Latest / Bloomberg Intelligence / Hard To See Coal Rebound Despite Trump's EPA Rollback

Transcript

Hard To See Coal Rebound Despite Trump's EPA Rollback · 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
• 0:15
  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
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Today,
• 0:32
  Speaker 1: President Trump's administration unveiled its plans to dramatically weakened pollution
• 0:37
  Speaker 1: limits on coal fired power plants by shifting most of
• 0:41
  Speaker 1: the regulatory burden to states. This basically is another way
• 0:45
  Speaker 1: to basically foster the coal industry, as President Trump has
• 0:49
  Speaker 1: promised to do. Here to talk a little bit about that,
• 0:51
  Speaker 1: as Ethan Zindler ahead of America's for Bloomberg any f
• 0:55
  Speaker 1: coming to us from Washington, d c. Ethan, thank you
• 0:57
  Speaker 1: so much for joining us. So can we just start
• 0:59
  Speaker 1: with an overview of what exactly President Trump's administration is
• 1:02
  Speaker 1: trying to do here. So first and foremost, there was
• 1:05
  Speaker 1: an effort under the Obama administration called the Clean Power
• 1:08
  Speaker 1: Plan that would have set a national goal of reducing
• 1:11
  Speaker 1: CEO two missions from the power sector. The goal was
• 1:14
  Speaker 1: to cut CEO two emissions by twenty thirty. We're very
• 1:19
  Speaker 1: actually very far along towards that goal already. But the
• 1:23
  Speaker 1: new rule, which was essentially has now been rolled out
• 1:26
  Speaker 1: by the Trump administration UH sets no specific long term
• 1:30
  Speaker 1: goals for CEO two emissions and essentially says states, you guys,
• 1:34
  Speaker 1: go away and figure out how much you want to
• 1:36
  Speaker 1: do on your own to try to address CEO two reductions. Okay,
• 1:41
  Speaker 1: So just to give a sense, and this is something
• 1:44
  Speaker 1: that you noted that as of the end of last year,
• 1:46
  Speaker 1: the US already achieved pent UH CEO two reductions that
• 1:51
  Speaker 1: had aimed to reach by In other words, it was
• 1:53
  Speaker 1: really ahead of schedule. And I'm wondering how much does
• 1:56
  Speaker 1: President Trump's how much too, is President Trump's actions set
• 1:59
  Speaker 1: us back or do they have no impact whatsoever. Well,
• 2:03
  Speaker 1: this is one of those stories, and especially someone here
• 2:05
  Speaker 1: in Washington, which is I think you know, gets a
• 2:08
  Speaker 1: lot of attention, justifiably because it represents the perspective of
• 2:12
  Speaker 1: the administration and the way they view climate and frankly,
• 2:15
  Speaker 1: whether they care about climate at all, which is unclear.
• 2:18
  Speaker 1: But it's very important to put this in the larger
• 2:21
  Speaker 1: context of the trends that are going on in the
• 2:23
  Speaker 1: power sector anyway, And as I mentioned, you know, we've
• 2:26
  Speaker 1: reduced our missions from two thousand five levels already as
• 2:30
  Speaker 1: of your end two thousand seventeen. Our view is that
• 2:34
  Speaker 1: the US power sector will continue to de carbonize. Natural
• 2:38
  Speaker 1: gas is cheap, renewables are cheap, and essentially coal is
• 2:42
  Speaker 1: getting phased out, and frankly, this regulation probably won't change
• 2:46
  Speaker 1: that in any substantial way. So symbolically it's important, But
• 2:50
  Speaker 1: as far as the market's concerned, UH and as far
• 2:53
  Speaker 1: as the US emissions path is concerned, from the power sector,
• 2:57
  Speaker 1: at least an our view is not likely to make
• 2:59
  Speaker 1: a big difference. Can you give us any update on
• 3:01
  Speaker 1: the coal industry and whether there has been an increased
• 3:03
  Speaker 1: in UH in jobs there or an increase in profitability
• 3:07
  Speaker 1: since President Trump took office. I'm looking right now at Peabody,
• 3:09
  Speaker 1: for example, one of the big US coal companies. Their
• 3:12
  Speaker 1: shares are up more than this year, so they are
• 3:15
  Speaker 1: beating the broader large indexes. Well, it's all it's all
• 3:18
  Speaker 1: relative to I mean, take a look at where they were.
• 3:21
  Speaker 1: They were there fair enough and and I think generally speaking,
• 3:25
  Speaker 1: you know, I think there's been plenty of sort of
• 3:28
  Speaker 1: favorable publicity around the coal industry with this administration saying
• 3:31
  Speaker 1: they want to do more things, and they are taking
• 3:33
  Speaker 1: a number of regulatory steps to try to be supportive.
• 3:36
  Speaker 1: But but our general view is that the economics are
• 3:40
  Speaker 1: the economics, and gas is very cheap in the US,
• 3:43
  Speaker 1: and the consensus view is that it's going to stay
• 3:45
  Speaker 1: cheap for a very long time. Renewable prices have been
• 3:47
  Speaker 1: down substantially, and with the text credits to support them,
• 3:51
  Speaker 1: they also undercut coal. So it's hard to see the
• 3:54
  Speaker 1: US coal power sector making a major rebound regardless of
• 3:59
  Speaker 1: these very US efforts. You know, I want to put
• 4:01
  Speaker 1: you on the spot here and talk about the flip
• 4:03
  Speaker 1: side of of coal and what you're talking about, which
• 4:05
  Speaker 1: is the renewable side solar, uh when other types of
• 4:10
  Speaker 1: energy production that's considered to be more environmentally friendly. The
• 4:14
  Speaker 1: US had been accelerating the production of those types of
• 4:17
  Speaker 1: energy quite significantly under Obama. I'm wondering has that changed
• 4:21
  Speaker 1: at all, or has the pace of adoption continued to
• 4:24
  Speaker 1: gain steam under President Trump. I would say that, you know,
• 4:29
  Speaker 1: we have seen a bit of a slowing on the
• 4:31
  Speaker 1: renewables build side post Trump um. But I wouldn't directly
• 4:35
  Speaker 1: attribute that to any actions that he's taken. There have
• 4:38
  Speaker 1: been policies in place that essentially we're due to sunset
• 4:41
  Speaker 1: and we're coming up towards the end of some of those,
• 4:44
  Speaker 1: and that's part of what sort of frontloaded some of
• 4:46
  Speaker 1: the activity, uh, sort of coincidentally into Obama's term. But
• 4:51
  Speaker 1: generally speaking, you know, we continue to see projects get built.
• 4:55
  Speaker 1: There is support for renewables at the state level on
• 4:57
  Speaker 1: a policy basis, there are tax credits, but most importanly
• 5:00
  Speaker 1: for renewables, the price of the equipment has just come down,
• 5:03
  Speaker 1: particularly for solar, so enormously. I mean, by the end
• 5:06
  Speaker 1: of the year. To put this in context, a solar
• 5:09
  Speaker 1: module sold from a Chinese company will sell for about
• 5:12
  Speaker 1: cents a lot. I realized that means nothing to your listeners,
• 5:15
  Speaker 1: but ten years ago that number was about eight dollars
• 5:17
  Speaker 1: a lot, ten dollars a lot. So the technological advancements
• 5:22
  Speaker 1: and the cost declines have just been tremendous. Okay, So
• 5:26
  Speaker 1: I'm just wondering going forward, how much can one presidential
• 5:29
  Speaker 1: administration shift the policies and sort of shift the landscape
• 5:33
  Speaker 1: for energy consumption at this point, and how much really
• 5:35
  Speaker 1: is it just the market determining what people use. It's
• 5:39
  Speaker 1: mostly market. I think that the administration can sort of
• 5:43
  Speaker 1: try and steer a ship, but it takes years to
• 5:46
  Speaker 1: try and make real adjustments. And I would also argue
• 5:48
  Speaker 1: that some of the most important sort of policies that
• 5:51
  Speaker 1: can affect energy, that the course of direction for the
• 5:54
  Speaker 1: power sector, are not ones that an administration can do unilaterally.
• 5:59
  Speaker 1: You would be Congress um. So, for instance, if you
• 6:02
  Speaker 1: really wanted to help the coal industry, the best thing
• 6:04
  Speaker 1: you could do is probably create a new tax credit
• 6:08
  Speaker 1: or subsidy to support that. But that is not something
• 6:11
  Speaker 1: that the administration can do on its own. It's something
• 6:14
  Speaker 1: Congress needs to help it within um. Despite the fact
• 6:17
  Speaker 1: that Congress seems very inclined to help this administration in
• 6:19
  Speaker 1: a lot of ways, I think people would say that
• 6:22
  Speaker 1: that would be a tough thing to get through even
• 6:24
  Speaker 1: this Congress, and certainly the one that's coming would be
• 6:27
  Speaker 1: less would probably be less inclined to be supportive of
• 6:30
  Speaker 1: something like that, given the fact that the Republican part
• 6:33
  Speaker 1: of the government is expected to lose some seats in
• 6:35
  Speaker 1: the upcoming interm election. Is that what you're imply Yeah,
• 6:38
  Speaker 1: that does seem to be what people think is going
• 6:39
  Speaker 1: to happen so far. One thing I'm wondering is if
• 6:42
  Speaker 1: you stripped away all subsidies for solar and wind, would
• 6:46
  Speaker 1: those methods of energy production still be economically competitive with
• 6:52
  Speaker 1: the fossil fuels? Yes, in some places, know and others?
• 6:55
  Speaker 1: Is the long, long story short. If the winds are
• 6:57
  Speaker 1: strong enough and the sun shine bright enough, projects are
• 7:01
  Speaker 1: absolutely cost competitive. We're seeing that in places like Oklahoma
• 7:05
  Speaker 1: and Arizona and other parts of the California and other
• 7:07
  Speaker 1: parts of the world. The other question is how expensive
• 7:10
  Speaker 1: is the existing generation from those fossil sources. Uh. It
• 7:15
  Speaker 1: really varies from different parts of the country. But the
• 7:18
  Speaker 1: long story short is right now renewables are cost competitive
• 7:21
  Speaker 1: in a number of places around the world, including number
• 7:24
  Speaker 1: of prices in the United States, but not everywhere. And
• 7:27
  Speaker 1: coal with respect to that, is there anything that President
• 7:29
  Speaker 1: Trump can do or that you're watching that will have
• 7:31
  Speaker 1: material impact to support coal unilaterally? I think the Trump
• 7:36
  Speaker 1: administration is trying to do most of the things that
• 7:39
  Speaker 1: it has within its power to support the coal industry. Um,
• 7:43
  Speaker 1: but it is it is frankly just going to be
• 7:45
  Speaker 1: challenging so long as gas prices remain low um if
• 7:49
  Speaker 1: they frankly, if the administration wanted to do something to
• 7:52
  Speaker 1: sort of artificially raise the cost of um of gas production,
• 7:56
  Speaker 1: I don't know what that step would be, tax or whatever.
• 7:59
  Speaker 1: UM That would probably also helped Cole, but again that's
• 8:02
  Speaker 1: something that Congress would probably have to be involved in.
• 8:04
  Speaker 1: Ethan Zindler, thank you so much for that wonderful perspective.
• 8:07
  Speaker 1: Ethan Zindler's head of America's for Bloomberg based in Washington,
• 8:11
  Speaker 1: d C. That's Bloomberg and E f uh And definitely
• 8:15
  Speaker 1: an interesting time with some revocation of Obama era environmental rules.
• 8:20
  Speaker 1: How much effective they actually have that remains to be determined.
• 8:37
  Speaker 1: There are some companies that are the the intersection of
• 8:40
  Speaker 1: some of the trade tensions that have been ongoing, and
• 8:42
  Speaker 1: then there's some that face a changing landscape with respect
• 8:46
  Speaker 1: to new regulations or regulatory rollbacks. Our next guest potentially
• 8:51
  Speaker 1: is at the intersection of both, and that is Mark Vignano.
• 8:54
  Speaker 1: He is chief executive of Commoors, which is based in Wilmington, Delaware.
• 8:58
  Speaker 1: You might know Commors by some of its brands like
• 9:01
  Speaker 1: tef Line, which is sort of means so much to
• 9:05
  Speaker 1: so many people as well as free on Mark. Thank
• 9:08
  Speaker 1: you so much for being with us. So happy to
• 9:09
  Speaker 1: be here. So I want to start with the concept
• 9:12
  Speaker 1: of this company has its business the US and the
• 9:15
  Speaker 1: rest of its outside of the United States. And I'm wondering,
• 9:18
  Speaker 1: at a time when you do have escalating trade tensions,
• 9:21
  Speaker 1: how have you been affected. Yeah, so if you think
• 9:23
  Speaker 1: about trade, you know, and I know the administration today
• 9:26
  Speaker 1: is really trying to get this level playing field. Um.
• 9:29
  Speaker 1: From from our standpoint, there's lots of ways to deal
• 9:32
  Speaker 1: with that level playing field. One area is something that
• 9:35
  Speaker 1: we are very important to us as the key Galley Agreement.
• 9:38
  Speaker 1: That ke Galley Agreement is connected to the Montreal Protocol. Basically,
• 9:42
  Speaker 1: it's a business first, a US business first kind of
• 9:46
  Speaker 1: effective trade agreement where American can win. So it's it's
• 9:49
  Speaker 1: allows us to can just lay out when this went
• 9:53
  Speaker 1: into so what it is. We manufacture a refrigent called Optition,
• 9:57
  Speaker 1: which is low the lowest global warming potential refrigerant in
• 10:00
  Speaker 1: the world, lower global warming than any other refrigerants. Many
• 10:05
  Speaker 1: countries have adopted the Gali Agreement, which allows the use
• 10:09
  Speaker 1: of those in relationship to hfc's or there are traditional refrigerants,
• 10:14
  Speaker 1: and so here in the US, we want to see
• 10:16
  Speaker 1: that adoption happen as well, because it's going to benefit
• 10:19
  Speaker 1: companies like Commor's, companies like Honeywell that actually have developed
• 10:24
  Speaker 1: this molecule and be able to bring it in So
• 10:26
  Speaker 1: you can, jobs are created here in the US because
• 10:29
  Speaker 1: of it, Manufacturing facilities are being put in place here
• 10:32
  Speaker 1: in the US because of it, and so it's a
• 10:34
  Speaker 1: way for US to be able to utilize US based
• 10:37
  Speaker 1: technology versus Chinese based technology which is in our refrigerants today.
• 10:41
  Speaker 1: All right, So this is actually really interesting because what
• 10:43
  Speaker 1: it hints at is this idea that if the US
• 10:46
  Speaker 1: tries to go it alone and have a different set
• 10:48
  Speaker 1: of regulations with respect to curbing certain environmentally harmful gases,
• 10:57
  Speaker 1: that perhaps it won't be privy to agreements that will
• 10:59
  Speaker 1: actually foster jobs and opportunities in the US. Is that
• 11:02
  Speaker 1: basically what's it's effectively a business trade agreement that benefits
• 11:08
  Speaker 1: and creates a win for the US. So you're exactly right,
• 11:11
  Speaker 1: you know, we're going to manufacture that here in the US.
• 11:14
  Speaker 1: It's going to create thousands of jobs because of it,
• 11:17
  Speaker 1: and it's going to be exported to the whole world,
• 11:19
  Speaker 1: but also can be used here in the US at
• 11:21
  Speaker 1: the same time. So as we talk about trade, you know,
• 11:24
  Speaker 1: it's it's about how do you how do you create
• 11:27
  Speaker 1: free trade for companies like commors, And that's really what
• 11:30
  Speaker 1: we're looking for, Okay, But arguably, I mean, if you're
• 11:33
  Speaker 1: selling this, why does it matter whether the US is
• 11:35
  Speaker 1: involved in those agreements or not, Because the more it's
• 11:38
  Speaker 1: a huge market opportunity here in the US. So of
• 11:41
  Speaker 1: automobiles in Europe already used this refrigerant. About half of
• 11:46
  Speaker 1: the auto park here in the US uses it. But
• 11:50
  Speaker 1: stationary refrigeration, stationary air conditioning is really a driver for US,
• 11:54
  Speaker 1: and the growth is here in the US. This is
• 11:56
  Speaker 1: really interesting to me. It also makes raises a question
• 12:00
  Speaker 1: of whether a greater proportion of your business has actually
• 12:03
  Speaker 1: gone outside of the US as you've seen some of
• 12:06
  Speaker 1: these other countries adopted. Have you seen the mix of
• 12:08
  Speaker 1: business shift more to UH foreign countries rather than the
• 12:12
  Speaker 1: US over the bunch. Well, it's interesting because as a
• 12:14
  Speaker 1: as a global company, you know, we we're the world
• 12:16
  Speaker 1: leader in t O two or the world leader in refrigerants,
• 12:19
  Speaker 1: with the world leader in Flora polymers um. But this
• 12:22
  Speaker 1: specific product we're talking about, which is a refrigerant. You know,
• 12:27
  Speaker 1: we think of refrigerants as the old freon, right optition
• 12:30
  Speaker 1: is the new free on, if you will. Most of
• 12:32
  Speaker 1: our sales are outside the US because of adoption of
• 12:37
  Speaker 1: these regulations, and we think this could be a great
• 12:40
  Speaker 1: opportunity for the US for business purposes. It creates jobs here.
• 12:44
  Speaker 1: It's just not great for the environment. It creates jobs here,
• 12:47
  Speaker 1: and it really rewards the companies that have developed this.
• 12:50
  Speaker 1: So UM, I want to talk a little bit about
• 12:52
  Speaker 1: some other policies that are being implemented or at least
• 12:56
  Speaker 1: trying to be affected across the Trumpetitus straation. Antiregulation has
• 13:01
  Speaker 1: been a huge theme, and we've seen certain regulatory rollbacks,
• 13:05
  Speaker 1: in particular today with proposals to make it easier for
• 13:08
  Speaker 1: coal companies to exist and thrive. I'm just wondering, in
• 13:12
  Speaker 1: terms of your industry, have you seen a significant regulatory rollback.
• 13:16
  Speaker 1: We haven't. You know, we participate in the chemistry industry,
• 13:19
  Speaker 1: so from that standpoint, we haven't seen a significant rollback.
• 13:22
  Speaker 1: And you know, the way we look at it is,
• 13:25
  Speaker 1: you know, regulation isn't always bad for business. It could
• 13:28
  Speaker 1: be a positive for business. You know, I gave the
• 13:30
  Speaker 1: example of Cagali a second ago, where it could be
• 13:33
  Speaker 1: a positive. But at the same time, it can also
• 13:35
  Speaker 1: create clarity for a company in terms of how to operate,
• 13:38
  Speaker 1: so you don't have to operate differently state to state.
• 13:41
  Speaker 1: You can operate the same across So we haven't seen
• 13:44
  Speaker 1: significant rollbacks that are affecting us, But to us, regulation,
• 13:48
  Speaker 1: if it's based on science and if it's based on risk,
• 13:51
  Speaker 1: can be very helpful to a company. At the same time, Um,
• 13:54
  Speaker 1: I'm I was interested. I saw a couple of articles
• 13:57
  Speaker 1: about this pollution SADA. It's been going on with commors
• 14:00
  Speaker 1: and some North Carolina residents about a spill and how
• 14:03
  Speaker 1: much you're getting involved or not. And one thing that
• 14:06
  Speaker 1: I'm wondering is do regulations protect you in a way
• 14:11
  Speaker 1: or if they did roll back some of these regulations,
• 14:14
  Speaker 1: would you change anything about your business? Yeah? For us,
• 14:17
  Speaker 1: you know, um, so you you mentioned the situation that
• 14:20
  Speaker 1: we're dealing with. What would she take very seriously, Again,
• 14:23
  Speaker 1: we don't believe we have any health hazard, but the
• 14:26
  Speaker 1: community doesn't like things being put into the error into
• 14:30
  Speaker 1: the water, So I don't think it would change the
• 14:32
  Speaker 1: way we operate because We're going to try to operate
• 14:35
  Speaker 1: within the realm of the community and what they want
• 14:38
  Speaker 1: and what they need from that standpoint. But again, when
• 14:42
  Speaker 1: you're looking at a level playing field across the US,
• 14:44
  Speaker 1: it's hard to be able to navigate state to state.
• 14:47
  Speaker 1: You want to be able to have something that gives
• 14:49
  Speaker 1: you clarity across the whole US as you're operating. That's
• 14:52
  Speaker 1: a really good point and one that I hadn't thought
• 14:54
  Speaker 1: that much about. Thank you so much for being here.
• 14:56
  Speaker 1: It's always it's really a pleasure speaking with you. Mark Vicnano.
• 14:59
  Speaker 1: He is chief executive of Commore's UH, the leading I
• 15:03
  Speaker 1: Guess refrigerant company and UH and creator of Teflon and
• 15:06
  Speaker 1: free on and all of those things and the new
• 15:08
  Speaker 1: free On. It's based in Wilmington, Delaware, but he's here
• 15:11
  Speaker 1: in our eleven three oh studios. The Year of zero
• 15:30
  Speaker 1: investors do not want to pay anything, and investment firms
• 15:33
  Speaker 1: are realizing to keep said investors they need to offer
• 15:36
  Speaker 1: them free funds and free trading. Evidently here to talk
• 15:40
  Speaker 1: about that. Eric Balcuna, Senior et F analysts for Bloomberg Intelligence.
• 15:44
  Speaker 1: So Eric to this morning's news. JP Morgan is planning
• 15:47
  Speaker 1: to roll out a mobile brokerage platform next week, including
• 15:51
  Speaker 1: free research as well as some free trading discuss Yeah,
• 15:57
  Speaker 1: and you know, you just hit on one of the
• 15:59
  Speaker 1: things that was buried lead in my opinion, which is
• 16:01
  Speaker 1: free research. That's the department I'm in. So knowing that
• 16:05
  Speaker 1: it's going to start being becoming free hits home for me.
• 16:09
  Speaker 1: This is where we've been going for a while. There's
• 16:12
  Speaker 1: been a lot of startups like robin Hood or robo Advisors.
• 16:16
  Speaker 1: You know, on the streets you see people offering this
• 16:18
  Speaker 1: stuff already for free, and then you see Vanguard get
• 16:21
  Speaker 1: in and then of course, uh, you know, the big
• 16:24
  Speaker 1: guys are going to follow suit. And the reason is
• 16:27
  Speaker 1: because people want it that way, the customers speak with
• 16:30
  Speaker 1: their with their feet, and for JPM, we're going to
• 16:33
  Speaker 1: do it. It's especially huge. It reminds me of the
• 16:35
  Speaker 1: Fidelity zero thing, where when you heard Vanguard offering free
• 16:39
  Speaker 1: t F trading, it's like, well that's what they do,
• 16:42
  Speaker 1: they're you know, but you know when Fidelity went zero,
• 16:44
  Speaker 1: it's like, whoa, aren't they the big active shop. And
• 16:47
  Speaker 1: now here you have JP Morgan, who people just don't
• 16:49
  Speaker 1: associate with that kind of mentality offering free so I
• 16:53
  Speaker 1: think this is equal to the Fidelity announcement in terms
• 16:56
  Speaker 1: of just shaking people to their core in the financial industry.
• 17:01
  Speaker 1: So you said this is what customers want. I also
• 17:03
  Speaker 1: want free housing. I also want, you know, free incredible
• 17:06
  Speaker 1: dinners with my husband, and hey, it would be really
• 17:09
  Speaker 1: nice to have a free manicures. People want a lot
• 17:13
  Speaker 1: of things free. They don't get them. And my question
• 17:15
  Speaker 1: is how can these firms be offering zero fee funds
• 17:19
  Speaker 1: and zero fee trading? At what point do they make
• 17:21
  Speaker 1: no money as a result. Yeah, it's a good question,
• 17:25
  Speaker 1: and so for let's go for it, just JP Morgan.
• 17:28
  Speaker 1: One way they can do this is by free t
• 17:30
  Speaker 1: F trading. You can sell the order flow to market makers. Um,
• 17:34
  Speaker 1: and that is worth something. Last year Schwab made, according
• 17:37
  Speaker 1: to Dave rid Or, my colleague, a hundred and fourteen
• 17:40
  Speaker 1: million in selling that order flow of e t F
• 17:42
  Speaker 1: trading and stock trading. Wait, hold on a second, what
• 17:44
  Speaker 1: does that mean? So basically they can sell to a
• 17:47
  Speaker 1: market maker all of the orders that come in. They
• 17:49
  Speaker 1: can then offer that and sell that to a market
• 17:53
  Speaker 1: maker who will then get first DIBs on that order
• 17:55
  Speaker 1: flow for a very small fee. It might affect the
• 17:59
  Speaker 1: retail client in a basis point, so it's minimal, but
• 18:02
  Speaker 1: if you add all that up, you do get some revenue.
• 18:05
  Speaker 1: It's not a lot though. Some people overestimate this thing
• 18:09
  Speaker 1: of order flow. They all also on the fidelity side
• 18:12
  Speaker 1: with a free fund people overestimate securities lending that is
• 18:15
  Speaker 1: not worth that much either. Both of these cases, these
• 18:19
  Speaker 1: are lost leaders right. What they're really trying to sell
• 18:21
  Speaker 1: you is is loans, credit cards in chaping Works case,
• 18:24
  Speaker 1: or fidelities case, active mutual funds. They have plenty of
• 18:27
  Speaker 1: products that make a lot of revenue, and so I
• 18:29
  Speaker 1: think they're just reading the writing on the wall and
• 18:31
  Speaker 1: they're going, look, this is the way millennials wanted the
• 18:35
  Speaker 1: a lot of investors who are following them. Let's just
• 18:38
  Speaker 1: go there now, you know, rip the band aid off
• 18:40
  Speaker 1: and we'll work out how to make money in other ways.
• 18:44
  Speaker 1: But I don't really see any other direction this is
• 18:47
  Speaker 1: going to go, because again, this is what the people want.
• 18:51
  Speaker 1: So tdmre trade right now shares down more than five
• 18:56
  Speaker 1: Charles Schwab shares also sharply down. I'm just trying to
• 19:00
  Speaker 1: figure out, are we going to look at some kind
• 19:01
  Speaker 1: of massive consolidation in the brokerage industry similar to what
• 19:05
  Speaker 1: we have been seeing, or perhaps it needs to frankly
• 19:08
  Speaker 1: escalate to meet analysts expectations in the asset management industry.
• 19:12
  Speaker 1: I think you have to all signs point to consolidation
• 19:14
  Speaker 1: across the financial industry because of this intense cost obsession,
• 19:19
  Speaker 1: whether it's a cost obsession and expense ratios of funds
• 19:23
  Speaker 1: or for free trading um. You can't live on a
• 19:27
  Speaker 1: couple of basis points alone. Everybody knows that, right, so
• 19:29
  Speaker 1: scale is one way to get cheaper, obviously up selling
• 19:32
  Speaker 1: them on higher price products. The reason you're probably not
• 19:35
  Speaker 1: going to see this kind of mass consolidation right now
• 19:39
  Speaker 1: or in the near term is the market has been
• 19:41
  Speaker 1: so good to these companies. I just looked at you know,
• 19:44
  Speaker 1: active mutual funds alone have grown assets by seven trillion
• 19:47
  Speaker 1: just in the last ten years on market appreciation alone,
• 19:50
  Speaker 1: no flows. So the market has really helped the financial
• 19:54
  Speaker 1: industry not have to really face this challenge. So I
• 19:59
  Speaker 1: do think if the market gets choppy or goes down,
• 20:02
  Speaker 1: then I think you'll see people sort of looking to
• 20:05
  Speaker 1: partner up UM and get scale and go cheaper. You know,
• 20:08
  Speaker 1: I have to wonder there's really no free lunch, right,
• 20:11
  Speaker 1: And I have to wonder when you start seeing all
• 20:13
  Speaker 1: of these look no fee UH funds or offerings, there
• 20:18
  Speaker 1: are fees for somebody. Is someone going to bear the
• 20:20
  Speaker 1: brunt of this, either through inefficiencies or extra cars costs elsewhere. Yeah,
• 20:25
  Speaker 1: I think that's the big case here. You have with
• 20:27
  Speaker 1: UH you know this idea of selling order flow, which
• 20:30
  Speaker 1: you know your own money. But again, I don't look.
• 20:33
  Speaker 1: I know there's a lot of ways to look at this.
• 20:35
  Speaker 1: And what's the catch, right, That's that's what Vanguard that
• 20:38
  Speaker 1: their reaction to Fidelity going to zero fee. But in
• 20:41
  Speaker 1: this case, if you're a disciplined person, it's sort of
• 20:44
  Speaker 1: like your credit card. You know, my wife and I
• 20:46
  Speaker 1: use it a lot, but we pay it back like clockwork.
• 20:49
  Speaker 1: It's more my wife, I'm a little easier, but we
• 20:51
  Speaker 1: pay it back like clock was. Yeah, it's all her.
• 20:55
  Speaker 1: I get to give her credit. If you can really
• 20:57
  Speaker 1: discipline yourself and and not and resist temptation, I think
• 21:01
  Speaker 1: you can really get basically free exposure and all of
• 21:04
  Speaker 1: your investments and finances for almost nothing. I think they're
• 21:08
  Speaker 1: it's the people who can't control themselves. Maybe you trade
• 21:11
  Speaker 1: a lot and you get more involved in they're in
• 21:13
  Speaker 1: there sort of like universe than they upsell you. You
• 21:15
  Speaker 1: start using options. Next thing you know, they're making a
• 21:18
  Speaker 1: lot of money off you. So I think this is
• 21:20
  Speaker 1: sort of the same situation here. But discipline will help
• 21:24
  Speaker 1: investors who are looking to enter these free situations. Um,
• 21:28
  Speaker 1: and that's important. Yeah, It's sort of like free drinks
• 21:30
  Speaker 1: in Las Vegas. Right. It's fine for people who are disciplined,
• 21:33
  Speaker 1: but for those heavy gamblers might be tougher. Eric Felt,
• 21:36
  Speaker 1: Senior et F analyst for Bloomberg Intelligence, always with insightful
• 21:41
  Speaker 1: comments today on the race to zero throughout the financial industry.
• 22:00
  Speaker 1: President Trump is disappointed in Jerome Powell. He said in
• 22:05
  Speaker 1: comments to a number of different outlets that he thought
• 22:08
  Speaker 1: that his FED chair was going to be a cheap
• 22:11
  Speaker 1: money FED chairman, and he is disappointed that he's been
• 22:15
  Speaker 1: raising interest rates. Joining us now to talk about that
• 22:17
  Speaker 1: is Mark Spintel, founder and chief investment officer at Potomac
• 22:20
  Speaker 1: River Capital, as well as Craig Torres Federal Reserve, and
• 22:24
  Speaker 1: you as economy reporter for Bloomberg News. Thank you both
• 22:28
  Speaker 1: for joining me here from Washington, d C. Craig I
• 22:32
  Speaker 1: want to start with you and just get a sense
• 22:34
  Speaker 1: of what President Trump said and how out of the
• 22:36
  Speaker 1: ordinary it is. Uh. It was uh not that dissimilar
• 22:42
  Speaker 1: to previous remarks he made, which I think is why
• 22:46
  Speaker 1: people are kind of people are investors in particular paying attention,
• 22:50
  Speaker 1: but not really saying this is something new. He's been complaining,
• 22:56
  Speaker 1: it's on everybody's radar. Uh. The question is you know,
• 23:01
  Speaker 1: what does it do? Um? How does it shape the
• 23:03
  Speaker 1: Federal Reserve? So among the comments was a comment to
• 23:08
  Speaker 1: Reuters where he said, we're President Trump said during this
• 23:10
  Speaker 1: period of time, I should be given some help by
• 23:12
  Speaker 1: the Fed. The other countries are accommodated. Mark, come on
• 23:17
  Speaker 1: in here. I guess that there is a big existential
• 23:19
  Speaker 1: question that this raises about the independence of the Photo Reserve.
• 23:23
  Speaker 1: Jeroan Powell cannot be firement President Trump. Does this matter
• 23:26
  Speaker 1: at all from an independence angle? I think it does.
• 23:29
  Speaker 1: And uh, and thank you for for the invitation to talk.
• 23:33
  Speaker 1: I I would first point out that, uh, though extreme
• 23:37
  Speaker 1: Powell could be fired by Trump, though the parameters and
• 23:41
  Speaker 1: the reasons are are sort of very narrow. Um, but
• 23:45
  Speaker 1: he could so called Trump up some charges to find
• 23:49
  Speaker 1: cause in Powell's actions. Um, I think I would echo
• 23:53
  Speaker 1: Gregg's point that this is not necessarily unusual presidents going
• 23:58
  Speaker 1: back forty or fifty years, most spectacularly Nixon criticizing his
• 24:04
  Speaker 1: appointed FED chair Arthur Burns. But I think most presidents
• 24:08
  Speaker 1: have been upset with with FED chairs who are tightening
• 24:12
  Speaker 1: the reins on credit. What makes this somewhat unique is
• 24:16
  Speaker 1: that monetary policy is, by the FED zone measures quite
• 24:20
  Speaker 1: loose accommodative. They talk about that in their statements. So
• 24:23
  Speaker 1: the fact that he's unhappy with loose monetary policy and
• 24:26
  Speaker 1: that he's criticizing his hand picked FED chair is a
• 24:29
  Speaker 1: bit unusual. This this early into the game. Mark, you
• 24:32
  Speaker 1: co authored a book, The Myth of Independence, How Congress
• 24:35
  Speaker 1: Governs the Federal Reserve. Uh So, clearly your skeptical of
• 24:38
  Speaker 1: FED Federal Reserve independence to begin with. But I'm wondering
• 24:41
  Speaker 1: does this type of rhetoric push the FED further into
• 24:45
  Speaker 1: the domain of politics rather than policy. Indeed, and I
• 24:51
  Speaker 1: think you're talking about a century old institution that sits
• 24:55
  Speaker 1: right here in our town and is very much in
• 24:57
  Speaker 1: the political sphere. And the book that Sarah Binder and
• 25:00
  Speaker 1: I co author talked a lot about the FEDS relationship
• 25:03
  Speaker 1: with Congress. But I think the way presidents in particular
• 25:06
  Speaker 1: Trump this go around, are putting pressure on on the
• 25:11
  Speaker 1: Federal Reserve and on Chair Powell Powell directly will potentially
• 25:15
  Speaker 1: shape some of the contours and outlooks for interest rates. Again,
• 25:19
  Speaker 1: we're we're in a tightening cycle. The Fed is still
• 25:21
  Speaker 1: quite accommodative, but they're moving very gradually, uh, and as
• 25:25
  Speaker 1: they get closer to their own definition of neutral, I
• 25:29
  Speaker 1: think it's going to be very interesting to see if
• 25:31
  Speaker 1: they continue that gradual pace, which may be interpreted as
• 25:36
  Speaker 1: just uh, sort of bending a little bit to the
• 25:39
  Speaker 1: White House's demands. Greg come in here, because we're just
• 25:43
  Speaker 1: weeks away from the September meeting, where the Federal Reserve
• 25:45
  Speaker 1: is widely expected to hike interest rates yet again this year.
• 25:49
  Speaker 1: There is a question of how many more times they
• 25:51
  Speaker 1: would hike. What data points are they looking at, especially
• 25:54
  Speaker 1: given the fact that the U. S economy by some measures,
• 25:56
  Speaker 1: just growing at the fastest pace since two thive Well,
• 26:00
  Speaker 1: they'll be looking at that, but also that the jobs
• 26:03
  Speaker 1: market continues to be very robust, and perhaps most importantly,
• 26:08
  Speaker 1: that inflation is around their target slightly above actually so
• 26:13
  Speaker 1: you know, the Fed is letting the economy run, but
• 26:16
  Speaker 1: to keep inflation expectations nailed down, Uh, they need to
• 26:20
  Speaker 1: gradually raise interest rates. However, I would I would agree
• 26:24
  Speaker 1: with Mark that here's an interesting fact. Yes, I think
• 26:27
  Speaker 1: the debate about QUEI during the financial crisis, nobody thought
• 26:33
  Speaker 1: about the politics of it at the time. But if
• 26:35
  Speaker 1: you stand back now, you know and look at it.
• 26:39
  Speaker 1: I think even Bernanke would say there were constraints on
• 26:42
  Speaker 1: doing more than more than they actually did at the time,
• 26:47
  Speaker 1: and those constraints were political. So it's not like the
• 26:50
  Speaker 1: Fed responds to political pressure, but it does feel constrained
• 26:55
  Speaker 1: by it in terms of what they can do well.
• 26:57
  Speaker 1: And Mark, then I want to turn that back to
• 26:59
  Speaker 1: you because, I mean you could say, in the larger
• 27:01
  Speaker 1: scheme of things that Congress ultimately holds the strings when
• 27:05
  Speaker 1: it comes to the Federal Reserve with confirmation and a
• 27:07
  Speaker 1: number of other measures and sort of controls that it has.
• 27:10
  Speaker 1: But for all intents and purposes, it's not like J.
• 27:12
  Speaker 1: Powell and other committee members are going to go to
• 27:15
  Speaker 1: Congress people and say, what do you guys think do
• 27:17
  Speaker 1: you think we should raise interest rates? I mean, there
• 27:18
  Speaker 1: is a modicum of independence, and that's not going away correct.
• 27:22
  Speaker 1: And I think the term that Sarah and I adopted
• 27:25
  Speaker 1: in the book was interdependence. And you know, to your point, Lisa,
• 27:28
  Speaker 1: they're operating in this political sphere. I think the legislative
• 27:32
  Speaker 1: threat is probably a bit far even for President Trump
• 27:37
  Speaker 1: at this point. Um. There there probably isn't indeed in
• 27:41
  Speaker 1: the House as we speak, the Republican Conference is probably
• 27:44
  Speaker 1: more hawkish, uh, certainly more hawkish than the president. So
• 27:47
  Speaker 1: I don't think they would cow tow to the President's
• 27:51
  Speaker 1: demands for cheaper money. Um. But that could change in November.
• 27:55
  Speaker 1: We could see a Democratic conference in the House. We
• 27:58
  Speaker 1: could see Max Swheet, Maxine waters as ahead of the
• 28:00
  Speaker 1: House Financial Services Committee. But there's very unlikely to be
• 28:04
  Speaker 1: sixty votes in the Senate to reopen the Act. Uh.
• 28:09
  Speaker 1: Not to mention, what would they do? And that goes back,
• 28:11
  Speaker 1: Lisa to your point that I think some threats. He
• 28:14
  Speaker 1: could increase the heat on Powell himself. He could threaten
• 28:16
  Speaker 1: to fire the FED chair. He could stack some more
• 28:19
  Speaker 1: seats on the committee on the board with more Delvish members, um.
• 28:25
  Speaker 1: And I think the context in the environment is important.
• 28:28
  Speaker 1: We are growing quite quickly. UH. Inflation has ticked above
• 28:32
  Speaker 1: their target and UH and might continue to rise. The
• 28:36
  Speaker 1: capital markets, equities in particular, are very strong. Unemployment is
• 28:39
  Speaker 1: as low as it's been in a generation. And again,
• 28:42
  Speaker 1: monetary policy is still loose, and the president's upset with
• 28:46
  Speaker 1: with money that isn't cheap enough, Soraig. Given given that backdrop,
• 28:51
  Speaker 1: I was interested in what Atlanta Fed Raphael Bostic said
• 28:54
  Speaker 1: earlier this week or a couple of days ago, anyway
• 28:57
  Speaker 1: where he was speaking. He said, you know, he didn't
• 28:59
  Speaker 1: want to raise interest rates to a point where he
• 29:02
  Speaker 1: inverts the yield curve. Seems like that's very much on
• 29:05
  Speaker 1: Federal Reserve members minds. What do you expect how that
• 29:09
  Speaker 1: influence what they do? Not very much? All right? Then there.
• 29:15
  Speaker 1: I think the board staff has looked at this and
• 29:18
  Speaker 1: somewhat dismissed it. And I would add this, if Rafael
• 29:22
  Speaker 1: Bostic is so concerned about the yield curve, then he
• 29:25
  Speaker 1: should be arguing that they shorten the maturity of their
• 29:29
  Speaker 1: portfolio and sell those assets a little bit faster. That's
• 29:34
  Speaker 1: really interesting. That's a fascinating point. Other words, step in
• 29:36
  Speaker 1: the yield curve another way, don't just stop hiking interest
• 29:38
  Speaker 1: rates on the short end. Thank you both. Fascinating conversation.
• 29:42
  Speaker 1: Mark Spindel, founder and Chief investment officer of Potomac River Capital,
• 29:46
  Speaker 1: also the co author of the book The Myth of Independence,
• 29:48
  Speaker 1: How Congress Governs the Federal Reserve, And of course my
• 29:51
  Speaker 1: thanks to Craig Torah's Federal Reserve and US Economy reporter
• 29:55
  Speaker 1: from Bloomberg News who always has fantastic stories. I recommend
• 29:58
  Speaker 1: to read them. Thanks for listening to the Bloomberg P
• 30:04
  Speaker 1: and L podcast. You can subscribe and listen to interviews
• 30:07
  Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 30:12
  Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
• 30:15
  Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
• 30:19
  Speaker 1: You can always catch us worldwide on Bloomberg Radio.