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Sell Credit On A Dovish Rally: PGIM's Mike Collins · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul Swinge. You.
• 0:05
  Speaker 1: Along with my co host Lisa Brahma Wicks. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money, whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: Podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. Well, it is Fed Wednesday on
• 0:23
  Speaker 1: Wall Street. All eyes are on the Federal Reserve today?
• 0:26
  Speaker 1: How many rate cuts will the Fed be carrying out
• 0:28
  Speaker 1: this year? And how the markets react? We get some
• 0:30
  Speaker 1: answers to those questions. We welcome our next guest, Michael Collins.
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  Speaker 1: Mike as a senior investment officer and senior portfolio manager
• 0:37
  Speaker 1: for ke G. I AM fixed income based in Newark,
• 0:40
  Speaker 1: New Jersey. Mike, thanks so much for joining us. What
• 0:43
  Speaker 1: do you expect to hear from Chairman Pal today? Yeah,
• 0:47
  Speaker 1: good morning Paul and Alex. Yeah, this is like our
• 0:50
  Speaker 1: our super Bowl, right, This is about as exciting as
• 0:52
  Speaker 1: it gets for for pond geefs, Like we haven't had
• 0:55
  Speaker 1: this much uncertainty for a FED meeting in a long time.
• 0:59
  Speaker 1: I mean the way we could. There are four different
• 1:01
  Speaker 1: things the FED could do. One is really not come
• 1:05
  Speaker 1: across as being a dovish, right kind of moving the
• 1:07
  Speaker 1: dots down a little bit. Remember their last out plot
• 1:10
  Speaker 1: in March showed a median expectation for a hike uh
• 1:13
  Speaker 1: this year. So let's say they just lower that, so
• 1:15
  Speaker 1: the medium expectation is for for no change this year.
• 1:19
  Speaker 1: That would be viewed, I think as being rather rather
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  Speaker 1: hawkish by the market and probably resulting to sell off.
• 1:24
  Speaker 1: The second probability is that they actually lower the dots,
• 1:27
  Speaker 1: still don't cut, but show that they're probably gonna cut
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  Speaker 1: once or maybe even twice this year. I think that
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  Speaker 1: would probably be okay. Maybe the markets would do okay
• 1:36
  Speaker 1: in that environment. The third is that they actually cut
• 1:40
  Speaker 1: beats and signal that they might cut another time this year.
• 1:43
  Speaker 1: And of course fourth is that they do the fifty
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  Speaker 1: right and and there are people out there who think
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  Speaker 1: that that's possible. I would put the probabilities that those
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  Speaker 1: four different scenarios at like thirty ten, right, So, um,
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  Speaker 1: it's really evenly distributed. So that's leading to all this
• 1:59
  Speaker 1: on certainty and handwringing today. Yeah, I like to look
• 2:02
  Speaker 1: at the e I a data I don't know you
• 2:04
  Speaker 1: nerds look at but that's kind of my jam. Okay,
• 2:06
  Speaker 1: but no, it's seriously so okay the dollar question, how
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  Speaker 1: are you positioned over the next three hours? Yeah, so
• 2:15
  Speaker 1: so interestingly, right, if you look at FED funds futures,
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  Speaker 1: what's priced in through July, there's just about one cut
• 2:24
  Speaker 1: priced in, and we think it's actually a pretty good
• 2:27
  Speaker 1: chance that they do cut once or maybe even twice,
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  Speaker 1: meaning you know, if they don't do a fifty today,
• 2:33
  Speaker 1: maybe they do it in July. Um. So actually, that's
• 2:36
  Speaker 1: something that looks like a pretty attractive way to play
• 2:38
  Speaker 1: this right now, betting that they do cut at least
• 2:41
  Speaker 1: once by the end of July. And you can actually
• 2:43
  Speaker 1: make money in that trade right now on the credit side,
• 2:46
  Speaker 1: which is really important here, right because there's been such
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  Speaker 1: a big rally in credit spread in anticipation of a
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  Speaker 1: dosh FED in aish E c B. We're actually looking
• 2:55
  Speaker 1: at today's news if they sound dobsh and markets rally,
• 2:59
  Speaker 1: meaning spreads tighten and equities go up. I think you're
• 3:03
  Speaker 1: supposed to take some profits on that trade, right, because
• 3:06
  Speaker 1: ultimately it's going to be really tough for the FED,
• 3:09
  Speaker 1: for the e c B for for Trump uh to
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  Speaker 1: to continue to provide positive surprises to the market. So, Mike,
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  Speaker 1: are you you one of those folks that are thinking
• 3:20
  Speaker 1: about our discounting into your models a recession maybe sometime
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  Speaker 1: in mid you know, it feels like that probability has
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  Speaker 1: gone up a lot. I know, if you look at
• 3:29
  Speaker 1: all the you know, normal indicators, and if you look
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  Speaker 1: at the typical speculative excesses that build up later in
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  Speaker 1: the cycle that typically lead to a recession, we actually
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  Speaker 1: haven't had a lot of them, right, I mean, the
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  Speaker 1: banking system is in the best financial condition of our lives,
• 3:44
  Speaker 1: um so, so that's kind of something to hang your
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  Speaker 1: hat on. So we actually think the probability of recession
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  Speaker 1: is pretty moderate. That being said, we're really bad. Everybody's
• 3:52
  Speaker 1: really bad. The FED is really bad at predicting recessions, right.
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  Speaker 1: They tend to become self fulfilling and kind of snowball
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  Speaker 1: into recession. So, you know, looking at the business confidence
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  Speaker 1: falling pretty hard, Looking at China, China data really falling
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  Speaker 1: off a cliff, and Europe arguably is kind of teetering
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  Speaker 1: on a recession. Now. It is not unlikely that in
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  Speaker 1: twelve or eighteen months, we have a pretty significant global slowdown,
• 4:17
  Speaker 1: and maybe we're just starting to see that now. So
• 4:19
  Speaker 1: you have to position your portfolios for that scenario. So
• 4:23
  Speaker 1: is that scenario worth twelve trillion dollars in negative yielding
• 4:28
  Speaker 1: debt around the world. Yeah, it is. I think it's
• 4:32
  Speaker 1: gonna that twelve is going to keep getting bigger. Right,
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  Speaker 1: does that mean the recession we see is going to
• 4:36
  Speaker 1: be terrible or does it? What does that mean? Well, um,
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  Speaker 1: I think there's the base cases that it's actually not
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  Speaker 1: a terrible recess and that it's just kind of more
• 4:45
  Speaker 1: of the same, that global growth just continues to slow, right,
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  Speaker 1: driven by these big secular forces, driven by you know,
• 4:53
  Speaker 1: confidence waning, maybe generally more trade friction, even if Trump
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  Speaker 1: and g you know, talk nice and next week in Japan,
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  Speaker 1: But notwithstanding it, I think we're in a world of
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  Speaker 1: more trade friction, more geopolitical friction, rather than less. You
• 5:09
  Speaker 1: look what's happening in Turkey this morning. You look at
• 5:11
  Speaker 1: what's happening, and I ran, So that's the state of
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  Speaker 1: the world probably indefinitely. Uh So, it's just I think
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  Speaker 1: it's just a slow slog towards slower growth. Um. Not
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  Speaker 1: necessarily a deep kind of V shaped recession. And in
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  Speaker 1: that world, you know, central banks continue to be really
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  Speaker 1: easy and rates just continue to stay low, and US
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  Speaker 1: rates obviously have the most scope to fall of all
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  Speaker 1: the big developed government bond markets. So Mike, I mean,
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  Speaker 1: you guys are predential are just massive. I mean, almost
• 5:39
  Speaker 1: eight hundred billion in fixed income under management. How are
• 5:41
  Speaker 1: you allocating you know that between you know, maybe some
• 5:45
  Speaker 1: of the safer investment grade UH securities versus perhaps pushing
• 5:50
  Speaker 1: the risk out a little bit and high yield in
• 5:52
  Speaker 1: some other riskier aspects in the credit markets. Yeah, I
• 5:55
  Speaker 1: mean we're we're generally positioned in a in a barbell
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  Speaker 1: type of UM credits ructure, and that is you know,
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  Speaker 1: I always say, you want to you want to do
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  Speaker 1: well in the base case, and the base case isn't
• 6:05
  Speaker 1: isn't that horrible? But you don't want to, you know,
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  Speaker 1: really have a big draw down in in these tail risks,
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  Speaker 1: which would be the recession. So the barbell we have
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  Speaker 1: on is you know, there are opportunities in high yield
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  Speaker 1: or select opportunities in emerging markets. UM. You know, even
• 6:19
  Speaker 1: in investment grade corporate European banks and US banks still
• 6:24
  Speaker 1: look pretty cheap to us. So so you can add
• 6:26
  Speaker 1: your yield and your coupon and your and your beta
• 6:29
  Speaker 1: and your best ideas in those areas. Uh. And then
• 6:32
  Speaker 1: the other half or so of a lot of our
• 6:34
  Speaker 1: portfolios are in very high quality responds, and a lot
• 6:38
  Speaker 1: of that are in actually in asset back securities or
• 6:41
  Speaker 1: different structured products like you know, triple A rated commercial
• 6:44
  Speaker 1: mortgage backed securities or collateralized loan obligations or asset backs,
• 6:48
  Speaker 1: things that have such a low probability of losing principle
• 6:51
  Speaker 1: and they still have a pretty decent yield or or spread.
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  Speaker 1: So to me that that's kind of the ballast in
• 6:57
  Speaker 1: the portfolio if you do have a credit to this location.
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  Speaker 1: Like Collins, thanks so much for joining us. Mica Senior
• 7:02
  Speaker 1: investment Officer and senior portfolio manager at p G. I
• 7:05
  Speaker 1: AM fixed income based in Newark, New Jersey. And it's interesting, uh,
• 7:10
  Speaker 1: you know still, you know, I think still a lot
• 7:12
  Speaker 1: of institutional investors, a lot of professional investors are still
• 7:15
  Speaker 1: willing to put some risk on into their portfolio despite
• 7:17
  Speaker 1: the fact where we are in the you know, the
• 7:19
  Speaker 1: economic cycle, and where we are with potential economic slowdown,
• 7:22
  Speaker 1: and and it's just this lower rate environment. Yeah. What's
• 7:26
  Speaker 1: also really puzzling to me, and I feel like this
• 7:28
  Speaker 1: is gonna be the conversation after the FED too, is
• 7:31
  Speaker 1: the interest rate differentials in particular, let's just call it
• 7:34
  Speaker 1: US and Europe for example, like Germany, And then how
• 7:36
  Speaker 1: it's not actually being reflected in the apex market, and
• 7:40
  Speaker 1: how you're seeing just like weird trading happenings like what's
• 7:43
  Speaker 1: leading what I think is also a little bit confusing.
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  Speaker 1: And do the carry trades then in that environment still work?
• 7:48
  Speaker 1: I don't know, yeah exactly. And we saw Mario drag
• 7:52
  Speaker 1: I guess earlier this week, you know, talking about they
• 7:54
  Speaker 1: will they have lots of tools and their toolbox to
• 7:57
  Speaker 1: try to jump start the European economy. But you look
• 7:59
  Speaker 1: at the you know, negative yielding rates in in Germany.
• 8:01
  Speaker 1: You mentioned that, you know, the twelve and a half
• 8:03
  Speaker 1: billion dollars of negative yielding debt. It's just extraordinary and
• 8:06
  Speaker 1: at some point, uh, you know, it has to reverse,
• 8:08
  Speaker 1: one would think, one would think, But we didn't hear
• 8:11
  Speaker 1: that Fromario Draga earlier. Normal man, slow rates forever, not
• 8:16
  Speaker 1: for longer, but forever forever, I guess. And so we'll
• 8:18
  Speaker 1: see what the FED does later today again, uh that
• 8:22
  Speaker 1: coming up around to thirty with Chairman Powe with some
• 8:25
  Speaker 1: of his commentary that will be covering that of course
• 8:28
  Speaker 1: at Bloomberg Radio. Facebook yesterday jumped into the cryptocurrency game
• 8:45
  Speaker 1: in a pretty big way. They announced the launch of
• 8:48
  Speaker 1: what they're calling Libra, which will launch as soon as
• 8:51
  Speaker 1: next year and be what's known as a wait for it,
• 8:53
  Speaker 1: stable coin, which is a digital currency that's supported by
• 8:57
  Speaker 1: established government backed currencies and purities. To get the latest,
• 9:01
  Speaker 1: we welcome our good friend Leonard Laurent, calumnists covering Brussels
• 9:05
  Speaker 1: for Bloomberg Opinion. He is based in London today, Leonard,
• 9:09
  Speaker 1: thanks so much for joining us. What's the what's new
• 9:12
  Speaker 1: about lie bro? There's other cryptocurrencies in the marketplace. What
• 9:16
  Speaker 1: is Facebook bring to the table? In your opinion? So,
• 9:19
  Speaker 1: I think that this is the first time that a
• 9:24
  Speaker 1: company of Facebook sides that's almost three billion users they have,
• 9:28
  Speaker 1: has essentially come out with the cryptocurrency or endorse the
• 9:33
  Speaker 1: space in the way that it has. So that's that's new.
• 9:35
  Speaker 1: The second thing that's new is that they clearly do
• 9:38
  Speaker 1: not want to be associated with bitcoin and the kind
• 9:41
  Speaker 1: of crotocurrencies that have no intrinsic value, nothing to stop
• 9:45
  Speaker 1: them being worth nine thousand dollars or a hundred dollars
• 9:47
  Speaker 1: or fifteen thousand dollars, depending on which which day of
• 9:51
  Speaker 1: the year it is. These this currency is gonna be
• 9:53
  Speaker 1: backed by hard assets, so in theory it should never
• 9:56
  Speaker 1: be worth more than the reserve currencies backing it. And finally,
• 10:01
  Speaker 1: I just think we should realize that this is the
• 10:04
  Speaker 1: culmination of many years of experimentation from Facebook and trying
• 10:07
  Speaker 1: to expand in payments. It has had several stabs at
• 10:10
  Speaker 1: getting a payments business going. This to me is part
• 10:13
  Speaker 1: of that. It's not just about crypto, so it's definitely new.
• 10:17
  Speaker 1: Whether it's succestful, whether it's really some bold new vision
• 10:21
  Speaker 1: or a kind of incremental step in terms of Facebook's
• 10:23
  Speaker 1: business that I think is the is the remaining question
• 10:26
  Speaker 1: to me. You said the two magic words in theory,
• 10:29
  Speaker 1: So on a technical basis, I'm kind of wondering how
• 10:33
  Speaker 1: they wind up having Libra stay consistent if it's made
• 10:35
  Speaker 1: up of a bunch of currencies that wind up moving
• 10:37
  Speaker 1: a lot. Well, I think they basically want to be
• 10:41
  Speaker 1: their own central bank in a way. We have examples
• 10:45
  Speaker 1: of currencies that are managed in this way that are
• 10:48
  Speaker 1: pegged to currencies. Now we all know the dollar currency peg.
• 10:52
  Speaker 1: This is not going to be a dollar currency peg.
• 10:53
  Speaker 1: This is going to be a mix of currencies. There's
• 10:56
  Speaker 1: a lot we don't know about what goes in there.
• 10:58
  Speaker 1: There's a lot we don't know about how it's gonna
• 10:59
  Speaker 1: be managed. At the point being is that their their
• 11:02
  Speaker 1: claim would always be that they have a one to
• 11:05
  Speaker 1: one assets backing every piece of liber So again in theory,
• 11:11
  Speaker 1: because markets can do funny things if you believe what
• 11:13
  Speaker 1: they say, it should never fluctuate wildly in the way
• 11:17
  Speaker 1: that nonpaid currencies do so le you know they when
• 11:20
  Speaker 1: it made this annound me yesterday, I guess they announced
• 11:22
  Speaker 1: they have twenties seven or so partners some of the
• 11:24
  Speaker 1: big credit card companies Visa, master Card, even PayPal. What
• 11:30
  Speaker 1: did you make of the list of companies that are
• 11:32
  Speaker 1: partnering with him? Was it the names you wanted to see?
• 11:34
  Speaker 1: Was it as many names as you wanted to see?
• 11:36
  Speaker 1: Do they have more work to do? How do you
• 11:38
  Speaker 1: view that? Yeah? It was? I mean, look that there
• 11:42
  Speaker 1: is It depends on what what the ambitions are. Um,
• 11:46
  Speaker 1: it's pretty obvious that none of Facebook's big competitors were
• 11:49
  Speaker 1: on the list. There was no Amazon, there was no Apple,
• 11:53
  Speaker 1: There were no banks on the list. Again, you might
• 11:55
  Speaker 1: question whether Facebook again that's that's the right competition of Facebook.
• 11:59
  Speaker 1: So there were no banks. There were a few services
• 12:03
  Speaker 1: companies like Spotify, like Uber, so you can you can
• 12:05
  Speaker 1: sort of try and piece together how in future this
• 12:09
  Speaker 1: crepital currency might be used, because this is the big
• 12:11
  Speaker 1: question with any kind of form of electronic money, what
• 12:16
  Speaker 1: is the use case? If you're just going to fill
• 12:17
  Speaker 1: an electronic wallet with with some money, do you have
• 12:21
  Speaker 1: stuff that you can do with it? I mean, we
• 12:22
  Speaker 1: have PayPal already, so I think that they have a
• 12:25
  Speaker 1: sort of predictable but pretty small list of partners. It
• 12:29
  Speaker 1: is Facebook, after all. I'm not sure that many companies
• 12:32
  Speaker 1: wants to kind of be in its orbits today. But
• 12:35
  Speaker 1: I'm guessing or assuming their theory is that if it
• 12:39
  Speaker 1: gains traction, more people will come. If you build it,
• 12:41
  Speaker 1: they will come. I have no certainty that's true, though, Paul.
• 12:45
  Speaker 1: Do you also know who comes if you built something
• 12:47
  Speaker 1: new and cool? When it comes to currencies, regulators they're like, hey,
• 12:53
  Speaker 1: I mean what I what I found really interesting is
• 12:55
  Speaker 1: that yesterday it felt like Congressman kind of came out
• 12:58
  Speaker 1: in full force, being like unprecedented power, unprecedented experience, and
• 13:03
  Speaker 1: then today you hear from shell Sandberg it can being like, yeah, yeah,
• 13:06
  Speaker 1: we're talking to regulator. Is it the process? Do you
• 13:08
  Speaker 1: kind of buy that? I buy that Facebook is totally
• 13:15
  Speaker 1: conscious of the scrutiny that it's under. And you know,
• 13:18
  Speaker 1: companies do funny things when they are under huge regulatory scrutiny,
• 13:23
  Speaker 1: when they're under potential antitrust investigation. This seems totally reckless
• 13:28
  Speaker 1: at first glance, but on the other hand, you could
• 13:30
  Speaker 1: easily see why a company that makes something like nineties
• 13:32
  Speaker 1: six of its money from advertising and is looking exceptionally
• 13:36
  Speaker 1: powerful and concentrated, you can see why they might go, well,
• 13:39
  Speaker 1: let's diversify, let's find other revenue streams. And as for
• 13:43
  Speaker 1: the As for the regulation part, I haven't seen anyone
• 13:46
  Speaker 1: say outrights that they would, you know, ban Libra or
• 13:50
  Speaker 1: stop it or properly clamped down on it, because it
• 13:53
  Speaker 1: is actually quite easy. If you wanted to stop Libra,
• 13:56
  Speaker 1: you could just ban crypto currencies. You can you can
• 13:59
  Speaker 1: do things. So I think that they are going to
• 14:00
  Speaker 1: do everything in their power too, quite rightly, ask a
• 14:03
  Speaker 1: more transparency. Let us get in there, let us access
• 14:05
  Speaker 1: the data, let us localize the data. Remember, this is
• 14:08
  Speaker 1: going to be across many, many countries, and it's going
• 14:11
  Speaker 1: to be an ongoing kind of fight and ongoing friction
• 14:13
  Speaker 1: over the next year. Leonard Laurent Calmas, covering Brussels for
• 14:17
  Speaker 1: Bloomberg Opinion, joining us on the phone from London. Thank
• 14:19
  Speaker 1: you so much, leone. Well, over the past several weeks,
• 14:40
  Speaker 1: we've had an inverted yield per from on several occasions,
• 14:44
  Speaker 1: and that typically for many investors, suggests that a recession
• 14:47
  Speaker 1: maybe coming. Our next guest says, maybe not so fast.
• 14:52
  Speaker 1: Our next guest, James Skank, president and CEO of Pentagon
• 14:56
  Speaker 1: Federal based on Alexander, Virginia, joins us. James, thanks so
• 14:59
  Speaker 1: much for joining us again. You wrote this article op
• 15:03
  Speaker 1: ed opinion for the USA Today where you suggest that
• 15:06
  Speaker 1: maybe investors shouldn't be too concerned about a recession following
• 15:09
  Speaker 1: an inverted your curve. Oh, I think you got exactly right. Um, again,
• 15:14
  Speaker 1: we're just one data point, but we serve about one
• 15:16
  Speaker 1: point eight million Americans, and so on any given day
• 15:19
  Speaker 1: we're getting a really good um consumer data. That's demand
• 15:22
  Speaker 1: for autos, mortgages, credit cards, and refinance student loans. And
• 15:26
  Speaker 1: basically what we're seeing consumers spending is remaining extremely small strong.
• 15:31
  Speaker 1: We had a really strong May, came out of a
• 15:33
  Speaker 1: strong April. Wage rates are rising and that's having more
• 15:37
  Speaker 1: disposable income into the consumers pockets. Lots of people are working,
• 15:41
  Speaker 1: Unemployment claims are very low, and there's low inflation. So
• 15:45
  Speaker 1: you know, I think the most recent revision of the
• 15:48
  Speaker 1: Bureau of Economic Analysis, in the first quarter, the economy
• 15:51
  Speaker 1: grew three point one per cent. So we're not buying
• 15:53
  Speaker 1: into naysayers. We're seeing incredibly strong demand for our products
• 15:56
  Speaker 1: and services. So the obviously the issue with the curve
• 16:00
  Speaker 1: is at some point banks don't want to lend any
• 16:02
  Speaker 1: money because they're not going to make any money off
• 16:04
  Speaker 1: of it. That's the whole point, right, You're gonna borrow
• 16:06
  Speaker 1: short and then lend Longum. Have you noticed any of
• 16:09
  Speaker 1: that in your business anecdotally, And that's the one difference
• 16:13
  Speaker 1: Alex with the with the credit union, so we can
• 16:15
  Speaker 1: really play the long game. Unfortunately, for a lot of
• 16:18
  Speaker 1: the banks, if the FED does drop rates are flat
• 16:21
  Speaker 1: yield curve, they're they're really constrained by the quarterly earning reports.
• 16:25
  Speaker 1: They got to grow their earnings and continue to grow
• 16:27
  Speaker 1: quarter to quarter without missing a beat, otherwise they get
• 16:30
  Speaker 1: slaughtered into public markets. As a credit union is about
• 16:33
  Speaker 1: five thousand, four hundred credit unis in America can really
• 16:36
  Speaker 1: play the long game because we're not We're owned by
• 16:38
  Speaker 1: our members, unlike being owned by a shareholder, So we
• 16:41
  Speaker 1: can continue to lend through the cycle, and we can
• 16:43
  Speaker 1: continue to give competitive rates. Uh. What I wrote at
• 16:47
  Speaker 1: my article, what you see a lot of times what
• 16:48
  Speaker 1: banks are gonna do is they're going to really tighten
• 16:50
  Speaker 1: credit because they have to be concerned because they lend
• 16:53
  Speaker 1: a lot deeper throughout the year that we do go
• 16:55
  Speaker 1: into a recession, their delinquency is going to go up significantly,
• 16:58
  Speaker 1: which really impacts their earning. So they start tightening. Then
• 17:01
  Speaker 1: they have to put their expenses across a much shorter
• 17:04
  Speaker 1: number of new consumers, and so they start driving up
• 17:07
  Speaker 1: rates and higher feed You don't have that in the
• 17:09
  Speaker 1: credit union business, and we're very proud of that that
• 17:11
  Speaker 1: we can really do what's right for the consumer for
• 17:12
  Speaker 1: the long haul. So, James, what I didn't really know about, uh,
• 17:16
  Speaker 1: Pentagon Federal is how big you guys are You the
• 17:18
  Speaker 1: second largest credit union in the US with over assets,
• 17:22
  Speaker 1: So you obviously, as you mentioned earlier, have your finger
• 17:24
  Speaker 1: on the pulse of kind of the consumer. Let's talk
• 17:26
  Speaker 1: about credit quality right now. We're, you know, ten plus
• 17:29
  Speaker 1: years into this economic cycle. UH, there's some concerns among
• 17:33
  Speaker 1: some creditors that credit quality may become an issue. What
• 17:36
  Speaker 1: do you seeing. We're seeing still strong. We're not seeing
• 17:39
  Speaker 1: a huge uptick in credit quality right now, and we
• 17:42
  Speaker 1: think it was a combination of the tax cuts last
• 17:44
  Speaker 1: year put additional income in the Americans pockets and also
• 17:48
  Speaker 1: with the rising UH rates. As far as salaries, after
• 17:51
  Speaker 1: a ten year expansionary cycle, it really has only been
• 17:54
  Speaker 1: in the last twelve to eighteen months that we're starting
• 17:57
  Speaker 1: to see sort of real wage growth, with you know,
• 17:59
  Speaker 1: unemployed up blow four percent, you're starting to see more
• 18:02
  Speaker 1: income being paid to the consumer. And across the banks too,
• 18:05
  Speaker 1: with their tax cuts, they've been able to pay for
• 18:07
  Speaker 1: talent and UH take really good care of the customers.
• 18:10
  Speaker 1: So we're not seeing the credit concerns right now at
• 18:12
  Speaker 1: this time. You always have to be concerned with it.
• 18:15
  Speaker 1: But if you continue to sort of you play for
• 18:16
  Speaker 1: the long haul, make good credit decisions, UH, and don't
• 18:19
  Speaker 1: stretch too deep. You can you can weather any cycle.
• 18:22
  Speaker 1: So typically, where do you see the cracks first? Where
• 18:27
  Speaker 1: do you see the cracks first? You'll see it in
• 18:28
  Speaker 1: UM some someone of the auto lending when you start
• 18:31
  Speaker 1: seeing eighty four months and even longer financing periods as
• 18:35
  Speaker 1: auto raids continue to rise. You'll see it in credit
• 18:39
  Speaker 1: card receivables, the delinquency on credit card portfolios. So those
• 18:43
  Speaker 1: were you were the first to. You know, usually mortgages
• 18:45
  Speaker 1: UM the consumer holds onto the mortgage the longest. But
• 18:48
  Speaker 1: so we always look at a credit card delinquency and
• 18:51
  Speaker 1: auto delinquency to start looking for any sort of cracks
• 18:53
  Speaker 1: and credit quality. James Kank, thank you so much. James
• 18:56
  Speaker 1: as president and CEO of Pentagon Federal Credit Union Alexander
• 19:00
  Speaker 1: of Virginia dollars under management well more than a year ago,
• 19:19
  Speaker 1: actually seems longer than that. T Mobile and Sprint announced
• 19:21
  Speaker 1: their merger. The deal would combine the number three and
• 19:24
  Speaker 1: number four wireless carriers in the United States, and no
• 19:28
  Speaker 1: surprise of regulators have been studying this deal very closely
• 19:30
  Speaker 1: to get the latest on where we stand with this saga,
• 19:34
  Speaker 1: we turned to our good friend Tara la Chapelle. She
• 19:36
  Speaker 1: covers deals, telecom and media for Bloomberg Opinion. She joins
• 19:39
  Speaker 1: us in our Bloomberg and Actor broker studio. Tara, thanks
• 19:42
  Speaker 1: so much for joining us. Boy. This seems to be
• 19:44
  Speaker 1: the never ending deal, the deal that just can't get closed.
• 19:47
  Speaker 1: What's the latest on this deal now? So, the latest
• 19:50
  Speaker 1: in this saga is that it looks like T Mobile
• 19:53
  Speaker 1: and Sprint may actually be inching closer to winning approval
• 19:56
  Speaker 1: from the US Justice Department for this deal. They already
• 19:59
  Speaker 1: see to have gotten a nod from the Federal Communications Commission,
• 20:02
  Speaker 1: So the Justice Department wants them to help sort of
• 20:07
  Speaker 1: lay the groundwork for the formation of a viable fourth
• 20:10
  Speaker 1: competitor that would sort of replace or fill the whole
• 20:13
  Speaker 1: that Sprint is going to leave behind when they buy Sprint,
• 20:15
  Speaker 1: which seems like it was sort of negate the whole
• 20:17
  Speaker 1: reason for doing this merger. But it sounds like, according
• 20:20
  Speaker 1: to my Bloomberg News colleagues, they're hearing from sources that
• 20:24
  Speaker 1: Dish Network, they satellite TV provider run by Charlie organ
• 20:28
  Speaker 1: is in talks to buy about six billion dollars worth
• 20:31
  Speaker 1: of assets from these companies, including Spectrum and the boost
• 20:34
  Speaker 1: Mobile prepaid brand, in order to help smooth this along
• 20:37
  Speaker 1: and appease the Justice Department, And I guess they're hoping
• 20:40
  Speaker 1: that this will be enough to get the deal through. Um,
• 20:43
  Speaker 1: the spectrum is the jam, like, that's what everyone wants.
• 20:45
  Speaker 1: It's the good stuff, right, So is it a good
• 20:48
  Speaker 1: thing that T Mobile wants to sell it or not?
• 20:50
  Speaker 1: And isn't it good if Dish buys it? So one
• 20:53
  Speaker 1: of the reasons for T Mobile doing this deal is
• 20:55
  Speaker 1: that Sprint has a lot of midband spectrum that would
• 20:58
  Speaker 1: be really helpful for T Mobile and building out of
• 21:00
  Speaker 1: five G next generation wireless network, which is something all
• 21:03
  Speaker 1: these carriers are focused on now. Um, so that will
• 21:06
  Speaker 1: really help them. And where I think it's puzzling is
• 21:09
  Speaker 1: T Mobile is the one that needs the spectrum Dish
• 21:11
  Speaker 1: really doesn't. Dish isn't a wireless carrier as of yet.
• 21:14
  Speaker 1: They're supposedly building a network and are working towards that,
• 21:18
  Speaker 1: but they've basically been squatting on all this valuable spectrum,
• 21:20
  Speaker 1: not really doing much with it for all these years.
• 21:23
  Speaker 1: So it's puzzling to me that Dish wants more spectrum
• 21:26
  Speaker 1: and T Mobile is the one willing to give some
• 21:27
  Speaker 1: up in order to get this deal through. It's it's
• 21:29
  Speaker 1: a little bit puzzling given what we know about what
• 21:32
  Speaker 1: both these companies actually need. So, Tara, are we getting
• 21:35
  Speaker 1: to the point now if I'm Sprint t Mobile that
• 21:38
  Speaker 1: the vestures that the regulators are asking me to make
• 21:41
  Speaker 1: kind of make this deal in the first place not
• 21:43
  Speaker 1: worth doing. Yeah, that's where I'm a little bit concerned.
• 21:45
  Speaker 1: I mean, a lot of deals when they go on
• 21:47
  Speaker 1: this long and they have this many regulatory hangups, they
• 21:50
  Speaker 1: kind of get to a point where you start to wonder,
• 21:53
  Speaker 1: are is the desire to do this deal sort of
• 21:54
  Speaker 1: clouding the company's judgment? And so many times we see
• 21:57
  Speaker 1: mega mergers not really work out in the end, you know,
• 21:59
  Speaker 1: they don't really pay off for shareholders because the executives
• 22:02
  Speaker 1: maybe took it too far, either in price or what
• 22:04
  Speaker 1: they were willing to concede in order to get their
• 22:06
  Speaker 1: deal done. So I'm worried in this case that you know,
• 22:08
  Speaker 1: we don't know the details yet, we don't know what
• 22:10
  Speaker 1: exactly dishes buying and what this is going to look like.
• 22:13
  Speaker 1: But is Team Team Mobile giving up something and potentially
• 22:16
  Speaker 1: creating a situation where the competitive market wouldn't really be
• 22:20
  Speaker 1: more favorable to them if the steal goes through than
• 22:22
  Speaker 1: it is now where they're just competing against Sprint, which
• 22:25
  Speaker 1: is a much weaker player at the moment. We'll do
• 22:27
  Speaker 1: just make you miss your analyst days this deal it
• 22:32
  Speaker 1: was a CMS vicom So what would Dish do? Like? Okay,
• 22:38
  Speaker 1: so has all this spectrum is again that a good
• 22:41
  Speaker 1: thing are bad? I mean that's the big question. So
• 22:43
  Speaker 1: if you ask, you know most analysts and investors, and
• 22:45
  Speaker 1: in this tone is sort of changing at this point,
• 22:47
  Speaker 1: but they would tell you that Charlie Organ's plan all
• 22:50
  Speaker 1: along was to sell the spectrum, that it's worth so
• 22:52
  Speaker 1: much and you know he's not really going to do
• 22:54
  Speaker 1: anything with it, and that that was their goal, is
• 22:57
  Speaker 1: to eventually sell out and get a big exit. He
• 23:00
  Speaker 1: and says that they are working towards building this Internet
• 23:02
  Speaker 1: of Things network and it's going to be sort of
• 23:04
  Speaker 1: a beginning stage of them getting to five G. So
• 23:08
  Speaker 1: it sounds like they are dedicated to building a network,
• 23:11
  Speaker 1: in which case, you know, maybe the spectrum is useful
• 23:13
  Speaker 1: to them. But I think it'll be interesting to see
• 23:15
  Speaker 1: that if this deal comes together with Dish that whether
• 23:19
  Speaker 1: the FCC puts in place some sort of provision that
• 23:22
  Speaker 1: says Dish can't then turn around and sell this to
• 23:24
  Speaker 1: somebody else, that they need to commit to doing something
• 23:27
  Speaker 1: with these spectrum licenses. Yeah, and they I mean they
• 23:29
  Speaker 1: have I guess he has a he has a FCC
• 23:32
  Speaker 1: limit to build it with his existing spectrum, and I
• 23:34
  Speaker 1: guess he's just barely meeting the terms of that of
• 23:38
  Speaker 1: those restrictions. So it's really unclear. As you mentioned, I
• 23:40
  Speaker 1: know you spend a lot of time with Dish and
• 23:41
  Speaker 1: Charlie Organ, it's really unclear what his strategy is. I
• 23:44
  Speaker 1: think investors maybe might get it a little tired of waiting.
• 23:47
  Speaker 1: It's super expensive, right, like that's the whole thing. Yeah, yeah,
• 23:50
  Speaker 1: I mean it underpins the company's valuation. At this point,
• 23:53
  Speaker 1: Dish has an eighteen billion dollar market cap, which is
• 23:55
  Speaker 1: huge for mostly satellite TV business losing tons of subscribers
• 23:59
  Speaker 1: every quarter as people cut the cord. So, I mean
• 24:01
  Speaker 1: a lot of people are really focused on the spectrum
• 24:03
  Speaker 1: and what he's going to do with it, and I
• 24:05
  Speaker 1: would I would believe that most investors aren't really looking
• 24:08
  Speaker 1: forward to them spending years on a costly network build
• 24:10
  Speaker 1: out as opposed to hoping that he sells it. Tara
• 24:13
  Speaker 1: La Chapelle, thank you so much for joining us terror
• 24:16
  Speaker 1: covers deals in the telecom media space, for Bloomberg Opinion,
• 24:19
  Speaker 1: joining us on a Bloomberg Interactive broker studio. She's been
• 24:22
  Speaker 1: on top of the Sprint T Mobile deal. Thanks for
• 24:25
  Speaker 1: listening to the Bloomberg P and L podcast. You can
• 24:27
  Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever
• 24:30
  Speaker 1: podcast platform you prefer. Paul Sweeney, I'm on Twitter at
• 24:33
  Speaker 1: pt Sweeney. I'm Lisa abram Woods. I'm on Twitter at
• 24:36
  Speaker 1: Lisa A. Bramw Woods. One before the podcast, you can
• 24:38
  Speaker 1: always catch us worldwide on Bloomberg Radio