1 00:00:02,640 --> 00:00:05,320 Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul Swinge you. 2 00:00:05,360 --> 00:00:07,680 Speaker 1: Along with my co host Lisa Brahma Waits, each day 3 00:00:07,720 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,280 --> 00:00:12,520 Speaker 1: you and your money. Whether at the grocery store or 5 00:00:12,560 --> 00:00:15,480 Speaker 1: the trading floor. Find a Bloomberg penl podcast on Apple 6 00:00:15,520 --> 00:00:17,959 Speaker 1: podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:20,160 Speaker 1: at Bloomberg dot com. We were going to talk with 8 00:00:20,200 --> 00:00:23,400 Speaker 1: Austin Carr, who is a Bloomberg technology reporter next and 9 00:00:23,440 --> 00:00:25,840 Speaker 1: he was going to talk about a story Silicon Valley 10 00:00:25,920 --> 00:00:29,240 Speaker 1: is listening to your most intimate moments. But then we 11 00:00:29,360 --> 00:00:33,639 Speaker 1: found out that Austin's fiancee's name is Alexa, and so 12 00:00:33,760 --> 00:00:37,600 Speaker 1: he is the unicorn that has an Alexa and has 13 00:00:37,680 --> 00:00:42,880 Speaker 1: that horrible dissonance between your soon to be wife's name 14 00:00:43,159 --> 00:00:47,240 Speaker 1: and and the device. How do you function? It's difficult? Um, 15 00:00:47,280 --> 00:00:49,840 Speaker 1: You know that I would say that oftentimes it's unclear 16 00:00:49,880 --> 00:00:53,000 Speaker 1: who I'm talking to, the speaker or my soon topee wife, 17 00:00:53,479 --> 00:00:56,080 Speaker 1: but the speaker often thinks I'm talking to it or her. 18 00:00:56,680 --> 00:00:58,240 Speaker 1: But that actually gets to the heart of the story. 19 00:00:58,280 --> 00:01:01,520 Speaker 1: In this week's issue of the Street, if you don't 20 00:01:01,560 --> 00:01:05,360 Speaker 1: might be pivoting there, uh in that there's accidental triggers 21 00:01:05,360 --> 00:01:07,440 Speaker 1: that happen all the time. If you have a device 22 00:01:07,480 --> 00:01:09,720 Speaker 1: like an Amazon Echo or a Google Home or an 23 00:01:09,760 --> 00:01:13,320 Speaker 1: Apple HomePod, or use Siri um and these recordings are 24 00:01:13,319 --> 00:01:16,200 Speaker 1: submitted to these companies servers and from there, what you 25 00:01:16,280 --> 00:01:18,880 Speaker 1: might not know is they're actually sometimes transcribed by a 26 00:01:18,959 --> 00:01:22,759 Speaker 1: vast network of human listeners to help improve speech recognition 27 00:01:22,760 --> 00:01:24,800 Speaker 1: on these services. This is one of the big privacy 28 00:01:25,200 --> 00:01:27,840 Speaker 1: issues that really we're we're covering in the story. In 29 00:01:27,840 --> 00:01:31,240 Speaker 1: addition to the relationship with my So, what are some 30 00:01:31,319 --> 00:01:34,640 Speaker 1: examples of some of the content I guess our conversation 31 00:01:34,760 --> 00:01:37,560 Speaker 1: that's been picked up and transcribed by these humans? Absolutely, 32 00:01:37,600 --> 00:01:39,080 Speaker 1: I mean, you know, one of the fascinating things. We 33 00:01:39,160 --> 00:01:42,560 Speaker 1: spoke to dozens of contractors everywhere from Ireland to India 34 00:01:42,640 --> 00:01:44,760 Speaker 1: who work on these these programs or have worked on 35 00:01:44,800 --> 00:01:47,680 Speaker 1: them for Apple and Google and Amazon, and it's really 36 00:01:47,680 --> 00:01:51,000 Speaker 1: fascinating and also quite alarming. Some of them described instances 37 00:01:51,000 --> 00:01:54,880 Speaker 1: where they often heard recordings of children sharing personal information 38 00:01:54,920 --> 00:01:58,080 Speaker 1: like phone numbers or street addresses. They overheard couples engaging 39 00:01:58,080 --> 00:02:01,040 Speaker 1: in sexual activity, They heard very of information is happening 40 00:02:01,040 --> 00:02:03,360 Speaker 1: in your your kitchen and bedroom. And I'd say overall, 41 00:02:03,400 --> 00:02:07,280 Speaker 1: they just felt incredibly uncomfortable doing this type of audio transcription, 42 00:02:07,440 --> 00:02:09,079 Speaker 1: so much so that they compared it to something out 43 00:02:09,120 --> 00:02:12,160 Speaker 1: of y On one hand, I get it, you know, 44 00:02:12,200 --> 00:02:15,359 Speaker 1: you don't want someone hearing some things that you might 45 00:02:15,400 --> 00:02:17,840 Speaker 1: say at home or do at home. On the other hand, 46 00:02:18,000 --> 00:02:20,760 Speaker 1: does anyone care? I mean in terms of if someone 47 00:02:21,200 --> 00:02:24,240 Speaker 1: you know in another country or across the sea is 48 00:02:24,280 --> 00:02:27,440 Speaker 1: listening to someone that they don't know do something that 49 00:02:27,639 --> 00:02:31,960 Speaker 1: is inherent to animals, then why why does it matter? Well? 50 00:02:32,000 --> 00:02:34,360 Speaker 1: I think that's the stance that the tech companies really 51 00:02:34,400 --> 00:02:37,040 Speaker 1: took when they set up these systems, which is really interesting, 52 00:02:37,320 --> 00:02:39,600 Speaker 1: um that they basically spent the last couple of years 53 00:02:39,680 --> 00:02:43,359 Speaker 1: being very heavily scrutinized for having privacy issues and collecting 54 00:02:43,360 --> 00:02:45,320 Speaker 1: more data. And this is sort of the next level 55 00:02:45,360 --> 00:02:47,720 Speaker 1: of that data collection. This is voice or audio or 56 00:02:47,720 --> 00:02:50,360 Speaker 1: sonic surveillance in a lot of ways. Uh, And that 57 00:02:50,440 --> 00:02:54,280 Speaker 1: audio was being rerouted to again these data associates who 58 00:02:54,280 --> 00:02:56,760 Speaker 1: are transcribing this material. And the big question is not 59 00:02:56,840 --> 00:02:58,680 Speaker 1: just whether or that's that's ethical, but whether or not 60 00:02:58,720 --> 00:03:01,600 Speaker 1: they properly disclosed it to their customers. You might not 61 00:03:01,680 --> 00:03:04,000 Speaker 1: think it was that significant of an issue, or perhaps 62 00:03:04,040 --> 00:03:06,160 Speaker 1: you don't share that many intimate things if you're talking 63 00:03:06,160 --> 00:03:08,640 Speaker 1: to these devices. I know you mentioned you guys use 64 00:03:08,720 --> 00:03:12,080 Speaker 1: these devices that your your houses too, But the larger 65 00:03:12,160 --> 00:03:14,920 Speaker 1: question is whether even customers knew this was happening. And 66 00:03:14,919 --> 00:03:17,440 Speaker 1: I think that's a really significant privacy issue. So so, 67 00:03:17,560 --> 00:03:20,079 Speaker 1: what are kind of some of the legal ramifications here. 68 00:03:20,120 --> 00:03:23,880 Speaker 1: Do I have an expectation to privacy that extends to 69 00:03:24,080 --> 00:03:27,079 Speaker 1: these devices and I'm guessing that might be different different 70 00:03:27,080 --> 00:03:29,400 Speaker 1: parts of the world. Yeah, I mean, technically you did 71 00:03:29,400 --> 00:03:32,560 Speaker 1: agree to opt into these services, or at least we're 72 00:03:32,560 --> 00:03:35,480 Speaker 1: automatically optimated when you you sign up for let's say, 73 00:03:35,920 --> 00:03:38,640 Speaker 1: at your Apple iPhone. You know, there's those broad terms 74 00:03:38,640 --> 00:03:41,440 Speaker 1: and conditions, which again I'm sure very few people read. 75 00:03:41,600 --> 00:03:44,640 Speaker 1: But somewhere in those they did disclose that Apple could 76 00:03:44,720 --> 00:03:47,280 Speaker 1: use the audio that you submit and collect the recordings 77 00:03:47,280 --> 00:03:50,040 Speaker 1: in order to quote, you know, improve or enhance series 78 00:03:50,040 --> 00:03:53,200 Speaker 1: speech recognition. But they didn't explicitly say that humans might 79 00:03:53,240 --> 00:03:55,200 Speaker 1: be listening to this. I think the assumption that was 80 00:03:55,840 --> 00:03:59,680 Speaker 1: robots were doing the vast majority of these uh, you know, requests, 81 00:04:00,000 --> 00:04:01,800 Speaker 1: and that's what tech companies say that a lot of 82 00:04:01,800 --> 00:04:05,160 Speaker 1: these requests are handled without human input, but they really 83 00:04:05,200 --> 00:04:07,600 Speaker 1: should have disclosed that humans were the ones. That we're 84 00:04:07,640 --> 00:04:09,080 Speaker 1: doing a lot of this work as well. You know, 85 00:04:09,200 --> 00:04:12,280 Speaker 1: millions of recordings per year they're transcribing um and so 86 00:04:12,320 --> 00:04:15,720 Speaker 1: they've updated their terms and conditions to reflect that, which 87 00:04:15,760 --> 00:04:18,080 Speaker 1: is sort of a major disclaimer now that they hadn't 88 00:04:18,120 --> 00:04:20,800 Speaker 1: done that before and perhaps should have. So let's talk 89 00:04:20,839 --> 00:04:23,240 Speaker 1: about what you're gonna do about your soon to be 90 00:04:23,320 --> 00:04:25,560 Speaker 1: wife's name. How is that? How are you going to 91 00:04:25,640 --> 00:04:27,840 Speaker 1: deal with that? You know, I mean, so far we've 92 00:04:28,400 --> 00:04:33,640 Speaker 1: I would say, Amazon is getting better with associate disassociated fance. 93 00:04:33,720 --> 00:04:35,479 Speaker 1: It's not going to change her name. I guess one 94 00:04:35,480 --> 00:04:38,200 Speaker 1: of them will have to, but yeah, no, we will 95 00:04:38,200 --> 00:04:41,440 Speaker 1: say there there is an option for the Amazon Echo 96 00:04:41,520 --> 00:04:44,080 Speaker 1: to change it to respond to Amazon or Echo. For 97 00:04:44,120 --> 00:04:46,039 Speaker 1: some reason, we haven't done that, And I would say 98 00:04:46,040 --> 00:04:49,400 Speaker 1: that sort of captures the broad approached privacy issues that 99 00:04:49,400 --> 00:04:53,120 Speaker 1: that tech companies. But I would say that that's really 100 00:04:53,160 --> 00:04:54,799 Speaker 1: what a lot of you know, there's a few research 101 00:04:55,080 --> 00:04:59,200 Speaker 1: study recently that found that about six of UH user 102 00:04:59,240 --> 00:05:03,279 Speaker 1: surveyed had very major you know serious privacy concerns about 103 00:05:03,279 --> 00:05:05,320 Speaker 1: these devices. At the same time, about a quarter of 104 00:05:05,360 --> 00:05:07,240 Speaker 1: Americans have them in their homes, so there is that 105 00:05:07,320 --> 00:05:10,039 Speaker 1: scuge disparity. And and that's exactly that gets the heart 106 00:05:10,040 --> 00:05:12,320 Speaker 1: of it right, is that people, if they're worried about it, 107 00:05:12,560 --> 00:05:15,320 Speaker 1: they do have an option of not buying it and 108 00:05:15,400 --> 00:05:17,680 Speaker 1: not installing it in their home. So there's sort of 109 00:05:17,680 --> 00:05:20,680 Speaker 1: a question when does it become something more, When is 110 00:05:20,720 --> 00:05:23,440 Speaker 1: it an invasion that goes beyond just you know, you 111 00:05:23,440 --> 00:05:25,880 Speaker 1: can vote with your feet or with your money basically, 112 00:05:26,240 --> 00:05:28,359 Speaker 1: and and to that same extent, you know, what is 113 00:05:28,360 --> 00:05:31,640 Speaker 1: the threshold for companies to collect this data is that, hey, 114 00:05:31,720 --> 00:05:33,520 Speaker 1: we can collect it so long as we're improving it 115 00:05:33,560 --> 00:05:35,919 Speaker 1: for our services or could one day we use it 116 00:05:35,920 --> 00:05:39,080 Speaker 1: for targeted advertising or researcher We talked to just reminded 117 00:05:39,160 --> 00:05:41,520 Speaker 1: us how much information we disclose in these recordings. If 118 00:05:41,520 --> 00:05:43,880 Speaker 1: a baby is crying in the background of a recording, 119 00:05:44,000 --> 00:05:47,120 Speaker 1: they could just they could technically refer that infer that 120 00:05:47,160 --> 00:05:48,840 Speaker 1: you have a family. If you ask a lot of 121 00:05:48,920 --> 00:05:51,120 Speaker 1: questions about football, they think you're a fan of the NFL. 122 00:05:51,360 --> 00:05:53,880 Speaker 1: So you can see how these could build behavior profiles 123 00:05:54,400 --> 00:05:56,760 Speaker 1: for you in the Future. Austin Carr, thank you so 124 00:05:56,839 --> 00:06:00,000 Speaker 1: much for joining us. Fascinating story. Austin to the technology 125 00:06:00,040 --> 00:06:02,839 Speaker 1: Order for Bloomberg News, joining us on Bloomberg Interactive Broker Studio. 126 00:06:03,000 --> 00:06:05,440 Speaker 1: Austin story is featured in the upcoming issue of Bloomberg 127 00:06:05,440 --> 00:06:07,560 Speaker 1: Business Week magazine. You can read it now on the 128 00:06:07,560 --> 00:06:11,719 Speaker 1: Bloomberg and at Bloomberg dot com. Full disclosure, I am 129 00:06:11,760 --> 00:06:14,080 Speaker 1: not that great at programming these things. My ten year 130 00:06:14,120 --> 00:06:17,720 Speaker 1: old son programmed by Alexa to call him lord, and 131 00:06:17,760 --> 00:06:19,720 Speaker 1: so now I have to hear that all the time. 132 00:06:21,360 --> 00:06:39,480 Speaker 1: The chance you've been transcribers the FED meets today, most 133 00:06:39,480 --> 00:06:42,039 Speaker 1: likely it will be boring. That is certainly what they hope, 134 00:06:42,200 --> 00:06:44,800 Speaker 1: but it does study tone going in when it comes 135 00:06:44,839 --> 00:06:47,640 Speaker 1: to trying to figure out what credit returns will look like. 136 00:06:47,720 --> 00:06:49,680 Speaker 1: Jell would we'd joining us now to talk about that 137 00:06:50,000 --> 00:06:52,400 Speaker 1: Head of fixed income in senior portfolio manager at BEMO 138 00:06:52,520 --> 00:06:55,800 Speaker 1: Global Asset Management, overseeing two hundred and sixty billion dollars. 139 00:06:56,240 --> 00:06:58,200 Speaker 1: She's normally based in Miami, but she wanted to see 140 00:06:58,200 --> 00:07:00,840 Speaker 1: what snow looked like, so she came up here to 141 00:07:01,160 --> 00:07:04,320 Speaker 1: our Interactive broker studios. Janelle, I want to start with 142 00:07:06,000 --> 00:07:09,440 Speaker 1: excuse me the outlook for when it comes to credit. 143 00:07:09,840 --> 00:07:13,080 Speaker 1: Investment grade debt is poised for its best annual return 144 00:07:13,520 --> 00:07:16,640 Speaker 1: since two thousand and nine. How much further can it 145 00:07:16,720 --> 00:07:19,040 Speaker 1: go up? Over fourteen percent this year? I think it's 146 00:07:19,080 --> 00:07:21,920 Speaker 1: somewhat remarkable when we look at the total returns um 147 00:07:22,120 --> 00:07:25,720 Speaker 1: we are still very constructive on credit, even with valuations 148 00:07:25,760 --> 00:07:28,080 Speaker 1: where they're at going into two thousand and twenty, and 149 00:07:28,160 --> 00:07:30,600 Speaker 1: a lot of this comes back to the positioning the 150 00:07:30,680 --> 00:07:33,040 Speaker 1: FED accommodation, what we've seen out of earnings, and some 151 00:07:33,120 --> 00:07:35,560 Speaker 1: of the opportunities that exist within some of the specific 152 00:07:35,640 --> 00:07:38,680 Speaker 1: quality buckets. It's interesting here you're still constructive on investment 153 00:07:38,760 --> 00:07:40,760 Speaker 1: grade debt. A lot of folks that we talked to 154 00:07:40,840 --> 00:07:44,400 Speaker 1: are saying, boy, we're so far into this economic cycle. 155 00:07:44,880 --> 00:07:47,000 Speaker 1: You know, might be too late, we might start seeing 156 00:07:47,040 --> 00:07:50,080 Speaker 1: some concerns about credit quality or something along those lines. 157 00:07:50,240 --> 00:07:52,840 Speaker 1: What's kind of the foundation for your view going to 158 00:07:53,600 --> 00:07:54,920 Speaker 1: you are a couple of different things. I think one 159 00:07:54,960 --> 00:07:56,520 Speaker 1: of the things is this year there's been a lot 160 00:07:56,520 --> 00:07:58,840 Speaker 1: of concern about triple bs in particular, but as we 161 00:07:58,920 --> 00:08:01,880 Speaker 1: look at the ratio of grades versus downgrades in and 162 00:08:02,000 --> 00:08:04,560 Speaker 1: out of high yield, it's actually five to one, so 163 00:08:04,600 --> 00:08:07,720 Speaker 1: we've actually seen credit quality moving higher. And the other 164 00:08:07,800 --> 00:08:10,960 Speaker 1: thing is, I think earning surprised flat overall for the year, 165 00:08:11,040 --> 00:08:14,440 Speaker 1: but fairly resilient considering some of the pressures um and 166 00:08:14,480 --> 00:08:17,520 Speaker 1: then with the expectation for earnings growth of ten percent 167 00:08:17,640 --> 00:08:20,160 Speaker 1: next year, even if we see that moderate, it should 168 00:08:20,200 --> 00:08:23,320 Speaker 1: be overall supportive of credit quality. So the emphasis is 169 00:08:23,400 --> 00:08:27,040 Speaker 1: on investment grade over high yield, you say, and yet 170 00:08:27,200 --> 00:08:29,800 Speaker 1: spreads are pretty tight. The extra yel that investors earn 171 00:08:30,000 --> 00:08:33,000 Speaker 1: over benchmark rates is about the lowest since last March 172 00:08:33,080 --> 00:08:36,000 Speaker 1: and more than a year. Uh. And we're also looking 173 00:08:36,080 --> 00:08:38,200 Speaker 1: at sort of a questionable outlook in terms of how 174 00:08:38,320 --> 00:08:41,199 Speaker 1: much further the Fed will cut. What's going to be 175 00:08:41,320 --> 00:08:46,640 Speaker 1: driving the returns spread compression or benchmark rates going lower. 176 00:08:47,480 --> 00:08:49,520 Speaker 1: So I think a little bit of both. Anger outlook 177 00:08:49,600 --> 00:08:51,880 Speaker 1: is that rates are really fairly range bound in here, 178 00:08:51,960 --> 00:08:53,679 Speaker 1: so it's largely going to come from the carry of 179 00:08:53,760 --> 00:08:56,280 Speaker 1: credit as well as some additional tightening. I think what 180 00:08:56,400 --> 00:08:59,240 Speaker 1: gets overlooked when we think about overall, what's the what's 181 00:08:59,240 --> 00:09:00,959 Speaker 1: the option of just that spread of the index of 182 00:09:01,040 --> 00:09:03,960 Speaker 1: a hundred, is really that dispersion that takes place within 183 00:09:04,120 --> 00:09:06,680 Speaker 1: investment grade. And it's interesting if you move the seven 184 00:09:06,760 --> 00:09:08,920 Speaker 1: notches from a triple A credit to a high triple B, 185 00:09:09,360 --> 00:09:11,240 Speaker 1: you pick up less than you move to go from 186 00:09:11,280 --> 00:09:13,480 Speaker 1: a high triple B to a low triple B credit. 187 00:09:13,840 --> 00:09:16,720 Speaker 1: And so low triple B credit at one eighty double 188 00:09:17,040 --> 00:09:19,520 Speaker 1: the yield of the ten year treasury, there's some interesting 189 00:09:19,600 --> 00:09:22,559 Speaker 1: opportunities that have been overlooked for US though. This is 190 00:09:22,559 --> 00:09:26,000 Speaker 1: about allocating within and not just to credit quality, and 191 00:09:26,120 --> 00:09:28,199 Speaker 1: we do acknowledge where we are in the cycle. So 192 00:09:28,360 --> 00:09:32,520 Speaker 1: Janelle Um, your title is global asset management ahead of 193 00:09:32,520 --> 00:09:35,760 Speaker 1: global asset management globally. How are you guys thinking about 194 00:09:35,760 --> 00:09:40,240 Speaker 1: allocation of your capital into Yeah, I think we are UM. 195 00:09:40,559 --> 00:09:43,120 Speaker 1: We we still continue to favor the US in terms 196 00:09:43,200 --> 00:09:46,600 Speaker 1: of the resilience of the overall economy UM in terms 197 00:09:46,640 --> 00:09:48,760 Speaker 1: of valuations. When we go back to that, there are 198 00:09:48,840 --> 00:09:52,160 Speaker 1: some interesting opportunities as we move down to the lower 199 00:09:52,200 --> 00:09:55,080 Speaker 1: quality spectrum and especially an emerging market debt. Considering our 200 00:09:55,200 --> 00:09:58,559 Speaker 1: rate outlook going forward, we like a flexible approach. We 201 00:09:58,559 --> 00:10:02,040 Speaker 1: think you shouldn't all become completely incorporates UM, and we 202 00:10:02,360 --> 00:10:05,079 Speaker 1: think that you've got to go again allocating within and 203 00:10:05,200 --> 00:10:08,440 Speaker 1: not just two specific quality buckets. There was a survey 204 00:10:08,520 --> 00:10:11,520 Speaker 1: that Bloomberg did of global investors that found that the 205 00:10:11,679 --> 00:10:16,040 Speaker 1: consensus is that emerging market assets will outperform developing market 206 00:10:16,280 --> 00:10:18,800 Speaker 1: developed market ones next year. Do you agree? So? I 207 00:10:18,880 --> 00:10:21,000 Speaker 1: think part of this is just the carry where you're 208 00:10:21,000 --> 00:10:24,200 Speaker 1: starting from. So you're starting from a yield that's significantly higher, 209 00:10:24,480 --> 00:10:27,000 Speaker 1: and so you have that perpetual income component that supports it. 210 00:10:27,080 --> 00:10:30,240 Speaker 1: So if risk stays flat, there's still an opportunity there. 211 00:10:30,440 --> 00:10:32,840 Speaker 1: This is so interesting, Paul. It's sort of this idea 212 00:10:33,160 --> 00:10:36,599 Speaker 1: that as long as there's nothing major that happens in 213 00:10:36,640 --> 00:10:39,880 Speaker 1: the macroeconomic backdrop, which seems to be the consensus right now, 214 00:10:40,640 --> 00:10:42,679 Speaker 1: it's just a carry game. So anything that gives you 215 00:10:42,760 --> 00:10:45,520 Speaker 1: a dividend or anything that gives you interest, uh, is 216 00:10:45,559 --> 00:10:47,600 Speaker 1: going to be pretty good. Yeah, And that kind of suggests, 217 00:10:47,600 --> 00:10:49,640 Speaker 1: you know, kind of the mid single digit kind of 218 00:10:49,720 --> 00:10:52,560 Speaker 1: return environment. So let's say it is FED day, Janelle, 219 00:10:52,600 --> 00:10:55,439 Speaker 1: Let's get your thoughts on what you expect to hear 220 00:10:55,679 --> 00:10:57,880 Speaker 1: from the FED and from Chairman Pal today. What is 221 00:10:57,920 --> 00:11:01,240 Speaker 1: your expectations so as far the move today, as far 222 00:11:01,320 --> 00:11:04,720 Speaker 1: as policy consistent with consensus, we don't expect any change 223 00:11:04,760 --> 00:11:06,880 Speaker 1: in terms of rates. I think the part of policy 224 00:11:06,880 --> 00:11:09,679 Speaker 1: they'll be focused on is really the forward guidance, and 225 00:11:09,800 --> 00:11:11,600 Speaker 1: we'll see that both in the dots as well as 226 00:11:11,640 --> 00:11:14,200 Speaker 1: the communication. I think what we're looking for is an 227 00:11:14,280 --> 00:11:17,200 Speaker 1: update in terms of economic projections and also what happens 228 00:11:17,240 --> 00:11:19,040 Speaker 1: if we look at the floor of the dots currently, 229 00:11:19,120 --> 00:11:21,679 Speaker 1: it's really where policy is, and so how do those 230 00:11:21,760 --> 00:11:24,439 Speaker 1: converge over time and how do they still keep the 231 00:11:24,480 --> 00:11:27,440 Speaker 1: optionality to be able to act in an additional way 232 00:11:27,480 --> 00:11:29,960 Speaker 1: of required. What do you see so far in terms 233 00:11:30,000 --> 00:11:33,280 Speaker 1: of twenty predictions by some of your competitors that you 234 00:11:33,440 --> 00:11:38,400 Speaker 1: think is totally wrong? Um, I think, just uh, well, 235 00:11:38,520 --> 00:11:41,640 Speaker 1: we we've seen the recession um piece come down a 236 00:11:41,760 --> 00:11:44,040 Speaker 1: lot um, you know, Honestly, I think that there's going 237 00:11:44,080 --> 00:11:46,800 Speaker 1: to be a tremendous recovery in some of the deepest 238 00:11:46,840 --> 00:11:49,199 Speaker 1: segments of high yield. I think that's one of the 239 00:11:49,240 --> 00:11:51,880 Speaker 1: pieces of the market that's really surprised, and we actually 240 00:11:51,920 --> 00:11:54,240 Speaker 1: see it in both emerging market debt and high yield 241 00:11:54,280 --> 00:11:57,720 Speaker 1: this year. So Triple Cees returned five percent, investment grade 242 00:11:57,760 --> 00:12:00,920 Speaker 1: corporates fourteen high yield as a whole bull digits and 243 00:12:01,000 --> 00:12:03,400 Speaker 1: so there's definitely been pockets that have been left out 244 00:12:03,400 --> 00:12:05,839 Speaker 1: as we've kind of gotten later in the cycle and 245 00:12:05,960 --> 00:12:08,360 Speaker 1: we've seen this fallout, and so I think this is interesting. 246 00:12:08,640 --> 00:12:11,360 Speaker 1: Am I hearing that you think that the shale patch 247 00:12:11,400 --> 00:12:15,199 Speaker 1: will recover, that the energy idea is a good one 248 00:12:15,280 --> 00:12:18,080 Speaker 1: to take that risk. My hearing that we think there 249 00:12:18,120 --> 00:12:22,080 Speaker 1: are select there are select opportunities. Energy has been under 250 00:12:22,080 --> 00:12:24,760 Speaker 1: tremendous pressure this year and that's definitely contributed to both 251 00:12:24,800 --> 00:12:28,040 Speaker 1: I G and and high yield returns, But there are opportunities. 252 00:12:28,679 --> 00:12:30,640 Speaker 1: Joe Woodward, thank you so much for joining us. We 253 00:12:30,679 --> 00:12:33,760 Speaker 1: appreciate you're making a check up from Sunny Miami here 254 00:12:33,800 --> 00:12:36,120 Speaker 1: to New York. Janelle Woodward is ahead of fixed income 255 00:12:36,360 --> 00:12:39,600 Speaker 1: and senior portfolio manager for BEMO Global Asset Management. Think 256 00:12:39,600 --> 00:12:42,760 Speaker 1: about two dred and sixty billion dollars under management joining 257 00:12:42,840 --> 00:13:01,319 Speaker 1: us here in our Bloomberg and Director Brooker studio. So 258 00:13:01,440 --> 00:13:04,679 Speaker 1: people are all looking to to try to figure out 259 00:13:04,760 --> 00:13:07,679 Speaker 1: what is the outlook for benchmark rates, but also uh 260 00:13:07,920 --> 00:13:10,960 Speaker 1: for business outlook, which is actually deteriorated over the year 261 00:13:11,160 --> 00:13:15,040 Speaker 1: despite ongoing confidence among consumers. Joining us now Frank Sarantino, 262 00:13:15,360 --> 00:13:18,400 Speaker 1: chief executive officer of Connect One Bank and Frank I 263 00:13:18,480 --> 00:13:21,160 Speaker 1: want to start there. Since you do extend so many 264 00:13:21,280 --> 00:13:25,319 Speaker 1: loans to businesses and commercial lenders, what has this sentiment 265 00:13:25,480 --> 00:13:28,680 Speaker 1: been like over the past few months. So, good morning 266 00:13:28,720 --> 00:13:30,800 Speaker 1: and thanks for having me again. And yet I think, 267 00:13:31,240 --> 00:13:34,959 Speaker 1: you know, our clients are actually a little have a 268 00:13:35,000 --> 00:13:37,280 Speaker 1: little bit of trepidation about, you know, what's going on 269 00:13:37,320 --> 00:13:39,760 Speaker 1: in the marketplace. And so they have this sense that 270 00:13:39,880 --> 00:13:42,959 Speaker 1: the economy is doing well, interest rates are low, the 271 00:13:43,160 --> 00:13:46,839 Speaker 1: environment is good. Um, but there's this just sense, this 272 00:13:47,000 --> 00:13:50,000 Speaker 1: wall of worry that everyone seems to be climbing today. 273 00:13:50,200 --> 00:13:53,240 Speaker 1: And you know, I'm not sure it's it should be 274 00:13:53,440 --> 00:13:57,240 Speaker 1: that way, but it certainly is impacting decisions going forward 275 00:13:57,280 --> 00:14:00,439 Speaker 1: about expansion and capital and deployment of capital and whatnot. 276 00:14:00,600 --> 00:14:03,640 Speaker 1: So your customers, you're borrowing customers are small and midsized 277 00:14:03,679 --> 00:14:07,800 Speaker 1: businesses in the metro New York area. UM, So are 278 00:14:07,880 --> 00:14:11,360 Speaker 1: they concerned about big issues like global trade? Or is 279 00:14:11,400 --> 00:14:14,120 Speaker 1: it just that maybe the labor market is so tight 280 00:14:14,200 --> 00:14:17,679 Speaker 1: I can't find people to build my stuff for going 281 00:14:17,800 --> 00:14:19,760 Speaker 1: my stores. But so, you know, it's fascinating. I've actually 282 00:14:19,800 --> 00:14:21,920 Speaker 1: written about this and and I talk about it a lot. 283 00:14:22,000 --> 00:14:25,040 Speaker 1: I tell people stop reading the news, you know, like 284 00:14:25,200 --> 00:14:30,040 Speaker 1: focus on what's really going on? And no, but no. 285 00:14:30,160 --> 00:14:33,000 Speaker 1: But you know, when you start thinking about all all 286 00:14:33,080 --> 00:14:35,480 Speaker 1: the all that's in the news, all that you get 287 00:14:35,560 --> 00:14:39,880 Speaker 1: from Twitter, all that you get you know, from various sources. Um, 288 00:14:40,480 --> 00:14:42,440 Speaker 1: you know, people start worrying more than I think they 289 00:14:42,520 --> 00:14:44,440 Speaker 1: need to. And then when they look at their actual 290 00:14:44,560 --> 00:14:47,520 Speaker 1: environment and where they're functioning, uh, they see a lot 291 00:14:47,600 --> 00:14:49,640 Speaker 1: of strength. And actually, one of the issues you just 292 00:14:49,760 --> 00:14:52,520 Speaker 1: raised was what was this concept of being able to 293 00:14:52,640 --> 00:14:54,840 Speaker 1: hire to fill all the positions you have? That is 294 00:14:54,880 --> 00:14:57,880 Speaker 1: the number one concern we have today is that people 295 00:14:57,960 --> 00:15:00,080 Speaker 1: can't fill all the positions they have opened today? And 296 00:15:00,240 --> 00:15:02,920 Speaker 1: is it a salary issue? In other words, if they 297 00:15:02,960 --> 00:15:04,800 Speaker 1: just jack up the prices, they would be able to 298 00:15:04,840 --> 00:15:06,720 Speaker 1: find the talent. So for a while, I think it 299 00:15:06,840 --> 00:15:08,440 Speaker 1: was that, and I think we are seeing some wage 300 00:15:08,480 --> 00:15:11,600 Speaker 1: inflation coming into the marketplace, which would be a good thing. Um, 301 00:15:11,680 --> 00:15:13,680 Speaker 1: But today, I don't care what you pay, you can't 302 00:15:13,760 --> 00:15:18,840 Speaker 1: it's it's becoming difficult to hire, to hire to fill positions. 303 00:15:19,160 --> 00:15:21,400 Speaker 1: And I believe this fact is accurate. I think it's 304 00:15:21,440 --> 00:15:25,600 Speaker 1: we're at the highest level of people voluntarily leaving jobs. 305 00:15:26,240 --> 00:15:28,520 Speaker 1: So that's a good sign for the economy. But there's 306 00:15:28,560 --> 00:15:31,120 Speaker 1: a dark side to that. We can't fill all the 307 00:15:31,200 --> 00:15:33,600 Speaker 1: open positions. So so what are some of the areas 308 00:15:33,800 --> 00:15:37,320 Speaker 1: of borrowers that are maybe active right now or maybe 309 00:15:37,360 --> 00:15:39,840 Speaker 1: even some that are kind of pulling back a little bit. So, 310 00:15:40,000 --> 00:15:43,400 Speaker 1: you know, I think for our manufacturers and people that 311 00:15:43,480 --> 00:15:46,800 Speaker 1: are in service businesses, UM, they've got basically a green 312 00:15:46,880 --> 00:15:49,040 Speaker 1: light ahead of them. There's a lot going on in 313 00:15:49,120 --> 00:15:51,960 Speaker 1: the economy. There's a lot of efficiencies. Technology is really 314 00:15:52,520 --> 00:15:56,280 Speaker 1: changing the face of business today in a positive way. 315 00:15:56,360 --> 00:15:58,080 Speaker 1: And those are good things, and those are creating really 316 00:15:58,160 --> 00:16:01,280 Speaker 1: great jobs in the economy. Um, you know, in the 317 00:16:01,640 --> 00:16:04,920 Speaker 1: in the construction and real estate trades. You know, certainly 318 00:16:04,960 --> 00:16:06,480 Speaker 1: here in the New York metro market and that's where 319 00:16:06,480 --> 00:16:09,720 Speaker 1: Connect one Bank is located. Uh, there's been some there's 320 00:16:09,720 --> 00:16:12,000 Speaker 1: been some headwinds, whether it's the rent you know, the 321 00:16:12,080 --> 00:16:16,520 Speaker 1: rent regulation that came into into place in New York City. Uh, 322 00:16:16,840 --> 00:16:19,280 Speaker 1: the the length of time it takes to get something 323 00:16:19,320 --> 00:16:21,800 Speaker 1: approved from his zoning perspective. You know, these things are 324 00:16:21,920 --> 00:16:25,000 Speaker 1: are dampeners on the economy. We need more housing, we 325 00:16:25,120 --> 00:16:27,880 Speaker 1: need places for people to live. Uh, there is definitely 326 00:16:27,920 --> 00:16:31,160 Speaker 1: a shortage of that. The replacement of new homes in 327 00:16:31,200 --> 00:16:34,680 Speaker 1: the United States is at near and all time low. Uh. 328 00:16:34,880 --> 00:16:37,360 Speaker 1: So there's a lot of pent up demand for product, 329 00:16:37,520 --> 00:16:40,080 Speaker 1: but there's a lot of policies that are that are 330 00:16:40,200 --> 00:16:42,880 Speaker 1: that are hindering that. I'm so glad that Frank Sorrentino 331 00:16:43,040 --> 00:16:45,320 Speaker 1: is here today because we can talk about the intersection 332 00:16:45,760 --> 00:16:49,560 Speaker 1: of these theoretical aspects of the market, like the yield curve, 333 00:16:49,760 --> 00:16:52,400 Speaker 1: and talk about the tangibles of how that actually affects 334 00:16:52,440 --> 00:16:55,960 Speaker 1: the bottom line when you're extending loans to these businesses, 335 00:16:56,040 --> 00:16:58,960 Speaker 1: to the commercial real estate developers and lenders. I'm just 336 00:16:59,040 --> 00:17:02,360 Speaker 1: trying to understand and your profit margins and how much 337 00:17:02,720 --> 00:17:05,200 Speaker 1: uh you know, I change in the yield curve affects that. 338 00:17:05,640 --> 00:17:08,240 Speaker 1: What's that been like? So for us, it's been a challenge. 339 00:17:08,560 --> 00:17:11,440 Speaker 1: Uh certainly for the last year or two. Uh the 340 00:17:11,560 --> 00:17:15,000 Speaker 1: yield curve is definitely tightened. It's gotten close to inverted, 341 00:17:15,040 --> 00:17:18,200 Speaker 1: if not slightly inverted. UM low interest rates on the 342 00:17:18,280 --> 00:17:20,639 Speaker 1: long end, actually you're good for the economy, right. We 343 00:17:20,840 --> 00:17:26,040 Speaker 1: we see that UM people are investing in capital intensive businesses, 344 00:17:26,040 --> 00:17:28,840 Speaker 1: whether that's real estate or others because of low interest rates. 345 00:17:28,840 --> 00:17:32,000 Speaker 1: So you gotta hand it to the Fed they've almost 346 00:17:32,160 --> 00:17:35,760 Speaker 1: in my opinion, flawlessly manage the economy over the last 347 00:17:35,880 --> 00:17:39,840 Speaker 1: number of years. UM. I think they might have gotten 348 00:17:39,880 --> 00:17:42,720 Speaker 1: a little ahead of themselves with short term rates earlier 349 00:17:42,760 --> 00:17:44,440 Speaker 1: in the year, where they were raising maybe a little 350 00:17:44,480 --> 00:17:47,959 Speaker 1: bit too quickly, and but again, let's hand it to them, 351 00:17:48,040 --> 00:17:51,800 Speaker 1: they reverse course and have brought rates probably about where 352 00:17:51,800 --> 00:17:53,880 Speaker 1: they should be. And we're seeing a neutral stance today, 353 00:17:53,960 --> 00:17:55,920 Speaker 1: and I think everyone expects we're going to see a 354 00:17:56,000 --> 00:17:59,040 Speaker 1: neutral stance going forward from here for the foreseeable future. 355 00:17:59,400 --> 00:18:02,960 Speaker 1: Frank word, you know, ten plus years into this economic cycle, 356 00:18:03,000 --> 00:18:05,960 Speaker 1: and I know some UH investors when they look at 357 00:18:05,960 --> 00:18:08,320 Speaker 1: the credit markets, had a little concerned about credit quality. 358 00:18:08,960 --> 00:18:11,000 Speaker 1: And when you look at your portfolio, how's the credit 359 00:18:11,119 --> 00:18:15,280 Speaker 1: quality right now trending? So when you look across excuse me, 360 00:18:15,320 --> 00:18:18,040 Speaker 1: the entire industry, you know, we've we've probably never seen 361 00:18:18,119 --> 00:18:21,440 Speaker 1: a better stretch of time relative to credit quality for 362 00:18:21,560 --> 00:18:26,240 Speaker 1: all financial institutions. UH. As I look out, I don't 363 00:18:26,320 --> 00:18:29,000 Speaker 1: see a whole lot that's going to change that. Short 364 00:18:29,119 --> 00:18:33,520 Speaker 1: term again, interest rates are low, liquidity is there, people 365 00:18:33,600 --> 00:18:38,480 Speaker 1: can refinance. UM, jobs are strong and getting stronger. Wages 366 00:18:38,520 --> 00:18:41,800 Speaker 1: are on the increase, So really you know, most of 367 00:18:41,920 --> 00:18:46,600 Speaker 1: the factors that sort of put negative pressure on credit 368 00:18:46,720 --> 00:18:49,440 Speaker 1: quality just aren't there right now. So where are you 369 00:18:49,480 --> 00:18:54,280 Speaker 1: looking to expand? Well, connect one UM since its inception 370 00:18:54,400 --> 00:18:58,000 Speaker 1: has been pretty much a New York metro market bank. UM. 371 00:18:58,480 --> 00:19:01,199 Speaker 1: You know, parts of northern New Jersey, all around New 372 00:19:01,280 --> 00:19:04,000 Speaker 1: York City. We believe this is the greatest market in 373 00:19:04,080 --> 00:19:06,560 Speaker 1: the country. And this is exactly where we want to be. 374 00:19:06,880 --> 00:19:10,800 Speaker 1: But as far as size and scale, is there an 375 00:19:10,800 --> 00:19:14,520 Speaker 1: advantage to being mid sized or smaller or or do 376 00:19:14,560 --> 00:19:17,200 Speaker 1: you see an advantage of getting bigger? So I would 377 00:19:17,240 --> 00:19:21,040 Speaker 1: tell you today that size, in my opinion, does matter. 378 00:19:21,359 --> 00:19:24,600 Speaker 1: I know that's cliche, but UM today the biggest thing 379 00:19:24,640 --> 00:19:26,800 Speaker 1: and this is not just for banking, this is probably 380 00:19:26,880 --> 00:19:30,879 Speaker 1: for all businesses. Technology is no longer something that's a 381 00:19:31,040 --> 00:19:34,520 Speaker 1: wow thing anymore. It is part of what your business 382 00:19:34,560 --> 00:19:36,920 Speaker 1: needs to be. And the more money you can invest 383 00:19:36,960 --> 00:19:38,919 Speaker 1: in technology, the more efficient you can get, I think, 384 00:19:38,960 --> 00:19:40,520 Speaker 1: the better you can be in your and whatever your 385 00:19:40,560 --> 00:19:43,040 Speaker 1: business is. And that holds true for connect One Bank 386 00:19:43,160 --> 00:19:46,000 Speaker 1: and so size and I want to spend more of 387 00:19:46,040 --> 00:19:47,919 Speaker 1: our revenue on technology. Yeah, And that's kind of one 388 00:19:47,920 --> 00:19:50,280 Speaker 1: of the things we hear about quickly when we see 389 00:19:50,359 --> 00:19:52,440 Speaker 1: when we whenever we hear at bank buying another bank, 390 00:19:52,480 --> 00:19:54,240 Speaker 1: they say, we gotta get bigger, got to get scale 391 00:19:54,240 --> 00:19:56,720 Speaker 1: because this technology spend is so great. So how does 392 00:19:56,760 --> 00:19:59,800 Speaker 1: a small, smaller bank deal with that technology investment requirement? 393 00:20:00,080 --> 00:20:02,399 Speaker 1: We have to get bigger, as you you know, as 394 00:20:02,440 --> 00:20:06,359 Speaker 1: I'm sure you've seen. We we completed an acquisition UH 395 00:20:06,680 --> 00:20:09,320 Speaker 1: in January of two thousand nineteen. We're about to close 396 00:20:09,359 --> 00:20:14,160 Speaker 1: on one UH in January. UH so we've grown probably 397 00:20:14,240 --> 00:20:17,800 Speaker 1: between those two thirty five in size. And part of 398 00:20:17,840 --> 00:20:21,320 Speaker 1: that rationale is taking out costs, and not taking out 399 00:20:21,400 --> 00:20:24,400 Speaker 1: costs to save money, but taking out costs to reinvest 400 00:20:24,480 --> 00:20:27,600 Speaker 1: it in in better technology, more efficient ways of doing business. 401 00:20:27,960 --> 00:20:30,400 Speaker 1: Frank Sarrantino, thank you so much for joining us. Frank 402 00:20:30,440 --> 00:20:33,439 Speaker 1: as the chief executive officer of Connect One Bank symbol 403 00:20:33,480 --> 00:20:36,520 Speaker 1: on the NASDACS c n o B based on Englewood Cliffs, 404 00:20:36,520 --> 00:20:38,560 Speaker 1: New Jersey, but joining us here in our Bloomberg Interactive 405 00:20:38,640 --> 00:20:55,040 Speaker 1: or broker Student little preview, we welcome our next guest, 406 00:20:55,080 --> 00:20:57,879 Speaker 1: Marvin Low. Marvin is a senior global macro strategist for 407 00:20:58,200 --> 00:21:01,440 Speaker 1: State Street, that little firm up in Boston. Marvin, thanks 408 00:21:01,440 --> 00:21:04,280 Speaker 1: so much for joining US. I think the consensus here 409 00:21:04,359 --> 00:21:09,760 Speaker 1: is for a relatively benign FED UH decision and press 410 00:21:09,880 --> 00:21:12,960 Speaker 1: conference today. What are your thoughts? Yeah, you know, I 411 00:21:13,040 --> 00:21:15,679 Speaker 1: think I think that UM, the Fed has pretty clearly 412 00:21:15,760 --> 00:21:18,480 Speaker 1: signaled that, UM, you know, they've done what they wanted 413 00:21:18,520 --> 00:21:21,199 Speaker 1: to do this year. The markets are being cooperative. Uh. 414 00:21:21,280 --> 00:21:23,719 Speaker 1: You know, we've got inflation that's firming if anything, from 415 00:21:23,760 --> 00:21:26,560 Speaker 1: today's data. So I think they're happy to start the 416 00:21:26,560 --> 00:21:28,959 Speaker 1: holiday season a little bit earlier and kind of make 417 00:21:29,040 --> 00:21:32,879 Speaker 1: this a quiet meeting. It will be boring, right, you 418 00:21:32,960 --> 00:21:36,960 Speaker 1: know what, UM. I think from the rate and monetary 419 00:21:37,000 --> 00:21:41,760 Speaker 1: policy perspective, UM, the consensus is pretty accurate. There's really 420 00:21:41,840 --> 00:21:44,560 Speaker 1: no reason for them to signal UM that they're ready 421 00:21:44,600 --> 00:21:46,320 Speaker 1: to either cut or raise at this point. But you know, 422 00:21:46,359 --> 00:21:48,600 Speaker 1: there's still the funding issues that are out there UM 423 00:21:48,800 --> 00:21:51,480 Speaker 1: and looking a little further which you know, sometimes the 424 00:21:51,560 --> 00:21:54,320 Speaker 1: market doesn't whether or not they still think, UM, you know, 425 00:21:54,440 --> 00:21:56,000 Speaker 1: hikes are going to be possible, and whether or not 426 00:21:56,320 --> 00:21:58,800 Speaker 1: if we look longer term, if you will that UM, 427 00:21:58,880 --> 00:22:01,040 Speaker 1: the terminal rate is still going to be as high 428 00:22:01,119 --> 00:22:04,040 Speaker 1: as UM the last set of dots indicated. So talking 429 00:22:04,160 --> 00:22:06,960 Speaker 1: about boring, UM, I mean, yes, we're gonna get some 430 00:22:07,080 --> 00:22:09,639 Speaker 1: interesting things. But but but you know, for the for 431 00:22:09,720 --> 00:22:12,040 Speaker 1: the most part, it's going to be set as quo 432 00:22:12,359 --> 00:22:16,520 Speaker 1: probably that's what everyone's expecting and UM going to it 433 00:22:16,560 --> 00:22:20,080 Speaker 1: seems like increasingly the forecasts that we're hearing are pretty 434 00:22:20,160 --> 00:22:23,520 Speaker 1: humdrum too. Nothing's going to really change in the macro backdrop. 435 00:22:23,920 --> 00:22:28,280 Speaker 1: Things will be fine, good enough, maybe decelerating, and returns 436 00:22:28,280 --> 00:22:31,240 Speaker 1: will be lower than they were this year, but not terrible, 437 00:22:31,600 --> 00:22:35,000 Speaker 1: not amazing. Do you agree? You know what it's it's 438 00:22:35,000 --> 00:22:37,040 Speaker 1: it's hard to argue with that at this point. UM, 439 00:22:37,119 --> 00:22:39,840 Speaker 1: you know, I do think that there still is risk 440 00:22:40,200 --> 00:22:44,320 Speaker 1: that UM economic activity UM, you know, really shows its age, 441 00:22:44,440 --> 00:22:46,879 Speaker 1: and you know, certainly the risk is still to the downside. 442 00:22:47,200 --> 00:22:49,320 Speaker 1: But in terms of what we're seeing now and how 443 00:22:49,400 --> 00:22:51,720 Speaker 1: the FED is going to position it later this afternoon, 444 00:22:51,880 --> 00:22:53,440 Speaker 1: I think they're just gonna grab ahold of that and 445 00:22:53,560 --> 00:22:55,600 Speaker 1: you know, say they're ready. Um, you know, we've got 446 00:22:55,680 --> 00:22:58,640 Speaker 1: more of an asymmetric curve where uh, you know, cuts 447 00:22:58,680 --> 00:23:01,040 Speaker 1: are more likely and everyone you know, from a risk 448 00:23:01,440 --> 00:23:04,879 Speaker 1: taking perspective, be somewhat happy with that. UM, Marvin, you 449 00:23:04,920 --> 00:23:08,240 Speaker 1: mentioned they might make some commentary about the short term 450 00:23:08,600 --> 00:23:12,880 Speaker 1: repo funding market what do you expect they could say 451 00:23:12,960 --> 00:23:16,480 Speaker 1: or should say, you know what, UM, it's certainly a 452 00:23:16,560 --> 00:23:20,480 Speaker 1: point of UM contention. Certainly maybe a degree of confusion 453 00:23:20,520 --> 00:23:23,000 Speaker 1: in terms of just how stressed a year end and 454 00:23:23,400 --> 00:23:26,800 Speaker 1: really more important beyond year end UM, the whole short 455 00:23:26,960 --> 00:23:30,240 Speaker 1: end funding market is beyond that. I don't think the 456 00:23:30,320 --> 00:23:34,159 Speaker 1: FED really fully appreciates UM what maybe some of the 457 00:23:34,200 --> 00:23:36,920 Speaker 1: more tail risk type discussions are out there. So I 458 00:23:37,000 --> 00:23:39,760 Speaker 1: think they'll say that they are on top of the situation, 459 00:23:40,119 --> 00:23:42,680 Speaker 1: that the operations that they have will continue to run 460 00:23:42,920 --> 00:23:45,080 Speaker 1: UM as we kind of get through year end UM 461 00:23:45,160 --> 00:23:47,760 Speaker 1: and once again they stand ready at the switch. I 462 00:23:47,840 --> 00:23:50,680 Speaker 1: think if UM, you believe that there are you know, 463 00:23:50,800 --> 00:23:54,040 Speaker 1: some more longer term issues, we're gonna need regulation, We're 464 00:23:54,040 --> 00:23:56,239 Speaker 1: gonna need things like standing repo, and we actually might 465 00:23:56,359 --> 00:23:59,879 Speaker 1: need UM an acceleration of their bond buying to kind 466 00:23:59,880 --> 00:24:01,919 Speaker 1: of get us out of some of these funding issues. 467 00:24:02,000 --> 00:24:04,120 Speaker 1: But UM, I don't think that they want to show 468 00:24:04,240 --> 00:24:07,399 Speaker 1: that degree of fear in a couple hours. And do 469 00:24:07,520 --> 00:24:10,200 Speaker 1: you think that that type of scenario where there is 470 00:24:10,280 --> 00:24:13,720 Speaker 1: some sort of funding pressure could materialize in a way 471 00:24:14,080 --> 00:24:18,600 Speaker 1: that affects risk markets going into your end UM It's 472 00:24:18,640 --> 00:24:21,480 Speaker 1: not my base case, because I really haven't seen anything 473 00:24:21,560 --> 00:24:24,680 Speaker 1: that appears that stressed at the moment. But certainly what 474 00:24:24,800 --> 00:24:27,200 Speaker 1: we learned in September is that it can come around 475 00:24:27,359 --> 00:24:31,160 Speaker 1: fairly quickly. UM. And you know, just kind of thinking back, 476 00:24:31,320 --> 00:24:33,640 Speaker 1: you know, ten years ago, if you will, um, how 477 00:24:33,880 --> 00:24:36,639 Speaker 1: quickly or ten plus years ago, how quickly? UM it 478 00:24:36,800 --> 00:24:39,280 Speaker 1: candid terry risk markets, It certainly is a risk there, 479 00:24:39,280 --> 00:24:43,040 Speaker 1: particularly given um how rich a lot of asset values 480 00:24:43,080 --> 00:24:45,119 Speaker 1: are at the at the moment. So Marvin, when I 481 00:24:45,160 --> 00:24:48,119 Speaker 1: think State Street, I think big global macro kind of 482 00:24:48,840 --> 00:24:51,119 Speaker 1: house up there in Boston. What is your view as 483 00:24:51,160 --> 00:24:55,040 Speaker 1: you think about globally in terms of allocation of capital? 484 00:24:57,400 --> 00:24:59,440 Speaker 1: So um. You know, one of one of the trends 485 00:24:59,480 --> 00:25:00,879 Speaker 1: that we've seen over the course of the year is 486 00:25:00,960 --> 00:25:04,560 Speaker 1: just how um high cash levels have gotten. So um. 487 00:25:04,800 --> 00:25:08,640 Speaker 1: You know, the discussion around the rally, if you will, 488 00:25:08,760 --> 00:25:10,440 Speaker 1: whether it's been on the credit side of things or 489 00:25:10,440 --> 00:25:13,320 Speaker 1: equity side of things, being someone under owned. The flip 490 00:25:13,359 --> 00:25:15,280 Speaker 1: side of that is that cash levels are pretty high. 491 00:25:15,359 --> 00:25:18,240 Speaker 1: So you know, we're we are looking for um if 492 00:25:18,320 --> 00:25:21,680 Speaker 1: the risk environment remains supportive, those cash levels potentially moving 493 00:25:21,720 --> 00:25:23,800 Speaker 1: off the sidelines and it winds up being um, you know, 494 00:25:24,119 --> 00:25:27,520 Speaker 1: slightly greater allocation towards the fixed income and the equity component, 495 00:25:27,560 --> 00:25:29,640 Speaker 1: which has come down since the beginning of the year. 496 00:25:29,920 --> 00:25:32,159 Speaker 1: Do you do you really think that coming off the 497 00:25:32,240 --> 00:25:35,560 Speaker 1: sidelines is an accurate way to to talk about I've 498 00:25:35,600 --> 00:25:38,000 Speaker 1: heard so much controversy about the idea of cash on 499 00:25:38,040 --> 00:25:40,520 Speaker 1: the sidelines, with some people saying that that's a fiction 500 00:25:40,640 --> 00:25:42,840 Speaker 1: and that you know that it's not just held in 501 00:25:42,920 --> 00:25:46,080 Speaker 1: buckets of cash, that it's held in maybe treasuries or 502 00:25:46,400 --> 00:25:48,760 Speaker 1: you know, fixed income which have gotten which has gotten 503 00:25:48,880 --> 00:25:52,320 Speaker 1: so much, uh by way of influences here, what's your 504 00:25:52,400 --> 00:25:55,080 Speaker 1: view on that? Yeah, so so you know, UM, I 505 00:25:55,160 --> 00:25:58,399 Speaker 1: have a fairly narrow definition of cash. It certainly is 506 00:25:58,840 --> 00:26:01,000 Speaker 1: more on the money markets side of things, and kind 507 00:26:01,040 --> 00:26:03,159 Speaker 1: of the shape of the curve and kind of um, 508 00:26:03,320 --> 00:26:06,199 Speaker 1: you know, how flat the um the short end part 509 00:26:06,240 --> 00:26:07,520 Speaker 1: of the curve I think kind of plays into this 510 00:26:07,600 --> 00:26:10,200 Speaker 1: reboat discussion and plays into the fact that returns aren't 511 00:26:10,280 --> 00:26:13,640 Speaker 1: that bad in the bill market. Um, it does require 512 00:26:13,760 --> 00:26:15,840 Speaker 1: some steepening of kind of that short end of the 513 00:26:15,920 --> 00:26:19,159 Speaker 1: curve I think to pull money off the sidelines. You know, 514 00:26:19,240 --> 00:26:22,160 Speaker 1: cash is a decent asset class, but you know, as 515 00:26:22,320 --> 00:26:24,640 Speaker 1: we kind of just look at where returns are going 516 00:26:24,720 --> 00:26:26,840 Speaker 1: to be going forward, I think that, you know, people 517 00:26:26,920 --> 00:26:30,200 Speaker 1: do need to consider what the appropriate degree of risk 518 00:26:30,320 --> 00:26:32,119 Speaker 1: is UM in order to generate those returns that they 519 00:26:32,160 --> 00:26:34,080 Speaker 1: need to retire and everything else that goes along with it. 520 00:26:34,320 --> 00:26:36,560 Speaker 1: This is actually really interesting in other words, to flatter 521 00:26:36,680 --> 00:26:39,720 Speaker 1: the curve, the more quote cash there will be on 522 00:26:39,800 --> 00:26:42,600 Speaker 1: the sidelines because you don't get anything for for taking 523 00:26:42,640 --> 00:26:46,160 Speaker 1: that extra risk. Is that basically the idea? Yeah? Yeah, absolutely, 524 00:26:46,200 --> 00:26:48,879 Speaker 1: you know, whether it's duration risk or um, you know, 525 00:26:48,960 --> 00:26:51,399 Speaker 1: the risk in the market. UM. You know, kind of 526 00:26:51,480 --> 00:26:54,040 Speaker 1: looking at the short end of the curve again, whether 527 00:26:54,080 --> 00:26:56,320 Speaker 1: it's money market you know, again kind of playing into 528 00:26:56,320 --> 00:27:01,280 Speaker 1: that reboat discussion. UM yeah, you know, certainly keeping it short, 529 00:27:01,320 --> 00:27:04,359 Speaker 1: you're not giving up that much. So Marvin, just quickly, 530 00:27:04,520 --> 00:27:06,480 Speaker 1: do I take on more risk in I've had a 531 00:27:06,480 --> 00:27:09,199 Speaker 1: pretty good year in nineteen Do I go emerging markets, 532 00:27:09,320 --> 00:27:12,720 Speaker 1: leverage loans, things like that? UM? I I do like 533 00:27:12,800 --> 00:27:15,240 Speaker 1: the emerging markets. UM. You know, I think that what 534 00:27:15,359 --> 00:27:18,280 Speaker 1: we've seen is the lack of FX folatility, which kind 535 00:27:18,280 --> 00:27:21,159 Speaker 1: of supports the emerging markets. UM. The inflation kind of 536 00:27:21,200 --> 00:27:23,840 Speaker 1: profile around the e M has certainly changed in terms 537 00:27:23,920 --> 00:27:28,119 Speaker 1: of not being that um uh demonstrative to to some 538 00:27:28,240 --> 00:27:30,600 Speaker 1: of your returns. So so the E M complex is 539 00:27:30,680 --> 00:27:33,360 Speaker 1: something that I like. Leverage loans um and and I've 540 00:27:33,400 --> 00:27:35,680 Speaker 1: spoken to Lesa about this. You know, certainly a lot 541 00:27:35,920 --> 00:27:38,640 Speaker 1: is a little bit more of a challenge, particularly giving covenants, 542 00:27:38,960 --> 00:27:42,919 Speaker 1: particularly given how aggressive some of um those loans have become. 543 00:27:43,160 --> 00:27:46,040 Speaker 1: Um that that I say a bit more on the sidelines. 544 00:27:46,280 --> 00:27:48,040 Speaker 1: Marvin low thank you so much for being with us. 545 00:27:48,359 --> 00:27:51,960 Speaker 1: Marvin Lowe is global macro Strategists at State Street and H. 546 00:27:52,200 --> 00:27:56,320 Speaker 1: He joins a number of strategists actually talking about leverage 547 00:27:56,400 --> 00:27:59,000 Speaker 1: loans next year. UBS is Matthew Mish coming out this 548 00:27:59,119 --> 00:28:02,600 Speaker 1: morning and saying that he expects a decline of one 549 00:28:02,680 --> 00:28:06,119 Speaker 1: to two cent next year for leveraged loans. Yeah, you 550 00:28:06,200 --> 00:28:08,639 Speaker 1: think about you know, ten plus years into this economic cycle, 551 00:28:08,960 --> 00:28:10,960 Speaker 1: you think start thinking about credit quality, and if you're 552 00:28:10,960 --> 00:28:12,679 Speaker 1: going to see credit issues, that will be certainly one 553 00:28:12,680 --> 00:28:14,920 Speaker 1: of the markets where you may see it first. Yeah, 554 00:28:14,920 --> 00:28:19,200 Speaker 1: although you have seen such an underperformance already among certain loans, 555 00:28:19,280 --> 00:28:23,080 Speaker 1: you have to wonder whether perhaps that's already reached a bottom. 556 00:28:23,520 --> 00:28:25,840 Speaker 1: We shall see. Thanks for listening to the Bloomberg P 557 00:28:25,920 --> 00:28:28,440 Speaker 1: and L podcast. You can subscribe and listen to interviews 558 00:28:28,520 --> 00:28:32,320 Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, 559 00:28:32,400 --> 00:28:35,119 Speaker 1: I'm on Twitter at pt Sweeney. I'm Lisa Abram Woyds. 560 00:28:35,160 --> 00:28:38,120 Speaker 1: I'm on Twitter at Lisa Abram woids One. Before the podcast, 561 00:28:38,200 --> 00:28:40,760 Speaker 1: you can always catch us worldwide on Bloomberg Radio