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Climate Change Is America's Most Pressing Threat: Admiral Stavridis · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We
• 0:33
  Speaker 1: have heard a lot about North Korea potential nuclear war.
• 0:37
  Speaker 1: We've heard about increasing unrust in the Middle East. So
• 0:41
  Speaker 1: it came as kind of a surprise to me anyway,
• 0:44
  Speaker 1: that Admiral James Stavritez, whose tine of the Fletcher School
• 0:47
  Speaker 1: of Law and Diplomacy and also was a retired U. S.
• 0:51
  Speaker 1: Navy admiral informed military commando of NATO, he views the
• 0:54
  Speaker 1: biggest threat right now global warming and climate change. He
• 0:59
  Speaker 1: joins US now, Admiral Serrita's thank you so much for
• 1:01
  Speaker 1: being with us. Can you explain I was surprised by this. Yeah,
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  Speaker 1: I think here we have to differentiate between tactical threats
• 1:09
  Speaker 1: which kind of loom at us in the minute to minute.
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  Speaker 1: That would be North Korea, Iran, Russia's activities around the world,
• 1:17
  Speaker 1: especially in cyber those tactical threats are very pressing, but
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  Speaker 1: long term, the strategic threat that I am very concerned
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  Speaker 1: about is global warming, and i'll tell you why. You know,
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  Speaker 1: first of all, it contributes to the tactical threats drought, fires, fame,
• 1:33
  Speaker 1: and all these things fuel insecurity. Secondly, as sea levels rise,
• 1:38
  Speaker 1: we're gonna lose valuable parts of the coastline, and particularly
• 1:41
  Speaker 1: in the Arctic, we're gonna see rising tension as the
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  Speaker 1: polar caps melt and great powers collide up there, competing
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  Speaker 1: for hydrocarbons. And third and finally, extreme weather. You know,
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  Speaker 1: we've just been through a cycle, a trifecta, if you will,
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  Speaker 1: of terrible hurricanes. All of that drains our readiness. It's
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  Speaker 1: going to get worse and worse if we don't address it. Now, well,
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  Speaker 1: what role does the defense community have in this, because
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  Speaker 1: we've noted in the Defense Appropriations Bill there's a lot
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  Speaker 1: of mention of the effects of climate change. In fact,
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  Speaker 1: James Maddis, the Secretary of Defense, seems to concur in
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  Speaker 1: your thoughts. And just to give an example, you know,
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  Speaker 1: there's an Air Force radar installation that's on the Marshall Islands,
• 2:23
  Speaker 1: and I think it cost about a billion dollars and
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  Speaker 1: it's projected to be underwater within twenty years exactly. So
• 2:32
  Speaker 1: I'll tell you the two big things the military can do.
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  Speaker 1: The first is is very prosaic, and it is that
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  Speaker 1: the Department of Defense is the largest enterprise in the world.
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  Speaker 1: It's a seven hundred billion uh four million person enterprise.
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  Speaker 1: So simply addressing our own carbon footprint, our own emissions,
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  Speaker 1: our own ability to transfer from hydrocarbons two renewables is
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  Speaker 1: a not insignific secant contribution. And then secondly, what the
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  Speaker 1: military can do is prepare as we look at the
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  Speaker 1: potential for increased conflict, we look at reactions to extreme
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  Speaker 1: whether we look at um resources being drained away from
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  Speaker 1: the military. I think the military has a strategic planning role.
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  Speaker 1: And again this is why I'm advocating paying attention to
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  Speaker 1: this now. This is one of those problems from Hell
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  Speaker 1: that you can get by day to day now. But
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  Speaker 1: if you don't address it when the problem really hits
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  Speaker 1: in half a century, it's too late. Admiral problement problem
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  Speaker 1: in Hell, it may become so too would be nuclear war.
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  Speaker 1: And I do want to get your thoughts on shorter
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  Speaker 1: term tactical threats, in particular North Korea. In an interview
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  Speaker 1: that President Trump did with the Wall Street Journal, he
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  Speaker 1: said that he has actually developed a positive relationship with
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  Speaker 1: North Korea's leader, despite their mutual public insults. Quote. I
• 4:02
  Speaker 1: probably have a very good relationship with Kim Jong. I
• 4:05
  Speaker 1: have relationships with people. I think you people are surprised.
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  Speaker 1: What do you make of that? Um, it's perplexing. I
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  Speaker 1: think the most uh, in charitable uh analysis of it
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  Speaker 1: would be that President Trump is developing an imaginary friend
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  Speaker 1: who visits him at night in the White House. UM.
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  Speaker 1: Let's hope not. Uh. Let's let's say for a second
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  Speaker 1: that it was a rational comment that he made. Um.
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  Speaker 1: The only thing I could think that he's alluding to
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  Speaker 1: is some level of back channel communication. But you know,
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  Speaker 1: I talked to a lot of people in Washington. The
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  Speaker 1: head of the United Nations delegation is a good friend
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  Speaker 1: of mine. I think I'm fairly plugged into this, and
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  Speaker 1: I don't see those back channel communications. So I think
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  Speaker 1: it's quite perplexing. Now we are to remember that life
• 4:52
  Speaker 1: is kind of compared to what and compared to throwing
• 4:55
  Speaker 1: out juvenile insults. My button is bigger than your button
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  Speaker 1: or little Rocketman, etcetera. This is probably better and keeps
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  Speaker 1: us on that narrow sliver of hope we have toward
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  Speaker 1: a diplomatic resolution. Well, you know, as you have noted
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  Speaker 1: in the past and your books, the Accidental Admiral describing
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  Speaker 1: your thirty seven career, thirty seven year career of service
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  Speaker 1: for which, of course the nation is grateful you have.
• 5:24
  Speaker 1: Of course, uh, really put together a look at the history, history,
• 5:29
  Speaker 1: and the geopolitics of oceans, of sea lanes. What is
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  Speaker 1: the most critical sea lane right now? And how is
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  Speaker 1: the United States dealing with it? The most critical sea passage,
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  Speaker 1: I would say is the South China Sea, because here
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  Speaker 1: you see the confluence of another major strategic challenge for
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  Speaker 1: the United States, and that's the rise of China. I
• 5:51
  Speaker 1: don't think we're headed for war with China, but we've
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  Speaker 1: got a serious strategic competitor, and China's objective is to
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  Speaker 1: dominate the South China Sea, which is a vast area
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  Speaker 1: about the size of the Gulf of Mexico, and they
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  Speaker 1: claim it as territorial sea. It's full of hydrocarbons, natural gas,
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  Speaker 1: and oil, and it is bounded by a group of
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  Speaker 1: nations that are allies, friends and partners to the United States,
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  Speaker 1: So we need to be mindful of the fact that
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  Speaker 1: we are a pacific power, a maritime power. We need
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  Speaker 1: to operate in those waters. We're not going to go
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  Speaker 1: to war with China. But if we simply drift away
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  Speaker 1: pun intended uh that water space will be dominated by China,
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  Speaker 1: will will be very, very disadvantaged strategically in another fifty
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  Speaker 1: years if that occurs. Based on what you know about
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  Speaker 1: the players and the countries in that region, do you
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  Speaker 1: believe that American allies are beginning to doubt the resolve
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  Speaker 1: of the United States to play a meaningful role in
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  Speaker 1: the area. I think that there is questioning of the
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  Speaker 1: seriousness of the President frankly personally, um be because of
• 7:00
  Speaker 1: the tweets, because of this recent brew haha over his
• 7:04
  Speaker 1: foul language in the White House. Individually, each of those
• 7:08
  Speaker 1: things would not be necessarily terrible, but when you add
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  Speaker 1: them up, it creates a lot of confusion on the
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  Speaker 1: part of our allies. Here's the good news. He's still
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  Speaker 1: surrounded by a coterie a very capable national security advisors.
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  Speaker 1: General Maddis over its defense and General McMaster in the
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  Speaker 1: White House. National Security Advisor General Kelly in the White House.
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  Speaker 1: These are serious security professionals. I think they'll keep us
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  Speaker 1: on a fairly even course. But um our allies are
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  Speaker 1: concerned and it's becoming a kind of endless game of
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  Speaker 1: reassurance on the part of those other officials to go
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  Speaker 1: to the region and uh set things to right. I
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  Speaker 1: think we'll have to do more of that if we're
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  Speaker 1: going to be regarded seriously in the Pacific. Admiral Real
• 7:53
  Speaker 1: quick ten seconds. Do those qualify people around President Trump
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  Speaker 1: understand the threat of climate change? They do? And look
• 8:01
  Speaker 1: at the statements by General Jim Maddis when he was
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  Speaker 1: a four star general. He understands it very well. Thank
• 8:07
  Speaker 1: you very much for being with US. Admiral James steverdis retired.
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  Speaker 1: He's the dean of the Fletcher School of Law and
• 8:13
  Speaker 1: Diplomacy at a Tough university. He is also a Bloomberg
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  Speaker 1: View columnist. JP Morgan Chase releasing their quarterly report today,
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  Speaker 1: the biggest bank by the biggest US bank by assets,
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  Speaker 1: reporting net income of about four and a quarter billion dollars.
• 8:43
  Speaker 1: That was down nearly from a year earlier, but it
• 8:45
  Speaker 1: has to do with a nearly two and a half
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  Speaker 1: billion dollar charge related to the new tax law. Here
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  Speaker 1: to help us understand what's going on in the world
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  Speaker 1: of banking is Chris Whalen, the chairman of Whalen Global Advisors. Chris,
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  Speaker 1: A pleasure always to have you on. Happy New Year
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  Speaker 1: to you. Can you tell us your thoughts and reaction
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  Speaker 1: to the report from JP Morgan Chase. UM wasn't a
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  Speaker 1: bad report, as you said. I mean, it was down
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  Speaker 1: because of the the attacked adjustment, but even if you factor
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  Speaker 1: that in him, the large banks aren't growing very much. Uh.
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  Speaker 1: The real winner today was P n C, which had
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  Speaker 1: a tremendous quarter. They're taking share on the institutional side.
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  Speaker 1: They're taking share in the mortgage market, believe it or not,
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  Speaker 1: whereas Wells and JP and Bank America are all backing
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  Speaker 1: away from that consumer loan sector. So it's really a
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  Speaker 1: tale of two industries. That's what we have here, PIM, Chris,
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  Speaker 1: you see a tale of two industries. It's also, uh,
• 9:43
  Speaker 1: many many different tales baked into the same earnings report.
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  Speaker 1: Before I get the idea of P and C and
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  Speaker 1: other regionals taking business away from Wall Street, I want
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  Speaker 1: to dig into some of the details that we learned
• 9:54
  Speaker 1: from JP Morgan today. UM a lot of different stories.
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  Speaker 1: We had, of course attack story, we had charge offs
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  Speaker 1: or not charge offs. But the amount of money that
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  Speaker 1: JP Morgan set aside to cover credit card loan losses
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  Speaker 1: increase more than people had expected. You saw fixed income
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  Speaker 1: trading revenues decline much more than expected, even after stripping
• 10:14
  Speaker 1: out a one time effect from the new tax bill.
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  Speaker 1: What are you focused on the most and UH how
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  Speaker 1: how should people really be reading this? I think most
• 10:26
  Speaker 1: of the big consumer lenders, especially the credit card lenders,
• 10:30
  Speaker 1: are a little bit worried about future losses. We've been
• 10:33
  Speaker 1: going through a very very easy period largely due to
• 10:37
  Speaker 1: the set um, so you've had you know, very It's
• 10:41
  Speaker 1: like we shifted the entire matrix for credit a full category,
• 10:46
  Speaker 1: and non investment grade companies could raise money investment grade
• 10:51
  Speaker 1: spread and so on, So that's part of it. Overall,
• 10:54
  Speaker 1: provisions that JP were actually down slightly from the previous quarter.
• 10:58
  Speaker 1: But you're right, credit card are is what they're thinking
• 11:01
  Speaker 1: about in the future. On the trading side, again, it's
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  Speaker 1: the FED. The Fed has put the entire uh fixed
• 11:08
  Speaker 1: income market into uh an induced coma because they have
• 11:12
  Speaker 1: all of these securities on their book and they don't
• 11:15
  Speaker 1: hedge them. There's the mortgage markets found thirty percent this year,
• 11:19
  Speaker 1: So you don't have interest rate hedging the way you've
• 11:22
  Speaker 1: had in the path. This comes right out of the
• 11:24
  Speaker 1: pocket of the street firms who served these constituencies. And
• 11:29
  Speaker 1: I think you know, given it, the Fed is not
• 11:31
  Speaker 1: going to sell anything in their portfolio. This is very important. Uh,
• 11:35
  Speaker 1: They're simply going to let it run off. We could
• 11:38
  Speaker 1: have uh subdued trading volumes for the major bank for
• 11:43
  Speaker 1: the next five years. That's where we're looking at. Lisa
• 11:47
  Speaker 1: Chris Whalen talk about p n C. They benefited from
• 11:50
  Speaker 1: some higher interest rates, so they could obviously charge more
• 11:53
  Speaker 1: for their loans, also growth in the commercial lending business,
• 11:57
  Speaker 1: but they also got a boost because of the tax overhaul. Yes,
• 12:01
  Speaker 1: interestingly enough, it was actually a benefit for them. You know,
• 12:05
  Speaker 1: there's two sides to the tax issue. If on the
• 12:08
  Speaker 1: one hand, you've lost a lot of money in the past,
• 12:11
  Speaker 1: you have to reduce the value of your your your
• 12:14
  Speaker 1: deferred tax asset. On the other hand, if you had
• 12:18
  Speaker 1: taxes you hadn't paid yet deferred taxes, that's now lower
• 12:22
  Speaker 1: and it's a benefit. In the case of p mc so.
• 12:25
  Speaker 1: You know, it's very interesting how you have to read
• 12:28
  Speaker 1: through the notes. You guys of Bloomberg are very good
• 12:30
  Speaker 1: at it. But each bank has its own story. You know,
• 12:33
  Speaker 1: City is going to write off twenty billion dollars in
• 12:37
  Speaker 1: tax loss assets, but other banks you could have benefit
• 12:40
  Speaker 1: from it. So it really is a very particular analysis
• 12:44
  Speaker 1: in each case. Chris, you said that PNC benefited from
• 12:48
  Speaker 1: an increase in consumer lending, and some of the big
• 12:50
  Speaker 1: banks have really pulled back from that area. Do you
• 12:54
  Speaker 1: expect JP Morgan and other big banks City Group maybe
• 12:58
  Speaker 1: when they announced Tuesday to say or hint that they're
• 13:03
  Speaker 1: going to expand a little bit more in consumer lending
• 13:06
  Speaker 1: since it has been so profitable. Not in mortgages. You know,
• 13:11
  Speaker 1: P and T has actually been growing their mortgage business.
• 13:14
  Speaker 1: They've been acquiring servicing assets and they like it um
• 13:18
  Speaker 1: But the larger banks, you know, you remember back in
• 13:21
  Speaker 1: two thousand fifteen when Jamie Diamond very publicly said he
• 13:25
  Speaker 1: was getting out of the fah A market. Today there's
• 13:28
  Speaker 1: only two banks in that fah A Jenny May market
• 13:31
  Speaker 1: really well Sin Flagstar. The rest of them have left
• 13:35
  Speaker 1: because they don't like getting fined by the Department of Justice. UM.
• 13:39
  Speaker 1: The other issue is profitability. Most mortgage lenders, both banks
• 13:43
  Speaker 1: and non banks, last year were barely making money. So
• 13:46
  Speaker 1: it's a tough business. And Wells Bank America particularly have
• 13:50
  Speaker 1: been outbidding for jumbo collateral because they put the loans
• 13:54
  Speaker 1: on their book. They are the loss when they buy
• 13:57
  Speaker 1: the loan, but after they collect servicing fees for three
• 14:00
  Speaker 1: or four years, it ends up being, you know, a
• 14:02
  Speaker 1: single digit kind of profit trade. That's a tough business.
• 14:07
  Speaker 1: I see a lot of small banks selling mortgage UH
• 14:11
  Speaker 1: notes for examples. They can work with the Homeland Bank
• 14:14
  Speaker 1: in Chicago, but they keep the servicing because they realize
• 14:17
  Speaker 1: that it's a nice business if you do it right.
• 14:20
  Speaker 1: But being a Jenny May seller servicers top, you know
• 14:23
  Speaker 1: you're facing the government. And even though the servicing fees
• 14:27
  Speaker 1: are almost twice what you get for a fan your
• 14:29
  Speaker 1: Freddy loan, you make mistakes, you pay, and you're kind
• 14:32
  Speaker 1: of in this UH really difficult situation between the CFPP
• 14:37
  Speaker 1: on the one hand, who doesn't want you to foreclose,
• 14:40
  Speaker 1: and then the SA Chase says if you don't foreclose
• 14:42
  Speaker 1: in eight days at the fault you basically lose your
• 14:46
  Speaker 1: right to make an insurance claim. So it's a very
• 14:49
  Speaker 1: complicated business. It is the lowest return asset for a
• 14:52
  Speaker 1: Thank Lisa. That's that's the problem with residential mortgage lending
• 14:56
  Speaker 1: to god Frank triple the costs of the industry. Chris Whalen,
• 15:00
  Speaker 1: thank you so much for joining us. Chris Whalen is
• 15:03
  Speaker 1: chairman of Whalen Global Advisors, which right now we want
• 15:23
  Speaker 1: to focus on the bond market. Dr Lacy Hunt joins
• 15:27
  Speaker 1: us now. He's executive vice president and chief economists at
• 15:30
  Speaker 1: Hoisington Investment Management, which overseas four point three billion dollars,
• 15:34
  Speaker 1: and he comes to us from Austin, Texas. Dr Hunt,
• 15:37
  Speaker 1: thank you so much for being with us. I particularly
• 15:40
  Speaker 1: wanted to touch base with you this week because there's
• 15:42
  Speaker 1: been a lot of discussion about longer term yields going higher.
• 15:46
  Speaker 1: We saw some action to that effect this week and
• 15:49
  Speaker 1: inflationary pressures that would force the Fed to hike faster
• 15:54
  Speaker 1: and allow longer term yields to rise further. As a
• 15:57
  Speaker 1: longtime investor in long dated treasuries, are you changing your
• 16:02
  Speaker 1: strategy and do you expect this sell off in longer
• 16:06
  Speaker 1: term rates to accelerate? No? I do not there are
• 16:12
  Speaker 1: many factors, far too many to mention that um allow
• 16:18
  Speaker 1: short allow the long term rates to rise over the
• 16:22
  Speaker 1: short run, But the economy is too fundamentally weak and
• 16:27
  Speaker 1: the pattern toward longer term disinflation is strong, and so
• 16:32
  Speaker 1: that while the rates can arise as they have done
• 16:34
  Speaker 1: this week, in my opinion, they will not be able
• 16:37
  Speaker 1: to stay up. Doctor, aren't you say that the economy
• 16:40
  Speaker 1: is too weak? A lot of people think that the
• 16:43
  Speaker 1: economy is fairly strong and accelerating to what can you
• 16:46
  Speaker 1: point that would sort of edify this belief that the
• 16:49
  Speaker 1: economy is perhaps weaker than people think. Well, the surface
• 16:53
  Speaker 1: indicators of the economy are strong. We've had three quarters
• 16:57
  Speaker 1: of three percent growth. However, the the pylons of the
• 17:04
  Speaker 1: US economy are continuing to weaken, and very very substantially so,
• 17:11
  Speaker 1: most most predominantly as a result of the of the
• 17:15
  Speaker 1: fell reserves policies. There has been a very substantial slowdown
• 17:21
  Speaker 1: in monetary growth at a time when the velocity of
• 17:24
  Speaker 1: money is the lowest since the late nineteen and the
• 17:30
  Speaker 1: Fed is engaging in a program that will significantly slow
• 17:35
  Speaker 1: monetary growth further at being the balance sheet normalization. I
• 17:41
  Speaker 1: realized that um. A lot of folks don't pay much
• 17:47
  Speaker 1: attention to this. It's not in the news headlines, and
• 17:52
  Speaker 1: the presumption maybe that will Quantitative easing didn't boost the
• 17:56
  Speaker 1: money supply, quantitative tightening won't, won't depress it. But the
• 18:02
  Speaker 1: the underlying models that have been verified over time indicate
• 18:08
  Speaker 1: that money supply growth is going to slow very, very dramatically,
• 18:14
  Speaker 1: and that while inflation can rise from time to time,
• 18:19
  Speaker 1: the slow down in monetary growth and velocity will mean
• 18:23
  Speaker 1: that prices will move lower over time, not higher. Lacy
• 18:29
  Speaker 1: Hunt a bond market a bull run for the bond market.
• 18:33
  Speaker 1: I've been listening to people talk about the end of
• 18:35
  Speaker 1: a thirty year bull market in bonds. Do you agree? No?
• 18:41
  Speaker 1: I think the ultimate blows and bonds are still in
• 18:44
  Speaker 1: the future. Path will not be easy. It has not
• 18:46
  Speaker 1: been easy to get to the point where we are today.
• 18:50
  Speaker 1: Another problem that the economy has is that although the
• 18:54
  Speaker 1: consumer is spending, the consumer has been left very badly
• 19:00
  Speaker 1: behind in this expansion, and the consumer has uh barrod
• 19:06
  Speaker 1: a substantial amount of additional money to continue the spending,
• 19:10
  Speaker 1: which means because of a of the one of the
• 19:13
  Speaker 1: lowest saving rates in US economic history, the consumer sector
• 19:18
  Speaker 1: is very vulnerable to business cycle risks. Dr Hunter, have
• 19:23
  Speaker 1: you been I know that you're a long term investor
• 19:25
  Speaker 1: and you're not looking for short term moves to capitalize on.
• 19:30
  Speaker 1: But do you add to your longer term treasury holdings
• 19:34
  Speaker 1: when there is a bit of a sell off with
• 19:37
  Speaker 1: the belief that longer term rates are likely to go
• 19:41
  Speaker 1: lower and possibly much lower? When whenever we receive additional funds,
• 19:48
  Speaker 1: we invest them immediately and we put them in the
• 19:51
  Speaker 1: long end of the market, just as we do for
• 19:54
  Speaker 1: the clients that are already with us. We we don't
• 19:58
  Speaker 1: want to be out of position as the economy unfolds.
• 20:02
  Speaker 1: There were numerous instants last year year before when the
• 20:07
  Speaker 1: interest rates rose, but when night, when seventeen was all over,
• 20:13
  Speaker 1: the long term rates actually declined. Now I might say
• 20:18
  Speaker 1: that we fully expect the FED will push up the
• 20:21
  Speaker 1: short term rates. That has that ability, but the long
• 20:25
  Speaker 1: term rates are determined by the Fishery equation, which which
• 20:29
  Speaker 1: says that the long treasury rates are primarily determined by
• 20:33
  Speaker 1: inflationary expectations. And recognizing that the FED will push the
• 20:40
  Speaker 1: short rates up, long rates will not follow. The yield
• 20:44
  Speaker 1: curve will continue to flatten and this will this is
• 20:48
  Speaker 1: a a cause. It is and it is a symptom
• 20:54
  Speaker 1: of the monetary titan hand effect, if you will, But
• 20:58
  Speaker 1: it will also have a cause. Dr Lacy Hunt, chief
• 21:02
  Speaker 1: economist Hoisington's Investment Management. Facebook shares as my co host
• 21:21
  Speaker 1: pim Fox was mentioning earlier down more than four percent,
• 21:25
  Speaker 1: after the news that it would be making some pretty
• 21:28
  Speaker 1: profound changes to the way people experience the social media giant.
• 21:34
  Speaker 1: Share ovid joins us now she's a Bloomberg gad Fly
• 21:37
  Speaker 1: columnist covering all things tech. Shara just first give us
• 21:41
  Speaker 1: a sense of how significant the change is that Facebook
• 21:45
  Speaker 1: is making and just lay out the details of what
• 21:47
  Speaker 1: the changes are. Sure, it's hard to know for certain,
• 21:51
  Speaker 1: but it does seem like this is going to be
• 21:53
  Speaker 1: a very significant change to how Facebook operates. So what
• 21:58
  Speaker 1: Mark Zuckerberg outlined late Thursday was a change in how
• 22:02
  Speaker 1: Facebook prioritizes what people see in the new seat in
• 22:06
  Speaker 1: the main stream of Facebook posts, and what they're going
• 22:09
  Speaker 1: to try to encourage more of is their prioritizing posts
• 22:15
  Speaker 1: that encourages meaningful social interactions by by Facebook's understanding of
• 22:21
  Speaker 1: that term, and that means things like, you know, post
• 22:24
  Speaker 1: from a family member who's grieving on Facebook and invites
• 22:28
  Speaker 1: kind of long comments back and forth that will get prioritized.
• 22:32
  Speaker 1: So will things, um, you know, news, news articles that
• 22:36
  Speaker 1: generate kind of a lot of interest and back and
• 22:38
  Speaker 1: forth posts and messages from people. So that's the kind
• 22:41
  Speaker 1: of thing they're trying to optimize sports rather than the
• 22:44
  Speaker 1: kind of passive I kind of look at it and
• 22:47
  Speaker 1: then move on kind of posts and videos. Sura. Is
• 22:50
  Speaker 1: this going to involve a technical, algorithmic kind of change?
• 22:54
  Speaker 1: Is this a technical issue for Facebook? Yeah? I mean
• 22:58
  Speaker 1: this is how Facebook basically age of strategies that they
• 23:01
  Speaker 1: change the algorithm, and the the algorithm, they change the
• 23:05
  Speaker 1: inputs for the algorithm, I should say, and then that
• 23:07
  Speaker 1: changes what kinds of things people are likely to see
• 23:10
  Speaker 1: more of or less of in the new sheet. Okay,
• 23:13
  Speaker 1: So does this also mean that there are companies and
• 23:16
  Speaker 1: individuals who are just as smart as the people at
• 23:19
  Speaker 1: Facebook that will be able to figure out a way
• 23:22
  Speaker 1: to work around this, because doesn't the current problem indicate
• 23:27
  Speaker 1: that there are a lot of very intelligent people out
• 23:29
  Speaker 1: there who may not agree with the way Mark Zuckerberg
• 23:32
  Speaker 1: thinks you should engage with Facebook? Yes, I think that's
• 23:35
  Speaker 1: a good point. I think one of the lessons of
• 23:37
  Speaker 1: the last couple of years is that their companies, people
• 23:43
  Speaker 1: and propagandists, including those back by the Kremlin, who figured
• 23:47
  Speaker 1: out how to gain Facebook system um in damaging ways.
• 23:53
  Speaker 1: And there are no guarantees that when Facebook changes there
• 23:57
  Speaker 1: the kinds of post that prioritize people won't figure out
• 24:01
  Speaker 1: how to gain it to prioritize things that are not
• 24:04
  Speaker 1: the meaningful social interactions what Facebook wants, but more of
• 24:08
  Speaker 1: the kind of damaging but still engaging kind of kind
• 24:11
  Speaker 1: of Facebook messages. So yeah, there's no guarantee that this
• 24:14
  Speaker 1: fix of Facebook in the way that Mark Zuckerberg intends
• 24:17
  Speaker 1: and share. Mark Zuckerberg even admitted that probably the changes
• 24:21
  Speaker 1: would mean people would end up spending less time on
• 24:25
  Speaker 1: the social media app. And I'm just wondering from a
• 24:27
  Speaker 1: business perspective, how substantially could this cut into their revenues
• 24:32
  Speaker 1: and their potential growth. Look, there is a direct relationship
• 24:36
  Speaker 1: between the amount of time that people spend on Facebook
• 24:39
  Speaker 1: and Facebook's resident right, because more time on Facebook gives
• 24:43
  Speaker 1: Facebook more slots to sell advertising, which is how Facebook
• 24:46
  Speaker 1: makes money. So if Mark Zuckerberg is saying people collectively
• 24:51
  Speaker 1: are likely to spend less time on Facebook. That likely
• 24:55
  Speaker 1: means a hit to Facebook's revenue growth, at least in
• 24:58
  Speaker 1: the short term. And it's really hard to know by
• 25:01
  Speaker 1: how much Facebook's revenue is the result of many factors
• 25:05
  Speaker 1: and it's a little bit hard to predict what's going
• 25:07
  Speaker 1: to happen. But look, the reason the share prices falling
• 25:10
  Speaker 1: today is because people are worried about the implications of
• 25:13
  Speaker 1: people spending less time on Facebook. Well, just to give
• 25:17
  Speaker 1: the numbers to offer the perspective, revenue for the latest
• 25:21
  Speaker 1: fiscal year, I believe we're talking about something like thirty
• 25:25
  Speaker 1: six billion, thirty six and a half billion dollars, of
• 25:29
  Speaker 1: which more than fifteen billion is profit net income. Yeah,
• 25:34
  Speaker 1: I mean, look, the last couple of years, Facebook has
• 25:38
  Speaker 1: been the tech industry's best combination of fast revenue growth
• 25:44
  Speaker 1: and very fat profits, and it's it's been an incredible story.
• 25:50
  Speaker 1: But we've seen some of the damaging effects of facebook
• 25:54
  Speaker 1: incredible business, which is it's become a place that people
• 25:58
  Speaker 1: don't like to spend their time, or at least say
• 26:00
  Speaker 1: they don't like to spend their time. Though the numbers
• 26:02
  Speaker 1: don't necessarily write it up and it's become a place
• 26:05
  Speaker 1: that's invited political and regulatory scrutiny because it's been such
• 26:09
  Speaker 1: an inviting home for people to spread misinformation, fake news, propaganda,
• 26:15
  Speaker 1: and that's what Facebook is trying to kind of counteract.
• 26:19
  Speaker 1: Just real quick, it seems like this is going to
• 26:22
  Speaker 1: change media strategies as far as how much they engage
• 26:25
  Speaker 1: with Facebook, since their posts will be deep prioritized. Can
• 26:30
  Speaker 1: you give us a sense of how big of a
• 26:32
  Speaker 1: of a change this is going to be. Yeah, this
• 26:34
  Speaker 1: is big news for any company that is relying on
• 26:37
  Speaker 1: finding customers of potential customers on Facebook and then includes
• 26:41
  Speaker 1: news organizations, and you can imagine inside those organizations today
• 26:45
  Speaker 1: there is going to be a lot of hand ringing.
• 26:47
  Speaker 1: They're already annoyed at how much they rely on Facebook
• 26:51
  Speaker 1: and how often Facebook changes its own rules, and this
• 26:55
  Speaker 1: is just another way for them to, you know, feel
• 26:59
  Speaker 1: pretty annoyed at Facebook. Thanks very much for being with us.
• 27:02
  Speaker 1: Shira Oviday is our technology columnist for Bloomberg gad Fly.
• 27:08
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 27:11
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 27:15
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 27:18
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 27:22
  Speaker 1: It's one before the podcast. You can always catch us
• 27:25
  Speaker 1: worldwide on Bloomberg Radio