Latest / Bloomberg Intelligence / Political Risk Not a Major Threat to Globalization, Datta Says

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Political Risk Not a Major Threat to Globalization, Datta Says · Bloomberg Intelligence

• 0:04
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy and useful interviews for
• 0:14
  Speaker 1: you and your money, whether at the grocery store or
• 0:16
  Speaker 1: the trading floor. Find the Bloomberg P L Podcast on iTunes,
• 0:20
  Speaker 1: SoundCloud and at Bloomberg dot com. Political risk in Europe
• 0:30
  Speaker 1: and how fund managers account for this, I want to
• 0:33
  Speaker 1: bring in tap On Data. He is global head of
• 0:36
  Speaker 1: asked Allocation for and Hewitt in London and tap On
• 0:40
  Speaker 1: I want to just sort of get a sense zooming out,
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  Speaker 1: how do you model for the political risks that we're
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  Speaker 1: experiencing or seeing, whether it's France's election or whether it's
• 0:51
  Speaker 1: potential attacks that disrupt a feeling of colm among investors
• 0:56
  Speaker 1: and residents alike. Yeah, well, to just to the chase.
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  Speaker 1: I don't think it can be. I don't think it's
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  Speaker 1: model able. But what you can do is do a
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  Speaker 1: range of scenarios which which capture the uncertainties that are involved.
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  Speaker 1: So you work on very rough rules of them in
• 1:15
  Speaker 1: terms of probabilities of this or that's happening. Murray and
• 1:18
  Speaker 1: the pen winning in France or losing, and you look
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  Speaker 1: at potential market outcomes from that stant point, it's not
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  Speaker 1: the best signs. What particular models are you creating right now?
• 1:32
  Speaker 1: What scenarios are you forecasting that are maybe out of
• 1:35
  Speaker 1: the mainstream consciousness, such as Alla pen Win. Yeah, Well,
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  Speaker 1: one of the scenarios we're working with is that the
• 1:43
  Speaker 1: spopulous bandwagon essentially gathered steam, and we have a number
• 1:50
  Speaker 1: of such political upset which essentially bring in a strong
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  Speaker 1: move towards what we call the integration in your that
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  Speaker 1: is a rollback of kind of European integration and more widely,
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  Speaker 1: you know, thinking about US developments as well. We work
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  Speaker 1: we're working on a scenario that rolls back globalization, you know,
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  Speaker 1: takes us back to a couple of decades, not necessarily
• 2:13
  Speaker 1: back to the thirties, but certainly a rolled back, much
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  Speaker 1: more decisive rollback in globalization over and beyond what we've
• 2:20
  Speaker 1: already seen over the last few years. I mean, there's
• 2:22
  Speaker 1: already been some of that we shouldn't forget. But the
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  Speaker 1: scenario we're working with takes us back some way further.
• 2:29
  Speaker 1: And that's what we're really talking about, and that is
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  Speaker 1: probably probably not a very good outcome for financial markets
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  Speaker 1: because generally speaking, asset prices have gained on the back
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  Speaker 1: of greater global integration, more trade, more foreign investment, more
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  Speaker 1: capital flows, all of that has generally been market positive,
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  Speaker 1: and a decisive set back to that potentially brings brings
• 2:51
  Speaker 1: some harm to market conditions. I don't want to take
• 2:54
  Speaker 1: you back decades happen. I want you to just go
• 2:56
  Speaker 1: back to June of and the Brexit vote. Prior to that,
• 3:01
  Speaker 1: what was your view as to what would happen in
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  Speaker 1: the United Kingdom. Well, we were working on the idea
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  Speaker 1: that it would be a close from things, but we
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  Speaker 1: hadn't in common with the consensus majority of view. We
• 3:14
  Speaker 1: hadn't worked on the idea that that Brexit was actually
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  Speaker 1: going to happen. Okay, so you missed that one. We
• 3:21
  Speaker 1: we definitely missed that all right. Now, if you what
• 3:23
  Speaker 1: did you learn from that one that can be applied
• 3:26
  Speaker 1: currently to people's actual portfolios rather than the big thing
• 3:30
  Speaker 1: thirty foot view. Great, I know there's a lot of uncertainty.
• 3:33
  Speaker 1: No one knows has a crystal ball. We got all that,
• 3:36
  Speaker 1: but as a professional, you've got to make decisions. I
• 3:39
  Speaker 1: think it's a matter of behavioral biases because we kind
• 3:41
  Speaker 1: of take certain things to grant it and you you
• 3:45
  Speaker 1: one of the things that's that's that that has done.
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  Speaker 1: It's really questioned the question the role of the hidden
• 3:52
  Speaker 1: biases that you have in your pots. You think, well,
• 3:55
  Speaker 1: this is this, this can't possibly be happening because you know,
• 3:59
  Speaker 1: Brexit is going to make a lot of folks worse up,
• 4:02
  Speaker 1: so it can't possibly be voting for it. But actually,
• 4:05
  Speaker 1: as it happens, um they did vote for it despite
• 4:07
  Speaker 1: the fact that that they were going to be worse
• 4:10
  Speaker 1: off from the result. So right now happen a on Hewitt,
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  Speaker 1: what is your base case scenario and how are you
• 4:17
  Speaker 1: advising people to allocate their money? Look, our base case
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  Speaker 1: scenarios that the world muddels through, that this populous bandwagon
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  Speaker 1: does not um as it were strengthened, but that it's
• 4:29
  Speaker 1: they're out there and it is a risk that we
• 4:31
  Speaker 1: face and periodically there will be setbacks. But we're not
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  Speaker 1: working on the view that the globalization is seriously threatened.
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  Speaker 1: I think as I I mean my earlier as aurom,
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  Speaker 1: my earlier mass. We think that globalizing, the basic globalization
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  Speaker 1: has clearly slowed, But we're not working on a big
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  Speaker 1: reversal U and on the back of that, UM, it's
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  Speaker 1: difficult at this point to argue that there are major,
• 4:56
  Speaker 1: major risk to markets from that phenomenon, from the from
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  Speaker 1: the phenomenon of more political upset. Does that mean full
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  Speaker 1: and nonstocks and and and sort of sort of normal. Yeah,
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  Speaker 1: that tells us that the political risk is a factor,
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  Speaker 1: but it's not necessarily going to be a UM something
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  Speaker 1: that that really knocks the setting out of stocks, and
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  Speaker 1: stocks could be vulnerable for other reasons. You know, rising
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  Speaker 1: interest rates, UM. We can think of a number of
• 5:25
  Speaker 1: other factors that could come into play. Well, they're always
• 5:28
  Speaker 1: going to be a lot of factors, we know this,
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  Speaker 1: but it just look, can we just focus for just
• 5:33
  Speaker 1: a second. What is the market that you see in
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  Speaker 1: Europe right now that is shunned by investors? The market
• 5:40
  Speaker 1: that is shun by investors, Well, the markets that have
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  Speaker 1: been more recently shun by investors are European sovereign bombs,
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  Speaker 1: where essentially spreads with the safe haven play off Germany
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  Speaker 1: have risen because the market is concerned that Italy or
• 5:58
  Speaker 1: or even France mike away and that the sell off
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  Speaker 1: has not been on a particularly large scale has to
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  Speaker 1: make them particularly attractive markets in terms of that play.
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  Speaker 1: But certainly those are markets that have been showing. Look,
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  Speaker 1: I think the issue is that I don't think that
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  Speaker 1: I think the markets working on a view that that
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  Speaker 1: this that European political upset are not a serious factor.
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  Speaker 1: So it depends which side of that debate you're on.
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  Speaker 1: We're on the on the side of that debate in
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  Speaker 1: such a way that we regard these political factors as
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  Speaker 1: being out there, but that they don't completely upset the
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  Speaker 1: apple tot. We're not working on what's going on. What's
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  Speaker 1: the number one most attractive asset class to you right now?
• 6:39
  Speaker 1: The number one attractive asset classes in a broad market,
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  Speaker 1: tom text remains equity markets were in particular in in
• 6:47
  Speaker 1: in England, in in the US, OH in a regional context,
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  Speaker 1: we we prefer the markets that that are that have
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  Speaker 1: more value, and there we were merging markets and merging
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  Speaker 1: my keets in Japan standouts as having long term value.
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  Speaker 1: Syncrisic value in terms of we we look at markets
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  Speaker 1: is strongest for those markets. Um, the US probably comes
• 7:10
  Speaker 1: out at the bottom of the pile, simply because by
• 7:13
  Speaker 1: by every valuation indicator that you use USS are simply expenses,
• 7:18
  Speaker 1: which doesn't mean that it will roll over tomorrow, but
• 7:21
  Speaker 1: it does mean that expect returns from the US market
• 7:24
  Speaker 1: over the next few years are likely to disappoint. Whereas
• 7:27
  Speaker 1: we look at em or, we look at Japan and
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  Speaker 1: to a degree in Europe, you know, taking into accounts
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  Speaker 1: local I'm certainly know a few other factors like Brexit
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  Speaker 1: into accounts, Europe doesn't look too bad either. The US
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  Speaker 1: comes off relatively poorly in this in this way of
• 7:42
  Speaker 1: looking at markets. All right, thanks very much, it's happened.
• 7:45
  Speaker 1: Data Global head of Asset Allocation a On Hewitt joining
• 7:50
  Speaker 1: US from London him. You know, there's one big issue
• 8:05
  Speaker 1: that a lot of people have been pointing to as
• 8:07
  Speaker 1: evidence that consumer credit worthiness is deteriorating fairly rapidly. We
• 8:12
  Speaker 1: have seen an increase in losses on UH subprime auto loans.
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  Speaker 1: We have seen an increase in lost provisions by some
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  Speaker 1: of the biggest consumer finance lenders. We're talking about Ally,
• 8:25
  Speaker 1: We're talking about Santan Dair, We're talking about Capital One.
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  Speaker 1: A lot of these new a lot of these UH
• 8:32
  Speaker 1: captive non captive finance arms have been definitely suffering, and
• 8:36
  Speaker 1: we want to talk a little bit more about what
• 8:39
  Speaker 1: this might mean for not only the banks and the
• 8:44
  Speaker 1: lenders that are you know, extending credit to some of
• 8:46
  Speaker 1: these UH companies, but also what this means for the
• 8:50
  Speaker 1: broader economy and the auto industry. I want to bring
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  Speaker 1: in Ryan O'Connell. He's a senior analyst for financials covering
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  Speaker 1: the Allies of the world, the Capital Ones UH and UH.
• 9:01
  Speaker 1: He is here with us. He's from Bloomberg Intelligence and
• 9:04
  Speaker 1: he's with us in our Bloomberg eleven three oh studio
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  Speaker 1: in New York. Ryan, thank you so much for joining us.
• 9:10
  Speaker 1: You know, I was struck by allies latest results where
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  Speaker 1: they increased their their expectation for loan losses. They also
• 9:20
  Speaker 1: decrease their expectation for resale values of used cars. Can
• 9:24
  Speaker 1: you tell us a little bit about the most notable
• 9:26
  Speaker 1: aspects of this and how severe uh this could potentially
• 9:31
  Speaker 1: crimp their earnings in this coming year. Oh great, Well,
• 9:33
  Speaker 1: first of all, thanks for having me on the show, Lisa.
• 9:35
  Speaker 1: Uh So with regard to Ally, and I'd say the
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  Speaker 1: read through is also for Capital one UH and other
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  Speaker 1: other owners like that. And i'd breaking into two parts,
• 9:45
  Speaker 1: I think, starting back in about June, of last year,
• 9:48
  Speaker 1: we started to see cracks in the market for subprime borrowers,
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  Speaker 1: and so that's what this is really all about. So
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  Speaker 1: no need to sound the alarm on prime borrowers. They're
• 9:57
  Speaker 1: still fine, healthy economy, etcetera. The reason why Allies spooked
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  Speaker 1: people yesterday and they did is a couple of things. One,
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  Speaker 1: they keep jacking up their estimates of how much their
• 10:06
  Speaker 1: credit losses are going to go up. And too, just
• 10:08
  Speaker 1: as you mentioned, use car sales are plumbering much fast
• 10:11
  Speaker 1: and people expected. Uh So people have been expecting about
• 10:15
  Speaker 1: five percent, it's about seven heading in the wrong direction.
• 10:18
  Speaker 1: So why is that important. A couple of things. One
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  Speaker 1: for people a big leasing portfolios, which by the way,
• 10:24
  Speaker 1: is not allied. Obviously, if the prices of cars go
• 10:27
  Speaker 1: down when it comes off lease and you want to
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  Speaker 1: resell the car, that can create some earnings hits. Uh,
• 10:35
  Speaker 1: Well that would be more of the captives. Uh. Capital
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  Speaker 1: One actually has a fairly large leasing portfolio. I don't
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  Speaker 1: cover them. JP Morgan is also involved in leasing. Uh
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  Speaker 1: So those kind of companies could be looking at that. Uh.
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  Speaker 1: And then the other thing is that even if you
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  Speaker 1: don't have a big leasing portfolio, if you have to
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  Speaker 1: repossess a car, and every once in a while the
• 10:54
  Speaker 1: allies of the world do. Then obviously it's the value
• 10:57
  Speaker 1: of that falls that can increase your credit provisions. Has
• 11:00
  Speaker 1: this all been can put into the context of the
• 11:03
  Speaker 1: price either of the bonds or the stocks that in others,
• 11:06
  Speaker 1: of the valuation that investors are seeking. Well, yeah, great question.
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  Speaker 1: So I covered things on the bond side. Uh uh,
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  Speaker 1: and there there has been a bit of a reaction.
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  Speaker 1: So if you look at say Capital One, you know,
• 11:18
  Speaker 1: big large bank, all that kind of stuff, its bonds
• 11:20
  Speaker 1: are trading let's say about twenty five bases points behind
• 11:23
  Speaker 1: JP Morgan. They bounced around. Uh, you know, at the
• 11:26
  Speaker 1: wides they were liking about seventy five. They've come in
• 11:29
  Speaker 1: a bit. They've got squeaky clean on top of JP
• 11:32
  Speaker 1: Morgan people who we thought about it, and and they've moved
• 11:35
  Speaker 1: out allies below investment grade. So they trade about a
• 11:39
  Speaker 1: hundred fifty oh behind JP Morgan. Uh. Those bounds of
• 11:44
  Speaker 1: bounces around a lot. At the worst they're about two hundred.
• 11:47
  Speaker 1: They squeaked into about US a hundred. Now we're back
• 11:49
  Speaker 1: to hundred fifty. Can you put the increase in provisions
• 11:54
  Speaker 1: for for loan losses into perspective. I mean, yes, they
• 11:57
  Speaker 1: have increased, but how do they compare to historical periods,
• 12:01
  Speaker 1: not you know, necessarily the best of credit times, like
• 12:04
  Speaker 1: we've seen a great question. So I think, well, if
• 12:07
  Speaker 1: we step back in two thousands fifteen Allies loan losses,
• 12:11
  Speaker 1: we're running about fifty basis points a half a percentage
• 12:14
  Speaker 1: point in the portfolo, so really pretty great. And then
• 12:17
  Speaker 1: in June of last year, Allies started saying, well, you know,
• 12:20
  Speaker 1: life is changing a little bit. And so they ended
• 12:23
  Speaker 1: the year at a run rate of about let's call
• 12:25
  Speaker 1: it a hundred basis points, so from about fifty to
• 12:27
  Speaker 1: a hundred in one year. Uh. And then this year
• 12:30
  Speaker 1: where they're saying, well, we thought it was gonna be
• 12:32
  Speaker 1: one twenty, might actually be more like about one forty.
• 12:35
  Speaker 1: So it is trying to ratch up a lot. What
• 12:37
  Speaker 1: you say, one basis points, So it's like one point
• 12:40
  Speaker 1: four percent of their overall loan books or what is that?
• 12:46
  Speaker 1: What is that equal to? Is that? Sorry for the Lisa?
• 12:50
  Speaker 1: So yeah, about one point four percent of their auto
• 12:52
  Speaker 1: lease book auto loan book, which is really Ally's main business.
• 12:57
  Speaker 1: They have some other businesses, but they're they're not really
• 12:59
  Speaker 1: that important. Ryan, Is any of this connected with the
• 13:03
  Speaker 1: very long duration loans that were available during the financial crisis?
• 13:08
  Speaker 1: So I think what we're seeing here is that there
• 13:12
  Speaker 1: has been more competition. They own a loan market, um
• 13:16
  Speaker 1: and uh so they've been lengthening the terms of their loans.
• 13:19
  Speaker 1: Uh So, for example, some cases they are going out
• 13:22
  Speaker 1: to seven years. And bear in mind that a lot
• 13:24
  Speaker 1: of these loans are on used cars. So an allies case,
• 13:28
  Speaker 1: for example, about the loans are used cars. You start
• 13:31
  Speaker 1: out with the car that's already been out for about
• 13:34
  Speaker 1: three years, unless saying Ali does this and you tack
• 13:37
  Speaker 1: on another seven years. That's a lot of lifespan for
• 13:40
  Speaker 1: a car. And thanks very much for joining us my
• 13:43
  Speaker 1: pleasure of giving us the detail. Ryan O'Connell is a
• 13:46
  Speaker 1: senior analyst financials for Bloomberg Intelligence, telling us about the
• 13:50
  Speaker 1: automobile credit market. Pim Fox. We were talking this morning
• 14:07
  Speaker 1: about Beyond Meat and this is a plant based burger,
• 14:11
  Speaker 1: and you had the great question. You look at me
• 14:13
  Speaker 1: and you said, what is this? What is it meat?
• 14:16
  Speaker 1: Out of Um? To answer that question, let's bring in
• 14:18
  Speaker 1: the CEO of Beyond Meat, Ethan Brown. He comes to
• 14:21
  Speaker 1: us from Los Angeles, Ethan, let's start with that. What
• 14:25
  Speaker 1: is beyond meat? Well, first, thank you very much for
• 14:27
  Speaker 1: having me on the show. I appreciate it. And um,
• 14:30
  Speaker 1: it's a great question. So so what we're after, if
• 14:32
  Speaker 1: beyond meat, is taking all the great things about animal
• 14:36
  Speaker 1: protein or meat and building those directly from plants. And
• 14:39
  Speaker 1: if so, if you think about what meat is, meat
• 14:42
  Speaker 1: is essentially five things. It's amino acids, it's lipids, it's
• 14:46
  Speaker 1: very small amount of carbodrates, it's minerals, and its water.
• 14:49
  Speaker 1: None of those things are exclusive to the animal. They're
• 14:51
  Speaker 1: all present throughout the plant kingdom. And so we're doing
• 14:54
  Speaker 1: is essentially taking all of those resources from non animal sources,
• 14:59
  Speaker 1: and then we're architect ing or building them in the
• 15:02
  Speaker 1: same way that you would present animal protein. So we're
• 15:05
  Speaker 1: basically bypassing the animal and delivering a piece of meat
• 15:09
  Speaker 1: directly from plants. We're not suggesting it's a fake meat
• 15:12
  Speaker 1: or something like that. It's simply a meat that's been
• 15:14
  Speaker 1: built directly from plants. It has all the same parts,
• 15:17
  Speaker 1: it presents in the same form, statiates in the same way.
• 15:20
  Speaker 1: It provides the same interditional benefits well, eat and I'm
• 15:23
  Speaker 1: maybe just like you could explain what plants are actually
• 15:29
  Speaker 1: in this meat or this meat meat? What what's what
• 15:32
  Speaker 1: is it made of? Sure? And so what's interesting about
• 15:35
  Speaker 1: it is once you start to think of the plant
• 15:37
  Speaker 1: kingdom as a source of direct protein, not as a
• 15:39
  Speaker 1: source of feed for animals that then converted into protein. Uh,
• 15:43
  Speaker 1: you can pick uh, and you can take amino acids
• 15:46
  Speaker 1: or protein from a huge variety of plant sources. And
• 15:50
  Speaker 1: so in this case we use P protein, but you
• 15:52
  Speaker 1: could literally use hundreds, if not thousands, of different crops
• 15:56
  Speaker 1: to pull the requisite set of amino acids that you
• 15:59
  Speaker 1: need to create a piece of meat. All right, now
• 16:01
  Speaker 1: you say you use P protein. Is this food engineering?
• 16:06
  Speaker 1: Because isn't part of the whole reason to focus on
• 16:08
  Speaker 1: vegetables and fruits is that it's natural state is what
• 16:13
  Speaker 1: is important in terms of how it delivers the nutrients
• 16:17
  Speaker 1: to your body. Sure, And so that's a really great question.
• 16:20
  Speaker 1: And so the way I think about this is a
• 16:22
  Speaker 1: tale of two processes. You can either take protein directly
• 16:26
  Speaker 1: from a plant, and you can use what we do,
• 16:28
  Speaker 1: which is heating, cooling, and pressure to essentially align it
• 16:31
  Speaker 1: in the form of muscle or meat or you can
• 16:34
  Speaker 1: take that same plant matter and run it to an
• 16:36
  Speaker 1: animal and then that would be presented on the plate
• 16:38
  Speaker 1: as a piece of meat. So we argue that's actually
• 16:41
  Speaker 1: a more direct and less processed way of providing protein
• 16:44
  Speaker 1: to the center of the plate. Now, it does take
• 16:47
  Speaker 1: protein out of one form and put it another, but
• 16:49
  Speaker 1: if you've had pasta, or if you've had any number
• 16:53
  Speaker 1: of products like a snack bar or something like that,
• 16:56
  Speaker 1: it's run through the same system. It's essentially applying heating,
• 16:59
  Speaker 1: cool and pressure to align the proteins. They take on
• 17:04
  Speaker 1: the same texture and presentation of of animal protein or meat.
• 17:08
  Speaker 1: Even how much has your business expanded over the past
• 17:11
  Speaker 1: few years, you know, it's been amazing. So when I
• 17:13
  Speaker 1: started the business in two thousand nine, um, it was
• 17:17
  Speaker 1: definitely a push, you know, it was something that we
• 17:19
  Speaker 1: had to go out there and try to convince people
• 17:20
  Speaker 1: of something has happened in the last i'd say even
• 17:23
  Speaker 1: two to three years, whereby the American consumer is actively
• 17:28
  Speaker 1: looking for the solution they wanted to work. And that's
• 17:31
  Speaker 1: to our benefit because you know, we are not perfect yet, right,
• 17:34
  Speaker 1: We still have miles to travel with respect to perfectly
• 17:37
  Speaker 1: replicating a piece of animal protein or meat. But the
• 17:40
  Speaker 1: consumer is hungry for the solution. They want to continue
• 17:43
  Speaker 1: to enjoy uh, you know, burgers and hot dogs and steaks,
• 17:47
  Speaker 1: et cetera. But they're beginning to understand that there may
• 17:50
  Speaker 1: be a better way to produce uh those products. And
• 17:54
  Speaker 1: so we see an amazing level of interesting what we're doing.
• 17:58
  Speaker 1: And with every kind of senemy an improvement we make,
• 18:01
  Speaker 1: we welcome in hundreds of thousands more people to the
• 18:03
  Speaker 1: brand as a product get better and better, and so
• 18:06
  Speaker 1: we're growing, you know, at a clip of you know,
• 18:09
  Speaker 1: this year over last year. Um, we've had you know,
• 18:12
  Speaker 1: consistently over the last year problems filling orders. So it's
• 18:15
  Speaker 1: a wonderful position to be in and one that's very gratifying.
• 18:19
  Speaker 1: Is there any evidence that suggests that the combination of
• 18:23
  Speaker 1: amino acids, lipids, water, carbohydrates, and saw on the trace
• 18:27
  Speaker 1: minerals that you're describing, is there any evidence that reconstituting
• 18:31
  Speaker 1: them in this form of a processed food is any
• 18:35
  Speaker 1: better for an individual, not the environment right now, but
• 18:38
  Speaker 1: for the individual consuming the product and consuming the actual
• 18:41
  Speaker 1: meat if that's what they choose. Sure, And and so
• 18:45
  Speaker 1: the way I would look at that is, UM, what's missing, right,
• 18:49
  Speaker 1: and so we can again, we know the blueprint of meat,
• 18:52
  Speaker 1: we understand its composition, and we have access to those
• 18:55
  Speaker 1: materials from the planet Kingdom. But what can we leave out?
• 18:58
  Speaker 1: We can leave out cholesterol, for example, so products have
• 19:00
  Speaker 1: no cholesterol, and I think there's a very well established
• 19:04
  Speaker 1: medical literature around cholesterol and and uh. And so that's
• 19:08
  Speaker 1: just one example. There are other examples of the ways
• 19:11
  Speaker 1: which we feel we are are healthier than a piece
• 19:13
  Speaker 1: of animal protein. But that's the most obvious ethan. One
• 19:17
  Speaker 1: thing that I thought was notable is that Tyson, known
• 19:20
  Speaker 1: for its chickens, have a five investment a minority stake
• 19:25
  Speaker 1: in Beyond Meat. What was their reasoning when they when
• 19:29
  Speaker 1: they made this investment? Why why do they want to
• 19:32
  Speaker 1: go basically against the whole thesis of their company, which
• 19:35
  Speaker 1: is the people like meat? Right? Um, So if if
• 19:39
  Speaker 1: I can maybe offered just one comment on that, so
• 19:41
  Speaker 1: I don't view it as going against their thesis. Um,
• 19:44
  Speaker 1: their thesis is they're going to provide protein to the
• 19:47
  Speaker 1: world and UH, and our thesis also that people love
• 19:50
  Speaker 1: meat like so that we're not in conflict in either
• 19:52
  Speaker 1: of those UH agendas. We just feel that just like
• 19:56
  Speaker 1: you know, um, most people are using UM mobile phones
• 20:00
  Speaker 1: over land lines today, that there can be a transition
• 20:03
  Speaker 1: to a new form of meat, and Tyson sees that.
• 20:06
  Speaker 1: I think they're excited about it, and I have to
• 20:07
  Speaker 1: plaud them. I mean they are of all the companies
• 20:09
  Speaker 1: out there, they are leaning in heavily too. We want
• 20:12
  Speaker 1: to be a protein provider. We're not gonna get hung
• 20:15
  Speaker 1: up on the fact that you know, they have to
• 20:17
  Speaker 1: come from animals. It can come from directly from plants
• 20:19
  Speaker 1: in the case of beyond meat. So they're making an
• 20:21
  Speaker 1: investment and what I think they believe is a shift
• 20:24
  Speaker 1: toward more plant based meat. How much does this cost
• 20:27
  Speaker 1: compared to meat, traditional meat? Yeah, so it's an interesting questions.
• 20:32
  Speaker 1: So you know, if you if you look at our
• 20:34
  Speaker 1: production facilities, we are you know, extremely small relative to
• 20:38
  Speaker 1: global meat processing right. So, um, you know we're going
• 20:42
  Speaker 1: to have a premium because of that. But as we expand,
• 20:45
  Speaker 1: there's nothing to stop us from lowering our prices to
• 20:48
  Speaker 1: the point where we can compete and even be lower
• 20:51
  Speaker 1: than the price of meat because we're taken out the middleman.
• 20:55
  Speaker 1: If you've taken any economics course, which I'm sure you have, Uh,
• 20:59
  Speaker 1: you know the number one thing they say in operations
• 21:01
  Speaker 1: is you get rid of the bottleneck. Uh, you know,
• 21:04
  Speaker 1: generate efficiencies and you can lower costs. And if you
• 21:07
  Speaker 1: think about the animal as a bottleneck, we've taken out
• 21:09
  Speaker 1: a pretty big bottleneck in the production of meeting. No,
• 21:11
  Speaker 1: we're gonna have to leave it there, Thanks very much.
• 21:13
  Speaker 1: Ethan Brown is the chief executive of Beyond Meat based
• 21:18
  Speaker 1: in Los Angeles. Well, President Donald Trump, he was in
• 21:33
  Speaker 1: Detroit this week. On Wednesday, he announced a rollback of
• 21:36
  Speaker 1: fuel economy standards for cars and trucks and this was
• 21:40
  Speaker 1: all put in place by the Obama administration. The goal
• 21:44
  Speaker 1: fifty four and a half miles per gallon by twenty five.
• 21:50
  Speaker 1: Here to tell us more about this is Dr Richard Newell.
• 21:53
  Speaker 1: He is the president and the chief executive of Resources
• 21:56
  Speaker 1: for the Future, based in Washington, d c U. Dr Neill,
• 22:00
  Speaker 1: thank you very much for being with us. Maybe you
• 22:02
  Speaker 1: could just lay out the cost connections related to these
• 22:06
  Speaker 1: fuel economy standards and what is in your mind going
• 22:11
  Speaker 1: to change now? Yes, well, fuel economy standards have been
• 22:16
  Speaker 1: set for several decades now by the Department of Transportation
• 22:21
  Speaker 1: in order to increase the energy efficiency or fuel economy
• 22:25
  Speaker 1: of the US passenger fleet and UH In two thousand
• 22:29
  Speaker 1: and eleven, the Obama administration combined these fuel economy standards
• 22:35
  Speaker 1: with standards on carbon dioxide emissions, which were required by
• 22:41
  Speaker 1: a you know, a judgment of the Supreme Court that
• 22:44
  Speaker 1: these emissions needed to be regulated. And so since two
• 22:47
  Speaker 1: thousand eleven, we've had joint actions by the Department of
• 22:51
  Speaker 1: Transportation and the Environmental Protection Agency to reduce gasoline consumption
• 22:57
  Speaker 1: from automobiles really for a few different purposes. One purpose
• 23:02
  Speaker 1: is to simply save people money by requiring that the
• 23:07
  Speaker 1: automobiles that are available for purchase um will use less gasoline.
• 23:12
  Speaker 1: So that's one key attribute of these standards. Another is
• 23:15
  Speaker 1: to reduce their carbon dioxide emissions, which is views an
• 23:19
  Speaker 1: important um element element of these regulations to address global
• 23:24
  Speaker 1: climate change. And finally, another aspect of these regulations is
• 23:29
  Speaker 1: to improve US energy security by reducing oil imports. And
• 23:34
  Speaker 1: so during the standard setting process, each of these different
• 23:38
  Speaker 1: factors is considered by these two agencies in order to
• 23:42
  Speaker 1: figure out what the right level of the standard is. Well.
• 23:45
  Speaker 1: Dr Newell, as Pim mentioned earlier, So President Trump is
• 23:50
  Speaker 1: talking in Detroit with some of the leaders and is
• 23:54
  Speaker 1: talking and saying that he will roll back some of
• 23:56
  Speaker 1: these provisions that were implemented implemented by former press it
• 24:00
  Speaker 1: in Obama. Just how big of a rollback will this be, Well,
• 24:06
  Speaker 1: it will. They will need to go through the same
• 24:08
  Speaker 1: types of analysis that we're we're done, you know, in
• 24:12
  Speaker 1: two thousand eleven by the Obama administration, by the Department
• 24:16
  Speaker 1: of Transportation and the Environmental protection agencies. So uh uh,
• 24:20
  Speaker 1: standards of of this type when they're put into place.
• 24:22
  Speaker 1: There's many different analyses that go into it. One important
• 24:26
  Speaker 1: one is called a regulatory impact analysis, where the benefits
• 24:30
  Speaker 1: and the costs of the regulation are weighed. And so
• 24:34
  Speaker 1: they look like they intend to um open open up
• 24:38
  Speaker 1: for midterm review the corporate fuel the corporate average fuel
• 24:42
  Speaker 1: economy standards, and so what they will presumably be looking
• 24:46
  Speaker 1: at is changes that have taken place since these analyses
• 24:50
  Speaker 1: were first done in two thousand eleven. What has changed
• 24:52
  Speaker 1: since then, and what direction of change in the regulations
• 24:56
  Speaker 1: might that motivate. So if you look, for example, a
• 24:58
  Speaker 1: key attribute here was going to be changes in the
• 25:01
  Speaker 1: price of gasoline, and since the original analysis, the price
• 25:05
  Speaker 1: of oil and the price of gasoline have dropped by
• 25:08
  Speaker 1: about in real terms, So other things equal, this would
• 25:13
  Speaker 1: tend to to tend to point to a rationale for
• 25:16
  Speaker 1: weakening the standards relative to what was originally put into place.
• 25:20
  Speaker 1: Another another key factor, though, is the UM, the value
• 25:24
  Speaker 1: of reducing the carbon dioxide emissions that come from burning
• 25:27
  Speaker 1: gasoline UM. There's a number called the social cost of carbon,
• 25:32
  Speaker 1: which is the value the monetized value of reducing carbon
• 25:37
  Speaker 1: dioxide emissions UM. Since two thousand eleven, the number that
• 25:40
  Speaker 1: has been used by the federal government has increased actually
• 25:44
  Speaker 1: by about so that would point in the other direction
• 25:47
  Speaker 1: in terms of strengthening the standards. However, I'll add a
• 25:52
  Speaker 1: very important caveat there, which UM. The Trump administration has
• 25:56
  Speaker 1: signaled its intention to also reduce the value that it
• 26:00
  Speaker 1: places on hither addressing climate change. That's been quite evident
• 26:04
  Speaker 1: in a number of their remarks. And so depending upon
• 26:07
  Speaker 1: what they do there, that could point you know, I
• 26:09
  Speaker 1: would I would guess they would change then the way
• 26:11
  Speaker 1: that would point downward in terms of the regulatory stringency.
• 26:15
  Speaker 1: Just real quick, Dr Newell, what has the frustration been
• 26:18
  Speaker 1: like among your peers about that last point that you
• 26:21
  Speaker 1: talk about with respect to this administration's approach to climate change. Well,
• 26:26
  Speaker 1: they're very clearly not just on corporate advage fuel economy standards,
• 26:30
  Speaker 1: but on regulation of emissions from electric power plants under
• 26:33
  Speaker 1: the Clean Power Plan, UH, the approach towards budgets, UH,
• 26:38
  Speaker 1: federal budgets that invest in research related to climate change
• 26:43
  Speaker 1: and invest in, you know, actions taken to reduce carbon
• 26:46
  Speaker 1: dioxide emissions. UM. You know, there's any number of different
• 26:50
  Speaker 1: changes that the administration has either already put into place
• 26:53
  Speaker 1: or appears ready to put into place that really just
• 26:57
  Speaker 1: don't take the climate change threats seriously. UM. And that's
• 27:01
  Speaker 1: you know, there's any number of remarks made by both
• 27:04
  Speaker 1: the President himself as well as major leaders within the
• 27:08
  Speaker 1: Trump administration point in that direction. Dr Richard Newell, thank
• 27:11
  Speaker 1: you so much for joining us. Dr Richard Newell is
• 27:13
  Speaker 1: the president for President of Resources for the Future, talking
• 27:17
  Speaker 1: about the Trump administration's rollback of emission standards. Thanks for
• 27:27
  Speaker 1: listening to the Bloomberg P and L podcast. You can
• 27:30
  Speaker 1: subscribe and listen to interviews at iTunes, SoundCloud, or whatever
• 27:34
  Speaker 1: podcast platform you prefer. I'm pim Fox. I'm out there
• 27:38
  Speaker 1: on Twitter at pim Fox. I'm out there on Twitter
• 27:41
  Speaker 1: at Lisa Abramo. It's one before the podcast. You can
• 27:44
  Speaker 1: always catch us worldwide on Bloomberg Radio