WEBVTT - P&L: Fed Won't Be in a Position to Raise Rates in February 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg pm L podcast. I'm Pim Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.560 you and your money, whether you're at the grocery store 0:00:16.800 --> 0:00:19.960 or the trading floor. Find the Bloomberg pm L podcast 0:00:20.000 --> 0:00:28.600 on iTunes, SoundCloud and at Bloomberg dot com. You know, 0:00:28.640 --> 0:00:31.960 at this point in the cycle, the economic cycle, a 0:00:32.040 --> 0:00:35.479 lot of people are calling for the reflation of the U. 0:00:35.560 --> 0:00:38.000 S economy. Uh, and and I want to get a 0:00:38.040 --> 0:00:41.600 sense of how much reflation we're actually seeing on the ground. 0:00:41.680 --> 0:00:45.160 I want to bring in Ward McCarthy, chief economist at Jeffreys. 0:00:45.240 --> 0:00:49.440 We got some data this morning, more signs that retail 0:00:49.520 --> 0:00:54.160 sales are accelerating, that we are seeing uh, inflation keeping 0:00:54.360 --> 0:00:59.560 keeping up in Europe. Word, do you think that people 0:00:59.560 --> 0:01:02.360 are at a quickly pricing in just how much inflation 0:01:02.400 --> 0:01:05.240 is going to increase this year? Well, I think that 0:01:05.280 --> 0:01:09.200 people are coming to the realization that the deflationary period 0:01:09.280 --> 0:01:14.160 is over. UM. I've been expecting inflation to accelerate really 0:01:14.240 --> 0:01:16.800 for the past year or so, and one of the 0:01:16.920 --> 0:01:21.120 key developments on that front was when the commodity markets 0:01:21.160 --> 0:01:25.840 bottomed in February. So as far as the CPI is concerned, 0:01:25.880 --> 0:01:28.000 I think we could see a three percent print them 0:01:28.080 --> 0:01:31.000 by the third quarter of this year. What does that 0:01:31.040 --> 0:01:35.679 mean that precious metals such as gold might benefit, Well, 0:01:35.720 --> 0:01:40.360 that historically has been the case. I'm not a gold 0:01:40.360 --> 0:01:44.240 bug myself, so I tend to focus really more on 0:01:44.280 --> 0:01:48.800 the implications for um, you know, the bond market especially 0:01:48.920 --> 0:01:52.200 you know it also the stock market. Um. But let's 0:01:52.200 --> 0:01:55.880 see bad for the bond market, good for the stock market. Well, 0:01:55.920 --> 0:01:57.960 I think it would be good for the stock market 0:01:58.040 --> 0:02:01.880 because it would be an indication that businesses are finally 0:02:01.920 --> 0:02:05.200 getting some pricing flexibility that that they have not had 0:02:05.240 --> 0:02:08.000 for quite some time. And of course the bond market's 0:02:08.000 --> 0:02:10.240 going to price that end, especially at the long end 0:02:10.280 --> 0:02:14.720 of the curve because of rising inflation and expectations. Where 0:02:14.760 --> 0:02:17.400 there's a big debate that's raging among people who I 0:02:17.480 --> 0:02:21.280 talked to, which is, at what point do you benchmark 0:02:21.320 --> 0:02:24.160 bond yields rise to such a degree that it no 0:02:24.280 --> 0:02:28.919 longer works to go to stocks to sort of there 0:02:29.000 --> 0:02:31.000 is an alternative wage, or in other words, at what 0:02:31.040 --> 0:02:33.200 point do people say, look, I'm going to go back 0:02:33.200 --> 0:02:35.080 to bonds at least I'm gonna get three percent three 0:02:35.120 --> 0:02:36.640 and a half percent yields and going to get my 0:02:36.639 --> 0:02:39.360 money back. And will the rising yields start to actually 0:02:39.440 --> 0:02:43.399 hurt stocks, Well, I think we're are ways off from 0:02:43.440 --> 0:02:46.679 that actually happening. I think we're at the early stages 0:02:46.760 --> 0:02:51.079 of a rising rate environment. So even though rates right 0:02:51.120 --> 0:02:54.680 now might look attractive relative to what we've had um 0:02:54.720 --> 0:02:58.680 over you know, a recent past, UM, the reality is 0:02:58.760 --> 0:03:01.600 that you would probably lose is um in a longer 0:03:01.720 --> 0:03:04.760 run because the bond prices are going to be falling 0:03:05.480 --> 0:03:08.239 and um. So it's I think a ways off before 0:03:08.320 --> 0:03:12.080 that's that's going to happen. What I think will somewhat 0:03:12.160 --> 0:03:16.160 moderate at least the pace at which interest rates rise 0:03:16.600 --> 0:03:19.799 is the fact that we still live in a quey world. Um. 0:03:20.200 --> 0:03:23.240 But the b o J and the ECB SO US 0:03:23.400 --> 0:03:27.080 rates are still very attractive relative to overseas rates. So 0:03:27.160 --> 0:03:31.240 we'll continue to see institutional investors willing to buy the 0:03:31.360 --> 0:03:35.240 US bond market even though prices are falling, just because 0:03:35.880 --> 0:03:39.400 the rates are attractive to them. Uh. And that's especially 0:03:39.400 --> 0:03:42.920 the case for life insurance companies that are really kind 0:03:42.960 --> 0:03:46.960 of a box right now. With the liability streams going 0:03:47.000 --> 0:03:50.119 forward that really are not a good match for their 0:03:50.160 --> 0:03:53.680 asset streams. So there's sort of seems like they're competing factors. Here. 0:03:53.680 --> 0:03:56.280 You have people who are sort of looking ahead seeing inflation, 0:03:56.400 --> 0:03:59.640 saying yields over the longer term are going up from here, 0:03:59.640 --> 0:04:02.240 and others like the life insurers that are saying we 0:04:02.320 --> 0:04:04.480 need income. It looks more attractive in the US and 0:04:04.520 --> 0:04:06.600 the rest of the world we're going to come in. Uh. Now, 0:04:06.680 --> 0:04:09.680 given these sort of competing factors, where do you see 0:04:09.800 --> 0:04:12.760 ten year US yields ending the year and where do 0:04:12.800 --> 0:04:16.120 you see them in eighteen months from now? Well, I 0:04:16.160 --> 0:04:18.719 think the direction is higher. So a year from now, 0:04:19.080 --> 0:04:21.160 I don't think it's unreasonable to think that there'll be 0:04:21.200 --> 0:04:25.560 a hundred a hundred basis points higher UM. But a 0:04:25.600 --> 0:04:28.440 lot of the magnitude of the increase is going to 0:04:28.520 --> 0:04:32.400 depend on what the new administration actually gets done on 0:04:32.440 --> 0:04:36.040 its very ambitious fiscal plan. Uh. And I say that 0:04:36.120 --> 0:04:39.800 not only because the fiscal plan has the potential to 0:04:40.000 --> 0:04:43.919 significantly yet to growth UM, but it also has potential 0:04:43.960 --> 0:04:48.280 suits significantly add to debt supply, both on the treasury 0:04:48.320 --> 0:04:52.080 side and potentially on the private sexes. Um side as well. 0:04:52.200 --> 0:04:55.440 So I think the direction is a lot clearer than 0:04:55.480 --> 0:04:58.400 the magnitude, But we'll get a better handle on that 0:04:58.480 --> 0:05:01.000 after the first hundred and two hundred days of this 0:05:01.040 --> 0:05:03.720 new government. Basis points that would take us to three 0:05:03.720 --> 0:05:07.520 point on the tenure. Well, you know, just before we 0:05:07.560 --> 0:05:10.840 get to these hundred days of the new administration, is 0:05:10.839 --> 0:05:14.240 a possible we're going to get a rate hiding early February. Oh, 0:05:14.320 --> 0:05:18.360 I don't think so. I think that the Fed is 0:05:18.640 --> 0:05:22.880 sending us two messages, both at the December fo m 0:05:22.920 --> 0:05:25.599 C meeting and more importantly, in the minutes that we've 0:05:25.640 --> 0:05:28.440 seen since then. Uh, they made it clear that for 0:05:28.480 --> 0:05:31.279 the first time they could see the potential for upside 0:05:31.360 --> 0:05:35.440 risk to both growth and inflation, and as a consequence, 0:05:35.560 --> 0:05:39.760 they may have to accelerate the normalization process, both of 0:05:39.880 --> 0:05:43.680 raising rates and of shrinking the balance sheet. Now we're 0:05:43.760 --> 0:05:48.239 beginning to see a debate, public debate. Yesterday President's Kaplan 0:05:48.320 --> 0:05:51.880 and Harker, for example, talking about how the FED should 0:05:51.920 --> 0:05:54.920 shrink the balance sheet. Next week we'll hear from more 0:05:55.000 --> 0:05:59.839 doverage members like President's Dudley and Governor brainerd um So 0:06:00.120 --> 0:06:02.600 there's going to be I think a lengthy debate both 0:06:02.680 --> 0:06:07.279 within the UM, the walls of the f O m 0:06:07.320 --> 0:06:10.720 C and also for public consumption about how the FED 0:06:10.839 --> 0:06:12.960 is going to go about this. And I don't think 0:06:13.000 --> 0:06:15.719 there'll be in a position to either raise rates or 0:06:15.760 --> 0:06:18.599 start drinking the balance sheet by February. You know, there's 0:06:18.640 --> 0:06:23.039 been some talk about the potential FED choices by President 0:06:23.080 --> 0:06:25.640 elect Trump who would come in in two thousand and eighteen, 0:06:25.680 --> 0:06:29.480 particularly for FED Chair Jenny Yellen. What have you gleaned 0:06:29.520 --> 0:06:32.719 so far from some of the names that have been floated, Well, 0:06:33.120 --> 0:06:38.080 they relatively high profile names. Uh, you know, John Taylor 0:06:38.240 --> 0:06:40.840 was probably the first one to be circulated, but there 0:06:41.480 --> 0:06:45.000 have been others since that time. I think the general 0:06:45.400 --> 0:06:48.440 UM gist of the type of person that they will 0:06:48.480 --> 0:06:51.480 be looking for as someone who's somewhat more rules based, 0:06:52.080 --> 0:06:56.200 uh than we have seen UM in recent years. What 0:06:56.400 --> 0:06:59.200 I think that no matter who comes in, they're going 0:06:59.240 --> 0:07:02.560 to find out that, UM, you can be rules based, 0:07:02.600 --> 0:07:05.120 but you're still going to want to have UM a 0:07:05.160 --> 0:07:08.960 lot of flexibility and how you conduct policy. So I 0:07:09.040 --> 0:07:12.920 expect Jenny Hillen is going to serve out this term. UM. 0:07:12.960 --> 0:07:16.040 She has uh, you know, really done a great job 0:07:16.080 --> 0:07:18.880 of taking the baton from Ben Bernake, and I think 0:07:18.880 --> 0:07:22.800 she'll want to see her task through to fruition. Whether 0:07:22.920 --> 0:07:25.520 or not, you know, she is appointed next year or not, 0:07:25.640 --> 0:07:28.920 I think to a large degree will depend on how 0:07:28.960 --> 0:07:32.280 the economy does this year and frankly, what actually has 0:07:32.320 --> 0:07:35.080 done on the fiscal side. Thank you very much for 0:07:35.120 --> 0:07:38.600 spending time with us. Ward McCarthy is the chief financial 0:07:38.600 --> 0:07:43.880 economist for Jefferies and Company, speaking about the US economy 0:07:43.920 --> 0:07:59.440 and the potential for interest rate increases. Lisa Bramwitz, do 0:07:59.480 --> 0:08:03.720 you know what a medical village is? Well, we're going 0:08:03.760 --> 0:08:06.840 to find out from John Lawerman. He is our healthcare 0:08:06.880 --> 0:08:10.560 and hospital's reporter for Bloomberg News and he joins us 0:08:10.560 --> 0:08:16.000 now from Boston to home to Bloomberg. You know, John, 0:08:16.520 --> 0:08:18.840 thanks for being with us and a wonderful story. And 0:08:18.840 --> 0:08:22.240 what if you just maybe begin by telling the anecdote 0:08:22.720 --> 0:08:25.200 that leads the story, because I think that really kind 0:08:25.240 --> 0:08:28.720 of sets the scene for the details. Well, I went 0:08:28.760 --> 0:08:30.680 to a hospital, Um, good morning. I went to a 0:08:30.760 --> 0:08:35.280 hospital out in Kingston, New York. That's uh, that has 0:08:35.520 --> 0:08:38.520 an operating room that was built I think about five 0:08:38.600 --> 0:08:41.240 years ago for I believe it was five million dollars 0:08:41.920 --> 0:08:45.719 um and it's never been used and they're actually not 0:08:45.760 --> 0:08:48.439 going to use it. Um It's going to be renovated 0:08:48.840 --> 0:08:51.400 and the space, the entire hospital space, which I believe 0:08:51.480 --> 0:08:55.600 is now hospital it only has about fift occupancy rate, 0:08:56.400 --> 0:08:58.920 and it's going to be renovated into what they call 0:08:58.960 --> 0:09:01.679 a medical village, and it was I had never heard 0:09:01.720 --> 0:09:03.880 the term before either, so I was really interested in 0:09:04.200 --> 0:09:06.240 going out there and finding out what it all means. 0:09:06.240 --> 0:09:12.240 And basically, this hospital, uh, the the parent that owns it, 0:09:12.840 --> 0:09:15.880 they've decided that they're going to make it into an 0:09:15.880 --> 0:09:19.880 outpatient center and they're doing that for a variety of reasons, 0:09:19.880 --> 0:09:23.360 but it's mainly because they want to figure out ways 0:09:23.400 --> 0:09:25.280 that they can continue to serve patients. A lot of 0:09:25.280 --> 0:09:27.840 patients actually who come through their emergency room where they're 0:09:27.920 --> 0:09:31.840 very they're very expensive to take care of, and they 0:09:31.880 --> 0:09:34.800 want to UM care for those patients. And an outpatient 0:09:34.840 --> 0:09:37.439 setting is opposed to inpatient, So impatient that somebody spent 0:09:37.520 --> 0:09:39.920 a night in the hospital. Outpatient that somebody walks into 0:09:40.040 --> 0:09:42.800 like say an office, something gets caring, that goes home 0:09:42.880 --> 0:09:45.200 usually the same day, not always, but almost always the 0:09:45.200 --> 0:09:49.720 same day. That's what outpatient U usually refers to and UM. 0:09:49.800 --> 0:09:53.200 So they're uh, they're converting this hospital there there, it's 0:09:53.240 --> 0:09:55.640 no longer going to be a hospital. They're moving its 0:09:55.800 --> 0:09:59.240 services into another facility that's just a couple of blocks away. 0:10:00.000 --> 0:10:02.360 And it's really a part of a trend that's going 0:10:02.440 --> 0:10:06.280 on all of the country where hospitals UM are are 0:10:07.840 --> 0:10:12.760 closing UM and UH. But even more than that, services 0:10:12.760 --> 0:10:18.160 and hospitals are moving out of hospitals into other settings. Well, okay, John, 0:10:18.559 --> 0:10:21.280 this has been going on for more than a decade, 0:10:21.320 --> 0:10:23.439 right where you've had this consolidation of hospitals and this 0:10:23.520 --> 0:10:27.080 sort of move to UH. As procedures are done in 0:10:27.120 --> 0:10:30.520 an outpatient way, people are taking care of for less time. 0:10:30.600 --> 0:10:34.559 People's hospital stays have been shortened by better technology. UM. 0:10:35.000 --> 0:10:37.439 Is this sort of closure of some of the hospitals 0:10:37.480 --> 0:10:42.040 problematic or is this just the natural evolution in medicine. Well, 0:10:42.080 --> 0:10:45.640 it depends on you know, you talk about evolution. UM. 0:10:45.720 --> 0:10:49.840 Sometimes evolution has UH, it can have a very tough 0:10:50.040 --> 0:10:55.160 impact on you know, particular populations. And UM. I'm not 0:10:55.200 --> 0:10:57.840 saying that this is the case in in in in 0:10:57.920 --> 0:11:00.680 the community that I've visited, but in many communities where 0:11:00.679 --> 0:11:05.280 hospitals closed uh, there aren't hospitals nearby to take care 0:11:05.320 --> 0:11:09.920 of people. UM. Rural hospitals are the most vulnerable to 0:11:09.960 --> 0:11:14.920 being closed. They're smaller, they uh, they draw in smaller 0:11:14.960 --> 0:11:20.720 patient populations. UM, they have a less uh diverse suite 0:11:20.720 --> 0:11:23.560 of services to offer. So there their patients more likely 0:11:23.600 --> 0:11:27.960 to be sent to big city hospitals UM for uh 0:11:28.160 --> 0:11:32.120 more complicated procedures. Procedures might that might provide more money 0:11:32.440 --> 0:11:37.160 to hospitals, UM might provide more revenue. And so these 0:11:37.160 --> 0:11:40.520 are the ones that are most um vulnerable to you know, 0:11:40.600 --> 0:11:44.240 to uh to to having tough financials and to closing 0:11:44.920 --> 0:11:48.400 and UM. But it but it's it's it's not just these. 0:11:48.440 --> 0:11:51.040 I mean there are hospitals as well in big cities 0:11:51.080 --> 0:11:55.920 that are consolidating getting smaller. There's hospital uh that we 0:11:55.920 --> 0:11:59.040 wrote about in the story UM in New York. Actually 0:11:59.200 --> 0:12:04.360 that's the Mount Sinai exactly right right. UM they've decided 0:12:04.480 --> 0:12:08.520 to really scale down the size of one of their 0:12:08.559 --> 0:12:13.360 facilities and uh really ramp up the procedures that they're providing. 0:12:13.800 --> 0:12:15.200 That doesn't mean that people in New York City are 0:12:15.200 --> 0:12:17.839 gonna have enough hospital beds. Obviously, there's hospitals everywhere in 0:12:17.840 --> 0:12:21.319 New York. But but it it but it does UM 0:12:21.360 --> 0:12:25.760 in many communities, it does remove the nexus of the 0:12:25.800 --> 0:12:29.080 local healthcare system. Thank you so much. It's really a 0:12:29.120 --> 0:12:33.240 fascinating story. John Lawerman, healthcare reporter for Bloomberg, talking about 0:12:33.280 --> 0:12:49.280 the dwindling number of hospitals. To learn more about today's 0:12:49.320 --> 0:12:51.679 earnings results from major banks, I want to bring in 0:12:51.760 --> 0:12:57.040 Allison Williams, Senior financial research analyst for Bloomberg Intelligence. Allison, 0:12:57.120 --> 0:12:59.880 thanks for being with us. I'm looking at JP Morgan's. 0:13:00.240 --> 0:13:02.240 The shares are up about one and a half percent. 0:13:02.440 --> 0:13:05.440 Let's go over the details of JP Morgan. What stood 0:13:05.440 --> 0:13:09.679 out to you, uh in the in the report? So 0:13:09.720 --> 0:13:12.720 I think for JP Morgan just in general solid quarter 0:13:13.520 --> 0:13:17.480 and UM you know, costs basically right on target. That's 0:13:17.480 --> 0:13:19.599 the key thing that investors look for UM from a 0:13:19.720 --> 0:13:22.880 go forward rate thick trading, which tends to be a 0:13:22.920 --> 0:13:26.600 little bit more fleeting, uh coming in also better than expected. 0:13:26.800 --> 0:13:29.800 And so while that can be volatile, it can be 0:13:29.840 --> 0:13:33.280 important because it is UM you know, a decent chunk 0:13:33.320 --> 0:13:37.160 of their revenue and in looking for sort of optimism 0:13:37.160 --> 0:13:40.600 for earnings estimates to help sort of justify share UM. 0:13:40.760 --> 0:13:43.560 The share price moves analysts are going to be looking 0:13:43.600 --> 0:13:46.239 for what is the run rate for revenue going into 0:13:46.600 --> 0:13:51.040 next year. So JP Morgan beat analysts expectations with debt trading. 0:13:51.120 --> 0:13:53.800 Bank of America did not. While they had a pretty 0:13:53.800 --> 0:13:56.640 big increase, Uh, they did not. They did not beat 0:13:57.440 --> 0:14:00.600 Why So I think what's difficult a lot of times 0:14:00.600 --> 0:14:03.040 with the investment banks. Right as we saw Bank of 0:14:03.080 --> 0:14:06.520 America miss um you know, sort of a twelve percent 0:14:06.600 --> 0:14:09.240 gain um I think it was, and then you know 0:14:09.320 --> 0:14:14.600 JP Morgan having this huge numbers percent gain. And so 0:14:14.760 --> 0:14:17.520 from just a simplistic perspective, someone might look at that 0:14:17.559 --> 0:14:19.560 and say, oh that, you know, JP Morgan's gaining share. 0:14:19.560 --> 0:14:21.000 But I think a lot of times what it has 0:14:21.040 --> 0:14:23.680 to do with is how are these banks positions, what 0:14:23.760 --> 0:14:26.000 are the products that there strong, and then how did 0:14:26.080 --> 0:14:29.520 those products perform? So JP Morgan, you know, just the 0:14:29.560 --> 0:14:32.480 biggest and fix the biggest in rates, which was a 0:14:32.520 --> 0:14:35.400 good business of rising volatility in that business. Bank of 0:14:35.400 --> 0:14:37.920 America one of the areas that they're very strong in 0:14:38.120 --> 0:14:41.000 is the municipal bond business, which, as we know, UM 0:14:41.040 --> 0:14:43.600 had a very tough quarter. If you look at the 0:14:43.640 --> 0:14:46.640 outflows in the in in the latter part of the 0:14:46.720 --> 0:14:51.920 quarter following the election presidential election, you saw those really 0:14:52.000 --> 0:14:55.720 driving overall bond mutual fun outflows so UM and that 0:14:55.760 --> 0:14:58.280 really relates to some of the concerns around tax policy. 0:14:58.680 --> 0:15:02.400 So obviously that's not good for trading, and that may 0:15:02.400 --> 0:15:05.080 have been one of the areas that was more negative 0:15:05.120 --> 0:15:09.240 for Bank of America Wells Fargo earnings of a dollar 0:15:09.400 --> 0:15:12.840 three versus estimates for a dollar what about their mortgage 0:15:12.920 --> 0:15:18.360 lending business. So I think for Wells Fargo, you know, 0:15:18.400 --> 0:15:20.920 they earn more from the mortgage banking business than peers 0:15:20.960 --> 0:15:25.120 around UM eight percent. And I think one of the 0:15:25.120 --> 0:15:27.520 things that investors were sort of expecting this quarter is 0:15:27.560 --> 0:15:30.360 to see UM, you know, what happened with their accounting. 0:15:30.400 --> 0:15:32.120 We had this huge interest rate move, so we did 0:15:32.120 --> 0:15:35.040 get some of that, But what people are tend to 0:15:35.040 --> 0:15:37.480 more focus on is the origination side of the business, 0:15:37.520 --> 0:15:40.440 right because that's cash, whereas UM you know, the other 0:15:40.440 --> 0:15:43.600 part of it is accounting. We did see UM you know, 0:15:43.720 --> 0:15:47.280 volumes coming in that the gain on sale sort of 0:15:47.280 --> 0:15:50.160 coming down. I think investors had expected that. Again, what's 0:15:50.160 --> 0:15:52.640 going in the market. We've seen a Cutton pipeline. Some 0:15:52.720 --> 0:15:54.400 of that though is season also some of it's the 0:15:54.480 --> 0:15:58.400 rate rise UH some of its seasonal in that business. UM. 0:15:58.440 --> 0:16:00.440 I would be remiss if I didn't mention black Rock, 0:16:00.600 --> 0:16:03.880 the first big S manager that also reported earnings UM. 0:16:03.920 --> 0:16:10.680 They reported disappointing revenue gain even as they reported record inflows. 0:16:11.240 --> 0:16:13.720 This just sort of highlights the difficulty with the E 0:16:13.800 --> 0:16:17.440 t F industry that is very low cost UM. Do 0:16:17.480 --> 0:16:18.920 you think that black Rock is going to have to 0:16:18.960 --> 0:16:21.920 cut more people at this point? So black Rock, UM, 0:16:22.000 --> 0:16:24.680 you know, they actually did come into the their quarter 0:16:24.760 --> 0:16:26.960 actually came in a little bit better, helped by the 0:16:27.000 --> 0:16:30.160 expense side, and they actually did have some UH cuts 0:16:30.160 --> 0:16:32.000 earlier in the year, which was which was sort of 0:16:32.120 --> 0:16:35.280 unique for them. That's just not something UH in general. 0:16:35.320 --> 0:16:37.920 But you know, they basically they positioned that more as 0:16:37.960 --> 0:16:42.240 a sort of longer term positioning. As far as the 0:16:42.280 --> 0:16:44.640 revenue trend that that you're speaking of, I think we 0:16:44.680 --> 0:16:47.760 did see black Rock kind of come in back in 0:16:47.840 --> 0:16:51.520 October and make some feed cuts to some of their 0:16:51.520 --> 0:16:54.480 E t F s and that's really been successful in 0:16:54.920 --> 0:16:57.480 garnering a lot of flows and to the extent that 0:16:57.520 --> 0:17:00.280 you know that is a scale business. Black Rock and 0:17:00.360 --> 0:17:03.320 Vanguard UM just taking in a ton of money in 0:17:03.360 --> 0:17:07.240 that business. Uh, and that's not a people intensive business. 0:17:07.800 --> 0:17:11.320 It is lower margin into a low, lower few revenue margin, 0:17:11.359 --> 0:17:14.960 but has a huge benefit from scale. Thank you so much, 0:17:15.080 --> 0:17:17.760 Alison Williams. Always wonderful to hear from you to make 0:17:17.800 --> 0:17:20.200 sense of all of the earnings that we're getting out. 0:17:20.280 --> 0:17:24.000 Alison Williams, she uh knows everything there is to know 0:17:24.240 --> 0:17:27.200 about the finance industry and she'll be busy next week 0:17:27.200 --> 0:17:29.320 as well, because we have earnings from City Bank and 0:17:29.359 --> 0:17:31.280 a variety of other banks. Yeah, it'll be interesting to 0:17:31.320 --> 0:17:34.160 see whether they beat as well at following in JP 0:17:34.240 --> 0:17:37.959 morgins footsteps, Alison Williams, Senior Banks analysts for Bloomberg Intelligence. 0:17:50.040 --> 0:17:54.920 Chrysler plunged more than sixteen percent yesterday. Today it's rebounding 0:17:54.960 --> 0:17:56.840 a little bit. Shares are up a little bit more 0:17:56.920 --> 0:18:01.639 than four percent. This is after emissions by elatitions. Accusations 0:18:01.640 --> 0:18:05.920 were lodged against Chrysler, and traders are trying to figure 0:18:05.960 --> 0:18:07.760 out what this will mean and how much this will 0:18:07.760 --> 0:18:09.840 cost the company. I want to bring in Jamie Butter's 0:18:10.080 --> 0:18:13.280 who covers autos for us at Bloomberg News. He is 0:18:13.320 --> 0:18:16.760 speaking to us from Detroit. Jamie can you make sense 0:18:16.760 --> 0:18:18.679 of this. Why are people kind of going back to 0:18:18.920 --> 0:18:23.120 Fiat Chrysler. Well, they're really trying to sort out what's 0:18:23.119 --> 0:18:26.480 going on because it is so unusual. Um, you know, 0:18:26.600 --> 0:18:30.760 the automakers can modify, you know, it requires a lot 0:18:30.800 --> 0:18:33.679 of programming for anything as complicated as you know, a 0:18:33.760 --> 0:18:37.000 diesel engine and uh uh filtering that has to go 0:18:37.080 --> 0:18:39.439 with it and how they operate and extreme heat and 0:18:39.480 --> 0:18:43.880 cold and various environments. So sometimes they put the software 0:18:44.359 --> 0:18:48.920 pieces on and sometimes the e p A UH has 0:18:49.000 --> 0:18:51.840 questions about them, and typically they argue them out and 0:18:51.840 --> 0:18:56.280 then get it solved. And according to the FCA's view 0:18:56.400 --> 0:19:00.199 is that we're still trying to sort out whether this 0:19:00.280 --> 0:19:02.880 is okay or not. And you're calling a press conference. 0:19:03.480 --> 0:19:06.880 And so when you see the press conference as an investor, 0:19:07.359 --> 0:19:09.439 you're thinking, oh my god, this is serious. This is 0:19:09.480 --> 0:19:14.200 like Volkswagen. But in the Volkswagen case in September, I mean, 0:19:14.280 --> 0:19:18.000 the regulators had already extracted a confession out of Volkswagen. 0:19:18.320 --> 0:19:20.880 You know, it took eleven meetings between the California Air 0:19:20.920 --> 0:19:23.879 Resources Board and VW before they finally came back and said, 0:19:24.760 --> 0:19:27.760 we don't have any more explanations. You caught us with 0:19:27.800 --> 0:19:31.040 the defeat device, and uh, you know, christs are saying 0:19:31.200 --> 0:19:32.919 this is in no way a defeat device. These are 0:19:32.960 --> 0:19:36.320 just regular things that we're trying to discuss and make 0:19:36.359 --> 0:19:38.200 sure that we're all on the same page about. And 0:19:38.800 --> 0:19:43.080 so they're the company is very frustrated, and investors, of course, 0:19:43.119 --> 0:19:44.919 they're kind of in the dark. They see this initial 0:19:45.000 --> 0:19:47.240 signal that makes them think, you know, this could be 0:19:47.320 --> 0:19:49.920 as terrible as Volkswagen. Uh, and then they hear the 0:19:49.960 --> 0:19:54.320 company saying this is really nothing. Uh. You know, some 0:19:54.480 --> 0:19:58.640 skepticism about companies saying that that an issue involving maybe 0:19:58.720 --> 0:20:00.639 the Justice Department as well as the e p A 0:20:01.200 --> 0:20:05.359 is nothing. But you know, certainly, with the being the 0:20:05.480 --> 0:20:09.040 final days of the Obama administration, there's some sense that, 0:20:09.280 --> 0:20:12.240 like with the p A ruling on mileage today, there's 0:20:12.280 --> 0:20:15.240 some efforts to put the Trump administration into a difficult 0:20:15.280 --> 0:20:18.200 position or or for the e p A to demonstrate 0:20:18.960 --> 0:20:24.080 their value and their necessity to the incoming administration. Well, Jamie, 0:20:24.119 --> 0:20:27.240 and this is serious stuff because not just the VW 0:20:27.560 --> 0:20:30.800 executives have been the target of the Justice Department, but 0:20:31.119 --> 0:20:34.480 we've learned today that three Takata executives have been charged 0:20:34.520 --> 0:20:37.040 in the United States as part of that criminal case 0:20:37.520 --> 0:20:43.440 to uh mislead federal regulators over the manufacture of those 0:20:43.480 --> 0:20:48.880 faulty air backs. So there are potentially serious consequences. Yeah. Absolutely, 0:20:48.960 --> 0:20:52.720 we're seeing you know, really aggressive enforcement out of Washington. 0:20:52.800 --> 0:20:56.280 And some of it is a backlash to the financial crisis, 0:20:57.080 --> 0:21:00.359 where you know, the overall health of the U. S 0:21:00.400 --> 0:21:02.840 economy in the world economy was put in danger and 0:21:03.320 --> 0:21:05.879 and you know, and no one was really prosecuted. No, 0:21:06.080 --> 0:21:10.640 none of nobody who UH led to the financial meltdown 0:21:10.760 --> 0:21:12.920 was prosecuted for that. And so there's been this greater 0:21:13.040 --> 0:21:15.480 effort to you know, go after the bad guys and 0:21:15.560 --> 0:21:18.920 make sure you get the executives are held accountable the 0:21:19.000 --> 0:21:22.800 same as as other people might be. But in but 0:21:22.920 --> 0:21:25.520 in some of these cases it's uh, I mean, it 0:21:25.800 --> 0:21:30.000 definitely raises mistakes for what maybe, to Mr Marconi's view, 0:21:30.040 --> 0:21:32.960 would have been just an administrative, you know, set of 0:21:33.040 --> 0:21:36.200 meetings in a normal circumstance. Jamie, Um, you flicked at this. 0:21:36.320 --> 0:21:40.480 The Environmental Protection Agency they announced that it's keeping vehicle 0:21:40.560 --> 0:21:46.560 efficiency standards intact through the model year. How significant is 0:21:46.680 --> 0:21:50.320 this for automakers? It's huge. You know so if you 0:21:50.680 --> 0:21:53.600 you know, the Obama administration set out these long term goals, 0:21:53.920 --> 0:21:57.880 but they agreed to a mid term review presumably would 0:21:57.920 --> 0:21:59.840 hit the middle of the term. Would be kind of 0:22:00.000 --> 0:22:06.520 when he's seventeen, and the standards get much steeper, much 0:22:06.640 --> 0:22:12.919 quicker from for vehicles that are categorized as light trucks, 0:22:13.000 --> 0:22:17.200 which is predominantly pick ups, SUVs, and minivans, which happened 0:22:17.200 --> 0:22:19.760 to be where the Chrysler makes all their money and 0:22:19.880 --> 0:22:22.520 then some so you know, they make jeeps, they make 0:22:22.640 --> 0:22:24.920 ram trucks, they make they used to make the town 0:22:24.960 --> 0:22:26.880 and country and now they have a new minivan called 0:22:26.920 --> 0:22:29.800 the PACIFICA. You know, it's hugely important to the Chrysler, 0:22:29.880 --> 0:22:33.760 but also to afford Chevy uh you know, GM, Jams, 0:22:33.840 --> 0:22:37.520 brands and others. So uh, you know, they were looking 0:22:37.600 --> 0:22:40.440 forward to a mid term review where they could state 0:22:40.520 --> 0:22:42.800 their case and explain that while they've been able to 0:22:43.080 --> 0:22:46.960 produce sufficient vehicles for the last four years, uh, you know, 0:22:47.040 --> 0:22:49.720 getting that much more efficient would be very difficult and 0:22:49.880 --> 0:22:52.960 very costly, that's the industry's view, and regulate. The E 0:22:53.080 --> 0:22:56.640 p A and and others say, you've done just find 0:22:56.720 --> 0:22:58.879 so far and there's really nothing to worry about it, 0:22:58.960 --> 0:23:01.080 no reason not to lock in these rules. And so 0:23:01.720 --> 0:23:05.080 you know, Mr Marconi spoke at length about this on 0:23:05.240 --> 0:23:07.520 Sunday saying, you know, this was supposed to be a 0:23:07.600 --> 0:23:10.600 regulatory review and instead we got an adjudication. You know, 0:23:11.040 --> 0:23:13.200 they didn't feel like they got to make their case, 0:23:13.760 --> 0:23:17.000 and the e p A just uh rammed it through 0:23:17.119 --> 0:23:19.760 and and try to put this in place, and it'll 0:23:20.720 --> 0:23:23.680 told it will be much more difficult for the Trump 0:23:23.680 --> 0:23:27.240 administration to have a review. I know you're gonna be 0:23:27.280 --> 0:23:30.360 following this for us. Jamie Butters is our US autos 0:23:30.440 --> 0:23:34.320 reporter Bloomberg News, joining us from our bureau in Detroit. 0:23:40.119 --> 0:23:42.960 Thanks for listening to the Bloomberg pan L podcast. You 0:23:43.040 --> 0:23:46.960 can subscribe and listen to interviews at iTunes, SoundCloud, or 0:23:47.240 --> 0:23:51.280