WEBVTT - Western Union's Looking at Digital Currency, But Not Ready Yet 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.560 Along with my co host Lisa Abramowitz. 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 --> 0:00:32.440 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Lisa, 0:00:32.479 --> 0:00:34.599 you know, if you want to send billions of dollars 0:00:34.640 --> 0:00:38.800 around the world as a corporation, there are banking systems 0:00:38.840 --> 0:00:41.640 and relationships that are already set up to do that 0:00:41.680 --> 0:00:44.000 and to do that compliantly and efficiently. But let's say 0:00:44.000 --> 0:00:47.560 you want to just move two hundred dollars around the world. 0:00:47.960 --> 0:00:50.200 The gentleman who we have next is our guest, knows 0:00:50.240 --> 0:00:53.760 all about that business. His name is Ogilan Almeida. He 0:00:53.880 --> 0:00:56.920 is the president of Global Money Transfer at Western Union. 0:00:57.040 --> 0:00:58.760 Thank you very much for being here, Thank you for 0:00:58.880 --> 0:01:02.080 having me. Maybe just to explain to people, first of all, 0:01:02.240 --> 0:01:05.120 was I accurate in describing a little bit about the business, 0:01:05.200 --> 0:01:07.720 And maybe you can build that out as a little 0:01:07.800 --> 0:01:12.000 story about describing some particular money flow that exists in 0:01:12.040 --> 0:01:14.080 the world that people may not know about. I think 0:01:14.160 --> 0:01:16.640 it was perfect that that's exactly what we do. I mean, 0:01:16.959 --> 0:01:20.399 we make it viable to sound smaller amounts of money 0:01:20.440 --> 0:01:24.679 across the globe today operating two hundred countries, sixteen thousand corridors, 0:01:24.680 --> 0:01:28.840 a hundred thirty currencies and it's amazing. Corridors. Maybe just 0:01:28.959 --> 0:01:31.479 explain how you use that term. YEA corridors is when 0:01:31.600 --> 0:01:34.160 you talk about one country to another countries. For example, 0:01:34.440 --> 0:01:37.520 US to Bangladesh is one corridor. Bangladesh to US is 0:01:37.560 --> 0:01:40.440 another corridor. So it is the origin and the destiny 0:01:40.480 --> 0:01:43.399 of the money. Uh. And it's amazing to see those flows. 0:01:43.760 --> 0:01:51.800 And we have corridors like um Way to Paxtan to India, 0:01:52.520 --> 0:01:55.960 um In Toronto, corridors in Africa. But the beauty of 0:01:56.040 --> 0:01:58.360 the business is not only about the money flow, but 0:01:58.480 --> 0:02:01.800 it's about the people flow because we can track people 0:02:02.440 --> 0:02:06.160 flow around the globe based on the dynamics of the corridors. Well, 0:02:06.320 --> 0:02:10.680 given that we've heard so much protectionist rhetoric recently from 0:02:10.720 --> 0:02:14.799 a number of different governments and attempts to restrict immigration, 0:02:15.240 --> 0:02:17.400 have you seen that in your flows and is that 0:02:17.560 --> 0:02:20.200 something that is somewhat of a headwind for the business. Yes, 0:02:20.440 --> 0:02:23.320 we we uh we're pretty for we have been oparating 0:02:23.320 --> 0:02:25.600 for the last six five years, so in those years 0:02:25.639 --> 0:02:29.919 we have seen countries interblocks, countries living blocks. More protection 0:02:30.000 --> 0:02:32.239 is less protection list. We know that there is a 0:02:32.360 --> 0:02:37.760 relation about growth and protectionism, so countries get more protectionists 0:02:37.880 --> 0:02:41.000 when there's no growth and and living That has been 0:02:41.040 --> 0:02:44.639 also very very useful for us, so we can in 0:02:44.800 --> 0:02:48.400 some way hedge the risks. So for example, if there 0:02:48.520 --> 0:02:51.040 is an issue in certain corridor, we still have the 0:02:51.120 --> 0:02:56.240 other hundred fifty nine point nine thousand corridors to to explore, 0:02:56.360 --> 0:02:59.440 so it's always like a trade off. Thank today we 0:02:59.600 --> 0:03:02.800 don't see the world more protectionalist than before. We see 0:03:02.960 --> 0:03:07.840 pockets of protectionists, but overall it's not one sweeping movement 0:03:08.000 --> 0:03:11.480 across all of the different channels. But talking about moving 0:03:11.560 --> 0:03:14.320 money from one place to another in a secure channel 0:03:14.440 --> 0:03:17.760 really raises the question of bitcoin and ethereum and some 0:03:17.919 --> 0:03:21.519 of these digital currencies that have been started in order 0:03:21.639 --> 0:03:24.519 to transfer money easily no matter where you are in 0:03:24.600 --> 0:03:27.600 the world. How has that affected what Western Union? Does? 0:03:27.840 --> 0:03:29.320 We know? We are we are we are the market 0:03:29.440 --> 0:03:32.040 leaders in retail, the market leaders in digital around the globe, 0:03:32.840 --> 0:03:36.120 but they're very humble we look into those startups as 0:03:36.440 --> 0:03:39.040 as learning for us, and we're very close a lot 0:03:39.080 --> 0:03:41.360 of them at this point. For example, you think about 0:03:41.400 --> 0:03:44.560 bitcoin is just not regulated and this still has lots 0:03:44.600 --> 0:03:47.960 of risks related to that. So we are falling and seeing, um, 0:03:48.280 --> 0:03:51.360 what's happening behind that. On the other side, blockchain, which 0:03:51.400 --> 0:03:54.360 is the technology behind that, that's a tremendou success and 0:03:54.480 --> 0:03:57.120 it's working very well and going to other industries so forth. 0:03:57.160 --> 0:03:59.080 So we have being a lot of attention all those things, 0:03:59.640 --> 0:04:02.400 and that we we we we pay attention on the startups, 0:04:02.440 --> 0:04:04.800 we pay attention on the new stuff that is coming along, 0:04:05.360 --> 0:04:07.600 and we have always the option of copying with our 0:04:07.680 --> 0:04:11.200 scale or buying. So how do you respond to those 0:04:11.240 --> 0:04:14.320 people who want to understand the pricing model that you 0:04:14.520 --> 0:04:21.000 have because the consumative consumer business has been under intense competition. Yeah, 0:04:21.040 --> 0:04:23.960 I think that that's that's a great point that the 0:04:24.080 --> 0:04:27.080 prices is really dictated by the market today. Right. We 0:04:27.240 --> 0:04:29.800 have been gaining market share in the last years, which 0:04:29.880 --> 0:04:33.360 chose me that our value equation is working well. But 0:04:33.440 --> 0:04:35.880 you're gonna see very different prices around the globe. For example, 0:04:36.080 --> 0:04:38.840 in corridors that are more competitive, you're gonna see very 0:04:38.920 --> 0:04:42.000 low price incuraters that are not the competitive the price 0:04:42.120 --> 0:04:44.760 is higher. So it's all about competition. I want to 0:04:44.800 --> 0:04:47.360 go back to something that you said that you would 0:04:47.400 --> 0:04:51.240 consider buying some of these competitors. Is that on Western 0:04:51.360 --> 0:04:55.200 Union's radar to possibly purchase one of these digital currencies. 0:04:55.360 --> 0:04:58.040 We're always open, we are always I'm not digital currencies 0:04:58.120 --> 0:05:00.960 that any any play or any new chnology that comes, 0:05:01.040 --> 0:05:03.800 like a your own net for example, any any any 0:05:04.120 --> 0:05:06.520 kind of different technology that comes. I think our net 0:05:06.640 --> 0:05:08.960 is not a new technology by itself, but if we 0:05:09.160 --> 0:05:11.880 feel like there's something new that is easier to buy 0:05:12.240 --> 0:05:14.440 than just to create what kind of thing? What kind 0:05:14.480 --> 0:05:16.880 of thing today? To have you to tell the truth, 0:05:16.960 --> 0:05:19.320 there is nothing very clear how or rather that it's 0:05:19.360 --> 0:05:22.160 going to be very new that we cannot um copy 0:05:22.200 --> 0:05:25.040 and paste. So for example, five years ago or ten 0:05:25.160 --> 0:05:27.479 years ago, we're very we're not that strong on digital. 0:05:28.240 --> 0:05:30.320 And then we start to see the movement of the industry, 0:05:30.320 --> 0:05:33.080 the move of the consumer. Before you continue, I'm trying 0:05:33.120 --> 0:05:35.240 to understand, does that mean that you actually were just 0:05:35.360 --> 0:05:38.480 taking money cash and shipping it across the seas. No, 0:05:38.640 --> 0:05:41.320 it was that wasn't what you're talking about. What are 0:05:41.320 --> 0:05:43.880 you talking about when you say that? Just thank you 0:05:43.960 --> 0:05:46.760 for that. We we separate the business in two parts. 0:05:46.839 --> 0:05:49.600 One is originated by cash, so when you enter a 0:05:49.680 --> 0:05:51.920 location of us and put the cash over there and 0:05:51.960 --> 0:05:55.520 then the money it is digital, but it is originating cash. 0:05:55.560 --> 0:05:57.640 And there is another part that is originally directly from 0:05:57.640 --> 0:05:59.799 an account. So you enter our wood dot com site 0:06:00.160 --> 0:06:02.279 or our app and you send money directly from your 0:06:02.320 --> 0:06:04.920 account debit card, credit card or Apple pay for example, 0:06:05.279 --> 0:06:07.720 so you can send that. So digital, I'm talking about 0:06:07.760 --> 0:06:13.080 origination in digital. That origination digito was not really a 0:06:13.200 --> 0:06:17.200 real factor ten years ago. Then everything started five years ago. 0:06:17.480 --> 0:06:20.200 Our business was in Bryonic on that then we start 0:06:20.320 --> 0:06:22.280 learning around the globe and today we are the market 0:06:22.400 --> 0:06:24.960 leaders after five years, growing more than the industry. So 0:06:25.560 --> 0:06:30.600 we have not seen yet something very new enough for 0:06:30.839 --> 0:06:34.239 us in the market, so we would acquire. At this point, 0:06:34.560 --> 0:06:37.560 I think that we don't see any any disruption, an 0:06:37.600 --> 0:06:40.320 important disruption. Thank you so much for joining us. Truly 0:06:40.440 --> 0:06:43.599 a fascinating business and marketing. Gilon all made a president 0:06:43.680 --> 0:06:47.160 of Global money Transfer at Western Union. He's based in 0:06:47.160 --> 0:07:01.880 an airplane, but I guess technically in Miami We've been 0:07:01.920 --> 0:07:05.360 hearing a lot about the very hot housing market in 0:07:05.480 --> 0:07:08.240 the US over the past few years, and yet construction 0:07:08.279 --> 0:07:11.800 workers still are not building enough homes to say demand. 0:07:11.880 --> 0:07:14.760 Construction starts for new homes have declined for three straight 0:07:14.880 --> 0:07:18.120 months and permits were at a one year low in May. UH. 0:07:18.440 --> 0:07:20.880 This raises a lot of questions, and who better to 0:07:20.880 --> 0:07:23.600 answer them other than Logan Moda Shapi. He's senior loan 0:07:23.680 --> 0:07:26.360 officer at a MC lending group and he comes to 0:07:26.520 --> 0:07:30.000 us UH now from Irvine, California. Logan, can you give 0:07:30.040 --> 0:07:34.400 this a sense of what this sort of restraint is 0:07:34.440 --> 0:07:37.040 all about with respect to housing starts and does it 0:07:37.160 --> 0:07:41.560 point to even higher prices going forward? Well, first, I 0:07:41.680 --> 0:07:44.200 disagree with the thesis that the housing market is very 0:07:44.320 --> 0:07:48.320 hot and strong, and I would UH focus on new 0:07:48.400 --> 0:07:51.160 home sales. You know, the reason why housing starts hasn't 0:07:51.200 --> 0:07:53.440 hit the fifty year moving average at one point five 0:07:53.520 --> 0:07:55.800 million is that if you look at new home sales 0:07:55.840 --> 0:07:58.880 you adjusted to population using a six month moving average, 0:07:58.920 --> 0:08:02.320 it's below five of the last six recessions. So why 0:08:02.360 --> 0:08:05.520 would the builders build more single family homes when monthly 0:08:05.600 --> 0:08:08.320 supply for them is higher in this cycle than in 0:08:08.400 --> 0:08:11.040 the previous cycle. So it makes sense to me why 0:08:11.120 --> 0:08:14.560 the builders aren't building because the demand isn't there. And 0:08:14.640 --> 0:08:16.880 if you look at existing home sales today, it came 0:08:16.920 --> 0:08:19.680 in at five point six two million, you know, but 0:08:19.880 --> 0:08:23.320 still uh, if you look at mortgage demand, it's still 0:08:23.320 --> 0:08:27.360 back to level. So there's there's nothing that warrants a 0:08:27.680 --> 0:08:31.280 strong hot housing market if you base it on mortgage 0:08:31.320 --> 0:08:33.920 demount on cash buyers. Yet the cash buyers are very strong, 0:08:34.080 --> 0:08:36.800 even even this year's but there's nothing out there in 0:08:36.880 --> 0:08:39.360 the new home sales data or the mortgage application data 0:08:39.440 --> 0:08:42.520 to warrant a a very strong housing cycle. Alright. So 0:08:42.679 --> 0:08:47.679 having said that, maybe you can extrapolate and connect that 0:08:47.840 --> 0:08:51.240 with perhaps some other bits of conventional wisdom that you 0:08:51.360 --> 0:08:55.560 think are not necessarily accurate. Well, number one, we don't 0:08:55.600 --> 0:08:57.600 have the demographics in the cycle to have a strong 0:08:57.640 --> 0:09:02.199 housing market. We're very young still. Uh. Second, there is 0:09:02.240 --> 0:09:06.480 no tight lending out there. Uh. Letting standards are very liberal. 0:09:06.559 --> 0:09:09.960 It's just that housing affordability is not as good as 0:09:10.000 --> 0:09:13.240 it appears. The the the the economists run a model 0:09:13.320 --> 0:09:16.960 that basically assumes everybody has down and because interest rates 0:09:17.000 --> 0:09:19.880 are two percent lower in this cycle than the previous cycle. 0:09:20.280 --> 0:09:27.720 It alleviates that affordability, but still bigger homes, bigger mortgage payments, 0:09:28.040 --> 0:09:31.400 bigger down payments. It's very hard, especially for young buyers 0:09:31.480 --> 0:09:33.640 to have even three and a half to five percent down, 0:09:33.960 --> 0:09:37.040 especially in coastal cities, to have that kind of a 0:09:38.640 --> 0:09:41.920 marketplace where they would be pushing up demand and then 0:09:42.040 --> 0:09:44.040 you know, move up buyers would actually you know, be 0:09:44.160 --> 0:09:46.160 able to go up because I think move up buyers 0:09:46.240 --> 0:09:48.559 are are the area that needs to be focused on. 0:09:48.640 --> 0:09:51.800 It's very difficult for them to move up because they 0:09:51.840 --> 0:09:53.920 had they don't have enough selling equity yet. And this 0:09:54.080 --> 0:09:56.880 is why you see sales numbers where it's at right now, 0:09:57.000 --> 0:10:00.319 and again why the builders are not building U homes 0:10:00.720 --> 0:10:02.800 as much as some people think they should. You know, 0:10:02.960 --> 0:10:05.400 logan as you speak and thinking about some of the 0:10:05.880 --> 0:10:09.240 buildings that I have seen coming up in a variety 0:10:09.240 --> 0:10:12.800 of places across Manhattan and Brooklyn and the Bronx, and 0:10:12.840 --> 0:10:15.640 I think about how different some of the large metropolitan 0:10:15.800 --> 0:10:18.719 areas are from other places in the United States, And 0:10:18.760 --> 0:10:22.199 I'm wondering, have you ever seen a housing market in 0:10:22.240 --> 0:10:26.160 the US as bifurcated as the one that we're seeing today. No, 0:10:26.480 --> 0:10:30.200 and it goes straight into the inequality issue. The inequality 0:10:30.280 --> 0:10:33.560 issue in this country is really between home owners and renters. 0:10:33.679 --> 0:10:37.520 It's not so much of the one percent versus. To 0:10:37.679 --> 0:10:39.880 be a homeowner, you really have to be the strong 0:10:40.120 --> 0:10:43.520 educated middle class. And you see that in the wage data. 0:10:43.640 --> 0:10:46.560 You know, since the nine college educated Americans are really 0:10:46.640 --> 0:10:49.600 making much more money than those who never went to college, 0:10:49.679 --> 0:10:53.319 and that gap. Those are your homeowners. And this is 0:10:53.360 --> 0:10:56.320 why the builders are always building for them, because if 0:10:56.360 --> 0:10:59.599 you look at it, new homes, new home construction is 0:11:00.000 --> 0:11:02.679 bigger and bigger and bigger homes. That's not going to 0:11:02.760 --> 0:11:06.240 help housing affordability by building bigger and bigger homes, but 0:11:06.320 --> 0:11:09.720 they're making a market really for that strong educated middle class. 0:11:10.320 --> 0:11:12.360 And for the rest you don't even have. You know, 0:11:12.480 --> 0:11:15.640 all the rental units are in theory luxury units. They're 0:11:15.640 --> 0:11:19.319 not even building cheap, affordable rental units. So there's your 0:11:19.400 --> 0:11:23.200 inequality right there. It's basically the rich versus the poor, 0:11:23.320 --> 0:11:27.600 and it's basically homeowners versus renters. Now, Logan a mc 0:11:27.880 --> 0:11:33.439 Lending has been sort of checking on mortgage mortgage industry 0:11:33.480 --> 0:11:39.000 in California since not what right, Okay, and I'm wondering 0:11:39.040 --> 0:11:41.560 if you could then describe now from an investor's point 0:11:41.600 --> 0:11:45.000 of view, what are some of the best investments in 0:11:45.080 --> 0:11:48.400 the worst investments when it comes to listening to experts 0:11:48.440 --> 0:11:52.240 tell you about real estate, Well, right now, rental UH, 0:11:52.760 --> 0:11:55.120 rent inflation is cool and off. We've we've built a 0:11:55.320 --> 0:11:58.120 lot of rental units over the last few years, and 0:11:58.320 --> 0:12:00.520 we're almost at the point to where dem graphics are 0:12:00.520 --> 0:12:02.760 gonna be favored for ownership in a few years. So 0:12:02.880 --> 0:12:06.360 you see rent inflation cooling up. So if you're looking to, 0:12:07.240 --> 0:12:09.800 you know, pay up for a rental unit, be mindful 0:12:09.880 --> 0:12:14.400 of that um because unit sales are so low for 0:12:14.520 --> 0:12:17.800 new homes. You know, the entire builder index could still 0:12:17.880 --> 0:12:21.680 have legs in a few years out there because unit 0:12:21.720 --> 0:12:23.719 sales are still low. So it depends on what you 0:12:23.800 --> 0:12:27.120 want to pay for the builders out there. But again, 0:12:27.800 --> 0:12:30.959 the housing cycle should be better in a few years. 0:12:31.080 --> 0:12:33.760 But if you believe in this hot housing market or 0:12:33.840 --> 0:12:37.160 that there's some over investment thesis in housing, you know, 0:12:37.240 --> 0:12:39.360 you're you're you're laying a trap for you know, uh, 0:12:40.440 --> 0:12:42.880 for sales to come down. And I just I can't 0:12:42.880 --> 0:12:46.480 see a very major barish thesis for housing because it 0:12:46.640 --> 0:12:49.720 isn't very strong. It's still very low. Mortgage demand per 0:12:49.800 --> 0:12:54.120 the mortgage purchase application data is still at levels and 0:12:54.200 --> 0:12:56.640 two thousand seventeen has been one of the weakest years 0:12:56.720 --> 0:12:59.640 year over year in terms of mortgage demand growth, but 0:12:59.720 --> 0:13:03.360 still old cycle high demand, just not quite there with 0:13:03.640 --> 0:13:06.320 any unit sale growth for new homes or existing homes. 0:13:06.720 --> 0:13:09.520 I want to thank you very much. Logan Mata Shami. 0:13:09.600 --> 0:13:12.959 He is a senior loan officer a MC Lending group 0:13:13.200 --> 0:13:16.360 in Irvine, California. You can follow him on Twitter at 0:13:16.440 --> 0:13:31.000 Logan Mota Shami. Well, we want to learn a little 0:13:31.000 --> 0:13:34.240 bit more about a big change in the ms c 0:13:34.520 --> 0:13:39.360 I Global Index because China is now part of the club. 0:13:39.440 --> 0:13:41.800 And here to tell us about it is Brendan Hearn. 0:13:41.880 --> 0:13:45.400 He is the chief investment officer at Crane Shares. Brendan, 0:13:45.679 --> 0:13:48.319 how important is this? What what are some of the 0:13:48.400 --> 0:13:52.640 specific ramifications? Well, the ultimately means there's gonna be a 0:13:52.720 --> 0:13:56.640 lot more China in investors portfolios in the years to come. Uh, 0:13:56.720 --> 0:13:59.680 the supertanker doesn't turn on a dime, So that's yesterday's 0:13:59.679 --> 0:14:03.160 and now sent with just the orders coming down from 0:14:03.280 --> 0:14:06.040 from the captain to start turning that wheel. But but 0:14:06.200 --> 0:14:09.079 China is going to grow from about of m s 0:14:09.120 --> 0:14:12.640 c I emerging markets to well over in the years 0:14:12.720 --> 0:14:15.200 to come. You know, one thing that I don't understand, 0:14:15.280 --> 0:14:20.040 Brendan is the construction of indexes. People think that they 0:14:20.080 --> 0:14:22.920 are investing in passive funds, and yet it's a very 0:14:23.160 --> 0:14:27.960 active decision to decide whether or not to bring Chinese 0:14:28.360 --> 0:14:32.080 domestic shares into the index and how much to include 0:14:32.240 --> 0:14:33.920 as well. I mean, what do you draw from this 0:14:34.080 --> 0:14:38.000 process and whether people are actually getting exposure in proportion 0:14:38.120 --> 0:14:41.600 to the actual shares outstanding. Now, it's it's a great 0:14:41.680 --> 0:14:43.760 question list because I think in general we talked about 0:14:43.800 --> 0:14:47.280 the growth of passive investment vehicles and next funds and 0:14:47.400 --> 0:14:50.880 ETFs on a daily basis, there's very little examination of 0:14:50.920 --> 0:14:55.400 the index methodologies that dictate how those trillions are actually invested. 0:14:55.440 --> 0:14:57.200 So in the case of m s c I, their 0:14:57.240 --> 0:15:00.880 Global Investible Market Indices methodology. G It's about a hundred 0:15:00.880 --> 0:15:03.360 and seventy two pages long and I'm probably the only 0:15:03.400 --> 0:15:06.880 person who's actually read it. Um So, so I think 0:15:07.000 --> 0:15:09.440 there you know you you you can do your homework 0:15:09.520 --> 0:15:13.160 and understand the thought process that drives some of these changes. 0:15:13.800 --> 0:15:15.640 But it is true. There is there is a human 0:15:15.760 --> 0:15:17.560 element and a lot in the case of m s 0:15:17.640 --> 0:15:20.800 c I is the will and desire of their clients 0:15:20.880 --> 0:15:22.640 as well as the ability to implement. And that's what 0:15:22.840 --> 0:15:25.560 really sparked the change was the great work to Hong 0:15:25.640 --> 0:15:30.720 Kong stock Exchanges done in implementing the Connect Trading program. Well, Brendon, 0:15:30.840 --> 0:15:36.720 will this inclusion improve the China A share investment rules? Well, 0:15:36.880 --> 0:15:39.480 I think it's certainly. We got to this point of 0:15:40.200 --> 0:15:43.840 starting to including M s c I definition of Shanghai 0:15:43.880 --> 0:15:47.760 and sins and names because of the openness of the 0:15:48.040 --> 0:15:52.440 Chinese regulators UH to abide by some of the UH 0:15:53.200 --> 0:15:55.240 rules that MSc had asked for, as well as the 0:15:55.360 --> 0:15:58.560 implementation of this Connect Trading program, which provides a much 0:15:58.840 --> 0:16:02.640 greater level of acts us versus the historical quota program. 0:16:02.720 --> 0:16:05.480 So so so we have this great trajectory and great 0:16:05.560 --> 0:16:11.400 projection of continued access as well as in further adapting 0:16:11.440 --> 0:16:17.120 to institutional standards globally. Brendan people estimate that this change 0:16:17.160 --> 0:16:19.640 in the M s c I indexes will funnel hundreds 0:16:19.680 --> 0:16:23.160 of billions of dollars into Chinese shares that wouldn't have 0:16:23.200 --> 0:16:26.240 otherwise gone UH do you expect this to lift the 0:16:26.320 --> 0:16:30.520 valuations or does it sort of highlight the interconnectedness of 0:16:30.560 --> 0:16:32.760 the financial system that could become a problem should there 0:16:32.800 --> 0:16:35.720 be a hard landing in China. Well, that's a good question. 0:16:35.720 --> 0:16:37.840 I mean I think I think ultimately yes, I mean, 0:16:37.960 --> 0:16:39.960 hundreds of billions of dollars are going to go into 0:16:40.360 --> 0:16:43.680 uh the securities that that we hold today at Crane 0:16:43.720 --> 0:16:46.560 shares um kind of self serving and highly behy us. 0:16:46.640 --> 0:16:50.200 But you know that that will take time. This isn't 0:16:50.200 --> 0:16:53.440 gonna happen overnight. It's going to take many, many years. 0:16:53.560 --> 0:16:55.720 It could take between five and ten years for the 0:16:55.800 --> 0:17:00.840 full inclusion of msdis definition of Shanghai and Shenzen Um. Ultimately, 0:17:01.040 --> 0:17:05.080 you know that probably will have a benefit in potentially 0:17:05.200 --> 0:17:08.600 raising the markets there. That's but but certainly the world 0:17:08.680 --> 0:17:11.800 is interconnected today, and uh this market has been very 0:17:11.880 --> 0:17:16.000 low correlated because it's been ring fence from from globalized funflows, 0:17:16.040 --> 0:17:18.680 and that that will change in the years to come. Well, 0:17:18.720 --> 0:17:21.520 you know, it's interesting. Part of our reporting from China 0:17:21.800 --> 0:17:29.160 includes comments from the company called Spring Air and Spring Airlines. 0:17:29.200 --> 0:17:31.200 This is a budget carrier in China, and says the 0:17:31.320 --> 0:17:35.240 decision to be included in the ms c I UH index. 0:17:35.800 --> 0:17:39.440 UH is both an incentive and pressure, and it talks 0:17:39.480 --> 0:17:44.960 about how it will now increase transparency and boost corporate governance. 0:17:45.560 --> 0:17:48.080 That's got to be a good thing. Oh, I think 0:17:48.359 --> 0:17:51.840 without question, this puts a very high onus UM index 0:17:51.880 --> 0:17:56.120 funds and exchange traded funds will mechanically by the securities 0:17:56.320 --> 0:17:59.560 within the m s c I China a International UH 0:17:59.640 --> 0:18:02.600 into which are k B A is benchmark too. At 0:18:02.640 --> 0:18:05.600 the same time, active managers are going to be evaluating 0:18:05.680 --> 0:18:08.399 picking amongst those two twenty names that will be added 0:18:08.520 --> 0:18:11.879 next next year. So so I think I think it 0:18:12.000 --> 0:18:15.359 is a good thing. The market will institutionalized, just as 0:18:15.400 --> 0:18:18.200 the market as institutionalized here over the last several decades. 0:18:18.280 --> 0:18:20.080 So that's I think it is a net net positive 0:18:20.119 --> 0:18:23.200 for both China as well as investors globally. Brendon to 0:18:23.280 --> 0:18:24.719 hear and thank you so much for joining us. It's 0:18:24.720 --> 0:18:26.720 always terrific to speak with you. Brendon to her and 0:18:26.800 --> 0:18:30.439 his chief investment officer of Crane Funds Advisors, the investment 0:18:30.480 --> 0:18:33.119 manager for Crane shares Et f S, which is based 0:18:33.200 --> 0:18:36.920 in New York. This is a tremendous change with China's 0:18:36.960 --> 0:18:39.639 domestic shares being accepted into the m s c I 0:18:40.160 --> 0:18:43.320 Index for Emerging Markets in particular, and you know, Pim, 0:18:43.359 --> 0:18:45.600 I've got to wonder how much this will lead to 0:18:45.800 --> 0:18:49.119 selling of other securities that are already in the index 0:18:49.160 --> 0:18:50.879 that are going to be taken out in order to 0:18:50.960 --> 0:18:54.040 make room for China uh, and and whether there's enough 0:18:54.160 --> 0:18:57.879 incoming flows to emerging markets stock funds that will offset 0:18:57.960 --> 0:18:59.600 that definite. That's why I like you, because you always 0:18:59.600 --> 0:19:01.480 find the there's and the losers. Yeah, I mean there's 0:19:01.480 --> 0:19:03.439 gonna be there's gonna be some kind of shakeout perhaps 0:19:03.560 --> 0:19:17.040 or perhaps this flood of CASHU will continue. Well this year, 0:19:17.119 --> 0:19:19.880 we've heard a lot of angst about whether we've seen 0:19:19.960 --> 0:19:22.960 a bubble in tech stocks, But our next guest says, 0:19:23.040 --> 0:19:26.440 not only is there not a bubble, but frankly, tech 0:19:26.440 --> 0:19:29.120 stocks are cheap. David Kodla joins US now. He chief 0:19:29.160 --> 0:19:33.120 executive officer and chief investment strategist at Mainstay Capital Management, 0:19:33.119 --> 0:19:37.720 with about two billion dollars under management in Grand Blanc, Michigan. David, 0:19:38.160 --> 0:19:43.880 how can you say that many tech shares are actually cheap? Well, 0:19:44.000 --> 0:19:46.560 I don't know if I want to qualify it as 0:19:46.760 --> 0:19:50.320 cheap as much as I think they're not overly expensive, 0:19:50.400 --> 0:19:54.080 and and and our messages is poor investors to stay 0:19:54.200 --> 0:19:57.560 with tech stocks, don't be shaken out. This past week 0:19:57.680 --> 0:20:00.920 or so, we saw weakness in in tech names, not 0:20:01.080 --> 0:20:04.159 based on fundamentals, just a correction in price. They've come 0:20:04.200 --> 0:20:08.080 a long way, uh this year, but when we look 0:20:08.119 --> 0:20:11.200 at the evaluations, we hear a lot of people talking 0:20:11.240 --> 0:20:14.040 about the prices being the highest ever higher than in 0:20:14.160 --> 0:20:19.080 two thousand, But valuations are really still quite low. Trailing 0:20:19.119 --> 0:20:22.680 earnings for the tech sector in two thousand at the peak, 0:20:22.760 --> 0:20:27.240 we're at seventy times earnings. Now we're only about twenty 0:20:27.320 --> 0:20:30.040 three and a half times earnings, a little bit richer 0:20:30.080 --> 0:20:32.240 than the S and P five hundred, but this is 0:20:32.280 --> 0:20:34.720 where the growth is. This is where we see secular growth. 0:20:34.840 --> 0:20:37.600 We're not dependent on cyclical forces. So we think it's 0:20:37.640 --> 0:20:40.399 important that investors stay with the tech names. All right, 0:20:40.440 --> 0:20:42.720 we'll give us some of those names. Explain the thesis 0:20:42.880 --> 0:20:45.600 and the strategy and what you came up with. Well, 0:20:45.680 --> 0:20:47.760 we all we all know the fang stocks that have 0:20:48.080 --> 0:20:51.960 been talked about so much, and those are the big Facebook, Amazon's, 0:20:52.000 --> 0:20:56.480 the big half, the leaders. We do own them all okay, 0:20:56.520 --> 0:20:59.119 and you're not selling and we're not selling, all right, 0:20:59.160 --> 0:21:03.480 we're not helling, so you know. And also, uh, you know, 0:21:03.640 --> 0:21:06.119 through you can own that through xl K to E 0:21:06.200 --> 0:21:08.160 t F, you can own the triple queues which give 0:21:08.160 --> 0:21:10.080 you a lot of the big calf names, which you 0:21:10.080 --> 0:21:13.480 can also own an open end fund like to row 0:21:13.600 --> 0:21:17.879 Price Technology to ro Priced Global Technology, which is a 0:21:17.960 --> 0:21:20.760 global fund, so it has some of the tech names 0:21:20.840 --> 0:21:25.080 abroad like Ali, Baba, ten Cent, which have lower valuations 0:21:25.119 --> 0:21:27.520 and further to run. So in a in a in 0:21:27.560 --> 0:21:30.320 a global fund like that, you get some of the 0:21:30.400 --> 0:21:35.159 lower valuations where uh, we know that the valuations of 0:21:35.280 --> 0:21:37.760 the U S tech names have have run up, but 0:21:38.040 --> 0:21:40.480 we think that you stay with that sector. What would 0:21:40.480 --> 0:21:42.359 you have to see to make your second guess that 0:21:42.480 --> 0:21:47.119 and actually start selling your tech shares. I think that 0:21:47.440 --> 0:21:50.720 right now, when we look at the overall market, really 0:21:50.800 --> 0:21:53.280 what we would be more concerned about is a broader 0:21:53.320 --> 0:21:57.720 stock market correction. We had the so called Trump trade 0:21:57.800 --> 0:22:01.320 earlier this year, or the reflation trade that's kind of 0:22:01.359 --> 0:22:05.880 gone by the wayside. Uh. We think that large cap 0:22:06.000 --> 0:22:09.600 growth is the place to be right now, and what 0:22:09.760 --> 0:22:13.119 would change our outlook would really be concerned about the 0:22:13.200 --> 0:22:15.920 stock market in general, but what could actually do that? 0:22:16.040 --> 0:22:19.760 I mean, right now, we've seen political instability around the world, 0:22:19.880 --> 0:22:24.240 We've seen geopolitical conflict. We've seen questions about how quickly 0:22:24.320 --> 0:22:27.520 the US can grow. The FED is seems dead set 0:22:27.600 --> 0:22:31.320 on hiking interest rates. What what more do we need 0:22:31.600 --> 0:22:34.560 for there to be a sell off? Our biggest concern 0:22:34.720 --> 0:22:38.640 is the FED and the rate at which they hike rates. Um, 0:22:39.040 --> 0:22:41.800 we've had three quarter point rate hikes in the last 0:22:41.880 --> 0:22:47.359 seven months or the last six months, and that's not 0:22:47.760 --> 0:22:51.560 a quick pace by historical standards, even though it seems 0:22:51.560 --> 0:22:54.760 like a quicker pace than we've had the past several years. Obviously, 0:22:55.400 --> 0:22:58.480