that's a much more accurate way 0:09:40.559 --> 0:09:43.560 of of of understanding you. Um, and you know we 0:09:43.600 --> 0:09:45.719 want the financial advisor to protect us from our our 0:09:45.720 --> 0:09:48.520 worst h impulses, and so we want them to know 0:09:48.559 --> 0:09:50.920 about our our worst impulses. And so we're gonna we're 0:09:50.920 --> 0:09:53.520 gonna share this information. And so in order for them 0:09:53.520 --> 0:09:55.240 to provide us with high quality service, they need to 0:09:55.280 --> 0:09:58.520 know a lot about us. But as we've seen the 0:09:58.520 --> 0:10:01.560 casino companies also, I want to know a lot about us, 0:10:01.600 --> 0:10:03.920 and and and that they do they use the information 0:10:03.920 --> 0:10:05.880 that they get to uh, you know, make sure we 0:10:05.920 --> 0:10:09.400 leave the casino with less money, right rather than more money. 0:10:09.480 --> 0:10:13.400 So how how have individual investors have their expectations changed 0:10:13.440 --> 0:10:16.440 in terms of how they interact with I don't know 0:10:16.480 --> 0:10:19.280 the consumer finance, whether it's a broker or a banker 0:10:19.800 --> 0:10:21.959 there we how has that change? Well, if you think 0:10:21.960 --> 0:10:24.200 about a typical financial advisor, I mean, the typical financial 0:10:24.200 --> 0:10:27.559 advisor is usually over fifty and their clients are over fifty, 0:10:27.640 --> 0:10:29.760 and most younger people don't really want to deal with 0:10:29.760 --> 0:10:32.600 this this uh, their dad's financial advisor, and so they're 0:10:32.640 --> 0:10:35.760 beginning to put their trust into rob advisors. Right. You know, 0:10:35.840 --> 0:10:37.440 you you open up an app and and then you 0:10:37.480 --> 0:10:39.240 press a few buttons and you don't actually have to 0:10:39.720 --> 0:10:43.720 deal with the the backslapping human right and uh and 0:10:43.760 --> 0:10:47.040 so I think every financial services company realizes this and 0:10:47.040 --> 0:10:48.679 and they're starting to move in that direction. But it's 0:10:48.720 --> 0:10:51.920 not just a consumer facing app, but it's also the 0:10:51.920 --> 0:10:54.920 technology that lies behind it. So have there been any 0:10:55.000 --> 0:10:58.840 instances where a financial advisor that runs a robo advisory 0:10:59.520 --> 0:11:02.480 outlet that judges draw in these millennials? Has there been 0:11:02.520 --> 0:11:06.720 any cases of them using the information to the dutchriment 0:11:06.800 --> 0:11:09.040 of the investors saying, you know, we're going to sell 0:11:09.080 --> 0:11:12.560 them this much riskier thing that gives us bigger fees 0:11:12.640 --> 0:11:15.559 because we know that they bungee jump and they listened 0:11:15.600 --> 0:11:18.560 to Death Metal. Well, okay, that's right, We're not there yet. 0:11:18.600 --> 0:11:21.319 But I mean we all know about Wells Fargo and um, 0:11:21.360 --> 0:11:23.160 you know which a lot of friends who work there, 0:11:23.160 --> 0:11:26.120 and it's a perfectly fine financial institution. But you know, 0:11:26.440 --> 0:11:29.079 you know, any big financial institution is if it doesn't 0:11:29.080 --> 0:11:32.319 have proper controls. Uh, if it has incentives for people 0:11:32.360 --> 0:11:35.080 to generate revenue, then that they're going to use this data. 0:11:35.120 --> 0:11:38.760 So you know, Wells Fargo famously got in trouble because 0:11:38.840 --> 0:11:42.800 they used data for cross marketing purposes and uh, um, 0:11:42.840 --> 0:11:45.880 you know, aggressively, UM created accounts and and you know, 0:11:45.960 --> 0:11:49.560 pursued marketing campaigns for individuals based on what they knew 0:11:49.559 --> 0:11:52.480 about their propensities to buy these different products. Are uh 0:11:52.559 --> 0:11:56.160 not noticed that these products were being obtained for them? Right? 0:11:56.280 --> 0:11:59.800 So I guess one thing that I'm just wondering is 0:11:59.840 --> 0:12:02.000 like how much is this a regulatory issue? How much 0:12:02.080 --> 0:12:04.480 is this something that should be coming from the government, 0:12:04.920 --> 0:12:07.199 and how much is this just a cultural issue in 0:12:07.280 --> 0:12:10.160 each firm, because there's there's really a fuzzy line here. 0:12:10.200 --> 0:12:12.480 You're absolutely right. I mean, it's the same. Really, this 0:12:12.600 --> 0:12:14.640 discussions we're having right now about Facebook, we're gonna be 0:12:14.640 --> 0:12:17.439 having about all of our financial advisors. UM. You know, 0:12:17.480 --> 0:12:19.760 we have a very lazy fair attitude right now where 0:12:19.760 --> 0:12:22.480 people opt in. Uh. The problem with most Americans that 0:12:22.520 --> 0:12:24.400 they say, oh, I believe in privacy, but then if 0:12:24.400 --> 0:12:26.319 you offer a free slice of pizza in exchange for 0:12:26.360 --> 0:12:32.400 their DNA, they take it right. And and so you know, 0:12:32.440 --> 0:12:33.840 I think at some point that the law is going 0:12:33.880 --> 0:12:35.640 to catch up. I mean, I'm not sure whether we're 0:12:35.640 --> 0:12:39.680 gonna copy something like gdp R in Europe, but UM 0:12:39.720 --> 0:12:42.679 and like the big companies are probably going to benefit 0:12:42.720 --> 0:12:45.520 from those kinds of privacy protections. But that kind of 0:12:45.559 --> 0:12:48.480 brings my next question, which is which companies or which 0:12:48.520 --> 0:12:52.040 types of financial institutions are doing this. Well, yeah, well 0:12:52.120 --> 0:12:56.280 nobody yet. OK. So, um, the you know about betterment 0:12:56.440 --> 0:12:59.960 and uh personal capital and financial engines. These are robo 0:13:00.040 --> 0:13:02.760 advisors that have you know, made some headway, and then 0:13:02.760 --> 0:13:05.120 Schwab and Fidelity and some of the others have copied 0:13:05.160 --> 0:13:07.800 what they do. But we're at the very very primitive stage. 0:13:07.800 --> 0:13:13.880 I mean we're at the MySpace era of of you know, 0:13:14.280 --> 0:13:17.320 rob advising. I think, um, you know, there's just so 0:13:17.440 --> 0:13:20.480 much potential here that we're just beginning to scratch the surface. 0:13:20.960 --> 0:13:23.880 So I guess just lastly, in real quick here, do 0:13:23.920 --> 0:13:26.600 you think that there is an appropriate amount of information 0:13:27.000 --> 0:13:29.120 for these rob advisors to collect or do you think 0:13:29.160 --> 0:13:31.679 it's important for them to have all this information? It's 0:13:31.720 --> 0:13:34.960 just having some sort of control as far as how 0:13:34.960 --> 0:13:36.840 they use it. Yeah, I mean, the more information they have, 0:13:36.960 --> 0:13:39.040 the better the job that can do. If you think 0:13:39.040 --> 0:13:41.400 about Facebook, I mean pretty much every ad I get 0:13:41.440 --> 0:13:43.480 on Facebook is totally relevant. I mean I would never 0:13:43.720 --> 0:13:47.240 get rid of my what as soon as I land 0:13:47.240 --> 0:13:49.559 here in Phoenix, I start getting you know things, but oh, 0:13:49.600 --> 0:13:51.360 here are some fun things to do in Phoenix. I'm like, oh, 0:13:51.440 --> 0:13:54.200 this is great information, right because they know me well. Um, 0:13:54.280 --> 0:13:56.600 but you know you you darn well better trust them. 0:13:56.640 --> 0:13:59.440 And if they lose your trust, then they lose your business. 0:13:59.640 --> 0:14:02.400 And and so you know, the companies that have the 0:14:02.480 --> 0:14:05.200 name brands that they have to be very very careful 0:14:05.240 --> 0:14:07.880 that they don't lose the trust of their investors because 0:14:07.880 --> 0:14:10.800 one big scandal and uh, you know Facebook and monopoly, 0:14:10.920 --> 0:14:13.079 but but financial institutions that we have a lot of 0:14:13.120 --> 0:14:15.400 competing financial institutions, and so you know, you can't just 0:14:15.480 --> 0:14:17.760 you can you can't cancel your Facebook account, but hey, 0:14:17.880 --> 0:14:19.640 I can cancel my Morgan Stanley account and you know, 0:14:19.720 --> 0:14:21.720 and and and move it over to you know, Goldman 0:14:21.760 --> 0:14:23.560 Sacks with the click of a mouse. So so I 0:14:23.600 --> 0:14:26.360 think people have to do behave Gregory Leblan, thank you 0:14:26.400 --> 0:14:28.600 so much for joining us. Gregory is the lecturer at 0:14:28.600 --> 0:14:31.400 the Hot School of Business at Berkeley at the University 0:14:31.600 --> 0:14:53.120 of California. We are talking all things asset management, front office, 0:14:53.160 --> 0:14:55.520 back office, the whole thing. Joining us to kind of 0:14:55.600 --> 0:14:58.880 drill down deeper and some key issues is Steve Meyer. 0:14:59.160 --> 0:15:02.880 Steve is a global wealth management services at s c 0:15:03.040 --> 0:15:06.560 I SEI has over three billion dollars under management, spased 0:15:06.560 --> 0:15:09.200 in Oaks, p A. But Steve joins us here in 0:15:09.320 --> 0:15:11.880 Lovely Scottsdale. Steve, thanks for joining us, Thank you for 0:15:11.920 --> 0:15:16.200 having me. Boy your industry. It's just tremendous here about 0:15:16.240 --> 0:15:19.080 all the change that's going on, whether it's regulatory change, 0:15:19.120 --> 0:15:23.320 competitive change, you know, just investors changing how they're investing. 0:15:23.680 --> 0:15:26.680 What is the number one issue that you and your 0:15:26.720 --> 0:15:29.680 attendees here are trying to tackle today. Well, I don't 0:15:29.720 --> 0:15:32.360 think there's one number one. I think everything you listed 0:15:32.600 --> 0:15:34.880 is on the minds here. Um. You look, you look 0:15:34.920 --> 0:15:37.080 at asset management. There's a lot of feed compression and 0:15:37.160 --> 0:15:42.120 pressure on managers today. Regulatory changes, Um, you know, ironically 0:15:42.160 --> 0:15:44.280 we look at them as opportunities to help our clients, 0:15:44.320 --> 0:15:46.960 but they are challenges for our clients. Uh. And then 0:15:47.040 --> 0:15:50.120 really you look at all the new technology coming out 0:15:50.160 --> 0:15:53.280 that can support a manager from how they invest and 0:15:53.360 --> 0:15:55.440 pick stocks all the way through as we started to 0:15:55.440 --> 0:15:58.720 talk about, through their back office, middle office to front office. 0:15:58.920 --> 0:16:01.080 I think that all of that is on their minds 0:16:01.080 --> 0:16:04.320 as well as how is looking forward they differentiate themselves. 0:16:04.800 --> 0:16:06.280 So I think that's one of the key notes of 0:16:06.320 --> 0:16:09.320 this conference to get these clients together, a very diverse 0:16:09.320 --> 0:16:11.640 group of people and firms to start to look at 0:16:11.640 --> 0:16:13.840 the industry not just what's happened, but what's going on 0:16:13.920 --> 0:16:15.560 in the future and how they can kind of talk 0:16:15.600 --> 0:16:18.480 and collaborate and come up with some things that would 0:16:18.520 --> 0:16:21.040 help them in their strategy. So, Steve, let's dig into 0:16:21.080 --> 0:16:23.600 some of the changes that are happening, particularly in the 0:16:23.640 --> 0:16:27.480 processing side. It's not just settlements and and things like that. 0:16:27.560 --> 0:16:31.680 It's also requests for redemptions and deposits in hedge funds 0:16:31.760 --> 0:16:33.920 and other issues. What are some of the big developments 0:16:33.920 --> 0:16:36.480 recently from your end um, Well, I think all of them. 0:16:36.840 --> 0:16:39.640 You know, everything is being driven and there's an understore 0:16:39.880 --> 0:16:43.400 underscore of technology and much of this um when you 0:16:43.440 --> 0:16:46.680 look at the processing side, Uh, really, you have to 0:16:46.800 --> 0:16:50.160 scale and have a very efficient process. Uh So there's 0:16:50.160 --> 0:16:53.440 a ton of enabling technologies that many firms like US 0:16:53.440 --> 0:16:55.920 are looking to employ. But one just not from scaling 0:16:55.960 --> 0:16:58.560 efficiency standpoint, But if you think about it, the back 0:16:58.560 --> 0:17:01.160 office is where it all starts. Um. That's the core 0:17:01.160 --> 0:17:03.960 of the foundation. If you don't have a seamless, well 0:17:04.040 --> 0:17:06.919 processed back office, you're not going to have the best 0:17:07.160 --> 0:17:09.680 front office or investor and experience that you can have. 0:17:10.000 --> 0:17:12.280 The back office is obviously where a lot of the 0:17:12.359 --> 0:17:15.320 data resides too, and in these days you can't go 0:17:15.400 --> 0:17:18.320 too long without someone talking about UH. Folks are looking 0:17:18.320 --> 0:17:21.520 to get into more data analytics, predictive analytics. All of 0:17:21.560 --> 0:17:23.200 that's going to come out of the back office. That's 0:17:23.200 --> 0:17:26.080 where it starts. So that's what's pushing what some of 0:17:26.119 --> 0:17:28.240 the trends were starting to see right now. One of 0:17:28.280 --> 0:17:30.199 the themes obviously that we've heard in the yesset management 0:17:30.200 --> 0:17:32.720 business over the over many years, and I'm certainly here 0:17:32.720 --> 0:17:34.879 I've heard it here just at this conference is UH 0:17:35.040 --> 0:17:39.080 is the pressure on fees that asset managers are dealing with. 0:17:39.800 --> 0:17:41.879 How are so, how are they responding and what are 0:17:41.920 --> 0:17:44.280 some proper responses that you're seeing in the marketplace. Well, 0:17:44.280 --> 0:17:45.760 they a couple of things. I think they're looking at 0:17:45.800 --> 0:17:48.840 what their core strategies are UM. You know, most managers, 0:17:48.920 --> 0:17:51.480 especially multi strap managers are looking and saying, you know, 0:17:51.520 --> 0:17:53.480 where they want to really make their bets for the future, 0:17:53.600 --> 0:17:57.040 what their core investment pisis is UM and they're shuttering 0:17:57.040 --> 0:17:59.880 products that either aren't in favor or aren't really core 0:18:00.000 --> 0:18:03.200 for their strategy to uh So, I think they're trying 0:18:03.200 --> 0:18:05.760 not to be all things to everybody and think that's 0:18:06.200 --> 0:18:08.639 a very good strategy too. They're also focusing on what 0:18:08.680 --> 0:18:11.119 their core is, and their core is managing money and 0:18:11.160 --> 0:18:14.600 focusing on clients. So everything else from their technology infrastructure 0:18:14.600 --> 0:18:17.400 to their processing, if they're doing that in house, they're 0:18:17.440 --> 0:18:20.520 outsourcing it because they're going to firms like ours that 0:18:20.520 --> 0:18:22.520 that's our core, that we can give them a better 0:18:22.560 --> 0:18:24.840 experience and give them more scale in doing that. Do 0:18:24.880 --> 0:18:26.600 you have trouble hiring people to do what you need 0:18:26.640 --> 0:18:28.560 them to do? Now, we've been very blessed. We have 0:18:28.560 --> 0:18:32.199 a very good location our headquarters now Oaks, Pennsylvania. We 0:18:32.200 --> 0:18:34.639 also have a number of offices across the US and 0:18:34.760 --> 0:18:38.320 globally London and Dublin, and we have a really good 0:18:38.359 --> 0:18:40.360 talent base that we can draw from. The reason why 0:18:40.400 --> 0:18:42.000 I ask that is because a lot of people say, 0:18:42.080 --> 0:18:44.640 especially when they're trying to build out their tech specialist, 0:18:44.680 --> 0:18:48.040 because this is a different skill than say processing something 0:18:48.080 --> 0:18:52.720 by facts, especially if you're talking about data analytics. People 0:18:52.760 --> 0:18:55.760 talk about a shortage of eligible employees, but you have 0:18:55.840 --> 0:18:58.520 not found that. No, I mean we we look at 0:18:58.600 --> 0:19:02.560 we hire uh, certain subject matter experts, and you know, 0:19:02.600 --> 0:19:05.080 we bring them in from all others all over, so 0:19:05.160 --> 0:19:07.080 some of them might have to be relocated. But then 0:19:07.119 --> 0:19:08.960 we do do a very good job of training people. 0:19:09.000 --> 0:19:11.719 So we do a balance of hiring and getting locate 0:19:11.800 --> 0:19:14.399 that talent outside as well as putting together a pretty 0:19:14.400 --> 0:19:16.960 good training program to train up the personnel we need. 0:19:17.280 --> 0:19:20.720 How about just real quickly twenty seconds US versus let's 0:19:20.720 --> 0:19:22.920 say Europe. What how's the regulatory or just the competitive 0:19:22.960 --> 0:19:26.320 environment in your versus here? Well, I'd say the regulatory Uh, 0:19:26.480 --> 0:19:30.280 it's tough across the lobe, but especially outside the US 0:19:30.440 --> 0:19:34.680 and the European UH sector is very tough. Rules are changing, 0:19:35.000 --> 0:19:37.720 they seem to be changing daily. Uh. They seem to 0:19:37.760 --> 0:19:40.560 be getting tougher. Uh. There seems to be quite a 0:19:41.200 --> 0:19:44.399 large gate uh you know for asset managers there too 0:19:44.480 --> 0:19:47.119 to hurdle. And but again we look at this as 0:19:47.160 --> 0:19:50.400 an opportunity for us to help managers navigate that. Thank 0:19:50.440 --> 0:19:52.200 you so much for being with us and for having 0:19:52.280 --> 0:19:55.560 us here. Stiff, head of Global Wealth Management Services at SEI, 0:19:56.119 --> 0:19:58.960 which oversees more than three hundred billion dollars and also 0:19:59.040 --> 0:20:01.320 serves a variety of clients from hedge funds to big 0:20:01.320 --> 0:20:21.200 asset managers with the intricacies of making it work. One 0:20:21.280 --> 0:20:24.080 aspect that's driving markets a bit higher today is the 0:20:24.119 --> 0:20:28.280 fact that China is apparently giving more fiscal stimulus, particularly 0:20:28.280 --> 0:20:31.240 to its manufacturing sector. Joining us now Tom or Like, 0:20:31.480 --> 0:20:34.919 chief economist for Bloomberg Economics, to discuss kind of what 0:20:35.119 --> 0:20:39.520 this tax break is that they are giving particularly to manufacturers, 0:20:39.760 --> 0:20:43.720 and whether markets are accurately reflecting the boost. So Tom, 0:20:43.760 --> 0:20:45.959 what is this VAT tax that we're talking about here 0:20:45.960 --> 0:20:49.080 and what did China do? So we've got the National 0:20:49.119 --> 0:20:52.320 People's Congress coming up this week, Lisa. Tomorrow, we're going 0:20:52.359 --> 0:20:56.119 to get Premier Lika Chiang giving his annual work reports 0:20:56.440 --> 0:21:00.119