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Leveraged-Loan Tourists Are Waking Up To Big Risks · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
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Speaker 1: Along with my co host Lisa Bramowitz. Each day we
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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
0:17
Speaker 1: or the trading floor. Find the Bloomberg p m L
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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Joining
0:32
Speaker 1: us now is Tom Kennedy, head of fixed income strategy
0:35
Speaker 1: at JP Morgan Private Bank, who did work for the
0:37
Speaker 1: Fed for many years so has an inside look from
0:40
Speaker 1: that perspective. Tom, can we just start with what happened
0:43
Speaker 1: on Friday that this funds such a huge decline? Absolutely,
0:47
Speaker 1: good morning. I think you're battling against a couple of
0:50
Speaker 1: issues here. People coming around to the realization that recession
0:53
Speaker 1: probabilities are rising, growth concerns are are emanating and finding
0:58
Speaker 1: themselves in a credit credit risky product in the leverage
1:02
Speaker 1: loan market. And then also you have over the life
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Speaker 1: of this expansion very very long expansion, tourists or people
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Speaker 1: that are not commonly used to the leverage loan market
1:11
Speaker 1: finding themselves in a place where they may or may
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Speaker 1: not be so comfortable with the credit risk that they
1:15
Speaker 1: are exposed to. Now. In the Federal Reserves Financial Stability Report,
1:21
Speaker 1: the quote is business sector debt relative to gross domestic
1:27
Speaker 1: product is historically high, and there are signs of deteriorating
1:32
Speaker 1: credit standards. Leverage loans, junk bonds now in excess of
1:38
Speaker 1: two trillion dollars. Is this as good as it gets?
1:42
Speaker 1: I think the best of these markets, pimp to your point,
1:44
Speaker 1: are behind us. I really do. If we try to
1:47
Speaker 1: just drill in a little bit on what the FED
1:48
Speaker 1: is looking at, what are they really trying to showcase
1:50
Speaker 1: to us? The leverage loan market is now bigger than
1:53
Speaker 1: the high yield market. That market historically has been left
1:57
Speaker 1: for private credit. Now we're in place where the demand
2:01
Speaker 1: for floating rate product over the last ten years has
2:04
Speaker 1: driven people to this asset class. And I think a
2:07
Speaker 1: good amount of education is necessary. What is a leverage loan.
2:11
Speaker 1: It's a loan to a business that already either has
2:13
Speaker 1: a lot of debt or of poor credit quality. That's
2:17
Speaker 1: a default risk type of product. I'm not saying default
2:20
Speaker 1: risks are high. I'm saying these are the credit quality
2:23
Speaker 1: natures of these these companies. And then looking at the quality,
2:27
Speaker 1: what do I think the FED is really looking at
2:29
Speaker 1: underneath the hood of the leverage loan market. Covenant light
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Speaker 1: ubiquitous at this point eight percent of leverage loan debt.
2:36
Speaker 1: Is just tell people what is covenant life really mean? Good? Good?
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Speaker 1: Point him? So uh. A covenant light issuer says, they
2:44
Speaker 1: are leaving the parameters for the lending of this money
2:47
Speaker 1: to a company strictly in the hands of the company.
2:50
Speaker 1: The company can do what they like with with that debt.
2:53
Speaker 1: There are no restrictions on what they can do with
2:55
Speaker 1: the debt, so they can basically pay off private equity owners.
2:59
Speaker 1: They and level up further. They can borrow more money,
3:02
Speaker 1: and there isn't necessarily any kind of sign off that
3:04
Speaker 1: the bar that the lenders have to do. You know,
3:07
Speaker 1: I want to go back to something you are saying,
3:09
Speaker 1: which is there are all these tourists who got in
3:11
Speaker 1: through things like e t f s which are liquid
3:13
Speaker 1: even though the underlying isn't as liquid by any means um.
3:17
Speaker 1: Why are they being triggered now? Because the FET has
3:20
Speaker 1: been issuing warnings in this area for a while. It's
3:22
Speaker 1: hard to say that it's just this, but there hasn't
3:24
Speaker 1: been a major credit quality issue, So why are they
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Speaker 1: fleeing right now? I think the main reason they're fleeing
3:30
Speaker 1: now is that you are finally seeing cracks in the
3:32
Speaker 1: credit market. The volatility we've been seeing in the equity
3:36
Speaker 1: market over the year hasn't really corresponded to much concern
3:40
Speaker 1: and credit markets. However, since the turn of this quarter,
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Speaker 1: the fourth quarter of we're starting to see credit spreads
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Speaker 1: widening now, and and when UH investors are opening up
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Speaker 1: their statements in the leverage loan space, they are seeing
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Speaker 1: not that steady increase in valuation, they're actually learning that
3:56
Speaker 1: those products can go down in value. So I think
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Speaker 1: you're seeing an outflow US in response to a mark
4:01
Speaker 1: to market type of of environment where credit spreads are are,
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Speaker 1: they're widening. We have to acknowledge that just to help
4:07
Speaker 1: me understand something, because I was those under the impression
4:10
Speaker 1: that junk bonds or leverage loans would be issued by
4:13
Speaker 1: companies that were in dire straits that needed the money,
4:16
Speaker 1: that couldn't access the triple A or you know, the
4:21
Speaker 1: corporate credit worthiness space. But that's really not who's been
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Speaker 1: doing all the issuing, right, You're right, I think the
4:28
Speaker 1: comparable market to leverage loans is the high yield market.
4:32
Speaker 1: Let's assume you're a company and you have an option
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Speaker 1: you can go to the high yeld market. You might
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Speaker 1: see some covenants or restrictions on what you can do
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Speaker 1: with those funds, and your funding status might be higher
4:44
Speaker 1: than what you see in the leverage loan market, and
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Speaker 1: so naturally a company is going to migrate to the
4:48
Speaker 1: market where they get the most favorable UM lending or
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Speaker 1: borrowing terms that they see. And that's I really do
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Speaker 1: think what we've seen over the last five to ten
4:57
Speaker 1: years a flocking of companies to this market. It's the
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Speaker 1: best terms of trade for them. So let's play this out.
5:03
Speaker 1: How do you think the leveraged loan market performs over
5:06
Speaker 1: the next six to twelve months. We've seen some UH
5:09
Speaker 1: firms recommending loans over bonds because they've actually been underperforming UM.
5:14
Speaker 1: But what you're saying sounds pretty dire. So I don't
5:17
Speaker 1: mean to sound dire. I think what you just did
5:20
Speaker 1: LEA says how you need to think about this asset class.
5:22
Speaker 1: Do I prefer high yield fixed rate bonds or the
5:27
Speaker 1: leverage loan market, which has a floating rate component to it.
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Speaker 1: That's the trade I don't think leverage loans are going
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Speaker 1: to outperform high yield over the next twelve months. Actually,
5:36
Speaker 1: we this trade we're talking about dates back to US
5:38
Speaker 1: to June. We removed leverage loan overweights relative to high
5:43
Speaker 1: yield in June. So when do you when do you
5:45
Speaker 1: put it back on? What are you looking for? I'm
5:47
Speaker 1: I'm gonna I need to see the credit cycle actually
5:49
Speaker 1: play through. I actually favored duration at this point. I
5:52
Speaker 1: don't think when I'm when I'm an fixed income investor
5:55
Speaker 1: deciding do I want to have interest rate exposure the
5:58
Speaker 1: likelihood that rates will come down, I want to own
6:01
Speaker 1: that option at this point. So the leverage loan for
6:04
Speaker 1: me is all you're playing is that credit spreads will
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Speaker 1: remain very tight. My bias is credit spreads widen and
6:10
Speaker 1: that risk free rates come down. In that world, I
6:12
Speaker 1: prefer a longer duration investment. How bad if the loss
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Speaker 1: is going to get loans, the loan, the loan sell off,
6:18
Speaker 1: and trying to identify what a bogey is for defaults,
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Speaker 1: I I don't even pretend to be the perfect expert
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Speaker 1: in doing that. I think when you're an investor, you
6:27
Speaker 1: have to recognize the deterioration in quality is happening in
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Speaker 1: the leverage loan market. It's been happening for years. If
6:32
Speaker 1: you don't think rates are going to rise very much,
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Speaker 1: this is not the asset class that you should expect
6:36
Speaker 1: to outperform relative to high yield. Calling a default cycle,
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Speaker 1: which I know you're looking at me and you want
6:42
Speaker 1: me to do, yes, please God, I really I can't.
6:45
Speaker 1: I don't think anyone's gonna be able to do that
6:47
Speaker 1: our time. That well, Lisa, thanks very much for being
6:49
Speaker 1: with us. As always Tom Kennedy, he is the head
6:52
Speaker 1: of fixed income strategy for JP Morgan Private Bank. And
7:07
Speaker 1: I want to bring in Teresa Raphael Bloomberg opinion editor
7:10
Speaker 1: covering European politics and economics for Bloomberg, and of course
7:14
Speaker 1: still with us is John Author's senior Marcus correspondent, columnist
7:18
Speaker 1: editor everything under the Sun here at Bloomberg Trace. I'd
7:22
Speaker 1: love to start with you. What was your sense What
7:24
Speaker 1: was the most sort of newsworthy thing that Prime Minister
7:28
Speaker 1: May said? Well, I mean I think the first thing
7:31
Speaker 1: to note was the atmospherics in the house today. We
7:34
Speaker 1: made him get out two sentences before um there were
7:38
Speaker 1: jeers and she was being laughed at and derided, and
7:41
Speaker 1: that really speaks to, you know, a prime minister whose
7:44
Speaker 1: power has just waned dramatically. Um the most newsworthy thing.
7:49
Speaker 1: She's not promising that there will be any substantial renegotiation.
7:53
Speaker 1: The European Union has been very clear that they're not
7:55
Speaker 1: going to open the legally binding part of this agreement
7:58
Speaker 1: around the Irish backstop. What she is sort of suggesting
8:02
Speaker 1: as that there might be some additional reassurances that could
8:06
Speaker 1: I'm now extrapolating that could sort of take the part
8:09
Speaker 1: of UM additions to the political declaration. There may be
8:13
Speaker 1: some sort of side assurances. She's also um said that
8:17
Speaker 1: she would find ways to empower the Commons to increase
8:20
Speaker 1: the democratic legitimacy and and allow the comments to place
8:24
Speaker 1: obligations on government. All of that has to do with
8:27
Speaker 1: Um reassuring skeptics that Britain will be able to find
8:31
Speaker 1: a way out of this backstop. But you know, really
8:33
Speaker 1: she's saying, this is the deal. Look at the alternatives.
8:36
Speaker 1: You're not going to like any of them. Give it
8:38
Speaker 1: a chance, But I know that I don't have the
8:40
Speaker 1: votes to do this tomorrow, John, Just to reiterate the
8:44
Speaker 1: Irish backstop that we've been learning about is basically an
8:48
Speaker 1: insurance policy that the border between Northern Ireland and the
8:55
Speaker 1: Irish Republic would remain open as open as its currently is. Yes,
9:01
Speaker 1: that's what I mean. In other words, there will be
9:03
Speaker 1: no change yes to the it's an it's an insurance
9:07
Speaker 1: policy for the Republic of Ireland, for the South of
9:09
Speaker 1: Ireland for those who passionately believe in the process that
9:13
Speaker 1: was started under Senator Mitchell, Tony Blair and the various
9:17
Speaker 1: Irish players twenty years ago, that the that the board
9:23
Speaker 1: that the trade within the Island of Ireland will continue
9:26
Speaker 1: as it currently is. I saw a very interesting comment
9:29
Speaker 1: from Glafstadt saying a few minutes ago before I came
9:33
Speaker 1: to the studio, saying that whatever happens, the EU will
9:37
Speaker 1: not let Ireland down. And that is the am past
9:42
Speaker 1: that we have that in the event that we don't
9:46
Speaker 1: have some kind of wonderful new technology involving laser beams
9:50
Speaker 1: and and chips in embedded in people's foreheads or whatever
9:56
Speaker 1: to enable um A border to remain as soft as
10:01
Speaker 1: it currently is while still having Britain outside the Customs Union,
10:05
Speaker 1: you will have this this arrangement that will will carry
10:09
Speaker 1: on given that most people assume that the the high
10:13
Speaker 1: tech ability to to run a border where most people
10:18
Speaker 1: can just drive straight through like an easy pass on
10:20
Speaker 1: the George Washington Bridge. While most people assume that that's
10:23
Speaker 1: not going to be possible, this backstop remains. And while
10:28
Speaker 1: the backstop remains, Britain remains within the Customs Union without
10:32
Speaker 1: having a vote over it, and that is unappealing to
10:36
Speaker 1: democratic at a political level, I just want to give
10:38
Speaker 1: some market response, because we are seeing a market reaction.
10:41
Speaker 1: The pound continuing to decline versus the dollar session lows
10:46
Speaker 1: and at the lowest levels since two thousand seventeen April
10:50
Speaker 1: two seventeen, So you have to think people are taking
10:53
Speaker 1: this as the likelihood of a no deal brexit, a
10:56
Speaker 1: hard brexit that will have material impact on the economy
10:59
Speaker 1: is increased. Saying you're also seeing your UK bond yields decline,
11:03
Speaker 1: a sort of suggestion that growth expectations going forward are declining.
11:08
Speaker 1: Ters come on in here. I mean, is today sort
11:11
Speaker 1: of a landmark moment in terms of basically increasing the
11:15
Speaker 1: chances of a no deal brexit and showing there really
11:17
Speaker 1: isn't a political leader who can carry this through on
11:20
Speaker 1: the UK side. I mean, there's no question we're at
11:22
Speaker 1: a watershed moment. I think, you know, if if Donald
11:25
Speaker 1: Trump's modus operandi has been you know, denied, denied, denied,
11:28
Speaker 1: Theresa May has been delayed, delay, delay, and today she's
11:31
Speaker 1: delayed further. But there's only you know, so much road
11:34
Speaker 1: left for her um in terms of the um you know, economy.
11:40
Speaker 1: She said very clearly in her comments address today. Look,
11:43
Speaker 1: those of you that are advocating leaving without a deal,
11:46
Speaker 1: be upfront with people. That is going to have costs.
11:49
Speaker 1: And she's quite right that the you know, hard line
11:52
Speaker 1: brexitters who say, look we we can trade on World
11:55
Speaker 1: Trade Organization terms will be fine. And uh, you know,
11:58
Speaker 1: the question is fine and what time period? Because every
12:02
Speaker 1: you know, economic study on this and including the Bank
12:05
Speaker 1: of England and the government and the various economic thing
12:08
Speaker 1: takes have come and said that is going to be
12:09
Speaker 1: painful in the short term, ten fifteen years. Well, it's
12:13
Speaker 1: also a report and John you can come in on
12:15
Speaker 1: this as well, and Terres maybe you can give us
12:17
Speaker 1: a sort of bird's eye view of what it's like
12:19
Speaker 1: in the UK because the government, the UK government has
12:23
Speaker 1: already told supermarkets such as Asda, Tesco, Sainsbury Morrison. They've
12:30
Speaker 1: actually spoken to those supermarket groups asking them to stock
12:35
Speaker 1: as much as possible in their warehouses in case the
12:40
Speaker 1: UK crashes out of the European Union without a deal. Well,
12:45
Speaker 1: this go ahead, John, John, I used to it for
12:51
Speaker 1: the Financial Times. She's famously manically pro Remain. I voted
12:56
Speaker 1: Remain myself. That kind of story bothers me as a
13:04
Speaker 1: very strong pro Remainer in it it has It has
13:07
Speaker 1: a whiff of the pro pre y two k argument.
13:10
Speaker 1: It also has a whiff of what the Leaf campaign
13:13
Speaker 1: accused the Remain campaign of doing during the campaign, which
13:17
Speaker 1: is project fear. I'm prepared to believe that a no
13:21
Speaker 1: deal Well, I do believe that a no deal Brexit
13:24
Speaker 1: would be a very very bad idea for the UK,
13:28
Speaker 1: and to the extent that the UK matters to everybody else,
13:30
Speaker 1: it would be a bad deal for everybody else. Um,
13:34
Speaker 1: it doesn't play well. I suspect in the provinces. In
13:37
Speaker 1: the smacks of the elite trying to get everybody scared,
13:42
Speaker 1: of trying to play two fears that may not be
13:46
Speaker 1: totally justified. Yeah, I think John just put his finger,
13:50
Speaker 1: And there's there's the optics of those kinds of messages,
13:53
Speaker 1: and then there's a reality, you know, should we really
13:55
Speaker 1: be stalking up? Should supermarkets be stalking up? And the
13:58
Speaker 1: reality is that a lot of it is in the
14:00
Speaker 1: gift of the EU. Europe could actually um impose, you know,
14:05
Speaker 1: impose the letter of the law such that there are
14:08
Speaker 1: such backups of Lori's that you know, there may be
14:11
Speaker 1: certain supplies that would be UM short, you know, in
14:16
Speaker 1: short supply for a while while new supply chains are
14:19
Speaker 1: being sourced and things are being worked out. The reality
14:22
Speaker 1: is probably that there will be some last minute UM
14:25
Speaker 1: agreements to ensure that the worst of the emergencies and
14:29
Speaker 1: we're talking sort of medicines more than um kit cat
14:32
Speaker 1: bars uh is averted. But you know, somebody did a
14:35
Speaker 1: study is that a two minute delay at the Dover
14:38
Speaker 1: Calais border would lead to sort of seventeen miles of
14:41
Speaker 1: backed up Lorrie. So there is some truth to all
14:44
Speaker 1: of this. Just to let you know, just to let
14:47
Speaker 1: everyone know that the pound has broken one and now
14:50
Speaker 1: trades one five eight nine. When I first came to
14:54
Speaker 1: the States as an exchange students, it was one one
14:58
Speaker 1: oh five yes, So back to you, but I want
15:03
Speaker 1: to I want to go back to something you're talking about.
15:05
Speaker 1: When you're saying that you know more than more than
15:07
Speaker 1: kickcap bars, we're talking about medicine. How bad could this get?
15:11
Speaker 1: I mean, when when were we here, uh Prime Minister
15:13
Speaker 1: May talking about making provisions for a no deal brexit?
15:16
Speaker 1: Are we talking about stockpiling medicine and having you know,
15:20
Speaker 1: enough corn to just sort of uh feed out to people,
15:24
Speaker 1: you know, in a sort of warlike situation. Is that
15:26
Speaker 1: what we're talking about? Well, I think medicine, yes, to
15:28
Speaker 1: some extent, because some medicines have to be refrigerated. Refrigerated
15:32
Speaker 1: trucks can you know, only have a certain amount of
15:36
Speaker 1: time they can um, you know, they can keep things refrigerated.
15:39
Speaker 1: So there in the NHS, the National Health Service, estate
15:42
Speaker 1: run health service here has been told to keep certain
15:47
Speaker 1: supplies uh in reserve. So I think yes that I
15:51
Speaker 1: mean terms of corn and people sort of starving, I
15:53
Speaker 1: mean that would seem wildly overblown. Um And as I said,
15:57
Speaker 1: I would imagine that the EU would say, psibly put
16:00
Speaker 1: in to play certain emergency measures, certain temporary uh kind
16:05
Speaker 1: of equivalency recognition of EU of UK rules and regulations
16:10
Speaker 1: so that we're not going to see a sort of
16:11
Speaker 1: cataclysmic scenario. But you know, that's not to say that
16:17
Speaker 1: a no deal exit isn't a very scary place to be.
16:20
Speaker 1: And there's only a sort of small minority in the
16:23
Speaker 1: House of Commons, but they're very vocal, and they're within
16:25
Speaker 1: Theresa May's own party that are advocating that. Trying to
16:29
Speaker 1: just come in on the sort of pick up on
16:31
Speaker 1: what Terrez was talking about and the domestic political change.
16:36
Speaker 1: Do you think that that we should be ready for
16:38
Speaker 1: a new prime minister in the United Kingdom. Well, that's
16:40
Speaker 1: a further problem, and this is actually perversely Theresa's strongest
16:47
Speaker 1: cards at this moment um. You've heard various people within
16:54
Speaker 1: the Conservative ranks are trying to position for a leadership campaign.
16:59
Speaker 1: But it's not as though um either the party in
17:03
Speaker 1: the country or certainly the Parliamentary Party would be wild
17:07
Speaker 1: about coalescing behind Boris Johnson. Dominic rob who recently stood
17:12
Speaker 1: down as Brexit Minister, as I gather, is also interested
17:15
Speaker 1: in a leadership bid. He made this disastrous sounds bite
17:19
Speaker 1: where he admitted that he hadn't realized until the last
17:22
Speaker 1: few weeks how important the Dover Calais link was the
17:26
Speaker 1: British trade, bringing sarcastic comments that he's only just realized
17:31
Speaker 1: we're an island. Yes, thank you. The geography lessons continue.
17:38
Speaker 1: John Author's thank you, senior editor for Bloomberg Market saws
17:42
Speaker 1: our thanks to Terres Raphael Bloomberg opinion columnist, and I
17:57
Speaker 1: want to turn our attention to bitcoin and crypto currencies,
18:00
Speaker 1: which have basically been demolished. Basically a tractor has run
18:04
Speaker 1: over them, and then a giant has come and stomped
18:06
Speaker 1: on them, and then everybody turned and looked and said
18:09
Speaker 1: we told you so because they lost more than their
18:11
Speaker 1: value or more. Joining us now is somebody who actually
18:14
Speaker 1: uh supportive of the technology behind bitcoin and the others,
18:20
Speaker 1: and that is a blockchain Ron Quaranta, as founder and
18:22
Speaker 1: chairman of the Wall Street Blockchain Alliance, joining us here
18:25
Speaker 1: in our eleven three our studios. So run, what do
18:27
Speaker 1: you make of the recent cryptocurrency route? Good morning? So
18:31
Speaker 1: thanks for having me. Yeah, there are a couple of
18:32
Speaker 1: things going on that we talked about on a regular basis.
18:34
Speaker 1: I think we're clearly seeing some of the sell off
18:37
Speaker 1: that's pulling some of the froth out of an overvalued marketplace,
18:41
Speaker 1: and I think part of that is institutional money that's
18:44
Speaker 1: kind of been taking a bit off the table. It's
18:46
Speaker 1: important to realize that a lot of o TC trading
18:48
Speaker 1: that isn't reported directly, so I think a lot of
18:50
Speaker 1: that is precipitating some of that price decline, and in
18:54
Speaker 1: particular the past month and change, given some regulatory action
18:57
Speaker 1: the sec UH sanctioning a unregistered exchange to specific token
19:03
Speaker 1: offerings for example, that had settled with the SEC because
19:06
Speaker 1: they sold unregistered securities, that kind of regulatory overhang has
19:10
Speaker 1: kind of clouded the marketplace. People have kind of fled
19:13
Speaker 1: for the doors. Eight A bitcoin downs something like others
19:17
Speaker 1: down well over ninety percent um. That doesn't diminish the
19:20
Speaker 1: overarching value proposition that we believe for the technology and
19:24
Speaker 1: quite honestly crypto assets. In our mind, this is part
19:26
Speaker 1: of that evolution that needs to happen to be part
19:29
Speaker 1: of the world that we know. Ron just explain to
19:32
Speaker 1: people what is the Wall Street block chain alliance and
19:37
Speaker 1: given example, if you can of a project or something
19:41
Speaker 1: specific that is being worked on to take advantage of
19:44
Speaker 1: this technology. Sure, so the worst street blockchain alliance is
19:48
Speaker 1: a nonprofit trade association based here in New York with
19:50
Speaker 1: a mission to god and promote comprehensive adoption of blockchain
19:53
Speaker 1: technology across our member base. And our members are banks
19:56
Speaker 1: and brokers and hedge funds and institutional investors, law firm
20:00
Speaker 1: accounting practices, really trying to understand the ecosystem of both
20:03
Speaker 1: blockchain and and crypto assets. One of the biggest models
20:06
Speaker 1: that we've seen that's really going into production leveraging blockchain
20:09
Speaker 1: technology is supply chain. When you look at shipping companies
20:13
Speaker 1: like Marriage working with IBM, when you look at banking
20:16
Speaker 1: and trade finance institutions, leveraging blockchain to audit and manage
20:20
Speaker 1: the shipment of goods overseas and the cost effective, more
20:23
Speaker 1: efficient way that's fundamentally evolving how supply chain and trade
20:27
Speaker 1: management works. Okay, well, I gotta I gotta just be
20:30
Speaker 1: really honest here. When you start talking about cryptocurrencies and
20:33
Speaker 1: taking the currency away from a nation, that's pretty sexy.
20:36
Speaker 1: That's like, you know, vote rogue kind of actors kind
20:39
Speaker 1: of creating their whole own ecosystem in the web, and
20:43
Speaker 1: you know, and when you talk about supply chain management,
20:46
Speaker 1: it's not And uh, I have to wonder whether blockchain
20:50
Speaker 1: has moved from a catchphrase that got everybody's attention and
20:54
Speaker 1: people just threw money at it to something that's more
20:57
Speaker 1: of a show me, show me the money proposition, and
20:59
Speaker 1: there's actually less interest in just throwing money at the
21:02
Speaker 1: development of new applications here. Yeah, I mean we've seen
21:05
Speaker 1: out over the past two or three years, we have
21:07
Speaker 1: had lots of money thrown at radical new solutions that
21:10
Speaker 1: were leveraging blockchain technology. If you and I put together
21:12
Speaker 1: at power Point, we probably would have gotten ten million
21:14
Speaker 1: dollars to create a new startup. But why didn't you
21:16
Speaker 1: call me? But it's become show us why it makes sense.
21:21
Speaker 1: It's become show us why this should go to market.
21:25
Speaker 1: And I think the interesting part of this is the
21:26
Speaker 1: stuff that you don't hear about in the news. We
21:28
Speaker 1: all hear the mania about bitcoin and price declines. The
21:31
Speaker 1: work that's happening behind the scenes. Our members are part
21:33
Speaker 1: of some of that. Some of the largest technology providers IBM, Microsoft,
21:37
Speaker 1: Amazon Web Services leveraging blockchain technology to bring to slowly
21:42
Speaker 1: bring solutions that make how we do what we do
21:44
Speaker 1: more efficient, more effective, more um more cost effective. Broadly
21:49
Speaker 1: across the entirety of the ecosystem. Our banks interested in
21:53
Speaker 1: blockchain technology because they see it as the next version
21:58
Speaker 1: of Swift, which is the national payment system that is
22:02
Speaker 1: currently being used. Yeah, we don't. I don't know a
22:05
Speaker 1: bank that's not a large bank that's not looking at
22:08
Speaker 1: blockchain technology in some way, shape or for him for
22:10
Speaker 1: a couple of reasons. One is the function of banks
22:13
Speaker 1: needs to evolve. It's a very friction filled world. You
22:16
Speaker 1: and I were discussing that a bit earlier, from everything
22:18
Speaker 1: from payments to clearing and settlement is really expensive. Really,
22:21
Speaker 1: you know, friction filled is what we call it. So
22:23
Speaker 1: most major banks are looking at leveraging blockchain technology to
22:27
Speaker 1: evolve how they do what they do, how they transfer funds,
22:29
Speaker 1: how they manage client accounts. Even things like k y
22:32
Speaker 1: C a m L. They're going to be leveraging blockchain
22:34
Speaker 1: technology to manage identity for their clients. And when you
22:38
Speaker 1: look at the costs of ky C a m L,
22:41
Speaker 1: that makes sense to to leverage a cost efficient technology
22:45
Speaker 1: and cost effective technology to make that better. Have the
22:49
Speaker 1: applications in the financial sector been overstated with respect to blockchain,
22:54
Speaker 1: I wouldn't say they've been overstated. I think we all
22:57
Speaker 1: waited with bated breath and then realize some of the
22:59
Speaker 1: stuff not coming to market quickly enough. And the old
23:02
Speaker 1: joke is in steen it was all going to be
23:03
Speaker 1: in production. And I've been in the blockchain space for
23:06
Speaker 1: for several years now and we're still waiting for that
23:08
Speaker 1: big production already moment. I don't think it's been overstated.
23:10
Speaker 1: I think the expectations were a bit inflated. Um And
23:14
Speaker 1: what we're beginning to see now is real solutions that
23:17
Speaker 1: don't get the news. They're boring stuff that we don't
23:20
Speaker 1: talk about in the sexy news cycle of cryptomassets, for example,
23:23
Speaker 1: But the solutions are are coming to market behind the scenes. Now.
23:27
Speaker 1: You mentioned just to do the acronym explanation when you
23:30
Speaker 1: said K y C A m L. This is things
23:34
Speaker 1: like anonymity and confidentiality. Yeah, when you engage financial relationships,
23:40
Speaker 1: most financial organizations are required by law across your customer, no,
23:43
Speaker 1: your customer and anti money laundering requirements at each of
23:46
Speaker 1: those instances that each financial institution is it's expensive to
23:50
Speaker 1: go through the process of confirming that I have I
23:53
Speaker 1: can do certain transactions with the financial institution. Imagine a
23:56
Speaker 1: blockchain solution that allows that to happen more quickly, more fish,
24:00
Speaker 1: and they perhaps shared across an ecosystem of parties, and
24:03
Speaker 1: you begin to understand the possibilities of security an identity
24:07
Speaker 1: leveraging blockchain technology. So can you give us an example
24:12
Speaker 1: of a space where blockchain has revolutionized something? So I
24:19
Speaker 1: think the supply chain thing. I come back to that
24:21
Speaker 1: simply because when you look at the stuff that's quote
24:23
Speaker 1: unquote in production. UM shipping companies right now leveraging UM
24:28
Speaker 1: supply chain, leveraging blockchain to manage supply chain for tracking
24:32
Speaker 1: organic goods. So you might have seen the lettuce that
24:34
Speaker 1: had been UM the remain the remain lettuce scare and
24:38
Speaker 1: challenges their shipping companies are beginning to use blockchain. I
24:41
Speaker 1: think Walmart, for example, now leverages blockchain to track provenance
24:44
Speaker 1: of their food for example UM, and that stuff is
24:47
Speaker 1: happening right now. UM. I think healthcare interestingly, there's some
24:50
Speaker 1: look at healthcare around how do you manage digital health records.
24:53
Speaker 1: I think we're a bit early in that space, but
24:55
Speaker 1: if you think about the mess that healthcare records are globally,
24:59
Speaker 1: b chain solutions really are being aimed at, how do
25:02
Speaker 1: we make that better for the patient. Thanks very much
25:06
Speaker 1: for being with us. Always the pleasure. Ron Coranta. He
25:08
Speaker 1: is the founder and the chairman of the Wall Street
25:11
Speaker 1: Blockchain Alliance, talking about new technology to perhaps streamline the
25:17
Speaker 1: movement of money around the world, and also or lettuce
25:21
Speaker 1: in nothing wrong with that, all right. Let's turn our
25:35
Speaker 1: attention now to the world of healthcare with Scott Flanders.
25:38
Speaker 1: He is the chief executive and board member of the
25:40
Speaker 1: Health and he's here to tell us about consolidation in
25:43
Speaker 1: the healthcare industry, plus an update on enrollments in the
25:48
Speaker 1: Affordable Care Act. Scott Flanders, thank you very much for
25:51
Speaker 1: being with us. Is the A c A enrollment levels
25:54
Speaker 1: are they? Are they still climbing or have people decided
25:58
Speaker 1: to take a rest And how to figure out what
26:01
Speaker 1: premiums they can afford the pay before signing up. Well,
26:05
Speaker 1: that's definitely the challenge, and I appreciate you bringing a
26:08
Speaker 1: focus to it, because the premiums are up much less
26:12
Speaker 1: than they have been the last few years, and so
26:15
Speaker 1: there has been stabilization in the individual market as particularly
26:19
Speaker 1: if consumers receive subsidies, it's very affordable. More insurance companies
26:24
Speaker 1: are offering plans this year than last year. But even
26:28
Speaker 1: with all of that good news, the reality is fewer
26:31
Speaker 1: consumers are signing up for the two thousand and nineteen
26:34
Speaker 1: coverage year than they have in past years. You know,
26:36
Speaker 1: I'm interested in the fact that Barack Obama, former president,
26:40
Speaker 1: who came up with a c A, just tweeted a
26:43
Speaker 1: less than an hour ago. No jump shots, no ferns,
26:46
Speaker 1: no memes. Not this time. I'm going to give it
26:48
Speaker 1: to you straight. If you need health insurance for twenty nineteen,
26:50
Speaker 1: the deadline to get covered is December. Pitching this, why
26:55
Speaker 1: do you think? What do you think it would take
26:56
Speaker 1: to re ignite this program in a meaningful way? And
27:00
Speaker 1: on the flip side, I mean, is this sort of
27:03
Speaker 1: the last gasps of it before it gets demolished? I mean,
27:07
Speaker 1: where are we with this? Well? Look, it's down double
27:11
Speaker 1: digit Enrollments are down uh ten twelve percent from prior year,
27:15
Speaker 1: so it's not collapsing, it is shrinking. There are more
27:19
Speaker 1: more alternatives this year, so the extension of short term
27:24
Speaker 1: duration from ninety days to a full year in some
27:28
Speaker 1: cases multiple years, has been a nice alternative, very attractive
27:32
Speaker 1: to many of our consumers who can't afford the rising
27:37
Speaker 1: premiums and the very high deductibles of Obamacare. You know,
27:41
Speaker 1: we we do surveys all the time of our consumers
27:44
Speaker 1: and don't even know that the open enrollment period ends
27:48
Speaker 1: on December fift So I appreciate President Obama tweeting that deadline. Now, Scott,
27:56
Speaker 1: previously you have served in a variety of positions only
28:00
Speaker 1: in the media industry. Now that you're in the healthcare
28:04
Speaker 1: of business, just tell us a little bit about the
28:06
Speaker 1: health because you're more of a you're a marketplace, so
28:09
Speaker 1: you get a different view of what is going on now,
28:13
Speaker 1: that's right. Uh, we're completely neutral for the consumer. So
28:17
Speaker 1: we're like Expedia is in travel, the health is the
28:22
Speaker 1: same for health insurance. We have over a thousand people
28:25
Speaker 1: and every day our mission is to try to get
28:28
Speaker 1: every American with affordable health insurance. That's a simple mission,
28:32
Speaker 1: but it's very hard to execute because it's complex. It's
28:36
Speaker 1: a shopping experience and consumers only do once a year.
28:39
Speaker 1: It's not their favorite, fun, most fun thing to do,
28:42
Speaker 1: but yet it's important and has consequences if they get
28:45
Speaker 1: it wrong, and so we're there to be a comparison site.
28:49
Speaker 1: We also have call centers to help consumers that need
28:52
Speaker 1: to speak to someone, but most of our consumers interface
28:54
Speaker 1: with us on our website e health dot com. Scott,
28:59
Speaker 1: you know, we've talked a lot of people about how
29:00
Speaker 1: to make healthcare cheaper in the United States, and a
29:04
Speaker 1: lot of people say that Ultimately, given what's going on
29:08
Speaker 1: in government, and given the fact that Medicaid Medicare can't
29:10
Speaker 1: negotiate for drug prices and things like that, Uh, it's
29:14
Speaker 1: very difficult to see the government take the lead on this.
29:16
Speaker 1: It will have to come from corporations like JP Morgan
29:19
Speaker 1: and Berkshire Hathaway that have sort of made moves about
29:21
Speaker 1: having their own healthcare system. It has to sort of
29:25
Speaker 1: lie with them to create the competitive pressure. So are
29:29
Speaker 1: you seeing any sort of corporation supporting what you do
29:33
Speaker 1: and making moves that can materially lower healthcare costs in
29:36
Speaker 1: the United States? Well, that's that's a three plus trillion
29:43
Speaker 1: dollar question. Seventeen or eighteen percent of our entire economy
29:46
Speaker 1: is spent on healthcare, so and it's it's growing faster
29:50
Speaker 1: than GDP. So you know, it's a it's a major
29:52
Speaker 1: fiscal issue today and it's growing and getting more challenging.
29:57
Speaker 1: So you're right to focus on it, and there aren't
30:00
Speaker 1: easy answers, but I do see the CBS merger as
30:05
Speaker 1: a progressive, constructive step that I think will improve access.
30:10
Speaker 1: You know, for many conditions, going into a hospital is
30:14
Speaker 1: just so punishingly expensive, and if you have a high deductible,
30:18
Speaker 1: which many Americans have, and there's still twenty seven million
30:20
Speaker 1: Americans that have no insurance, and so they're going into
30:24
Speaker 1: emergency rooms for treatments that could more easily be handled
30:31
Speaker 1: and met checks or perhaps even at a pharmacy, and
30:35
Speaker 1: that could be where we see that at CBS merger evolved.
30:40
Speaker 1: So we think providing more access UH will make healthcare
30:45
Speaker 1: more accessible to more Americans, and ultimately that will on
30:50
Speaker 1: the margin, bring down cost. Scott Flanders, thank you so
30:55
Speaker 1: much for being with a Scott Flanders, chief executive officer
30:57
Speaker 1: at e Health, coming to us from Mountain v You, California,
31:01
Speaker 1: talking about what the Obamacare enrollment has been like way
31:05
Speaker 1: down UH and just in general with how to provide
31:09
Speaker 1: a tool for people to better shop for insurance programs.
31:15
Speaker 1: Thanks for listening to the Bloomberg p m L podcast.
31:18
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts.
31:21
Speaker 1: SoundCloud or whatever podcast platform you prefer. I'm pim Fox.
31:25
Speaker 1: I'm on Twitter at pim Fox. I'm on Twitter at
31:29
Speaker 1: Lisa Abramowits one before the podcast. You can always catch
31:32
Speaker 1: us worldwide on Bloomberg Radio