Latest / Bloomberg Intelligence / Silicon Valley Is Listening To Your Intimate Moments0-

Transcript

Silicon Valley Is Listening To Your Intimate Moments0- · 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 Waits, 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. We were going to talk with
0:20
Speaker 1: Austin Carr, who is a Bloomberg technology reporter next and
0:23
Speaker 1: he was going to talk about a story Silicon Valley
0:25
Speaker 1: is listening to your most intimate moments. But then we
0:29
Speaker 1: found out that Austin's fiancee's name is Alexa, and so
0:33
Speaker 1: he is the unicorn that has an Alexa and has
0:37
Speaker 1: that horrible dissonance between your soon to be wife's name
0:43
Speaker 1: and and the device. How do you function? It's difficult? Um,
0:47
Speaker 1: You know that I would say that oftentimes it's unclear
0:49
Speaker 1: who I'm talking to, the speaker or my soon topee wife,
0:53
Speaker 1: but the speaker often thinks I'm talking to it or her.
0:56
Speaker 1: But that actually gets to the heart of the story.
0:58
Speaker 1: In this week's issue of the Street, if you don't
1:01
Speaker 1: might be pivoting there, uh in that there's accidental triggers
1:05
Speaker 1: that happen all the time. If you have a device
1:07
Speaker 1: like an Amazon Echo or a Google Home or an
1:09
Speaker 1: Apple HomePod, or use Siri um and these recordings are
1:13
Speaker 1: submitted to these companies servers and from there, what you
1:16
Speaker 1: might not know is they're actually sometimes transcribed by a
1:18
Speaker 1: vast network of human listeners to help improve speech recognition
1:22
Speaker 1: on these services. This is one of the big privacy
1:25
Speaker 1: issues that really we're we're covering in the story. In
1:27
Speaker 1: addition to the relationship with my So, what are some
1:31
Speaker 1: examples of some of the content I guess our conversation
1:34
Speaker 1: that's been picked up and transcribed by these humans? Absolutely,
1:37
Speaker 1: I mean, you know, one of the fascinating things. We
1:39
Speaker 1: spoke to dozens of contractors everywhere from Ireland to India
1:42
Speaker 1: who work on these these programs or have worked on
1:44
Speaker 1: them for Apple and Google and Amazon, and it's really
1:47
Speaker 1: fascinating and also quite alarming. Some of them described instances
1:51
Speaker 1: where they often heard recordings of children sharing personal information
1:54
Speaker 1: like phone numbers or street addresses. They overheard couples engaging
1:58
Speaker 1: in sexual activity, They heard very of information is happening
2:01
Speaker 1: in your your kitchen and bedroom. And I'd say overall,
2:03
Speaker 1: they just felt incredibly uncomfortable doing this type of audio transcription,
2:07
Speaker 1: so much so that they compared it to something out
2:09
Speaker 1: of y On one hand, I get it, you know,
2:12
Speaker 1: you don't want someone hearing some things that you might
2:15
Speaker 1: say at home or do at home. On the other hand,
2:18
Speaker 1: does anyone care? I mean in terms of if someone
2:21
Speaker 1: you know in another country or across the sea is
2:24
Speaker 1: listening to someone that they don't know do something that
2:27
Speaker 1: is inherent to animals, then why why does it matter? Well?
2:32
Speaker 1: I think that's the stance that the tech companies really
2:34
Speaker 1: took when they set up these systems, which is really interesting,
2:37
Speaker 1: um that they basically spent the last couple of years
2:39
Speaker 1: being very heavily scrutinized for having privacy issues and collecting
2:43
Speaker 1: more data. And this is sort of the next level
2:45
Speaker 1: of that data collection. This is voice or audio or
2:47
Speaker 1: sonic surveillance in a lot of ways. Uh, And that
2:50
Speaker 1: audio was being rerouted to again these data associates who
2:54
Speaker 1: are transcribing this material. And the big question is not
2:56
Speaker 1: just whether or that's that's ethical, but whether or not
2:58
Speaker 1: they properly disclosed it to their customers. You might not
3:01
Speaker 1: think it was that significant of an issue, or perhaps
3:04
Speaker 1: you don't share that many intimate things if you're talking
3:06
Speaker 1: to these devices. I know you mentioned you guys use
3:08
Speaker 1: these devices that your your houses too, But the larger
3:12
Speaker 1: question is whether even customers knew this was happening. And
3:14
Speaker 1: I think that's a really significant privacy issue. So so,
3:17
Speaker 1: what are kind of some of the legal ramifications here.
3:20
Speaker 1: Do I have an expectation to privacy that extends to
3:24
Speaker 1: these devices and I'm guessing that might be different different
3:27
Speaker 1: parts of the world. Yeah, I mean, technically you did
3:29
Speaker 1: agree to opt into these services, or at least we're
3:32
Speaker 1: automatically optimated when you you sign up for let's say,
3:35
Speaker 1: at your Apple iPhone. You know, there's those broad terms
3:38
Speaker 1: and conditions, which again I'm sure very few people read.
3:41
Speaker 1: But somewhere in those they did disclose that Apple could
3:44
Speaker 1: use the audio that you submit and collect the recordings
3:47
Speaker 1: in order to quote, you know, improve or enhance series
3:50
Speaker 1: speech recognition. But they didn't explicitly say that humans might
3:53
Speaker 1: be listening to this. I think the assumption that was
3:55
Speaker 1: robots were doing the vast majority of these uh, you know, requests,
4:00
Speaker 1: and that's what tech companies say that a lot of
4:01
Speaker 1: these requests are handled without human input, but they really
4:05
Speaker 1: should have disclosed that humans were the ones. That we're
4:07
Speaker 1: doing a lot of this work as well. You know,
4:09
Speaker 1: millions of recordings per year they're transcribing um and so
4:12
Speaker 1: they've updated their terms and conditions to reflect that, which
4:15
Speaker 1: is sort of a major disclaimer now that they hadn't
4:18
Speaker 1: done that before and perhaps should have. So let's talk
4:20
Speaker 1: about what you're gonna do about your soon to be
4:23
Speaker 1: wife's name. How is that? How are you going to
4:25
Speaker 1: deal with that? You know, I mean, so far we've
4:28
Speaker 1: I would say, Amazon is getting better with associate disassociated fance.
4:33
Speaker 1: It's not going to change her name. I guess one
4:35
Speaker 1: of them will have to, but yeah, no, we will
4:38
Speaker 1: say there there is an option for the Amazon Echo
4:41
Speaker 1: to change it to respond to Amazon or Echo. For
4:44
Speaker 1: some reason, we haven't done that, And I would say
4:46
Speaker 1: that sort of captures the broad approached privacy issues that
4:49
Speaker 1: that tech companies. But I would say that that's really
4:53
Speaker 1: what a lot of you know, there's a few research
4:55
Speaker 1: study recently that found that about six of UH user
4:59
Speaker 1: surveyed had very major you know serious privacy concerns about
5:03
Speaker 1: these devices. At the same time, about a quarter of
5:05
Speaker 1: Americans have them in their homes, so there is that
5:07
Speaker 1: scuge disparity. And and that's exactly that gets the heart
5:10
Speaker 1: of it right, is that people, if they're worried about it,
5:12
Speaker 1: they do have an option of not buying it and
5:15
Speaker 1: not installing it in their home. So there's sort of
5:17
Speaker 1: a question when does it become something more, When is
5:20
Speaker 1: it an invasion that goes beyond just you know, you
5:23
Speaker 1: can vote with your feet or with your money basically,
5:26
Speaker 1: and and to that same extent, you know, what is
5:28
Speaker 1: the threshold for companies to collect this data is that, hey,
5:31
Speaker 1: we can collect it so long as we're improving it
5:33
Speaker 1: for our services or could one day we use it
5:35
Speaker 1: for targeted advertising or researcher We talked to just reminded
5:39
Speaker 1: us how much information we disclose in these recordings. If
5:41
Speaker 1: a baby is crying in the background of a recording,
5:44
Speaker 1: they could just they could technically refer that infer that
5:47
Speaker 1: you have a family. If you ask a lot of
5:48
Speaker 1: questions about football, they think you're a fan of the NFL.
5:51
Speaker 1: So you can see how these could build behavior profiles
5:54
Speaker 1: for you in the Future. Austin Carr, thank you so
5:56
Speaker 1: much for joining us. Fascinating story. Austin to the technology
6:00
Speaker 1: Order for Bloomberg News, joining us on Bloomberg Interactive Broker Studio.
6:03
Speaker 1: Austin story is featured in the upcoming issue of Bloomberg
6:05
Speaker 1: Business Week magazine. You can read it now on the
6:07
Speaker 1: Bloomberg and at Bloomberg dot com. Full disclosure, I am
6:11
Speaker 1: not that great at programming these things. My ten year
6:14
Speaker 1: old son programmed by Alexa to call him lord, and
6:17
Speaker 1: so now I have to hear that all the time.
6:21
Speaker 1: The chance you've been transcribers the FED meets today, most
6:39
Speaker 1: likely it will be boring. That is certainly what they hope,
6:42
Speaker 1: but it does study tone going in when it comes
6:44
Speaker 1: to trying to figure out what credit returns will look like.
6:47
Speaker 1: Jell would we'd joining us now to talk about that
6:50
Speaker 1: Head of fixed income in senior portfolio manager at BEMO
6:52
Speaker 1: Global Asset Management, overseeing two hundred and sixty billion dollars.
6:56
Speaker 1: She's normally based in Miami, but she wanted to see
6:58
Speaker 1: what snow looked like, so she came up here to
7:01
Speaker 1: our Interactive broker studios. Janelle, I want to start with
7:06
Speaker 1: excuse me the outlook for when it comes to credit.
7:09
Speaker 1: Investment grade debt is poised for its best annual return
7:13
Speaker 1: since two thousand and nine. How much further can it
7:16
Speaker 1: go up? Over fourteen percent this year? I think it's
7:19
Speaker 1: somewhat remarkable when we look at the total returns um
7:22
Speaker 1: we are still very constructive on credit, even with valuations
7:25
Speaker 1: where they're at going into two thousand and twenty, and
7:28
Speaker 1: a lot of this comes back to the positioning the
7:30
Speaker 1: FED accommodation, what we've seen out of earnings, and some
7:33
Speaker 1: of the opportunities that exist within some of the specific
7:35
Speaker 1: quality buckets. It's interesting here you're still constructive on investment
7:38
Speaker 1: grade debt. A lot of folks that we talked to
7:40
Speaker 1: are saying, boy, we're so far into this economic cycle.
7:44
Speaker 1: You know, might be too late, we might start seeing
7:47
Speaker 1: some concerns about credit quality or something along those lines.
7:50
Speaker 1: What's kind of the foundation for your view going to
7:53
Speaker 1: you are a couple of different things. I think one
7:54
Speaker 1: of the things is this year there's been a lot
7:56
Speaker 1: of concern about triple bs in particular, but as we
7:58
Speaker 1: look at the ratio of grades versus downgrades in and
8:02
Speaker 1: out of high yield, it's actually five to one, so
8:04
Speaker 1: we've actually seen credit quality moving higher. And the other
8:07
Speaker 1: thing is, I think earning surprised flat overall for the year,
8:11
Speaker 1: but fairly resilient considering some of the pressures um and
8:14
Speaker 1: then with the expectation for earnings growth of ten percent
8:17
Speaker 1: next year, even if we see that moderate, it should
8:20
Speaker 1: be overall supportive of credit quality. So the emphasis is
8:23
Speaker 1: on investment grade over high yield, you say, and yet
8:27
Speaker 1: spreads are pretty tight. The extra yel that investors earn
8:30
Speaker 1: over benchmark rates is about the lowest since last March
8:33
Speaker 1: and more than a year. Uh. And we're also looking
8:36
Speaker 1: at sort of a questionable outlook in terms of how
8:38
Speaker 1: much further the Fed will cut. What's going to be
8:41
Speaker 1: driving the returns spread compression or benchmark rates going lower.
8:47
Speaker 1: So I think a little bit of both. Anger outlook
8:49
Speaker 1: is that rates are really fairly range bound in here,
8:51
Speaker 1: so it's largely going to come from the carry of
8:53
Speaker 1: credit as well as some additional tightening. I think what
8:56
Speaker 1: gets overlooked when we think about overall, what's the what's
8:59
Speaker 1: the option of just that spread of the index of
9:01
Speaker 1: a hundred, is really that dispersion that takes place within
9:04
Speaker 1: investment grade. And it's interesting if you move the seven
9:06
Speaker 1: notches from a triple A credit to a high triple B,
9:09
Speaker 1: you pick up less than you move to go from
9:11
Speaker 1: a high triple B to a low triple B credit.
9:13
Speaker 1: And so low triple B credit at one eighty double
9:17
Speaker 1: the yield of the ten year treasury, there's some interesting
9:19
Speaker 1: opportunities that have been overlooked for US though. This is
9:22
Speaker 1: about allocating within and not just to credit quality, and
9:26
Speaker 1: we do acknowledge where we are in the cycle. So
9:28
Speaker 1: Janelle Um, your title is global asset management ahead of
9:32
Speaker 1: global asset management globally. How are you guys thinking about
9:35
Speaker 1: allocation of your capital into Yeah, I think we are UM.
9:40
Speaker 1: We we still continue to favor the US in terms
9:43
Speaker 1: of the resilience of the overall economy UM in terms
9:46
Speaker 1: of valuations. When we go back to that, there are
9:48
Speaker 1: some interesting opportunities as we move down to the lower
9:52
Speaker 1: quality spectrum and especially an emerging market debt. Considering our
9:55
Speaker 1: rate outlook going forward, we like a flexible approach. We
9:58
Speaker 1: think you shouldn't all become completely incorporates UM, and we
10:02
Speaker 1: think that you've got to go again allocating within and
10:05
Speaker 1: not just two specific quality buckets. There was a survey
10:08
Speaker 1: that Bloomberg did of global investors that found that the
10:11
Speaker 1: consensus is that emerging market assets will outperform developing market
10:16
Speaker 1: developed market ones next year. Do you agree? So? I
10:18
Speaker 1: think part of this is just the carry where you're
10:21
Speaker 1: starting from. So you're starting from a yield that's significantly higher,
10:24
Speaker 1: and so you have that perpetual income component that supports it.
10:27
Speaker 1: So if risk stays flat, there's still an opportunity there.
10:30
Speaker 1: This is so interesting, Paul. It's sort of this idea
10:33
Speaker 1: that as long as there's nothing major that happens in
10:36
Speaker 1: the macroeconomic backdrop, which seems to be the consensus right now,
10:40
Speaker 1: it's just a carry game. So anything that gives you
10:42
Speaker 1: a dividend or anything that gives you interest, uh, is
10:45
Speaker 1: going to be pretty good. Yeah, And that kind of suggests,
10:47
Speaker 1: you know, kind of the mid single digit kind of
10:49
Speaker 1: return environment. So let's say it is FED day, Janelle,
10:52
Speaker 1: Let's get your thoughts on what you expect to hear
10:55
Speaker 1: from the FED and from Chairman Pal today. What is
10:57
Speaker 1: your expectations so as far the move today, as far
11:01
Speaker 1: as policy consistent with consensus, we don't expect any change
11:04
Speaker 1: in terms of rates. I think the part of policy
11:06
Speaker 1: they'll be focused on is really the forward guidance, and
11:09
Speaker 1: we'll see that both in the dots as well as
11:11
Speaker 1: the communication. I think what we're looking for is an
11:14
Speaker 1: update in terms of economic projections and also what happens
11:17
Speaker 1: if we look at the floor of the dots currently,
11:19
Speaker 1: it's really where policy is, and so how do those
11:21
Speaker 1: converge over time and how do they still keep the
11:24
Speaker 1: optionality to be able to act in an additional way
11:27
Speaker 1: of required. What do you see so far in terms
11:30
Speaker 1: of twenty predictions by some of your competitors that you
11:33
Speaker 1: think is totally wrong? Um, I think, just uh, well,
11:38
Speaker 1: we we've seen the recession um piece come down a
11:41
Speaker 1: lot um, you know, Honestly, I think that there's going
11:44
Speaker 1: to be a tremendous recovery in some of the deepest
11:46
Speaker 1: segments of high yield. I think that's one of the
11:49
Speaker 1: pieces of the market that's really surprised, and we actually
11:51
Speaker 1: see it in both emerging market debt and high yield
11:54
Speaker 1: this year. So Triple Cees returned five percent, investment grade
11:57
Speaker 1: corporates fourteen high yield as a whole bull digits and
12:01
Speaker 1: so there's definitely been pockets that have been left out
12:03
Speaker 1: as we've kind of gotten later in the cycle and
12:05
Speaker 1: we've seen this fallout, and so I think this is interesting.
12:08
Speaker 1: Am I hearing that you think that the shale patch
12:11
Speaker 1: will recover, that the energy idea is a good one
12:15
Speaker 1: to take that risk. My hearing that we think there
12:18
Speaker 1: are select there are select opportunities. Energy has been under
12:22
Speaker 1: tremendous pressure this year and that's definitely contributed to both
12:24
Speaker 1: I G and and high yield returns, But there are opportunities.
12:28
Speaker 1: Joe Woodward, thank you so much for joining us. We
12:30
Speaker 1: appreciate you're making a check up from Sunny Miami here
12:33
Speaker 1: to New York. Janelle Woodward is ahead of fixed income
12:36
Speaker 1: and senior portfolio manager for BEMO Global Asset Management. Think
12:39
Speaker 1: about two dred and sixty billion dollars under management joining
12:42
Speaker 1: us here in our Bloomberg and Director Brooker studio. So
13:01
Speaker 1: people are all looking to to try to figure out
13:04
Speaker 1: what is the outlook for benchmark rates, but also uh
13:07
Speaker 1: for business outlook, which is actually deteriorated over the year
13:11
Speaker 1: despite ongoing confidence among consumers. Joining us now Frank Sarantino,
13:15
Speaker 1: chief executive officer of Connect One Bank and Frank I
13:18
Speaker 1: want to start there. Since you do extend so many
13:21
Speaker 1: loans to businesses and commercial lenders, what has this sentiment
13:25
Speaker 1: been like over the past few months. So, good morning
13:28
Speaker 1: and thanks for having me again. And yet I think,
13:31
Speaker 1: you know, our clients are actually a little have a
13:35
Speaker 1: little bit of trepidation about, you know, what's going on
13:37
Speaker 1: in the marketplace. And so they have this sense that
13:39
Speaker 1: the economy is doing well, interest rates are low, the
13:43
Speaker 1: environment is good. Um, but there's this just sense, this
13:47
Speaker 1: wall of worry that everyone seems to be climbing today.
13:50
Speaker 1: And you know, I'm not sure it's it should be
13:53
Speaker 1: that way, but it certainly is impacting decisions going forward
13:57
Speaker 1: about expansion and capital and deployment of capital and whatnot.
14:00
Speaker 1: So your customers, you're borrowing customers are small and midsized
14:03
Speaker 1: businesses in the metro New York area. UM, So are
14:07
Speaker 1: they concerned about big issues like global trade? Or is
14:11
Speaker 1: it just that maybe the labor market is so tight
14:14
Speaker 1: I can't find people to build my stuff for going
14:17
Speaker 1: my stores. But so, you know, it's fascinating. I've actually
14:19
Speaker 1: written about this and and I talk about it a lot.
14:22
Speaker 1: I tell people stop reading the news, you know, like
14:25
Speaker 1: focus on what's really going on? And no, but no.
14:30
Speaker 1: But you know, when you start thinking about all all
14:33
Speaker 1: the all that's in the news, all that you get
14:35
Speaker 1: from Twitter, all that you get you know, from various sources. Um,
14:40
Speaker 1: you know, people start worrying more than I think they
14:42
Speaker 1: need to. And then when they look at their actual
14:44
Speaker 1: environment and where they're functioning, uh, they see a lot
14:47
Speaker 1: of strength. And actually, one of the issues you just
14:49
Speaker 1: raised was what was this concept of being able to
14:52
Speaker 1: hire to fill all the positions you have? That is
14:54
Speaker 1: the number one concern we have today is that people
14:57
Speaker 1: can't fill all the positions they have opened today? And
15:00
Speaker 1: is it a salary issue? In other words, if they
15:02
Speaker 1: just jack up the prices, they would be able to
15:04
Speaker 1: find the talent. So for a while, I think it
15:06
Speaker 1: was that, and I think we are seeing some wage
15:08
Speaker 1: inflation coming into the marketplace, which would be a good thing. Um,
15:11
Speaker 1: But today, I don't care what you pay, you can't
15:13
Speaker 1: it's it's becoming difficult to hire, to hire to fill positions.
15:19
Speaker 1: And I believe this fact is accurate. I think it's
15:21
Speaker 1: we're at the highest level of people voluntarily leaving jobs.
15:26
Speaker 1: So that's a good sign for the economy. But there's
15:28
Speaker 1: a dark side to that. We can't fill all the
15:31
Speaker 1: open positions. So so what are some of the areas
15:33
Speaker 1: of borrowers that are maybe active right now or maybe
15:37
Speaker 1: even some that are kind of pulling back a little bit. So,
15:40
Speaker 1: you know, I think for our manufacturers and people that
15:43
Speaker 1: are in service businesses, UM, they've got basically a green
15:46
Speaker 1: light ahead of them. There's a lot going on in
15:49
Speaker 1: the economy. There's a lot of efficiencies. Technology is really
15:52
Speaker 1: changing the face of business today in a positive way.
15:56
Speaker 1: And those are good things, and those are creating really
15:58
Speaker 1: great jobs in the economy. Um, you know, in the
16:01
Speaker 1: in the construction and real estate trades. You know, certainly
16:04
Speaker 1: here in the New York metro market and that's where
16:06
Speaker 1: Connect one Bank is located. Uh, there's been some there's
16:09
Speaker 1: been some headwinds, whether it's the rent you know, the
16:12
Speaker 1: rent regulation that came into into place in New York City. Uh,
16:16
Speaker 1: the the length of time it takes to get something
16:19
Speaker 1: approved from his zoning perspective. You know, these things are
16:21
Speaker 1: are dampeners on the economy. We need more housing, we
16:25
Speaker 1: need places for people to live. Uh, there is definitely
16:27
Speaker 1: a shortage of that. The replacement of new homes in
16:31
Speaker 1: the United States is at near and all time low. Uh.
16:34
Speaker 1: So there's a lot of pent up demand for product,
16:37
Speaker 1: but there's a lot of policies that are that are
16:40
Speaker 1: that are hindering that. I'm so glad that Frank Sorrentino
16:43
Speaker 1: is here today because we can talk about the intersection
16:45
Speaker 1: of these theoretical aspects of the market, like the yield curve,
16:49
Speaker 1: and talk about the tangibles of how that actually affects
16:52
Speaker 1: the bottom line when you're extending loans to these businesses,
16:56
Speaker 1: to the commercial real estate developers and lenders. I'm just
16:59
Speaker 1: trying to understand and your profit margins and how much
17:02
Speaker 1: uh you know, I change in the yield curve affects that.
17:05
Speaker 1: What's that been like? So for us, it's been a challenge.
17:08
Speaker 1: Uh certainly for the last year or two. Uh the
17:11
Speaker 1: yield curve is definitely tightened. It's gotten close to inverted,
17:15
Speaker 1: if not slightly inverted. UM low interest rates on the
17:18
Speaker 1: long end, actually you're good for the economy, right. We
17:20
Speaker 1: we see that UM people are investing in capital intensive businesses,
17:26
Speaker 1: whether that's real estate or others because of low interest rates.
17:28
Speaker 1: So you gotta hand it to the Fed they've almost
17:32
Speaker 1: in my opinion, flawlessly manage the economy over the last
17:35
Speaker 1: number of years. UM. I think they might have gotten
17:39
Speaker 1: a little ahead of themselves with short term rates earlier
17:42
Speaker 1: in the year, where they were raising maybe a little
17:44
Speaker 1: bit too quickly, and but again, let's hand it to them,
17:48
Speaker 1: they reverse course and have brought rates probably about where
17:51
Speaker 1: they should be. And we're seeing a neutral stance today,
17:53
Speaker 1: and I think everyone expects we're going to see a
17:56
Speaker 1: neutral stance going forward from here for the foreseeable future.
17:59
Speaker 1: Frank word, you know, ten plus years into this economic cycle,
18:03
Speaker 1: and I know some UH investors when they look at
18:05
Speaker 1: the credit markets, had a little concerned about credit quality.
18:08
Speaker 1: And when you look at your portfolio, how's the credit
18:11
Speaker 1: quality right now trending? So when you look across excuse me,
18:15
Speaker 1: the entire industry, you know, we've we've probably never seen
18:18
Speaker 1: a better stretch of time relative to credit quality for
18:21
Speaker 1: all financial institutions. UH. As I look out, I don't
18:26
Speaker 1: see a whole lot that's going to change that. Short
18:29
Speaker 1: term again, interest rates are low, liquidity is there, people
18:33
Speaker 1: can refinance. UM, jobs are strong and getting stronger. Wages
18:38
Speaker 1: are on the increase, So really you know, most of
18:41
Speaker 1: the factors that sort of put negative pressure on credit
18:46
Speaker 1: quality just aren't there right now. So where are you
18:49
Speaker 1: looking to expand? Well, connect one UM since its inception
18:54
Speaker 1: has been pretty much a New York metro market bank. UM.
18:58
Speaker 1: You know, parts of northern New Jersey, all around New
19:01
Speaker 1: York City. We believe this is the greatest market in
19:04
Speaker 1: the country. And this is exactly where we want to be.
19:06
Speaker 1: But as far as size and scale, is there an
19:10
Speaker 1: advantage to being mid sized or smaller or or do
19:14
Speaker 1: you see an advantage of getting bigger? So I would
19:17
Speaker 1: tell you today that size, in my opinion, does matter.
19:21
Speaker 1: I know that's cliche, but UM today the biggest thing
19:24
Speaker 1: and this is not just for banking, this is probably
19:26
Speaker 1: for all businesses. Technology is no longer something that's a
19:31
Speaker 1: wow thing anymore. It is part of what your business
19:34
Speaker 1: needs to be. And the more money you can invest
19:36
Speaker 1: in technology, the more efficient you can get, I think,
19:38
Speaker 1: the better you can be in your and whatever your
19:40
Speaker 1: business is. And that holds true for connect One Bank
19:43
Speaker 1: and so size and I want to spend more of
19:46
Speaker 1: our revenue on technology. Yeah, And that's kind of one
19:47
Speaker 1: of the things we hear about quickly when we see
19:50
Speaker 1: when we whenever we hear at bank buying another bank,
19:52
Speaker 1: they say, we gotta get bigger, got to get scale
19:54
Speaker 1: because this technology spend is so great. So how does
19:56
Speaker 1: a small, smaller bank deal with that technology investment requirement?
20:00
Speaker 1: We have to get bigger, as you you know, as
20:02
Speaker 1: I'm sure you've seen. We we completed an acquisition UH
20:06
Speaker 1: in January of two thousand nineteen. We're about to close
20:09
Speaker 1: on one UH in January. UH so we've grown probably
20:14
Speaker 1: between those two thirty five in size. And part of
20:17
Speaker 1: that rationale is taking out costs, and not taking out
20:21
Speaker 1: costs to save money, but taking out costs to reinvest
20:24
Speaker 1: it in in better technology, more efficient ways of doing business.
20:27
Speaker 1: Frank Sarrantino, thank you so much for joining us. Frank
20:30
Speaker 1: as the chief executive officer of Connect One Bank symbol
20:33
Speaker 1: on the NASDACS c n o B based on Englewood Cliffs,
20:36
Speaker 1: New Jersey, but joining us here in our Bloomberg Interactive
20:38
Speaker 1: or broker Student little preview, we welcome our next guest,
20:55
Speaker 1: Marvin Low. Marvin is a senior global macro strategist for
20:58
Speaker 1: State Street, that little firm up in Boston. Marvin, thanks
21:01
Speaker 1: so much for joining US. I think the consensus here
21:04
Speaker 1: is for a relatively benign FED UH decision and press
21:09
Speaker 1: conference today. What are your thoughts? Yeah, you know, I
21:13
Speaker 1: think I think that UM, the Fed has pretty clearly
21:15
Speaker 1: signaled that, UM, you know, they've done what they wanted
21:18
Speaker 1: to do this year. The markets are being cooperative. Uh.
21:21
Speaker 1: You know, we've got inflation that's firming if anything, from
21:23
Speaker 1: today's data. So I think they're happy to start the
21:26
Speaker 1: holiday season a little bit earlier and kind of make
21:29
Speaker 1: this a quiet meeting. It will be boring, right, you
21:32
Speaker 1: know what, UM. I think from the rate and monetary
21:37
Speaker 1: policy perspective, UM, the consensus is pretty accurate. There's really
21:41
Speaker 1: no reason for them to signal UM that they're ready
21:44
Speaker 1: to either cut or raise at this point. But you know,
21:46
Speaker 1: there's still the funding issues that are out there UM
21:48
Speaker 1: and looking a little further which you know, sometimes the
21:51
Speaker 1: market doesn't whether or not they still think, UM, you know,
21:54
Speaker 1: hikes are going to be possible, and whether or not
21:56
Speaker 1: if we look longer term, if you will that UM,
21:58
Speaker 1: the terminal rate is still going to be as high
22:01
Speaker 1: as UM the last set of dots indicated. So talking
22:04
Speaker 1: about boring, UM, I mean, yes, we're gonna get some
22:07
Speaker 1: interesting things. But but but you know, for the for
22:09
Speaker 1: the most part, it's going to be set as quo
22:12
Speaker 1: probably that's what everyone's expecting and UM going to it
22:16
Speaker 1: seems like increasingly the forecasts that we're hearing are pretty
22:20
Speaker 1: humdrum too. Nothing's going to really change in the macro backdrop.
22:23
Speaker 1: Things will be fine, good enough, maybe decelerating, and returns
22:28
Speaker 1: will be lower than they were this year, but not terrible,
22:31
Speaker 1: not amazing. Do you agree? You know what it's it's
22:35
Speaker 1: it's hard to argue with that at this point. UM,
22:37
Speaker 1: you know, I do think that there still is risk
22:40
Speaker 1: that UM economic activity UM, you know, really shows its age,
22:44
Speaker 1: and you know, certainly the risk is still to the downside.
22:47
Speaker 1: But in terms of what we're seeing now and how
22:49
Speaker 1: the FED is going to position it later this afternoon,
22:51
Speaker 1: I think they're just gonna grab ahold of that and
22:53
Speaker 1: you know, say they're ready. Um, you know, we've got
22:55
Speaker 1: more of an asymmetric curve where uh, you know, cuts
22:58
Speaker 1: are more likely and everyone you know, from a risk
23:01
Speaker 1: taking perspective, be somewhat happy with that. UM, Marvin, you
23:04
Speaker 1: mentioned they might make some commentary about the short term
23:08
Speaker 1: repo funding market what do you expect they could say
23:12
Speaker 1: or should say, you know what, UM, it's certainly a
23:16
Speaker 1: point of UM contention. Certainly maybe a degree of confusion
23:20
Speaker 1: in terms of just how stressed a year end and
23:23
Speaker 1: really more important beyond year end UM, the whole short
23:26
Speaker 1: end funding market is beyond that. I don't think the
23:30
Speaker 1: FED really fully appreciates UM what maybe some of the
23:34
Speaker 1: more tail risk type discussions are out there. So I
23:37
Speaker 1: think they'll say that they are on top of the situation,
23:40
Speaker 1: that the operations that they have will continue to run
23:42
Speaker 1: UM as we kind of get through year end UM
23:45
Speaker 1: and once again they stand ready at the switch. I
23:47
Speaker 1: think if UM, you believe that there are you know,
23:50
Speaker 1: some more longer term issues, we're gonna need regulation, We're
23:54
Speaker 1: gonna need things like standing repo, and we actually might
23:56
Speaker 1: need UM an acceleration of their bond buying to kind
23:59
Speaker 1: of get us out of some of these funding issues.
24:02
Speaker 1: But UM, I don't think that they want to show
24:04
Speaker 1: that degree of fear in a couple hours. And do
24:07
Speaker 1: you think that that type of scenario where there is
24:10
Speaker 1: some sort of funding pressure could materialize in a way
24:14
Speaker 1: that affects risk markets going into your end UM It's
24:18
Speaker 1: not my base case, because I really haven't seen anything
24:21
Speaker 1: that appears that stressed at the moment. But certainly what
24:24
Speaker 1: we learned in September is that it can come around
24:27
Speaker 1: fairly quickly. UM. And you know, just kind of thinking back,
24:31
Speaker 1: you know, ten years ago, if you will, um, how
24:33
Speaker 1: quickly or ten plus years ago, how quickly? UM it
24:36
Speaker 1: candid terry risk markets, It certainly is a risk there,
24:39
Speaker 1: particularly given um how rich a lot of asset values
24:43
Speaker 1: are at the at the moment. So Marvin, when I
24:45
Speaker 1: think State Street, I think big global macro kind of
24:48
Speaker 1: house up there in Boston. What is your view as
24:51
Speaker 1: you think about globally in terms of allocation of capital?
24:57
Speaker 1: So um. You know, one of one of the trends
24:59
Speaker 1: that we've seen over the course of the year is
25:00
Speaker 1: just how um high cash levels have gotten. So um.
25:04
Speaker 1: You know, the discussion around the rally, if you will,
25:08
Speaker 1: whether it's been on the credit side of things or
25:10
Speaker 1: equity side of things, being someone under owned. The flip
25:13
Speaker 1: side of that is that cash levels are pretty high.
25:15
Speaker 1: So you know, we're we are looking for um if
25:18
Speaker 1: the risk environment remains supportive, those cash levels potentially moving
25:21
Speaker 1: off the sidelines and it winds up being um, you know,
25:24
Speaker 1: slightly greater allocation towards the fixed income and the equity component,
25:27
Speaker 1: which has come down since the beginning of the year.
25:29
Speaker 1: Do you do you really think that coming off the
25:32
Speaker 1: sidelines is an accurate way to to talk about I've
25:35
Speaker 1: heard so much controversy about the idea of cash on
25:38
Speaker 1: the sidelines, with some people saying that that's a fiction
25:40
Speaker 1: and that you know that it's not just held in
25:42
Speaker 1: buckets of cash, that it's held in maybe treasuries or
25:46
Speaker 1: you know, fixed income which have gotten which has gotten
25:48
Speaker 1: so much, uh by way of influences here, what's your
25:52
Speaker 1: view on that? Yeah, so so you know, UM, I
25:55
Speaker 1: have a fairly narrow definition of cash. It certainly is
25:58
Speaker 1: more on the money markets side of things, and kind
26:01
Speaker 1: of the shape of the curve and kind of um,
26:03
Speaker 1: you know, how flat the um the short end part
26:06
Speaker 1: of the curve I think kind of plays into this
26:07
Speaker 1: reboat discussion and plays into the fact that returns aren't
26:10
Speaker 1: that bad in the bill market. Um, it does require
26:13
Speaker 1: some steepening of kind of that short end of the
26:15
Speaker 1: curve I think to pull money off the sidelines. You know,
26:19
Speaker 1: cash is a decent asset class, but you know, as
26:22
Speaker 1: we kind of just look at where returns are going
26:24
Speaker 1: to be going forward, I think that, you know, people
26:26
Speaker 1: do need to consider what the appropriate degree of risk
26:30
Speaker 1: is UM in order to generate those returns that they
26:32
Speaker 1: need to retire and everything else that goes along with it.
26:34
Speaker 1: This is actually really interesting in other words, to flatter
26:36
Speaker 1: the curve, the more quote cash there will be on
26:39
Speaker 1: the sidelines because you don't get anything for for taking
26:42
Speaker 1: that extra risk. Is that basically the idea? Yeah? Yeah, absolutely,
26:46
Speaker 1: you know, whether it's duration risk or um, you know,
26:48
Speaker 1: the risk in the market. UM. You know, kind of
26:51
Speaker 1: looking at the short end of the curve again, whether
26:54
Speaker 1: it's money market you know, again kind of playing into
26:56
Speaker 1: that reboat discussion. UM yeah, you know, certainly keeping it short,
27:01
Speaker 1: you're not giving up that much. So Marvin, just quickly,
27:04
Speaker 1: do I take on more risk in I've had a
27:06
Speaker 1: pretty good year in nineteen Do I go emerging markets,
27:09
Speaker 1: leverage loans, things like that? UM? I I do like
27:12
Speaker 1: the emerging markets. UM. You know, I think that what
27:15
Speaker 1: we've seen is the lack of FX folatility, which kind
27:18
Speaker 1: of supports the emerging markets. UM. The inflation kind of
27:21
Speaker 1: profile around the e M has certainly changed in terms
27:23
Speaker 1: of not being that um uh demonstrative to to some
27:28
Speaker 1: of your returns. So so the E M complex is
27:30
Speaker 1: something that I like. Leverage loans um and and I've
27:33
Speaker 1: spoken to Lesa about this. You know, certainly a lot
27:35
Speaker 1: is a little bit more of a challenge, particularly giving covenants,
27:38
Speaker 1: particularly given how aggressive some of um those loans have become.
27:43
Speaker 1: Um that that I say a bit more on the sidelines.
27:46
Speaker 1: Marvin low thank you so much for being with us.
27:48
Speaker 1: Marvin Lowe is global macro Strategists at State Street and H.
27:52
Speaker 1: He joins a number of strategists actually talking about leverage
27:56
Speaker 1: loans next year. UBS is Matthew Mish coming out this
27:59
Speaker 1: morning and saying that he expects a decline of one
28:02
Speaker 1: to two cent next year for leveraged loans. Yeah, you
28:06
Speaker 1: think about you know, ten plus years into this economic cycle,
28:08
Speaker 1: you think start thinking about credit quality, and if you're
28:10
Speaker 1: going to see credit issues, that will be certainly one
28:12
Speaker 1: of the markets where you may see it first. Yeah,
28:14
Speaker 1: although you have seen such an underperformance already among certain loans,
28:19
Speaker 1: you have to wonder whether perhaps that's already reached a bottom.
28:23
Speaker 1: We shall see. Thanks for listening to the Bloomberg P
28:25
Speaker 1: and L podcast. You can subscribe and listen to interviews
28:28
Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney,
28:32
Speaker 1: I'm on Twitter at pt Sweeney. I'm Lisa Abram Woyds.
28:35
Speaker 1: I'm on Twitter at Lisa Abram woids One. Before the podcast,
28:38
Speaker 1: you can always catch us worldwide on Bloomberg Radio