Latest / Bloomberg Intelligence / Trade and Tariff Disputes Between the U.S. and EU (Podcast)

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Trade and Tariff Disputes Between the U.S. and EU (Podcast) · 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 wits. 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. Another day, another trade skirmish. The
• 0:25
  Speaker 1: US went after the European Union for, among other things,
• 0:29
  Speaker 1: uh their air bus subsidies as well as wine and cheese.
• 0:34
  Speaker 1: The European Union saying this is ridiculous a proposal for
• 0:37
  Speaker 1: eleven billion dollars of goods potentially teriffed by the US,
• 0:41
  Speaker 1: and that they will retaliate in kind. Joining us now
• 0:44
  Speaker 1: to discuss why now? Sean Donnin, Bloomberg Senior Trade reporter
• 0:49
  Speaker 1: here in our Bloomberg Interactive Broker Studios. Normally he's down
• 0:52
  Speaker 1: in Washington, d C. We are so lucky to have him. Sean,
• 0:55
  Speaker 1: Why now? Why now? It's uh, well, let's think back
• 1:00
  Speaker 1: to what Donald Trump cares about when it comes to trade,
• 1:03
  Speaker 1: and he cares about big deficits, and the US is
• 1:05
  Speaker 1: a big trade deficit with the EU hundred seventy billion
• 1:08
  Speaker 1: dollars or so last year, and he's been gearing up
• 1:12
  Speaker 1: for a fund. Yeah, so he's been gearing up for
• 1:13
  Speaker 1: a fight. But he has a bunch on his hands already.
• 1:15
  Speaker 1: He has one with China, he has one he's working
• 1:18
  Speaker 1: through the U S. M C. A if I got
• 1:19
  Speaker 1: that correctly, But you know he's got he's got a
• 1:22
  Speaker 1: lot of irons in the fire right now with trade. Well,
• 1:25
  Speaker 1: it's a reminder that the trade wars aren't just about China.
• 1:27
  Speaker 1: It's they're all over the place. And you know, there's
• 1:30
  Speaker 1: a there's a trade war that's still going on in
• 1:32
  Speaker 1: some ways with Canada and Mexico. Even though you've got
• 1:34
  Speaker 1: the U S. N C. It's still tariffs that are
• 1:36
  Speaker 1: still in place there. There's negotiations that are gonna get
• 1:38
  Speaker 1: underway with Japan. I think there's a This is a
• 1:41
  Speaker 1: reminder that a lot of us were thinking that as
• 1:43
  Speaker 1: the U. S and China got close to a deal,
• 1:46
  Speaker 1: and they are getting close to a deal, we think
• 1:47
  Speaker 1: we're gonna see something in the next month or so,
• 1:50
  Speaker 1: um that things were going to calm down. That this
• 1:52
  Speaker 1: kind of shadow that was hanging over the global economy
• 1:55
  Speaker 1: of the trade wars was going to go away. Well,
• 1:58
  Speaker 1: it isn't because Donald Trump wants to take on all
• 2:01
  Speaker 1: of these other trading partners like the EU, like Japan.
• 2:05
  Speaker 1: These are big economies that Donald Trump is gearing up
• 2:07
  Speaker 1: for a fight. Let's go to this one of the
• 2:09
  Speaker 1: EU about the aviation. I mean, like if bubbing doesn't
• 2:12
  Speaker 1: have enough problems with the seven thirty seven max that
• 2:14
  Speaker 1: now has to deal with with this issue, give us
• 2:16
  Speaker 1: a little history here, because these are both industries that
• 2:18
  Speaker 1: have been highly subsidized and there's been tariffs for a
• 2:21
  Speaker 1: long period of time. It seems like we've been rereading
• 2:23
  Speaker 1: about this issue Airbus and Boeing and others for a
• 2:25
  Speaker 1: long time. Yeah, this is the longest running fight in
• 2:28
  Speaker 1: the w t OH. It's been going on for fourteen years.
• 2:30
  Speaker 1: I think there's there's one element of normality about what
• 2:33
  Speaker 1: Donald Trump is doing and that uh, these are gonna
• 2:36
  Speaker 1: be tariffs that are likely to be sanctioned by the
• 2:39
  Speaker 1: w t OH. This is going to be allowed under
• 2:41
  Speaker 1: global trading rules. And normally Donald Trump wants to go
• 2:43
  Speaker 1: around a w t O or rail against a W two.
• 2:47
  Speaker 1: And we saw on tweet today, you know, sighting the
• 2:49
  Speaker 1: w TO is ruling on the legal subsidies here. It's
• 2:51
  Speaker 1: one of the longest running fights. It's a fight that's
• 2:54
  Speaker 1: that has kind of refused to go away. It's also
• 2:57
  Speaker 1: a fight that you hear people in the administration site
• 3:00
  Speaker 1: as an example of what is wrong with the w
• 3:02
  Speaker 1: t O and the global trading system. Why is it
• 3:04
  Speaker 1: that it takes fourteen years to slve something like this? So, Sean,
• 3:07
  Speaker 1: I love that you're here, Sean Donn and he's been
• 3:10
  Speaker 1: coovering trade for a long time. You have a sense
• 3:12
  Speaker 1: of what's real and what's not. And what I thought
• 3:15
  Speaker 1: was really compelling this morning was when these headlines hit,
• 3:19
  Speaker 1: the market didn't really move that much. You didn't see
• 3:22
  Speaker 1: a huge drop in airbus shares, Bowing shares, which have
• 3:25
  Speaker 1: already gotten so beaten up, didn't go down that much.
• 3:27
  Speaker 1: And then just in general, there wasn't sort of any
• 3:30
  Speaker 1: kind of reaction. What do you make of that? I
• 3:33
  Speaker 1: think when I make of that is that the market
• 3:35
  Speaker 1: has priced in this kind of uncertainty about trade that's
• 3:38
  Speaker 1: been with us for the past year. And and and Terris,
• 3:41
  Speaker 1: this is another volley from Donald Trump. But in some ways,
• 3:44
  Speaker 1: it's a front that we knew was open in terms
• 3:46
  Speaker 1: of the EU. It's also to be frank, it's a dispute.
• 3:50
  Speaker 1: It's the airbus bowing dispute that probably puts a lot
• 3:53
  Speaker 1: of people to sleep in the markets. It's been around
• 3:55
  Speaker 1: so long. I'll tell you what doesn't put them to
• 3:57
  Speaker 1: sleep is China trade negotiations. Although you just mentioned earlier,
• 4:01
  Speaker 1: sometime in the next month, this was a deal. We've
• 4:04
  Speaker 1: been expecting for the last couple of weeks to get
• 4:06
  Speaker 1: an announcement, and you know, I thought they were gonna
• 4:08
  Speaker 1: have a golf date at mar Lago and you know,
• 4:11
  Speaker 1: maybe sushi. I mean, who knows. But what's what's the
• 4:15
  Speaker 1: latest on the China trade negotiations? Are we are both
• 4:18
  Speaker 1: sides making substantive progress or is it just going to
• 4:22
  Speaker 1: be a headline? Do you think so? I think they're
• 4:24
  Speaker 1: making substantive progress. I think there's a sign. You know,
• 4:27
  Speaker 1: we're getting signs that there's there's a there's a real
• 4:29
  Speaker 1: deal that's that's brewing here. What is happening right now? Well,
• 4:32
  Speaker 1: the problem with trade is and one of the reasons
• 4:34
  Speaker 1: that it tends to not get the attention to deserves
• 4:38
  Speaker 1: sometimes in my mind, although I'm a I'm a trade geek,
• 4:40
  Speaker 1: is very simply that drags on, and just when you're
• 4:44
  Speaker 1: exhausted with the trade negotiation, that seems to drag on
• 4:47
  Speaker 1: for another year or another month. Uh. And that's really
• 4:51
  Speaker 1: what we're seeing here. These things are hard. I was
• 4:53
  Speaker 1: on the fun last last week with someone in the
• 4:54
  Speaker 1: administration is close to the negotiations, and he said, look,
• 4:58
  Speaker 1: these things are going, they're going. Well, it's just really hard.
• 5:02
  Speaker 1: So just real quickly here, I'm wondering people talk about
• 5:05
  Speaker 1: these trade skirmishes as President Trump's doing. How much are
• 5:09
  Speaker 1: are many Democrats kind of quietly happy about all this
• 5:13
  Speaker 1: in the sense, not not from sort of like a
• 5:15
  Speaker 1: political standpoint, but glad that he's doing and fighting these
• 5:19
  Speaker 1: fights because they think that they're legitimate. So there's a
• 5:22
  Speaker 1: lot of people in Washington and around the world, to
• 5:24
  Speaker 1: be fair, who think that the fight against China's a
• 5:27
  Speaker 1: legitimate fight. There's some legitimate issues there on industrial subsidies
• 5:29
  Speaker 1: and intellectual property and so on. But what you've really
• 5:32
  Speaker 1: pointed to is a big dilemma for the Democrats going
• 5:34
  Speaker 1: into trade, and trade skepticism used to be their issue.
• 5:38
  Speaker 1: Donald Trump's made it his issue, how do they respond?
• 5:41
  Speaker 1: Sean Donna, thank you so much for joining us here
• 5:43
  Speaker 1: in studio Bloomberg Interactive Broker Studio. We love having here
• 5:47
  Speaker 1: talking authoring trade. Sean is a senior trade reporter for
• 5:49
  Speaker 1: Bloomberg News. Well, despite the down market today, the SMP
• 6:08
  Speaker 1: is up fifer cent this year. Today, the NASTAC is
• 6:11
  Speaker 1: up almost The question for a lot of investors is
• 6:15
  Speaker 1: what's left in the markets, particularly for seeing slowing global growth, uh,
• 6:19
  Speaker 1: you know, evidenced by the I m F data this morning,
• 6:23
  Speaker 1: for example. So it help us dig into that issue.
• 6:25
  Speaker 1: We welcome David Deets to the show. David is founder,
• 6:28
  Speaker 1: president and chief investment strategist for point View Wealth Management
• 6:32
  Speaker 1: in Summit, New Jersey. David, thank you so much for
• 6:35
  Speaker 1: joining us. So we did have some weaker growth numbers
• 6:39
  Speaker 1: coming out of the I m F today, I think
• 6:41
  Speaker 1: probably giving some of the bears some ammunition that say, gee,
• 6:45
  Speaker 1: this market has really gotten ahead of itself given what
• 6:48
  Speaker 1: appears to be slowing global growth. What say you, David, Well, certainly, um,
• 6:54
  Speaker 1: that was one of it. That is one of the
• 6:55
  Speaker 1: reasons for the sell off today. Um, you know, I
• 6:58
  Speaker 1: would note that the I m F is still UH
• 7:02
  Speaker 1: positing stronger growth in two thousand twenty than this year,
• 7:07
  Speaker 1: so they do see the dip in global activity as
• 7:10
  Speaker 1: somewhat temporary UM. But you know, I think from an
• 7:14
  Speaker 1: investors point of view, the concerns about global growth are
• 7:17
  Speaker 1: not new. And of course what has helped our markets
• 7:21
  Speaker 1: here is that the story has been pretty positive on
• 7:24
  Speaker 1: the US economy with the labor markets, unemployment rate about
• 7:29
  Speaker 1: a forty year low. UM job creation was just report
• 7:34
  Speaker 1: is very good in March. Consumer sentiment is very strong,
• 7:38
  Speaker 1: small business sentiment is very strong. So I think on balance,
• 7:42
  Speaker 1: what we're focused on here is how well the US
• 7:44
  Speaker 1: is doing, how much creasmce. Can we actually give this
• 7:48
  Speaker 1: idea that the I m F projections somehow is what's
• 7:52
  Speaker 1: driving the market? I mean, is this just basically that
• 7:54
  Speaker 1: no one really has an incentive trade and there are
• 7:56
  Speaker 1: a couple of algorithms out there that are kind of
• 7:58
  Speaker 1: like bouncing around a couple of styles, pushing things down
• 8:00
  Speaker 1: in touch before we get actual real news. Well, certainly,
• 8:04
  Speaker 1: if you put into the context of the success of
• 8:07
  Speaker 1: economists predicting the economy, you do need to take it
• 8:11
  Speaker 1: with a grain of salt. I remember, you know, Warren
• 8:14
  Speaker 1: Buffett saying they put economists on earth to make astrologers
• 8:17
  Speaker 1: look respectable. UM. Their track record, quite frankly, has not
• 8:21
  Speaker 1: been particularly good. Is we look at the I mf
• 8:25
  Speaker 1: UM report, we're scratching our heads a little bit because
• 8:28
  Speaker 1: although they're positive for two thousand and twenty, they see
• 8:30
  Speaker 1: the two biggest economies in the world, the US and China,
• 8:34
  Speaker 1: being slower in two thousand twenty than two thousand nineteen.
• 8:37
  Speaker 1: I'm trying to figure out how that works exactly. But
• 8:40
  Speaker 1: you know, in any event, it's more than just the economy.
• 8:44
  Speaker 1: What it really comes down to is corporate earnings. It
• 8:48
  Speaker 1: comes down to interest rates UM, and it comes down to,
• 8:53
  Speaker 1: you know, the outlook for global trade. I would say
• 8:55
  Speaker 1: that the biggest factor that has driven the market this
• 8:58
  Speaker 1: year is the d eighty degree turn in the position
• 9:03
  Speaker 1: by the Federal Reserve from being very hawkish in terms
• 9:06
  Speaker 1: of wanting to hike interrust rates to now being very dubbish,
• 9:09
  Speaker 1: and many market UM participants see the next move in
• 9:14
  Speaker 1: the Federal Reserve as a cut in interest rates as
• 9:16
  Speaker 1: opposed to any further hikes. I think at the end
• 9:19
  Speaker 1: of the day, low interest rates UM promote the US
• 9:23
  Speaker 1: housing economy make corporate acquisitions and capital expenditures much more
• 9:28
  Speaker 1: affordable and them And at the end, I mean people
• 9:30
  Speaker 1: are looking at today, for example, ten year treasury two
• 9:33
  Speaker 1: point four eight Very few of us can make our
• 9:36
  Speaker 1: long term plans work getting two point four eight percent
• 9:40
  Speaker 1: on our money. So therefore, I think that any kind
• 9:43
  Speaker 1: of pullbacks are ultimately gonna be met with positive buying. So,
• 9:46
  Speaker 1: David were later this week, we're gonna be coming into
• 9:49
  Speaker 1: the beginning of the first quarter earnings period. We've got
• 9:52
  Speaker 1: some of the big money center banks. Um I think
• 9:54
  Speaker 1: SMP five hundred earnings forecast consensus for four percent decline
• 10:00
  Speaker 1: or in the first quarter. How are you positioned going
• 10:03
  Speaker 1: into the first quarter earning season? Well, so, I mean
• 10:07
  Speaker 1: from the macro point of view, Um, yeah, it's it's
• 10:11
  Speaker 1: very disconcerting when earnings are the most the biggest driver
• 10:16
  Speaker 1: of of stocks to have a forecast for a four
• 10:20
  Speaker 1: percent decline you over year. Take that with a grain
• 10:22
  Speaker 1: of salt. For a couple of reasons. One is last
• 10:25
  Speaker 1: year's Q one was very much juiced, as it were,
• 10:29
  Speaker 1: by the cut in interest rates. That we don't have
• 10:31
  Speaker 1: a second cut in this year, so that has to
• 10:34
  Speaker 1: be taken any consideration, and of course, at the end
• 10:36
  Speaker 1: of the day, is not what happened in the last
• 10:39
  Speaker 1: three months. At the end of the day, it's going
• 10:41
  Speaker 1: to be what UM market particiption, what these companies forecasts
• 10:45
  Speaker 1: for the next let's say, nine to twelve months UM so,
• 10:51
  Speaker 1: and certainly you can make the case anyway that the
• 10:53
  Speaker 1: fact that UM the forecast for earnings is so negative
• 10:57
  Speaker 1: now beats and positive surprises will be much easier. UM.
• 11:01
  Speaker 1: I think what we're doing here is looking at some
• 11:04
  Speaker 1: companies where the they have stellar franchises, but the prospect
• 11:11
  Speaker 1: for near term earnings is somewhat muted. You mentioned Financials
• 11:15
  Speaker 1: one that we like a lot, as wells Fargo. We're
• 11:18
  Speaker 1: gonna be hearing from them on Friday. UM. I don't
• 11:21
  Speaker 1: think they're gonna say a whole lot because they're in
• 11:23
  Speaker 1: this period now where their current CEO is stepped down
• 11:26
  Speaker 1: there in the process of not only finding a new one,
• 11:28
  Speaker 1: but looking outside the bank. I think the catalyst for
• 11:31
  Speaker 1: growth for this blue chip franchisees naming a bank executive
• 11:37
  Speaker 1: UM which people respect and can turn the bank around.
• 11:42
  Speaker 1: Names go ahead, any names that you have that you
• 11:45
  Speaker 1: would like to see rise to the Holme of Wells Fargo. Well,
• 11:49
  Speaker 1: certainly the UM. There's a number of lieutenants UM in
• 11:54
  Speaker 1: JP Morgan. They have been cited UM the actually Warren
• 11:58
  Speaker 1: Buffett UH is very high on JP Morgan and they're
• 12:02
  Speaker 1: probably frustrated because Jamie Diamond seems to have no current
• 12:05
  Speaker 1: plans to leave. I think that would make some sense there. Um,
• 12:10
  Speaker 1: why would Jamie Diamond go from JP Morgan to Wells Fargo.
• 12:15
  Speaker 1: I misspoke there. Jamie Diamond is not going to move,
• 12:18
  Speaker 1: but people who want his job under him UM would
• 12:23
  Speaker 1: be perhaps interested in taking over arguably bank just as
• 12:27
  Speaker 1: good at JP as JP Morgan. Immediately. So we we
• 12:31
  Speaker 1: had Walgreens pre announced, and I know that's the name
• 12:34
  Speaker 1: we've talked about in the past. For you, that side
• 12:36
  Speaker 1: of the business, that prescription business, the retail business very difficult.
• 12:39
  Speaker 1: What are you views on on Walgreens? So Walgreens is
• 12:43
  Speaker 1: a company that that we moved on to our BI
• 12:46
  Speaker 1: list right now is trading in about eight times earnings
• 12:49
  Speaker 1: versus a market that said about seventeen times earnings. You know,
• 12:53
  Speaker 1: although much of retail has been gutted by the rise
• 12:57
  Speaker 1: of the internet shopping, we still feel that buying prescription drugs,
• 13:01
  Speaker 1: going in and talking with the pharmacist UM is not
• 13:05
  Speaker 1: so easily displaced by buying online. Plus, of course, all
• 13:09
  Speaker 1: these pharmacies are now developing clinics so that it could
• 13:13
  Speaker 1: be a low cost option to get a check up,
• 13:16
  Speaker 1: to get some medical care at at at a lower rate.
• 13:19
  Speaker 1: And of course you're always looking for those companies which
• 13:21
  Speaker 1: have size and scale. Walgreens and CBS almost have a
• 13:25
  Speaker 1: duopoly in in this country. Put Walgreens in the context
• 13:30
  Speaker 1: of healthcare. General healthcare is under a cloud. It's usually
• 13:32
  Speaker 1: a defensive sector. Right now, of course, everyone's uh, the
• 13:36
  Speaker 1: pace of prescription drug inflation has been reduced dramatically. Uh
• 13:41
  Speaker 1: do the jaw boning from politicians on both sides of
• 13:44
  Speaker 1: the aisle. Of course, there's some concerns as to whether
• 13:46
  Speaker 1: we'll fundamentally change the system to a single payer. What
• 13:50
  Speaker 1: has happened historically is those have been unbelievably great opportunities
• 13:55
  Speaker 1: to take healthcare UM investment because normally, Uh, the fear
• 14:00
  Speaker 1: goes away, the threat of price controls dissipates, the system
• 14:05
  Speaker 1: doesn't change, and it can be a great way to
• 14:08
  Speaker 1: see appreciation on your investment. David DIDs thank you so
• 14:10
  Speaker 1: much for being with us. David DIDs is founder, president,
• 14:13
  Speaker 1: and chief investment strategist at Point View Wealth Management, based
• 14:16
  Speaker 1: in Summit, New Jersey. We have been in a low
• 14:36
  Speaker 1: interest rate environment for more than a decade. We have
• 14:40
  Speaker 1: been looking at robust credit markets, easy learning standards pretty
• 14:44
  Speaker 1: much across the board. So there's kind of a mystery
• 14:46
  Speaker 1: that's been baked into certain corners of credit markets, in
• 14:50
  Speaker 1: particular the auto lending sector, which is seen delinquencies rise
• 14:54
  Speaker 1: to a post crisis high in some cases, as well
• 14:57
  Speaker 1: as the high defaults and delinquencies among some pure to
• 15:00
  Speaker 1: peer loans. Joining us now to dig under the hood
• 15:02
  Speaker 1: and explain perhaps why we're seeing that is Adam Tempken,
• 15:06
  Speaker 1: credit market supporter for Bloomberg News, joining us here in
• 15:08
  Speaker 1: our Bloomberg Inner Active Broker Studios. So Adam, let's just
• 15:11
  Speaker 1: start there. What are people looking at for the possible
• 15:14
  Speaker 1: cause for the uptick intolinquencies and defaults at a time
• 15:18
  Speaker 1: of easy credit. Well, Goldman Sachs and Moody's analytics have
• 15:21
  Speaker 1: recently said credit scores they do not include economic cycles,
• 15:25
  Speaker 1: but economic cycles greatly influenced credit scores. So as the
• 15:30
  Speaker 1: economy has expanded so have the scores. The problem is
• 15:34
  Speaker 1: people's inherent risk, their inherent ability and attitude towards paining
• 15:38
  Speaker 1: is the same. So a five fifty subprime person today
• 15:42
  Speaker 1: is relatively riskier than a five fifty and two thousand nine,
• 15:46
  Speaker 1: and that could be a hidden risk. So the idea
• 15:49
  Speaker 1: here is the FICO scores, which are used by many
• 15:52
  Speaker 1: peer to peer lenders, and some of these smaller deep
• 15:55
  Speaker 1: subprime lenders are not as reliable exactly. The scores are
• 16:01
  Speaker 1: migrating up, but the risk is the same, and the
• 16:04
  Speaker 1: question is are lenders accounting for that? Are they raising
• 16:07
  Speaker 1: their minimum FICO cutoffs? While Moody's Analytics and Goldman says
• 16:11
  Speaker 1: some of them, the smaller ones maybe unsophisticated deep subprime auto,
• 16:15
  Speaker 1: they're not. They're not bringing in like debt to income
• 16:19
  Speaker 1: or LTV to have. It's not a good differentiator differentiator anymore,
• 16:24
  Speaker 1: these FICO scores, and this is leading to hidden risk
• 16:27
  Speaker 1: in certain corners deep subprime, private credit cards, and peer
• 16:31
  Speaker 1: to peer marketplace lending. The categories you just mentioned kind
• 16:35
  Speaker 1: of harkened me back to ten or twelve years ago. Okay,
• 16:38
  Speaker 1: so are you trying to tell us or is Moody's
• 16:40
  Speaker 1: and Goldman trying to tell us that the lending community
• 16:44
  Speaker 1: had not really learned the lessons, or is kind of
• 16:46
  Speaker 1: those lessons have kind of receded into the background, because
• 16:48
  Speaker 1: this sounds eerily similar. Well, the good news is that
• 16:52
  Speaker 1: some of the larger banks and savvier lenders are including
• 16:55
  Speaker 1: other factors. The worry is complacency with some of the
• 17:00
  Speaker 1: waller lenders like deep Subprime Um and some of the
• 17:03
  Speaker 1: smaller online personal loan lenders. They may not be increasing
• 17:07
  Speaker 1: their minimum credit scores, they might not be bringing other
• 17:11
  Speaker 1: factors in. And Goldman is a little worried about this,
• 17:14
  Speaker 1: and Moody's is saying there could be great complacency from
• 17:16
  Speaker 1: these lenders that could lead to losses down the road.
• 17:19
  Speaker 1: All Right, so let's put this into some scope here,
• 17:21
  Speaker 1: because there's a question how much debt is there that
• 17:25
  Speaker 1: is backed by loans that are underwritten with Phyco scores
• 17:28
  Speaker 1: for first and foremost in the mind. I mean, that's
• 17:31
  Speaker 1: how how much we talked about here. Well, this is
• 17:33
  Speaker 1: probably not a systemic problem. If you look at just outstandings,
• 17:37
  Speaker 1: it's about four hundred billion dollars worth across those areas
• 17:41
  Speaker 1: that I just mentioned. However, not all of that is securitized,
• 17:45
  Speaker 1: So maybe one fourth of that is securitized hundred billion
• 17:48
  Speaker 1: or so approximately, So this is not systemic. However, the
• 17:52
  Speaker 1: problem is it's a great risk for lenders. It's a
• 17:55
  Speaker 1: great risk for some of the investors in the deep
• 17:58
  Speaker 1: subprime A B s. Okay, and that's what I was
• 18:00
  Speaker 1: going to ask. So a hundred billion dollars of these
• 18:02
  Speaker 1: loans have been securitized. It means they've been pulled uh
• 18:05
  Speaker 1: into bundles and then their bonds that are sold that
• 18:07
  Speaker 1: are backed by the payments that go into those pools,
• 18:10
  Speaker 1: and they're they're sort of given out to the investors
• 18:13
  Speaker 1: depending on which trunch they invested in, and depending on
• 18:15
  Speaker 1: on what the credit rating is and where they are
• 18:17
  Speaker 1: in the waterfall structure. So I'm wondering, from your perspective,
• 18:21
  Speaker 1: who are the investors and the riskiest trunches here? I mean,
• 18:24
  Speaker 1: is there is there a sense of, oh, that's your
• 18:26
  Speaker 1: pension fund. Pension funds are look going all the way
• 18:29
  Speaker 1: down to double B and deep subprime. Auto asset managers,
• 18:33
  Speaker 1: I mean across the board people pretty much think these
• 18:37
  Speaker 1: types of auto loan A B s are safe and
• 18:39
  Speaker 1: they've generally performed well, although I have to say, uh,
• 18:42
  Speaker 1: thirty day delinquencies for subprime auto A B s are
• 18:46
  Speaker 1: at close to a peak. Now does that translate to losses?
• 18:49
  Speaker 1: Here's where it gets tricky. There could be great delinquencies,
• 18:53
  Speaker 1: it doesn't always translate to a loss right away because
• 18:55
  Speaker 1: there's such credit protections robusts. Uh, these are structured very well,
• 19:00
  Speaker 1: but a lot of the banks are now saying do
• 19:02
  Speaker 1: not buy lower rated you know, auto deep subprime A
• 19:06
  Speaker 1: B s, stay away the personal loan a bs that's
• 19:08
  Speaker 1: been securities only over the last few years performing pretty
• 19:12
  Speaker 1: pretty poorly right out of the gate, honestly, very high delinquencies.
• 19:17
  Speaker 1: We've not really seen a tightening of underwriting yet, but um,
• 19:21
  Speaker 1: a lot of people stay away from that stuff, that
• 19:23
  Speaker 1: type of peer to peer assepect securities, which is a newer,
• 19:27
  Speaker 1: untested asset class. So it looks like Moody's and the
• 19:30
  Speaker 1: Golden The reports here kind of shedding some light on
• 19:32
  Speaker 1: this issue, which we've heard a little bit about certainly,
• 19:35
  Speaker 1: but maybe not the scope. Has there been any regulatory
• 19:38
  Speaker 1: response or how are the regulators looking at this little
• 19:40
  Speaker 1: slice of the market. There's definitely been a lot of
• 19:43
  Speaker 1: focus on subprime auto um. The the bond investors always say, hey,
• 19:49
  Speaker 1: we think this is safe. You know, uh, there's great protections.
• 19:53
  Speaker 1: But you know, the Federal Reserve came out February saying, hey,
• 19:57
  Speaker 1: auto dilinquencies are at seven million. People are hind on
• 20:00
  Speaker 1: their payments. So this is kind of a growing theme.
• 20:05
  Speaker 1: Warning signals are flashing, and some of the regulators are
• 20:07
  Speaker 1: slowly getting involved. You know. It seems to me like
• 20:10
  Speaker 1: one of the biggest consequences of this is to sty
• 20:12
  Speaker 1: me the peer to peer lending industry before it really
• 20:15
  Speaker 1: had a chance to gain steam, Paul, because that seems
• 20:18
  Speaker 1: to be one consequence they're having a harder time making
• 20:22
  Speaker 1: money if the credit qualifications just aren't there. Yes, and
• 20:25
  Speaker 1: we've had some period of peer folks in here before
• 20:27
  Speaker 1: talking about kind of how they have a demand for
• 20:29
  Speaker 1: their business because some of the banks have stepped away
• 20:31
  Speaker 1: a little bit. So very it's very interesting, and I
• 20:34
  Speaker 1: think it's the story we're gonna hear more about going forward.
• 20:37
  Speaker 1: Adam Temptin, thank you so much, Credit Markets reporter for
• 20:40
  Speaker 1: Bloomberg News. Joining us here in a Bloomberg eleventh three
• 20:42
  Speaker 1: yo studio in New York. Well, we are fast approaching
• 20:58
  Speaker 1: the April fifteen deadline, people are scrambling to get their
• 21:02
  Speaker 1: returns done. A lot of tax law changes this year
• 21:05
  Speaker 1: for people to get their hands around, including new tax
• 21:08
  Speaker 1: law changes around alimony and child support. To get the
• 21:11
  Speaker 1: latest on this, we welcome our next guest, Maggie John Drow.
• 21:14
  Speaker 1: She's financial advisor and founder of John Drought Wealth Management.
• 21:17
  Speaker 1: She joins us live here in Interactive Broker studio. Maggie,
• 21:20
  Speaker 1: thank you so much for being with us again. A
• 21:22
  Speaker 1: lot of tax law changes that people have to figure
• 21:26
  Speaker 1: out this year. Talk to us a little bit about
• 21:28
  Speaker 1: the alimony child support changes that are in this year's
• 21:33
  Speaker 1: tax code. Sure, thank you for having me. So, if
• 21:37
  Speaker 1: you were divorced on December thirty one, two eighteen, or
• 21:43
  Speaker 1: prior to your divorce decree remains the same unless you
• 21:48
  Speaker 1: decide to amend it. But if you were divorced on
• 21:51
  Speaker 1: January one, two thousand, nineteen or thereafter, alimony has now
• 21:56
  Speaker 1: is different for you the way it is taxed. Uh
• 21:59
  Speaker 1: So it's essentially flopped um. In the past, those that
• 22:03
  Speaker 1: were paying alimony could take that as a tax deduction,
• 22:06
  Speaker 1: and that is no longer the case for those after
• 22:09
  Speaker 1: January one two has a nineteen and those that are
• 22:12
  Speaker 1: receiving the alimony, this is no longer taxable income for you. Okay,
• 22:18
  Speaker 1: So basically it makes it more expensive for people who
• 22:22
  Speaker 1: have to pay alimony. That's right. So how does this
• 22:27
  Speaker 1: How have you seen this affecting clients so far? Yeah? Absolutely,
• 22:30
  Speaker 1: so this is fairly new so at time when we
• 22:33
  Speaker 1: tell but experts are concerned that while thinking about and
• 22:38
  Speaker 1: finalizing your divorce decree, there's going to be less incentive
• 22:42
  Speaker 1: to provide greater alimony. Much as you said, Um, so,
• 22:46
  Speaker 1: of course that might be worse in general for the markets.
• 22:49
  Speaker 1: There'll be less money being injected into goods and services,
• 22:52
  Speaker 1: of course, But I'm wondering from your practical experience, whether
• 22:56
  Speaker 1: it is affecting, uh, the ability of certain people to
• 23:01
  Speaker 1: get the other partner to actually pay alimony. Yes, that
• 23:05
  Speaker 1: is a fear that that's going to but it hasn't.
• 23:08
  Speaker 1: You haven't seen a plan. It's it's been so new
• 23:10
  Speaker 1: that not not really yet know. So Maggie, why why
• 23:13
  Speaker 1: did the I R S do this? Yeah? Absolutely, um,
• 23:17
  Speaker 1: I mean no one really knows what the I R
• 23:18
  Speaker 1: S does. Well, they're hoping that it will make things
• 23:23
  Speaker 1: easier right. So they've also increased um the standard deduction
• 23:28
  Speaker 1: so that less people are itemizing, and this is probably
• 23:31
  Speaker 1: another way to get people to take the standard deduction
• 23:34
  Speaker 1: versus itemizing UM. Certainly though some analysts you believe it
• 23:38
  Speaker 1: will raise revenue for the I R S over the
• 23:41
  Speaker 1: next decade or so. So I'm wondering just broadening out
• 23:44
  Speaker 1: some of the other tax changes. The salt issue is
• 23:48
  Speaker 1: one that is very much in the forefront of people's minds.
• 23:51
  Speaker 1: How is that bearing out from your perspective as you
• 23:54
  Speaker 1: talk with clients. Yeah, we're here in New York and
• 23:58
  Speaker 1: New Yorkers and others in the try Ster area, Connecticut,
• 24:01
  Speaker 1: New Jersey. They are being affected the most. They've always
• 24:05
  Speaker 1: taken the greatest salt deduction historically. So now, as you mentioned,
• 24:08
  Speaker 1: there's a cap of ten thousand dollars as to what
• 24:12
  Speaker 1: can be deducted from the federal taxes, and so um
• 24:17
  Speaker 1: both from an alimony standpoint being taken away as a deduction.
• 24:21
  Speaker 1: Now at the cap of the Salt Tact tax deduction
• 24:24
  Speaker 1: and also at the standard deduction being increased, a lot
• 24:27
  Speaker 1: less people are itemizing. So you know, it seems like
• 24:30
  Speaker 1: it's a cat and mouse game between the I R
• 24:32
  Speaker 1: s and tax advisors every year, it just kind of
• 24:35
  Speaker 1: goes back and forth. So now you've got this issue
• 24:37
  Speaker 1: about the alimony and divorce. Are there ways that, you know,
• 24:41
  Speaker 1: maybe tax advisors are suggesting their clients can preserve maybe
• 24:44
  Speaker 1: some of the tax benefit. Sure, I mean I always
• 24:47
  Speaker 1: encourage everyone to speak to their cpay about their individual situation.
• 24:52
  Speaker 1: Um but there are still those that will be taking
• 24:55
  Speaker 1: the itemized deduction, certainly if you have to do ducked
• 25:00
  Speaker 1: more than twenty four thousand, if you're married, filing jointly,
• 25:03
  Speaker 1: and of course the standard uh ways apply, So maxing
• 25:07
  Speaker 1: out that four oh one k your retirement plans, of
• 25:10
  Speaker 1: course is a great way to UM to to increase
• 25:14
  Speaker 1: your your deduction. So people your client has been kind
• 25:17
  Speaker 1: of freaking out as they realize how different it can
• 25:20
  Speaker 1: be for them. Yeah. I think most surprisingly was that
• 25:24
  Speaker 1: the tax brackets were changed. So we still have seven,
• 25:28
  Speaker 1: but obviously where those brackets falls different and therefore the
• 25:32
  Speaker 1: withholding table has changed. And I think a lot of
• 25:34
  Speaker 1: clients did not realize that they did not work with
• 25:37
  Speaker 1: their employer to reflect that, and so people are either
• 25:40
  Speaker 1: not getting as much of her turn back or they're
• 25:43
  Speaker 1: actually owing the government money, which I think has been
• 25:44
  Speaker 1: the most surprising. Maggie Jendre, thank you so much for
• 25:48
  Speaker 1: being with us. We really appreciate you having here. Uh.
• 25:51
  Speaker 1: Maggie Jendre is financial advisor and founder of Gendrew Wealth Management,
• 25:56
  Speaker 1: joining us here in our Bloomberg Interactive Brokers Studios. Thanks
• 26:00
  Speaker 1: for listening to the Bloomberg P and L podcast. You
• 26:02
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts or
• 26:05
  Speaker 1: whatever podcast platform you prefer. I'm Paul Sweeney. I'm on
• 26:08
  Speaker 1: Twitter at pt Sweeney. I'm Lisa abram Woyit's I'm on
• 26:10
  Speaker 1: Twitter at Lisa abram woits one before the podcast. You
• 26:13
  Speaker 1: can always catch us worldwide. I'm Bloomberg Radio