WEBVTT - Anything Over 3% On 10-Year UST Is Overreaction: PGIM’s Collins 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm PIM Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.400 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. The 0:00:32.440 --> 0:00:37.440 big mystery in bond markets this week is whether or 0:00:37.560 --> 0:00:41.080 not ten year treasury yields can break out of the 0:00:41.240 --> 0:00:43.880 range that they have been in. Can they break out 0:00:44.159 --> 0:00:48.000 rising above three? P Here to answer that mystery, Mike Collins, 0:00:48.040 --> 0:00:52.480 Senior investment Officer and portfolio manager at PGIM Fixed Income. Mike, 0:00:52.520 --> 0:00:55.520 what's the answer? Why? Why is? Why is the tenure 0:00:55.560 --> 0:01:00.279 treasury yield pegged below three percent? No matter what? Good morning, Lisa. Yeah, 0:01:00.360 --> 0:01:02.360 it looks like it's breaking out to the downside if 0:01:02.360 --> 0:01:05.200 anything here right, uh, in the near term. And that's 0:01:05.240 --> 0:01:07.160 really been our view all along. Our view has been, 0:01:07.400 --> 0:01:10.080 you know, three is really probably the high water mark. 0:01:10.120 --> 0:01:13.800 Anything above that would be an overshot kind of scenario 0:01:13.920 --> 0:01:17.039 where rates, you know, really overreacted to what's likely to 0:01:17.080 --> 0:01:20.240 be the path of growth and inflation. And and fed 0:01:20.400 --> 0:01:23.800 rate hikes. You know, we came into the year understanding 0:01:23.880 --> 0:01:26.480 that the one thing that we had the most conviction 0:01:26.480 --> 0:01:28.600 and is that volatility is probably going to be higher, 0:01:28.720 --> 0:01:32.200 right because you have bigger tail risks. Right last year 0:01:32.240 --> 0:01:34.119 it felt like, you know, over the last few years, 0:01:34.160 --> 0:01:36.040 we're going to grow at two percent and everything steady 0:01:36.040 --> 0:01:38.759 as she goes. But with the you know, aggressive removal 0:01:38.760 --> 0:01:42.560 of monetary accommodation, the downside and upside tails have have 0:01:42.680 --> 0:01:46.120 increased sharees what I'm struggling with. There were a couple 0:01:46.120 --> 0:01:48.880 of weeks there where the narrative had shifted to a 0:01:48.960 --> 0:01:51.440 supply demand dynamic where all of a sudden, the US 0:01:51.520 --> 0:01:55.520 was about to issue a record amount of the deficit 0:01:55.680 --> 0:01:58.800 was deepening, Will there be enough demand? The Federal Reserve 0:01:58.840 --> 0:02:01.360 is letting its balance sheet an awful little bit. So 0:02:01.520 --> 0:02:05.320 what happened to that whole discussion? Well, the treasury market 0:02:05.360 --> 0:02:09.240 the very large, efficient market and attends to reprice new 0:02:09.280 --> 0:02:11.880 information really quickly, and that's why you get these kind 0:02:11.880 --> 0:02:14.360 of you know, jerky moves and rates. And we've seen that, 0:02:14.440 --> 0:02:16.720 you know, a couple moves from two you know, last 0:02:16.720 --> 0:02:19.279 September to two and a half and then close to three, 0:02:19.360 --> 0:02:21.720 you know, in a couple of big steps. And you know, 0:02:21.760 --> 0:02:23.440 the first half of that move I think was just 0:02:23.560 --> 0:02:27.040 repricing in the re acceleration of growth and the potential 0:02:27.200 --> 0:02:31.000 for slightly higher inflation and certainly the expectation for for 0:02:31.040 --> 0:02:33.160 more aggressive FED rate hikes. And it feels like the 0:02:33.240 --> 0:02:37.240 last you know, basis points was probably trying to find 0:02:37.280 --> 0:02:39.480 a clearing level for all the incremental supply. But that 0:02:39.600 --> 0:02:42.880 that's in the market now right Everybody basically knows what 0:02:43.080 --> 0:02:46.760 the funding requirements are for the government for the next 0:02:46.880 --> 0:02:49.440 few years, so that I think has been priced in 0:02:49.480 --> 0:02:51.880 at this point. So where do we end the year 0:02:52.240 --> 0:02:56.680 for tenary treasury yields? You know, again, it's really a 0:02:56.720 --> 0:03:00.880 bifurcated you know, binary outcome potential. It's it's really weird. 0:03:00.919 --> 0:03:03.200 Normally have a base case that's like and you have 0:03:03.240 --> 0:03:06.280 these small tails, but right now it feels like, you know, 0:03:06.400 --> 0:03:08.440 one tail is that we're sitting here at the end 0:03:08.440 --> 0:03:10.760 of the year and growth is lower and inflation is lower. 0:03:10.800 --> 0:03:12.800 I'm looking at the tips market this morning, you know, 0:03:12.880 --> 0:03:16.240 break evens are falling, meaning people's expectations for inflation are 0:03:16.240 --> 0:03:19.560 actually coming down um, which which actually makes sense to us, 0:03:19.600 --> 0:03:22.399 and maybe rates are back at you know, to fifty. 0:03:22.520 --> 0:03:24.679 The other tail is, you know, maybe we continue to 0:03:24.720 --> 0:03:27.920 get this re acceleration, maybe finally we get some you know, 0:03:28.000 --> 0:03:30.600 signs of inflation rearing its head, and maybe it ends 0:03:30.639 --> 0:03:33.840 at three. But you know, it feels like to us 0:03:33.919 --> 0:03:35.920 that the FETE is not going to be able to 0:03:36.040 --> 0:03:39.880 raise rates all the way to that long term dot 0:03:39.920 --> 0:03:41.720 they have, which is right about three and a half 0:03:41.720 --> 0:03:43.920 percent is what they expect the funds rate to be 0:03:43.960 --> 0:03:46.640 at the end of two thousand twenty, and I think 0:03:46.680 --> 0:03:49.800 that is highly unlikely. So if they pull back at 0:03:49.840 --> 0:03:53.240 all from that, you can see a rallying rates. So, Mike, 0:03:53.400 --> 0:03:57.440 given that sort of bifur Kidd potential, it sounds like 0:03:57.480 --> 0:04:01.040 you're positioning yourself for more of a rally in treasuries 0:04:01.120 --> 0:04:05.000 and inflation undershooting and people ratcheting back their expectations. So 0:04:05.040 --> 0:04:07.880 as a portfolio manager, how are you positioned around that? Yeah? So, 0:04:07.880 --> 0:04:10.680 so we um added to duration, you know, at these 0:04:10.760 --> 0:04:13.360 higher levels, and we continue to be slightly long duration 0:04:13.400 --> 0:04:17.159 in our portfolios relative to our our benchmarks. We continue 0:04:17.160 --> 0:04:20.279 to have a curve flattenuron which really worked well last 0:04:20.360 --> 0:04:22.599 year and it's actually worked this year despite you know, 0:04:22.680 --> 0:04:25.440 consensus view that all the curves bounce is steep, and 0:04:25.480 --> 0:04:27.320 you know, we don't believe that, right because if the 0:04:27.360 --> 0:04:32.400 Fed insist on moving along that very aggressive hiking path, uh, 0:04:32.440 --> 0:04:33.960 the curve is going to flatten, right, If they get 0:04:33.960 --> 0:04:36.200 the funds rate to three or above three, the curve 0:04:36.240 --> 0:04:37.960 is going to be flat or inverted. So yeah, so 0:04:38.000 --> 0:04:40.880 we've you know, maintained a slightly long duration bias at 0:04:40.880 --> 0:04:44.600 these higher levels towards three and and a guild curt flattener. 0:04:44.760 --> 0:04:48.000 So what about credit? Credit is actually a tricky qual 0:04:48.040 --> 0:04:50.360 I think that's going to be a bigger deal over 0:04:50.360 --> 0:04:52.599 the next year or two or three uh than the 0:04:52.680 --> 0:04:54.960 rate scenario. And and I think we're at a bit 0:04:54.960 --> 0:04:58.120 of an inflection point in credit. We're definitely seeing more 0:04:58.520 --> 0:05:02.039 competition among companies. And you just see the volatility that's 0:05:02.080 --> 0:05:03.800 reared its head in the in the equity markets, and 0:05:03.880 --> 0:05:06.799 a lot of the business models are being called into question. 0:05:06.880 --> 0:05:11.760 Whether you know, it's a car company, what's that Tesla? Yeah, Tesla, 0:05:11.839 --> 0:05:15.080 your name is Netflix. Netflix bonds are actually selling off today. 0:05:15.080 --> 0:05:17.560 It's sort of interesting. It's not just you know, Tesla's 0:05:17.600 --> 0:05:20.480 down in the mid eighties their bonds, right, and um, 0:05:20.520 --> 0:05:22.200 you know they came not that long ago at a 0:05:22.200 --> 0:05:24.440 five handle coupon, which we thought was was way too 0:05:24.480 --> 0:05:27.359 low for a pretty risky company's burning three billion in 0:05:27.360 --> 0:05:30.320 cash this year, So um, it's gonna be you know, 0:05:30.560 --> 0:05:34.680 a lot of idiosyncratic, nagging credit problems, I believe, over 0:05:34.680 --> 0:05:36.240 the next few years. So you really have to be 0:05:36.279 --> 0:05:39.400 careful on credit. We have paired back our exposure to 0:05:40.080 --> 0:05:44.080 investment grade and high yield industrial corporate bonds to to 0:05:44.200 --> 0:05:47.200 really become a little more defensive here. How concerned are 0:05:47.240 --> 0:05:51.839 you about the swath of triple B rated investment grade bonds? 0:05:51.880 --> 0:05:55.200 Just to put this into perspective, the amount of triple 0:05:55.240 --> 0:05:58.120 B bonds, which is the lowest chair of investment grade credit, 0:05:58.560 --> 0:06:02.039 accounts for the biggest portion of the six trillion dollar 0:06:02.240 --> 0:06:05.159 you as corporate debt market that is rated investment create 0:06:05.720 --> 0:06:09.160 Are you preparing for a sort of rash of downgrades 0:06:09.240 --> 0:06:11.720 among that debt? You know, this is a trend we've 0:06:11.720 --> 0:06:14.800 been seeing throughout my entire thirty year career, right invest 0:06:14.839 --> 0:06:16.680 in great corporate indexs has gone from double A to 0:06:16.720 --> 0:06:19.400 things like the triple B effectively, and you see even 0:06:19.400 --> 0:06:23.440 the banks have moved along that same negative credit migration path. 0:06:24.120 --> 0:06:26.880 But what happens is the higher quality companies, the double 0:06:26.920 --> 0:06:30.040 as and single as are really not incentivized to stay there, right, 0:06:30.160 --> 0:06:32.320 so they are levering up their capital structures to move 0:06:32.360 --> 0:06:35.480 into triple B. That's really what's happened. Once you get 0:06:35.480 --> 0:06:40.000 into triple B, companies are extremely reticent to lever up further. Right. 0:06:40.040 --> 0:06:42.039 They do not want to go into junk land because 0:06:42.080 --> 0:06:44.479 then their financing costs or their access to markets and 0:06:44.520 --> 0:06:47.159 liquidity really become restricting. A lot of these companies, as 0:06:47.200 --> 0:06:49.240 you point out, I'll have a lot of debt that 0:06:49.279 --> 0:06:51.280 they're going to have to refinance at some point. So 0:06:51.480 --> 0:06:53.719 we actually believe it or not, our underweight the double 0:06:53.760 --> 0:06:55.440 A single A part of the market because of that 0:06:55.520 --> 0:06:59.000 negative credit migration as we call it, and overweight select 0:06:59.040 --> 0:07:01.480 triple bes because there is a lot more opportunities to 0:07:01.520 --> 0:07:04.560 add alpha or add value by avoiding the triple bs 0:07:04.600 --> 0:07:06.400 that might go to junk and picking the ones that 0:07:06.640 --> 0:07:08.039 you know, maybe just did a big M and A 0:07:08.120 --> 0:07:10.000 deal and have levered up and issue new bonds that 0:07:10.240 --> 0:07:12.280 you know attractive spreads, and you can take advantage of 0:07:12.320 --> 0:07:14.920 that as an entry point so you've been reducing exposure 0:07:15.000 --> 0:07:19.200 to some investment grade credit, also to some high yield credit. 0:07:19.520 --> 0:07:21.760 What have you been adding to instead? It sounds like 0:07:22.000 --> 0:07:26.080 long term treasuries and well, well treasuries to some extent, 0:07:26.160 --> 0:07:29.240 but really uh, a little more of a credit barbell. 0:07:29.400 --> 0:07:32.360 So a lot of the proceeds have gone into triple 0:07:32.400 --> 0:07:35.720 A asset back securities. I know it's a little esoteric, 0:07:35.800 --> 0:07:38.720 but these are actually really undervalued in our mind for 0:07:38.800 --> 0:07:41.480 the underlying credit risk. Right, if you're worried about waking 0:07:41.560 --> 0:07:43.800 up and reading the paper and seeing Trump tweet or 0:07:44.040 --> 0:07:46.040 or something happening, and your you know your company is 0:07:46.280 --> 0:07:48.840 having some competitive issues, you don't have to worry about 0:07:48.880 --> 0:07:52.000 that when you're in the triple A of a CMBs 0:07:52.120 --> 0:07:56.360 or collateralized loan obligation security that has tremendous, tremendous credit 0:07:56.440 --> 0:07:59.480 enhancement or support below you. So we've actually built pretty 0:07:59.520 --> 0:08:01.280 big position in that paper. But on the other side 0:08:01.320 --> 0:08:03.480 of the barbell, we have added on the margin to 0:08:03.560 --> 0:08:06.120 some emerging market debt. Right at some of the emerging 0:08:06.160 --> 0:08:09.800 market and even European peripheral sovereigns have come out of 0:08:09.800 --> 0:08:11.840 recessions in the last few years, right and they're on 0:08:11.880 --> 0:08:14.200 an improving path. Mike Collins, thank you so much for 0:08:14.280 --> 0:08:16.680 being with me. Always wonderful to hear what you have 0:08:16.760 --> 0:08:21.120 to say. Mike Collins, Senior investment Officer and portfolio manager 0:08:21.240 --> 0:08:25.360 at PGIM Fixed Income talking about the current h fixed 0:08:25.360 --> 0:08:30.680 income market that he oversees. Helps oversee about seven billion dollars. 0:08:30.680 --> 0:08:50.000 This is Bloomberg. Amazon stocks down the most for three 0:08:50.240 --> 0:08:55.400 days since February two thousand and sixteen. Why well, perhaps 0:08:55.440 --> 0:08:58.720 because President Trump confirmed that he is now focused on 0:08:58.800 --> 0:09:02.040 Amazon in a Twitter post today. But perhaps there's more 0:09:02.080 --> 0:09:04.360 to it than that. Joining us now, Shara o Vida 0:09:04.559 --> 0:09:08.000 Bloomberg Gadfly columnists. We always love speaking with her, Shira, 0:09:08.320 --> 0:09:12.000 what's going on with Amazon today? In a word, Trump 0:09:12.640 --> 0:09:15.160 is it? Yes? I think it is so. We saw 0:09:15.360 --> 0:09:20.720 both yesterday and today Amazon shares responding to news yesterday. 0:09:20.720 --> 0:09:23.960 There was an Axios story today. Trump himself tweeted earlier 0:09:23.960 --> 0:09:29.080 this morning about basically his concerns that Amazon is hurting 0:09:29.280 --> 0:09:32.680 U S cities and states by not paying taxes quote unquote, 0:09:33.000 --> 0:09:37.280 hurting the U S. Postal service, um, hurting retailers. It's 0:09:37.800 --> 0:09:42.000 the Acio story described Trump as obsessed with Amazon and 0:09:42.040 --> 0:09:44.439 trying to come up with ways to kind of curtail 0:09:44.520 --> 0:09:46.920 its power. But you know, even a lot of people 0:09:46.960 --> 0:09:50.400 who might disagree with President Trump on a lot of 0:09:50.520 --> 0:09:55.840 issues do agree with him about curtailing Amazon's power. And 0:09:56.040 --> 0:09:59.680 you know, I'm wondering how much the shares are accurately 0:10:00.040 --> 0:10:04.600 pricing in that aspect. And you know, and if that's 0:10:04.600 --> 0:10:07.439 not on the table, then are they overreacting to President 0:10:07.480 --> 0:10:12.080 Trump's tweets. It's clearly an overreaction. Look, it's we've been 0:10:12.080 --> 0:10:14.200 talking about this for a couple of years now that 0:10:14.559 --> 0:10:18.080 all of these large US tech companies, they're at a 0:10:18.120 --> 0:10:22.040 point where people are questioning whether they have too much 0:10:22.080 --> 0:10:26.280 unchecked power on every dimension, right, And Amazon is certainly 0:10:26.280 --> 0:10:28.440 in that conversation too. And there's been kind of a 0:10:28.480 --> 0:10:32.920 parlor game in certain circles to talk about Amazon and 0:10:33.240 --> 0:10:38.240 maybe think about whether different kinds of antitrust laws should 0:10:38.240 --> 0:10:41.800 be applied. Um to Amazon, which is not a conventional 0:10:42.520 --> 0:10:45.040 anti trust case by any struct of the imagination, has 0:10:45.080 --> 0:10:48.400 small market share, it's not hurting, it's not raising consumer 0:10:48.440 --> 0:10:50.760 prices as far as we can tell in the broader economy. 0:10:50.840 --> 0:10:54.040 Things like that. Um So, yes, I think what's happening 0:10:54.040 --> 0:10:56.440 here is it just kind of anxiety and noise that 0:10:56.520 --> 0:10:59.800 if the president doesn't like a company, maybe that's bad 0:11:00.040 --> 0:11:03.280 for the company. But you're right, he's certainly not alone 0:11:03.480 --> 0:11:07.840 in wondering if Amazon is doing harm in certain sectors 0:11:07.840 --> 0:11:11.120 of the economy. But it's not really clear what could 0:11:11.120 --> 0:11:13.800 be done at the government level to change that. Um. 0:11:13.880 --> 0:11:17.120 So we are talking about fang stocks. We dealt with 0:11:17.160 --> 0:11:21.120 the A. UM I wanna I wanna move out to 0:11:21.160 --> 0:11:23.680 another A. I think that there are two a's in there. 0:11:23.720 --> 0:11:27.280 There are fang Okay, So I want to talk about Apple, 0:11:27.600 --> 0:11:30.760 and you put out a really interesting column about their 0:11:30.800 --> 0:11:34.000 iPad initiative of trying to get them into schools, and 0:11:34.440 --> 0:11:38.000 I I had an initial gut reaction to this that 0:11:38.080 --> 0:11:40.719 I think was somewhat similar to yours, just because my 0:11:40.800 --> 0:11:44.160 children are in school and they have chromebooks. Um. But 0:11:44.160 --> 0:11:48.319 but you were saying that Apple needs schools more than 0:11:48.760 --> 0:11:53.080 they need its iPads. Well, look, it's not a secret 0:11:53.200 --> 0:11:58.520 that iPad Sales of iPads peaked in and have been 0:11:58.559 --> 0:12:02.480 declining every year since then. It's clearly a device that 0:12:02.960 --> 0:12:05.880 is popular in certain circles. Is a lot of people 0:12:05.960 --> 0:12:08.319 like it, but it is not a world changing device 0:12:08.480 --> 0:12:11.840 either you know, for technology at large, nor for Apple's 0:12:11.840 --> 0:12:15.120 bottom line. It's obviously a big business, but in the 0:12:15.160 --> 0:12:18.640 scale of Apple, not a game changer. So they're trying 0:12:18.760 --> 0:12:21.720 again as they did when the iPad initially came out, 0:12:21.960 --> 0:12:24.480 to make a push into U S schools. Where As 0:12:24.480 --> 0:12:27.760 you said, Google, I mean I said this before. It's 0:12:27.760 --> 0:12:30.000 really the most undercover tech story of the last five 0:12:30.080 --> 0:12:33.960 years is what Google has done to sweep into US 0:12:34.040 --> 0:12:37.840 schools with Chromebooks, with their suite of software, and really 0:12:37.840 --> 0:12:41.920 to dislodge Apple and Microsoft to some extent too, from 0:12:42.200 --> 0:12:44.960 school districts um in this way. That's been really interesting 0:12:44.960 --> 0:12:47.360 to see in Apple's trying again to kind of make 0:12:47.400 --> 0:12:50.520 a different case, different pitch to school districts to adopt iPads. 0:12:50.760 --> 0:12:53.760 I my my initial reaction to this was three hundred 0:12:53.880 --> 0:12:58.520 sticker price sticker. That's huge, and especially compared with the 0:12:58.559 --> 0:13:02.560 price of Chrome books and frankly fancier and better screens 0:13:02.720 --> 0:13:04.600 isn't going to cut it. When you're talking about a 0:13:04.679 --> 0:13:09.120 basic device that students need to just communicate with their teacher, 0:13:09.320 --> 0:13:12.280 write papers, keep track of their homework and the like. 0:13:12.480 --> 0:13:15.120 You don't want it to be too distracting. Yeah, it's 0:13:15.200 --> 0:13:17.160 it's a good point. I mean, look the thing with 0:13:17.200 --> 0:13:19.920 the iPad, You're right, it's a three hundred device. Apple 0:13:20.000 --> 0:13:23.439 is also talking about their their digital styluses, which is 0:13:23.480 --> 0:13:27.000 another ninety dollars or so. And then remember those devices 0:13:27.000 --> 0:13:28.679 don't come with keyboards, so if you want your kid 0:13:28.679 --> 0:13:31.120 to have a keyboard, that's more money. But I think 0:13:31.160 --> 0:13:34.040 they lose things all the time. I mean the stylus. 0:13:34.360 --> 0:13:38.040 I guarantee you one of children will lose or damage 0:13:38.640 --> 0:13:42.480 a digital stylus. The interesting thing about chromebooks is not 0:13:42.720 --> 0:13:45.800 just that they're relatively low cost, they're sort of two 0:13:46.520 --> 0:13:49.800 and up for schools, but also that you know, Google 0:13:49.920 --> 0:13:53.160 is kind of thought smartly about the kind of software 0:13:53.200 --> 0:13:56.320 around those devices, right that you can log into your 0:13:56.520 --> 0:13:59.920 Gmail or Google Docs account from any device. Um, they 0:14:00.080 --> 0:14:03.040 have these this piece of software for teachers where teachers 0:14:03.040 --> 0:14:05.320 can kind of assign homework and see what kids are 0:14:05.320 --> 0:14:10.040 doing on their screens. And Google very smartly thought about 0:14:10.080 --> 0:14:13.440 what teachers really need in the classroom and then delivered 0:14:13.440 --> 0:14:15.840 that to school districts and told school districts over and 0:14:15.840 --> 0:14:18.280 over again, this will be good for you. Apples trying 0:14:18.320 --> 0:14:20.280 to make a little bit of a different pitch, which 0:14:20.320 --> 0:14:23.760 is more about creativity. Right. So okay, if you want 0:14:23.800 --> 0:14:26.440 your kids to write papers, maybe chromebooks as the way 0:14:26.480 --> 0:14:28.520 to go. But if you want your kids to make, 0:14:28.640 --> 0:14:35.000 you know, videos of dissecting frogs and annotate those, um 0:14:35.000 --> 0:14:37.680 those videos with their digital stylus, is that is something 0:14:37.720 --> 0:14:39.920 that is in Apple's wheelhouse and is not really in 0:14:39.960 --> 0:14:44.600 Google's wheelhouse. I will say, as a parent simpler often 0:14:45.280 --> 0:14:49.360 it's not being the most effect I wonder about school 0:14:49.480 --> 0:14:53.120 districts kind of feeling the same way as that. But see, yeah, 0:14:53.200 --> 0:14:55.200 thank you so much, Sharah O. Love having you on. 0:14:55.360 --> 0:14:59.760 Shory Shia Overday, technology columnist for Bloomberg Gadfly read her 0:14:59.760 --> 0:15:03.440 call um g a d f go on the Bloomberg 0:15:03.480 --> 0:15:06.720 as well as on Bloomberg dot com talking about fang. 0:15:07.520 --> 0:15:11.520 Facebook shares are up nearly three percent, trying to pick 0:15:11.600 --> 0:15:15.200 up some of the losses from the dreadful weeks that 0:15:15.240 --> 0:15:32.880 have incurred the company with some pretty big losses. The 0:15:33.040 --> 0:15:37.160 US is quickly getting further into debt. We have a 0:15:37.200 --> 0:15:41.360 week after week of record sales of US treasuries. At 0:15:41.400 --> 0:15:45.880 what point does this matter? Joining me now? Is Jim Nadler, 0:15:45.960 --> 0:15:50.280 chief executive Officer of Cruel bond rating Agency. UH. They 0:15:50.320 --> 0:15:53.240 have a report on the United States of America, big 0:15:53.240 --> 0:15:56.760 American flag on the front, saying that the long term 0:15:56.960 --> 0:16:00.640 rating of triple A is stable. So jim him, why 0:16:00.760 --> 0:16:04.720 will it not affect the us is credit worthiness to 0:16:05.080 --> 0:16:09.640 become much more indebted. Certainly, debt and the deficit matter, 0:16:10.040 --> 0:16:13.960 and I think that it's important over the long term 0:16:14.360 --> 0:16:16.440 to keep track of the debt and the deficit. But 0:16:16.480 --> 0:16:19.160 I think more importantly for the US is the fact 0:16:19.240 --> 0:16:22.680 that the US mains by far the largest reserve currency 0:16:22.680 --> 0:16:26.360 of the world. The reason that's important is because the 0:16:26.440 --> 0:16:30.320 US is able to issue UH. They really have unlimited 0:16:30.640 --> 0:16:34.920 ability to issue debt at a reasonable UH interest rate. 0:16:35.440 --> 0:16:38.880 And you saw that when one of our competitors downgraded 0:16:38.920 --> 0:16:42.040 the United States and the the what happened the next 0:16:42.120 --> 0:16:46.120 day was the stock market tumbled, but treasuries rallied because 0:16:46.240 --> 0:16:50.320 in a crisis, everyone buys the US debt, even in 0:16:50.320 --> 0:16:53.640 a crisis that was sort of started by the fact 0:16:53.720 --> 0:16:56.480 that the US got downgraded, and so it's counterintuitive. I'm 0:16:56.480 --> 0:16:59.600 struck by a recent article that I read on Bloomberg. UH. 0:17:00.000 --> 0:17:04.040 It was talking with and looking at the holdings of 0:17:04.040 --> 0:17:07.399 a number of central banks around the world, and they 0:17:07.400 --> 0:17:10.920 were noting that there was an increase in Euro denominated 0:17:11.000 --> 0:17:14.639 assets at the expense of dollar denominated assets. All of 0:17:14.640 --> 0:17:18.080 this to say, if the US does become much more 0:17:18.200 --> 0:17:23.520 in debt, well that threaten the reserve status of the dollar. 0:17:24.520 --> 0:17:27.000 It could, but I think you still have to look 0:17:27.040 --> 0:17:30.520 at the u s is ability to defend its markets. 0:17:30.840 --> 0:17:34.399 The US's ability still were the largest economy in the 0:17:34.400 --> 0:17:37.280 world where we have a we have a consumer economy, 0:17:37.320 --> 0:17:39.239 We buy things from around the world, so all that 0:17:39.320 --> 0:17:41.800 impacts it. And your point is a good one, but 0:17:41.840 --> 0:17:47.080 the US is more is over sixty of holdings in 0:17:47.200 --> 0:17:52.280 central banks. The closest to that is and that's the euro. 0:17:52.840 --> 0:17:55.520 And so while we can talk about the Euro may 0:17:55.520 --> 0:17:58.400 increase a couple of percentage, it's the US is by 0:17:58.480 --> 0:18:01.320 far the largest whole holding on the balance sheets of 0:18:01.359 --> 0:18:06.399 central banks. If you saw that, if you saw another currency, 0:18:06.520 --> 0:18:10.720 UH coming close in the US and and and buyers, 0:18:10.760 --> 0:18:14.240 some central bank buyers shutting US, that then I think 0:18:14.720 --> 0:18:19.800 the the ability of the US to maintain a better 0:18:19.840 --> 0:18:23.560 balance sheet could become important. But I don't see any 0:18:23.600 --> 0:18:26.760 factors in the near term causing that to change. What's 0:18:26.760 --> 0:18:28.720 the tipping point. I mean, what does a deficit have 0:18:28.800 --> 0:18:31.359 to get to at which point you might start to 0:18:31.400 --> 0:18:34.959 think that, uh that forward investors might I don't know, 0:18:35.200 --> 0:18:38.600 have a gut check, have a ha moment saying maybe 0:18:38.640 --> 0:18:41.280 we don't want these treasuries. You know, I'm not sure. 0:18:41.320 --> 0:18:45.080 I think as long as we maintain a robust economy, 0:18:46.160 --> 0:18:49.359 we maintain our status as uh, you know, one of 0:18:49.400 --> 0:18:52.520 the leading economies and one of the leading democracies in 0:18:52.560 --> 0:18:55.080 the world. I think that that's going to have more 0:18:55.160 --> 0:18:59.719 influence than our than our balance sheet. But certainly, you know, 0:19:00.119 --> 0:19:03.240 certainly the balance sheet matters, and it's going to matter 0:19:03.600 --> 0:19:08.480 more for taxes and how we spend our money over time, 0:19:08.560 --> 0:19:10.480 the things that we choose to spend our money on. 0:19:10.680 --> 0:19:13.840 And so I think that's where you'll see those discussions 0:19:13.880 --> 0:19:16.960 take place, is over time. You know, how much we 0:19:17.000 --> 0:19:20.560 spend on defense, how much we spend on domestic on 0:19:21.080 --> 0:19:26.119 domestic programs. Yeah, um, I know that Cruel looks also 0:19:26.359 --> 0:19:29.800 at a number of structured products as well as municipal 0:19:29.880 --> 0:19:33.960 bonds and and some other securities. I'm wondering on the 0:19:34.000 --> 0:19:38.000 structured products side, there's a bit a lot of questions 0:19:38.200 --> 0:19:41.960 around auto loans, particularly subprime auto loans. We've seen credit 0:19:42.000 --> 0:19:45.320 card delinquencies picking up. From your perspective, has there been 0:19:45.359 --> 0:19:50.240 a material deterioration in the credit worthiness of consumer related credit? 0:19:50.240 --> 0:19:53.920 And this concerning to you, I think broadly speaking, certainly 0:19:54.040 --> 0:19:57.600 you can see the numbers we've seen a deterioration in 0:19:57.600 --> 0:20:01.600 in credit. The question is how big that deterioration has been. 0:20:01.680 --> 0:20:04.399 And I think when you look at that, you really 0:20:04.440 --> 0:20:08.240 have to look at the various segments of consumer credit. 0:20:08.359 --> 0:20:11.639 So we still are seeing even though we're seeing a 0:20:11.720 --> 0:20:17.000 bit uh more delinquencies in the subprime auto sector, we 0:20:17.040 --> 0:20:20.280 still see that sector as being robust. And while we 0:20:20.320 --> 0:20:24.080 talk about delinquencies maybe you know, going up half a 0:20:24.080 --> 0:20:27.400 percent or something like that, they still in the structured 0:20:27.480 --> 0:20:33.080 products world have a very large credit enhancement that they 0:20:33.080 --> 0:20:35.320 would need to break through before it would start to 0:20:35.560 --> 0:20:39.640 lead to rating deteriorations. These are also short term assets, 0:20:39.760 --> 0:20:43.000 and so we still are seeing in a lot of 0:20:43.000 --> 0:20:47.120 the consumer depth, particularly in subprime auto, upgrades on those 0:20:47.119 --> 0:20:50.399 tranchas as those deals pay off very rapidly, and so 0:20:50.520 --> 0:20:52.280 a lot of times you'll see a single A or 0:20:52.320 --> 0:20:54.560 a double A going to triple A because the deal 0:20:54.640 --> 0:20:57.240 is paying off, and I think it speaks to the 0:20:57.359 --> 0:21:00.320 UH the amount of credit enhancement that is in those 0:21:00.359 --> 0:21:03.719 deals to cover for losses. So, yes, we've seen an 0:21:03.760 --> 0:21:06.160 increase in losses, but I think we've not seen anything 0:21:06.280 --> 0:21:09.679 that has caused us to rethink the way that we 0:21:09.720 --> 0:21:12.720 look at credit enhancement in those sectors. So, in other words, people, 0:21:12.840 --> 0:21:15.760 the amount of money coming in is so much that 0:21:15.960 --> 0:21:20.240 any losses are immaterial with respect to the upper rated trunches. 0:21:20.280 --> 0:21:22.320 Jim Nadler, thank you so much for joining me today. 0:21:22.520 --> 0:21:27.440 Jim Nataler, chief executive officer of Cruel Bond Rating Agency, 0:21:27.520 --> 0:21:30.680 talking the US and what it would take to shake 0:21:30.800 --> 0:21:34.479 its status as the reserve currency, and it sounds like 0:21:34.880 --> 0:21:36.840 a heck of a lot more than what we're facing 0:21:36.880 --> 0:21:53.800 in the years to come. If you're thinking about donating 0:21:53.840 --> 0:21:57.600 to a political campaign, how about using bitcoin? This has 0:21:57.800 --> 0:22:04.920 some regulators hand lawmakers little concerned about the potential for abuse. MICHAELA. 0:22:05.040 --> 0:22:08.800 Ross joins US now technology reporter for Bloomberg Law. She 0:22:08.880 --> 0:22:12.439 comes to us from Arlington, Virginia. MICHAELA. Your story on 0:22:12.480 --> 0:22:16.480 this was fascinating. First, can you just lay out whether 0:22:16.680 --> 0:22:20.720 bitcoin really is being used as a currency UH to 0:22:21.000 --> 0:22:24.880 donate to political campaigns. Thanks for having me on. Absolutely. 0:22:25.000 --> 0:22:27.760 Bitcoin has actually a lot of people don't don't know, 0:22:27.880 --> 0:22:30.399 but has been donated to campaigns. We were able to 0:22:30.400 --> 0:22:33.560 trace as far back as two thousand fourteen. Of course, 0:22:33.600 --> 0:22:36.240 the difference now is we're gearing up for midterm elections, 0:22:36.440 --> 0:22:39.479 is that the price of bitcoin has skyrocket Back then 0:22:39.520 --> 0:22:41.320 it was around the four hundred dollar mark and now 0:22:41.359 --> 0:22:44.119 it's around the eight thousand dollar mark. But um, so 0:22:44.200 --> 0:22:47.800 there's still a small number of campaigns accepting this. There's 0:22:47.800 --> 0:22:51.000 a lot of people that are looking into it, testing 0:22:51.040 --> 0:22:53.240 the waters is this something that we would benefit from. 0:22:53.440 --> 0:22:56.480 But there's a lot of interests and growing interests. So um, 0:22:56.560 --> 0:22:59.840 small number of campaigns. But what we're hearing from campaign 0:23:00.200 --> 0:23:04.120 parency groups UM and some regulators is that they're concerned 0:23:04.359 --> 0:23:06.840 that the framework is their conditions are there, that this 0:23:06.920 --> 0:23:09.720 could potentially be abused if there's not some some extra 0:23:09.720 --> 0:23:13.120